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 101(b)(1): ¨
Indicate by check
mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨
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.
The forward-looking
statements included in this Form 6-K are subject to risks, uncertainties and assumptions about the Company’s businesses
and business environments. These statements reflect the Company’s current views with respect to future events and are
not a guarantee of future results, operations, levels of activity, performance or achievements. Actual results of
the Company’s results, operations, levels of activity, performance or achievements may differ materially from
information contained in the forward-looking statements as a result of risk factors. They include, among other things,
trends affecting the global economy, including the devaluation of the RMB by China in August 2015, significant competition in
the BOPET film industry, especially the significant oversupply of BOPET films resulting from the rapid growth of the
Chinese BOPET industry capacity, changes in the international market and trade barriers, especially the adverse impact of the
ongoing trade war between the United States and the People’s Republic of China (“China”) involving the
imposition of tariffs and levies on over $250 billion of goods imported into the U.S. from China; fluctuations of RMB
exchange rate, the reduction in demand for the Company’s products or the loss of main customers which may result in the
decrease of sales, and negatively influencing the Company’s financial performance, uncertainty as to the future
profitability, uncertainty as to the Company’s ability to successfully obtain additional funds to meet the working
capital needs of the new BOPET production line, uncertainty as to the Company’s ability to continuously develop new
BOPET film products to be produced by the third production line and keep up with changes in BOPET film technology, risks
associated with possible defects and errors in its products including complaints and claims from clients, uncertainty as to
its ability to protect and enforce its intellectual property rights, uncertainty as to its ability to attract and retain
qualified executives and personnel, and uncertainty in acquiring raw materials on time and on acceptable terms, particularly
in light of the volatility in the prices of petroleum products in recent years, instability of power and energy supply, and
the uncertainty regarding the future operation of the Company in connection with the changes in the labor law in China, the
measures taken by the Chinese government to save energy and reduce emissions, and the complaints from nearby residents and
local government about the noise caused by our production as well as the uncertainty of the impact of major shareholder
transfer that have substantial influence over the Company and the Company’s business operation including possible
overlap of our BOPET products, uncertainty around completion of transactions contemplated by the securities purchase agreement
and the share transfer agreement entered into between the Company and Gold Glory Blockchain Inc., customers and market
orientation with an BOPET film manufacturer, which is controlled by the same individual who has control over the shares of
our major shareholder. The Company’s expectations are as of the date of filing of this Form 6-K, and the Company does
not intend to update any of the forward-looking statements after the date this Form 6-K is filed to confirm these statements
to actual results, unless required by law.
On November 26, 2019, the Company announced
its unaudited consolidated financial results for the nine-month period ended September 30, 2019.
The accompanying notes are an integral part
of these unaudited condensed consolidated statements.
The accompanying notes are an integral
part of these unaudited condensed consolidated statements.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER
30, 2019 AND 2018
(amounts in thousands except share and per
share value)
(Unaudited)
|
|
The Nine-Month Period Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1,021
|
|
|
|
143
|
|
|
|
(18,715
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
- Depreciation of property, plant and equipment
|
|
|
33,957
|
|
|
|
4,751
|
|
|
|
33,271
|
|
- Amortization of intangible assets
|
|
|
400
|
|
|
|
56
|
|
|
|
400
|
|
- Deferred income taxes
|
|
|
(44
|
)
|
|
|
(6
|
)
|
|
|
(51
|
)
|
- Bad debt (recovery) expense
|
|
|
(897
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)
|
|
|
(125
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)
|
|
|
(132
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)
|
-Inventory provision
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|
|
724
|
|
|
|
101
|
|
|
|
-
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|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
- Accounts and bills receivable
|
|
|
(72
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)
|
|
|
(10
|
)
|
|
|
4,682
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|
- Inventories
|
|
|
1,815
|
|
|
|
254
|
|
|
|
(1,016
|
)
|
- Advance to suppliers
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|
|
(4,833
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)
|
|
|
(676
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)
|
|
|
(4,987
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)
|
- Prepaid expenses and other current assets
|
|
|
(155
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)
|
|
|
(22
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)
|
|
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(551
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)
|
- Accounts payable
|
|
|
393
|
|
|
|
56
|
|
|
|
2,436
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|
- Accrued expenses and other payables
|
|
|
501
|
|
|
|
70
|
|
|
|
(1,031
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)
|
- Advance from customers
|
|
|
2,447
|
|
|
|
342
|
|
|
|
6,852
|
|
- Tax payable
|
|
|
368
