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, 2020 filed on April 22, 2021,
with the SEC. The results of the three-month period ended March 31, 2021 are not necessarily indicative of the results to be expected
for the full year ended December 31, 2021.
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 first
quarter of 2021 RMB amounts included in the accompanying consolidated financial statements in our quarterly report have been translated
into U.S. dollars at the rate of US$1.00 = RMB6.5518, on the last trading day of the first quarter of 2021 (March 31, 2021) as set forth
in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or
could be, converted into U.S. dollar at that rate or at any other certain rate on March 31, 2021, 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 RMB12,500 (US$1,908) and RMB7,500
as of March 31, 2021 and December 31, 2020, 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. Estimates of collectability are principally based on an evaluation of the current financial condition
of the customer and the potential risks to collection, the customers’ payment history, expected future credit losses and other factors
which are regularly monitored by the Group.
The Group reviews its allowance for doubtful accounts
monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. All other balances are
reviewed on a pooled basis by aging of such balances. Account balances are charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered remote.
Inventories
Inventories are stated at the lower of cost or
market value as of balance sheet date. Inventory valuation and cost-flow is determined using Moving Weighted Average Method basis. The
Group estimates excess and slow moving inventory based upon assumptions of future demands and market conditions. If actual market conditions
are less favorable than projected by management, additional inventory write-downs may be required. Cost of work in progress and finished
goods comprises direct material, direct production cost and an allocated portion of production overheads based on normal operating capacity.
Property, Plant and Equipment
Property, plant and equipment are stated at cost
less accumulated depreciation and impairment. Depreciation on property, plant and equipment is calculated on the straight-line method
(after taking into account their respective estimated residual values) over the estimated useful lives of the assets. They are as follows:
|
|
Years
|
|
Buildings and improvements
|
|
25 - 30
|
|
Plant and equipment
|
|
10 - 15
|
|
Computer equipment
|
|
5
|
|
Furniture and fixtures
|
|
5
|
|
Motor vehicles
|
|
5
|
|
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.
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.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
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)
Assets held for sale
As of March 31, 2021, assets of Dornier Production
Line and the trial production line which was made by Mitsubishi for R & D met the criteria to be classified as held for sale in accordance
with ASC 360-10 and are presented at the lower of the assets' carrying amount or fair value less cost to sell by segment in current assets.
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 sale
prices is fixed or determinable.
In the PRC, VAT of 13% on the invoice amount is
collected with respect to the sales of goods on behalf of tax authorities. The VAT collected is not revenue of the Company; instead, the
amount is recorded as a liability on the consolidated balance sheet until such VAT is paid to the authorities.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Income Taxes
Income taxes are accounted for under the
asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
Earnings Per Share
Basic earnings per share is computed by dividing
net earnings by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by
dividing net earnings by the weighted average number of ordinary and dilutive potential ordinary shares outstanding during the year. Diluted
potential ordinary shares consist of shares issuable pursuant to the Company’s stock option plan.
Share-Based Payments
The Company accounts for share based payments
under the modified-prospective transition method, which requires companies to measure and recognize the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair value.
Non-controlling interest
Non-controlling interest represents the portion
of equity that is not attributable to the Company. The net income (loss) attributable to non-controlling interests are separately presented
in the accompanying statements of income and other comprehensive income. Losses attributable to non-controlling interests in a subsidiary
may exceed the interest in the subsidiary’s equity. The related non-controlling interest continues to be attributed its share of
losses even if that attribution results in a deficit of the non-controlling interest balance.
Contingencies
In the normal course of business, the Company
is subject to contingencies, including legal proceedings and claims arising out of the business that relate to a wide range of matters,
including among others, product liability. The Company recognizes a liability for such contingency if it determines it is probable that
a loss has occurred and a reasonable estimate of the loss can be made. The Company may consider many factors in making these assessments
including past history and the specifics of each matter.
Reclassification
For comparative purposes, the prior year’s
consolidated financial statements have been reclassified to conform to reporting classifications of the current year periods. These reclassifications
had no effect on net loss or total net cash flows as previously reported.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Recently Issued Accounting Standards
Disclosure
Framework
In August 2018, the FASB issued
ASU No. 2018-13, "Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"),
which removes, modifies, and adds certain disclosure requirements in ASC 820. ASU 2018-13 is effective for fiscal years and interim periods
beginning after December 15, 2019; early adoption is permitted. We are in the process of evaluating the impact of this standard on our
disclosures but do not currently believe that it will have a material impact.
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 adopted the provision of ASU 2016-02 .The
adoption of ASU 2016-02 did not have a material 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.
In February
2020, the FASB issued ASU 2020-02, “Financial Statements - Credit losses (Topic 326) and Leases (Topic 842) - Amendments to SEC
Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Relating to Accounting Standards
Update No. 2016-02, Leases (Topic 842)” (“ASU 2020-02”), which provides guidance on the measurement and requirements
related to credit losses. The new guidance was effective upon issuance of this final accounting standards update. The Company has adopted
this standard and the adoption did not have a material impact on its condensed consolidated financial statements or disclosures.
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.
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 receivables consisted of the following:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Accounts receivable
|
|
|
23,283
|
|
|
|
3,554
|
|
|
|
15,331
|
|
Less: Allowance for doubtful accounts
|
|
|
(484
|
)
|
|
|
(74
|
)
|
|
|
(485
|
)
|
|
|
|
22,799
|
|
|
|
3,480
|
|
|
|
14,846
|
|
Bills receivable
|
|
|
22,530
|
|
|
|
3,439
|
|
|
|
17,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,329
|
|
|
|
6,919
|
|
|
|
32,393
|
|
The Group has a credit policy in place and the
exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain
amount. These receivables are due within 7 to 90 days from the date of billing. Generally, the Group does not obtain collateral from customers.
NOTE 4 - INVENTORIES
Inventories consisted of the following:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Raw materials
|
|
|
22,066
|
|
|
|
3,368
|
|
|
|
21,018
|
|
Work-in-progress
|
|
|
1,113
|
|
|
|
170
|
|
|
|
1,233
|
|
Finished goods
|
|
|
6,049
|
|
|
|
923
|
|
|
|
10,187
|
|
Consumables and spare parts
|
|
|
875
|
|
|
|
134
|
|
|
|
874
|
|
Inventory-impairment
|
|
|
(7,876
|
)
|
|
|
(1,202
|
)
|
|
|
(7,876
|
)
|
|
|
|
22,227
|
|
|
|
3,393
|
|
|
|
25,436
|
|
NOTE 5 - Assets Held for Sale
On November 30, 