|
|
|
|
51
|
|
|
|
1,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
35,625
|
|
|
|
4,985
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|
|
|
22,428
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash flow from investing activities
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|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(12,889
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)
|
|
|
(1,803
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)
|
|
|
(4,812
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)
|
Restricted cash related to trade finance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
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Advance to suppliers - non current
|
|
|
-
|
|
|
|
-
|
|
|
|
28
|
|
Amount change in construction in progress
|
|
|
366
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|
|
|
51
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(12,523
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)
|
|
|
(1,752
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)
|
|
|
(4,784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of bank loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from short-term bank loans
|
|
|
50
|
|
|
|
7
|
|
|
|
14,950
|
|
Proceeds from related party
|
|
|
3,457
|
|
|
|
484
|
|
|
|
(37,472
|
)
|
Change in notes payable
|
|
|
1,400
|
|
|
|
196
|
|
|
|
23,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
4,907
|
|
|
|
687
|
|
|
|
558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes
|
|
|
-
|
|
|
|
(261
|
)
|
|
|
(2,041
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalent
|
|
|
28,009
|
|
|
|
3,659
|
|
|
|
16,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalent
|
|
|
|
|
|
|
|
|
|
|
|
|
At beginning of period/year
|
|
|
46,908
|
|
|
|
6,823
|
|
|
|
69,464
|
|
At end of period/year
|
|
|
74,917
|
|
|
|
10,482
|
|
|
|
85,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
6,675
|
|
|
|
934
|
|
|
|
7,227
|
|
Income tax paid
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCIAL ACTIVITIES:
|
|
|
|
|
|
|
|
|
Account payable for plant and equipment:
|
|
|
1,062
|
|
|
|
149
|
|
|
|
1,029
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated statements.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
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 nine-month period ended September 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
third 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 = RMB7.1477, on the last trading day of the third quarter of 2019
(September 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 September
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, maintained within the United States as well
as in foreign countries to be cash and cash equivalents. The Company maintains balances at financial institutions which, from time
to time, may exceed Federal Deposit Insurance Corporation insured limits for the banks located in the United States. Balances at
financial institutions within certain foreign countries are not covered by insurance.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)
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 RMB24,700 (US$3,456)
and RMB38,000 as of September 30, 2019 and December 31, 2018, respectively.
Trade Accounts Receivable
Trade accounts receivable are recorded
at the invoiced amount after deduction of trade discounts, value added taxes and allowances, if any, and do not bear interest.
The allowance for doubtful accounts is the Group’s best estimate of the amount of probable credit losses in the Group’s
existing accounts receivable. The Group determines the allowance based on historical write-off experience, customer specific facts
and economic conditions.
The Group reviews its allowance for doubtful
accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. All
other balances are reviewed on a pooled basis by aging of such balances. Account balances are charged off against the allowance
after all means of collection have been exhausted and the potential for recovery is considered remote.
Inventories
Inventories are stated at the lower of
cost or market value as of balance sheet date. Inventory valuation and cost-flow is determined using Moving Weighted Average Method
basis. The Group estimates excess and slow-moving inventory based upon assumptions of future demands and market conditions. If
actual market conditions are less favorable than projected by management, additional inventory write-downs may be required. Cost
of work in progress and finished goods comprises direct material, direct production cost and an allocated portion of production
overheads based on normal operating capacity.
Property, Plant and Equipment
Property, plant and equipment are stated
at cost less accumulated depreciation and impairment. Depreciation on property, plant and equipment is calculated on the straight-line
method (after taking into account their respective estimated residual values) over the estimated useful lives of the assets. They
are as follows:
|
|
Years
|
Buildings and improvements
|
|
25 - 30
|
Plant and equipment
|
|
10 - 15
|
Computer equipment
|
|
5
|
Furniture and fixtures
|
|
5
|
Motor vehicles
|
|
5
|
Depreciation of property, plant and equipment
attributable to manufacturing activities is capitalized as part of the inventory and expensed to cost of goods sold when inventory
is sold. Depreciation related to abnormal amounts from idle capacity is charged to general and administrative expenses for the
period incurred.
Construction in progress represents capital
expenditures 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.
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.
(Loss) Earnings Per Share
Basic (loss) earnings per share is computed
by dividing net earnings by the weighted average number of ordinary shares outstanding during the year. Diluted (loss) 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.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)
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.
Contingencies
In the normal course of business, the Company
is subject to contingencies, including legal proceedings and claims arising out of the business that relate to a wide range of
matters, including among others, product liability. The Company recognizes a liability for such contingency if it determines it
is probable that a loss has occurred, and a reasonable estimate of the loss can be made. The Company may consider many factors
in making these assessments including past history and the specifics of each matter.
Reclassification
For comparative purposes, the prior year’s
consolidated financial statements have been reclassified to conform to reporting classifications of the current year periods. These
reclassifications had no effect on net loss or total net cash flows as previously reported.
Going Concern Matters
The accompanying condensed consolidated
financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation
of the company as a going concern. However, as of September 30, 2019 and 2018, the Company had a working capital deficiency of
RMB130,371 (US$18,240) and RMB164,885 and accumulated surplus of RMB1,021 (US$143) and deficit RMB18,715 from net losses incurred
during the first nine months of 2019 and 2018. The ability of the Company to operate as a going concern depends upon its ability
to obtain loans from financial institutions and a related party and/or generate positive cash flow from operations. The Company
accordingly has obtained loans from financial institutions and 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.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)
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.
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.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)
NOTE 3 - ACCOUNTS AND BILLS RECEIVABLES
Accounts and bills receivables consisted of
the following:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Accounts receivable
|
|
|
14,368
|
|
|
|
2,010
|
|
|
|
17,366
|
|
Less: Allowance for doubtful accounts
|
|
|
(950
|
)
|
|
|
(133
|
)
|
|
|
(1,847
|
)
|
|
|
|
13,418
|
|
|
|
1,877
|
|
|
|
15,519
|
|
Bills receivable
|
|
|
10,178
|
|
|
|
1,424
|
|
|
|
7,108
|
|
|
|
|
23,596
|
|
|
|
3,301
|
|
|
|
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.
NOTE 4 - INVENTORIES
Inventories consisted of the following:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Raw materials
|
|
|
19,464
|
|
|
|
2,724
|
|
|
|
14,154
|
|
Work-in-progress
|
|
|
1,099
|
|
|
|
154
|
|
|
|
1,473
|
|
Finished goods
|
|
|
7,794
|
|
|
|
1,090
|
|
|
|
14,558
|
|
Consumables and spare parts
|
|
|
622
|
|
|
|
87
|
|
|
|
610
|
|
Inventory--impairment
|
|
|
(6,844
|
)
|
|
|
(958
|
)
|
|
|
(6,120
|
)
|
|
|
|
22,135
|
|
|
|
3,097
|
|
|
|
24,675
|
|
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT,
NET
Property, plant and equipment consisted
of the following:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Buildings
|
|
|
68,319
|
|
|
|
9,558
|
|
|
|
68,319
|
|
Plant and equipment
|
|
|
817,520
|
|
|
|
114,375
|
|
|
|
808,717
|
|
Computer equipment
|
|
|
3,149
|
|
|
|
441
|
|
|
|
3,027
|
|
Furniture and fixtures
|
|
|
19,278
|
|
|
|
2,697
|
|
|
|
14,528
|
|
Motor vehicles
|
|
|
1,744
|
|
|
|
244
|
|
|
|
1,824
|
|
|
|
|
910,010
|
|
|
|
127,315
|
|
|
|
896,415
|
|
Less: accumulated depreciation
|
|
|
(592,690
|
)
|
|
|
(82,920
|
)
|
|
|
(558,028
|
)
|
Less: impairment of plant and equipment
|
|
|
(7,219
|
)
|
|
|
(1,010
|
)
|
|
|
(7,219
|
)
|
|
|
|
310,101
|
|
|
|
43,385
|
|
|
|
331,168
|
|
Total depreciation for the nine-month periods
ended September 30, 2019 and 2018 was RMB33,957 (US$4,751) and RMB33,271, respectively. For the three-month periods ended September
30, 2019 and 2018, depreciation expenses were RMB10,065 (US$1,271) and RMB11,144, respectively.
NOTE 6 - CONSTRUCTION IN PROGRESS
Construction-in-progress represents capital
expenditure in respect to the BOPET production line. Construction in progress was RMB0 (US$0) as of September 30, 2019, and RMB366
as of December 31, 2018, respectively.
NOTE 7 - LEASE PREPAYMENTS
Lease prepayments represent the costs of
land use rights in the PRC. Land use rights are carried at cost and charged to expense on a straight-line basis over the respective
periods of rights of 30 years. The current portion of lease prepayments has been included in prepayments and other receivables
in the balance sheet.
Lease prepayments consisted of the following:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Lease prepayment - non current
|
|
|
15,895
|
|
|
|
2,224
|
|
|
|
16,296
|
|
Lease prepayment - current
|
|
|
524
|
|
|
|
73
|
|
|
|
524
|
|
|
|
|
16,419
|
|
|
|
2,297
|
|
|
|
16,820
|
|
Amortization of land use rights for the
nine months ended September 30, 2019 and 2018 was RMB400 (US$56) and RMB400, respectively. Amortization of land use rights for
the three months ended September 30, 2019 and 2018 was RMB133 (US$17) and RMB134, respectively.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)
Estimated amortization expenses for the
next five years after September 30, 2019 are as follows:
|
|
RMB
|
|
|
US$
|
|
1 year after
|
|
|
524
|
|
|
|
73
|
|
2 years after
|
|
|
524
|
|
|
|
73
|
|
3 years after
|
|
|
524
|
|
|
|
73
|
|
4 years after
|
|
|
524
|
|
|
|
73
|
|
5 years after
|
|
|
524
|
|
|
|
73
|
|
Thereafter
|
|
|
13,799
|
|
|
|
1,932
|
|
As of September 30, 2019, the amount of RMB524
(US$76) will be charged into amortization expenses within one year, and is classified as current asset under the separate line
item captioned as Prepayments and Other Receivables on balance sheets.
NOTE 8 - SHORT-TERM BORROWINGS AND LONG-TERM
LOAN
Short-term borrowings and long-term loan
consisted of the following:
|
|
Interest
|
|
|
|
|
|
|
|
|
|
rate per
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Lender
|
|
annum
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
BANK LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Weifang.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- July 17, 2018 to July 15, 2019
|
|
|
6.5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
20,000
|
|
- July 17, 2018 to July 17, 2019
|
|
|
6.5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
29,950
|
|
- June 21, 2018 to June 19, 2019
|
|
|
6.5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
15,000
|
|
- June 19, 2019 to June 18, 2020
|
|
|
6.5
|
%
|
|
|
15,000
|
|
|
|
2,099
|
|
|
|
-
|
|
- July 15, 2019 to July 15, 2020
|
|
|
6.5
|
%
|
|
|
20,000
|
|
|
|
2,798
|
|
|
|
-
|
|
- July 18, 2019 to July 9, 2020
|
|
|
6.5
|
%
|
|
|
30,000
|
|
|
|
4,197
|
|
|
|
-
|
|
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 September 30, 2019, the principal
of this loan from Shandong SNTON was RMB86,796 and the interest payable was RMB31,353.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)
The related accounts payable as of September
30, 2019 and December 31, 2018 was RMB118,149 and RMB114,692, respectively.
NOTE 10 - NOTES PAYABLE
As of September 30, 2019 and December 31,
2018, Shandong Fuwei had banker’s acceptances opened with a maturity from three to six months totaling RMB49,400 (US$6,911)
and RMB48,000, respectively, for payment in connection with raw materials for a total security deposits of RMB24,700 (US$3,456)
and RMB38,000 made to Bank of Weifang, respectively.
Notes payable consisted of the following:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Issuing bank
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Bank of Weifang
|
|
|
49,400
|
|
|
|
6,911
|
|
|
|
48,000
|
|
|
|
|
49,400
|
|
|
|
6,911
|
|
|
|
48,000
|
|
NOTE 11 - INCOME TAX
Income tax benefit was RMB77 (US$11)
and RMB15 for the three months ended September 30, 2019 and 2018, respectively.
Income tax benefit was RMB44 (US$6) and RMB49
for the nine months ended September 30, 2019 and 2018, respectively.
NOTE 12 - EARNINGS PER SHARE
Basic and diluted net earnings per share
was RMB1.05 (US$0.15) and basic and diluted loss per share was RMB0.57 for the three-month period ended September 30, 2019 and
2018, respectively.
Basic and diluted net earnings per share
was RMB0.31 (US$0.04) and basic and diluted loss per share was RMB5.73 for the nine-month period ended September 30, 2019 and 2018,
respectively.
NOTE 13 - MAJOR CUSTOMERS AND VENDORS
There were no major customers who accounted
for more than 10% of the total net revenue for the three-month periods ended September 30, 2019 and 2018.
The following are the vendors that supplied
10% or more of our raw materials for September 30, 2019 and 2018:
|
|
|
|
Percentage of total purchases (%)
|
|
Supplier
|
|
Item
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
PetroChina Company Limited Chemicals Sales North China Branch (“PetroChina”)
|
|
PET resin and Additives
|
|
|
-
|
|
|
|
38.1
|
%
|
Sinopec Yizheng Chemical Fibre Company Limited (“Sinopec Yizheng”)
|
|
PET resin and Additives
|
|
|
59.6
|
%
|
|
|
35.3
|
%
|
The balance of advance to supplier to Sinopec
Yizheng was RMB5,052 (US$707) as of September 30, 2019, respectively.
References to "dollars" and "US$"
are to United States Dollars. References to "we", "us", the "Company" or "Fuwei Films"
include Fuwei Films (Holdings) Co., Ltd. and its subsidiaries, except where the context requires otherwise.
In the third quarter of 2019, although
sales were higher, we continued to be adversely affected by enhanced competition and increased supply over demand in China’s
BOPET market.
We believe that in the remaining quarter
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.
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 had
received a notification from Shandong Fuhua Investment Company Limited. (“Shandong Fuhua”) with respect to an entire
ownership transfer of our 12.55% outstanding ordinary shares from the Administration Company to Shandong Fuhua. The Administration
Company originally held these shares indirectly through an intermediate holding company, Easebright Investments Limited (“Easebright”).
As a result of this transfer, Shandong Fuhua indirectly owns 12.55% of our outstanding ordinary shares through Easebright.
Results of operations for the three-month
periods ended September 30, 2019 compared to September 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
|
|
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
|
|
(as % of Revenue)
|
|
Gross profit (loss)
|
|
|
27.1
|
|
|
|
19.6
|
|
Operating expenses
|
|
|
(20.5
|
)
|
|
|
(20.5
|
)
|
Operating income (loss)
|
|
|
6.6
|
|
|
|
(0.9
|
)
|
Other income (expense)
|
|
|
(2.4
|
)
|
|
|
(1.3
|
)
|
Provision for income taxes
|
|
|
0.1
|
|
|
|
-
|
|
Net income (loss)
|
|
|
4.3
|
|
|
|
(2.1
|
)
|
Revenue
Net sales during the third quarter ended
September 30, 2019 were RMB79.6 million (US$11.1 million), compared to RMB86.9 million during the same period in 2018, representing
a decrease of RMB7.3 million or 8.4%. The decrease of average sales price caused a decrease of RMB4.6 million and the sales volume
decrease caused a decrease of RMB2.7 million.
In the third quarter of 2019, sales of
specialty films were RMB40.6 million (US$5.7 million) or 51.0% of our total revenues as compared to RMB45.3 million or 52.2% in
the same period of 2018, which was a decrease of RMB4.7 million, or 10.4% as compared to the same period in 2018. The decrease
in average sales price caused a decrease of RMB1.5 million and the decrease in the sales volume caused a decrease of RMB3.2 million.
The following is a breakdown of commodity
and specialty film sales (amounts in thousands):
|
|
Three-Month Period Ended
September 30, 2019
|
|
|
% of Total
|
|
|
Three-Month Period Ended
September 30, 2018
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Stamping and transfer film
|
|
|
26,552
|
|
|
|
3,715
|
|
|
|
33.3
|
%
|
|
|
30,650
|
|
|
|
35.3
|
%
|
Printing film
|
|
|
7,881
|
|
|
|
1,103
|
|
|
|
9.9
|
%
|
|
|
6,293
|
|
|
|
7.2
|
%
|
Metallization film
|
|
|
1,197
|
|
|
|
167
|
|
|
|
1.5
|
%
|
|
|
773
|
|
|
|
0.9
|
%
|
Specialty film
|
|
|
40,559
|
|
|
|
5,674
|
|
|
|
51.0
|
%
|
|
|
45,325
|
|
|
|
52.2
|
%
|
Base film for other application
|
|
|
3,397
|
|
|
|
475
|
|
|
|
4.3
|
%
|
|
|
3,832
|
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,586
|
|
|
|
11,134
|
|
|
|
100.0
|
%
|
|
|
86,872
|
|
|
|
100.0
|
%
|
Overseas sales were RMB11.6 million or
US$1.6 million, or 14.6% of total revenues, compared with RMB8.5 million or 9.8% of total revenues in the third quarter of 2018.
The decrease in average sales price caused a decrease of RMB0.8 million and the increase in sales volume resulted in an increase
of RMB3.9 million.
The following is a breakdown of PRC domestic
and overseas sales (amounts in thousands):
|
|
Three-Month Period Ended
September 30, 2019
|
|
|
% of Total
|
|
|
Three-Month Period Ended
September 30, 2018
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
|
|
|
|
|
|
Sales in China
|
|
|
67,933
|
|
|
|
9,512
|
|
|
|
85.4
|
%
|
|
|
78,369
|
|
|
|
90.2
|
%
|
Sales in other countries
|
|
|
11,593
|
|
|
|
1,622
|
|
|
|
14.6
|
%
|
|
|
8,503
|
|
|
|
9.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,586
|
|
|
|
11,134
|
|
|
|
100.0
|
%
|
|
|
86,872
|
|
|
|
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
September 30, 2019
|
|
|
Three-Month Period Ended
September 30, 2018
|
|
|
|
% of total
|
|
|
% of total
|
|
Materials costs
|
|
|
75.4
|
%
|
|
|
73.6
|
%
|
Factory overhead
|
|
|
8.9
|
%
|
|
|
9.3
|
%
|
Energy expense
|
|
|
9.1
|
%
|
|
|
8.4
|
%
|
Packaging materials
|
|
|
3.7
|
%
|
|
|
4.7
|
%
|
Direct labor
|
|
|
2.9
|
%
|
|
|
4.0
|
%
|
Cost of goods sold during the third quarter
of 2019 totaled RMB58.0 million (US$8.1 million) as compared to RMB69.8 million in the same period of 2018. This was RMB11.8 million
or 16.9% lower than the same period in 2018. The decrease in unit cost of goods sold caused a decrease of RMB9.7 million and the
decrease in sales volume caused a decrease of RMB2.1 million.
Gross Profit (Loss)
Our gross profit was RMB21.6 million (US$3.0
million) for the third quarter ended September 30, 2019, representing a gross margin rate of 27.1%, as compared to gross profit
of RMB17.1 million and a gross margin rate of 19.6% for the same period in 2018. Correspondingly, gross margin rate increased by
7.5 percentage point compared to the same period in 2018.
Operating Expenses
Operating expenses for the third quarter
ended September 30, 2019 were RMB16.3 million (US$2.3 million), which was RMB1.5 million, or 8.4% lower than the same period in
2018. This decrease was mainly due to decreased expenses on research and development.
Other Expense
Total other expense is a combination result
of interest income, interest expense and others income (expense). Total other expense during the third quarter ended September
30, 2019 was RMB1.9 million (US$0.3 million), RMB0.8 million higher than the same period in 2018.
Income Tax Expense
The income tax benefit was RMB0.1 million
(US$0.01 million) during the third quarter ended September 30, 2019, compared to income tax benefit of RMB0.02 million during the
same period in 2018. This increase of income tax benefit was due to changes in deferred tax.
Net Profit
Net profit attributable to the Company
during the third quarter ended September 30, 2019 was RMB3.4 million (US$0.5 million) compared to net loss attributable to the
Company of RMB1.8 million during the same period in 2018, representing an increase in profit of RMB5.2 million.
Results of operations for the nine-month
periods ended September 30, 2019 compared to September 30, 2018
The table below sets forth certain line items
from our Statement of Income as a percentage of revenue:
|
|
Nine-Month Period Ended
|
|
|
Nine-Month Period Ended
|
|
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
|
|
(as % of Revenue)
|
|
Gross profit(loss)
|
|
|
21.2
|
|
|
|
13.7
|
|
Operating expenses
|
|
|
(18.0
|
)
|
|
|
(19.3
|
)
|
Operating income (loss)
|
|
|
3.1
|
|
|
|
(5.6
|
)
|
Other income (expense)
|
|
|
(2.7
|
)
|
|
|
(2.1
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
Net income (loss)
|
|
|
0.4
|
|
|
|
(7.7
|
)
|
Revenue
Our revenue is primarily derived from the
manufacture and sale of plastic films.
Net sales during the nine-month period
ended September 30, 2019 were RMB248.8 million (US$34.8 million), compared to RMB243.40 million, during the same period in 2018,
representing an increase of RMB5.4 million or 2.2%, mainly due to the increase in sales prices.
In the nine-month period ended September
30, 2019, sales of specialty films were RMB114.7 million (US$16.0 million) or 46.1% of our total revenues as compared to RMB109.0
million or 44.8% in the same period of 2018, which was an increase of RMB5.7 million, or 5.2% as compared to the same period in
2018. The increase of average sales price caused an increase of RMB1.8 million and the increase in the sales volume caused an increase
of RMB3.9 million.
The following is a breakdown of commodity
and specialty film sales (amounts in thousands):
|
|
Nine-Month Period Ended
September 30, 2019
|
|
|
% of Total
|
|
|
Nine-Month Period Ended
September 30, 2018
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Stamping and transfer film
|
|
|
86,675
|
|
|
|
12,126
|
|
|
|
34.9
|
%
|
|
|
90,930
|
|
|
|
37.3
|
%
|
Printing film
|
|
|
28,613
|
|
|
|
4,003
|
|
|
|
11.5
|
%
|
|
|
23,874
|
|
|
|
9.8
|
%
|
Metallization film
|
|
|
3,811
|
|
|
|
533
|
|
|
|
1.5
|
%
|
|
|
2,568
|
|
|
|
1.1
|
%
|
Specialty film
|
|
|
114,713
|
|
|
|
16,049
|
|
|
|
46.1
|
%
|
|
|
109,020
|
|
|
|
44.8
|
%
|
Base film for other applications
|
|
|
14,965
|
|
|
|
2,094
|
|
|
|
6.0
|
%
|
|
|
17,006
|
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
248,777
|
|
|
|
34,805
|
|
|
|
100.0
|
%
|
|
|
243,398
|
|
|
|
100.0
|
%
|
Overseas sales during the nine months ended
September 30, 2019 were RMB42.2 million or US$5.9 million, or 16.9% of total revenues, compared with RMB36.1 million or 14.8% of
total revenues in the same period in 2018. This was RMB6.1 million higher than the same period in 2018. The increase in sales volume
resulted in an increase of RMB4.7 million and the increase of average sales price caused an increase of RMB1.4 million.
The following is a breakdown of PRC domestic
and overseas sales (amounts in thousands):
|
|
Nine-Month Period Ended
September 30, 2019
|
|
|
% of Total
|
|
|
Nine-Month Period Ended
September 30, 2018
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
|
|
|
|
|
|
Sales in China
|
|
|
206,625
|
|
|
|
28,907
|
|
|
|
83.1
|
%
|
|
|
207,291
|
|
|
|
85.2
|
%
|
Sales in other countries
|
|
|
42,152
|
|
|
|
5,898
|
|
|
|
16.9
|
%
|
|
|
36,107
|
|
|
|
14.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
248,777
|
|
|
|
34,805
|
|
|
|
100.0
|
%
|
|
|
243,398
|
|
|
|
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:
|
|
Nine-Month Period Ended
September 30, 2019
|
|
|
Nine-Month Period Ended
September 30, 2018
|
|
|
|
% of total
|
|
|
% of total
|
|
Materials costs
|
|
|
73.8
|
%
|
|
|
72.7
|
%
|
Factory overhead
|
|
|
10.3
|
%
|
|
|
9.2
|
%
|
Energy expense
|
|
|
8.5
|
%
|
|
|
8.9
|
%
|
Packaging materials
|
|
|
4.0
|
%
|
|
|
4.8
|
%
|
Direct labor
|
|
|
3.4
|
%
|
|
|
4.4
|
%
|
Cost of goods sold during the first nine
months of 2019 totaled RMB196.2 million (US$27.4 million) as compared to RMB210.1 million in the same period of 2018. This was
RMB13.9 million or 6.6% lower than the same period in 2018. The decrease was mainly due to the decrease of unit cost of goods sold
caused by the reduction of prices of main materials.
Gross Profit
Our gross profit was RMB52.6 million (US$7.4
million) for the first nine months ended September 30, 2019, representing a gross margin of 21.2%, as compared to a gross margin
of 13.7% for the same period in 2018. Correspondingly, gross margin increased by 7.5 percentage. Our average product sales prices
increased by 2.2% compared to the same period last year while the average cost of goods sold decreased by 6.6% compared to the
same period last year. This resulted in an increase in our gross profit.
Operating Expenses
Operating expenses for the nine months
ended September 30, 2019 were RMB44.9 million (US$6.3 million), compared to RMB47.0 million in the same period in 2018, which was
RMB2.1 million or 4.5% lower than the same period in 2018. This decrease was mainly due to decreased expenses on research and development.
Other Expense
Total other expense is a combination result
of interest income, interest expense and other income (expense). Total other expense during the first nine months of 2019 was RMB6.8
million (US$1.0 million), RMB1.7 million higher than the same period in 2018.
Income Tax Benefit
The income tax benefit was RMB0.04 million
(US$0.006 million) during the nine months ended September 30, 2019, compared to income tax benefit of RMB0.05 million during the
same period in 2018. This decrease of income tax benefit was due to changes in deferred tax.
Net Profit
Net profit attributable to the Company
during the first nine-month period of 2019 was RMB1.0 million (US$0.1 million) compared to net loss attributable to the Company
of RMB18.7 million during the same period in 2018, representing an increase of RMB19.7 million from the same period in 2018 due
to the factors described above.
Liquidity and Capital Resources
Our capital expenditures have been financed
primarily through 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 third quarter of 2018 to the third quarter of 2019 ranged
from 0% to 6.50%.
In April 2014, we obtained a loan for a
total amount of RMB105.0 million from Shandong SNTON Optical Materials Technology Co., Ltd. (the “Shandong SNTON”)
to pay off certain short-term loans due to Bank of Communications Co., Ltd. The interest shall be calculated at the benchmark rate,
plus an additional 20% of the said benchmark rate, for the loan of the same term announced by the People’s Bank of China.
The interest must be paid quarterly and settled in full at the end of the year. As of December 31, 2014, the principal of this
loan and the interest have not been paid. In March 2015, we entered into a supplemental agreement with Shandong SNTON pursuant
to which the parties agreed that we will pay off the principal of this loan plus interest upon availability of new loans from banks
or other financial institutions.
As of December 31, 2018, the principal
of this loan from Shandong SNTON was RMB86.80 million and the interest was RMB27.90 million.
As of September 30, 2019, the principal
of this loan from Shandong SNTON was RMB86.80 million and the interest payable was RMB31.35 million.
The main source of cash inflow for the
next twelve months will come from sales of products, and the estimated inflow is RMB370.5 million. The estimated cash outflow is
RMB282.6 million. The amount of cash used in the purchase of raw materials and packaging materials is estimated to be RMB192.1
million and RMB10.2 million, respectively. Cash used for power costs, labor costs, maintenance and renovation expenses is estimated
to be RMB27.5 million, RMB16.4 million and RMB6.8 million, respectively. Total cash used in sales expenses, financial expenses
and administrative expenses is estimated to be RMB29.6 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 nine months ended September 30, 2019 was RMB35.6 million (US$5.0 million) compared to net cash provided by operating activities
of RMB22.4 million for the nine months ended September 30, 2018. This increase in cash flows provided by operating activities was
primarily attributable to the increased profit.
Investing Activities
Net cash flows used in investing activities
for the nine months ended September 30, 2019 was RMB12.5 million (US$1.8 million) compared to net cash used in investing activities
of RMB4.8 million for the nine months ended September 30, 2018. This increase in cash flows used in investing activities was primarily
attributable to the increased expenditure of purchasing fixed assets.
Financing Activities
Net cash provided by financing activities
for the nine months ended September 30, 2019 was RMB4.9 million (US$0.7 million) compared to net cash provided by financing activities
of RMB0.6 million for the nine months ended September 30, 2018, which is an increase of RMB4.3 million (US$0.6 million). This increase
in cash flows provided by financing activities was primarily attributable to changes of notes payable.
Working Capital
As of September 30, 2019 and December 31,
2018, we had a working capital deficit of RMB130.4 million (US$18.2 million) and RMB153.2 million, respectively. Working capital
deficit decreased by RMB22.8 million (US$3.2 million), or 14.9% compared to the amount as of December 31, 2018. Our main current
liability was loans from a related party.
Contractual Obligations
The following table is a summary of our contractual
obligations as of September 30, 2019 (in thousands RMB):
Contractual Commitments
|
|
Total
|
|
|
Less than 1 Total Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More than 5 Years
|
|
|
|
(RMB in thousands)
|
|
Equipment Purchase Contract
|
|
|
1,062
|
|
|
|
-
|
|
|
|
1,062
|
|
|
|
-
|
|
|
|
-
|
|
Due to related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Principal
|
|
|
86,874
|
|
|
|
86,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Interest
|
|
|
4,535
|
|
|
|
4,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Principal
|
|
|
65,000
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Interest
|
|
|
4,225
|
|
|
|
4,225
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Notes payable
|
|
|
49,400
|
|
|
|
49,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
72
|
|
|
|
72
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
211,168
|
|
|
|
210,106
|
|
|
|
1,062
|
|
|
|
-
|
|
|
|
-
|
|
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 November 26,
2019.
|
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
Fuwei Films (Holdings) Co.,
Ltd.
|
|
|
|
|
|
By:
|
/s/ Zengyong Wang
|
|
|
Name: Zengyong Wang
|
|
|
Title: Chairman and Chief Executive
Officer
|
Dated: November 26, 2019
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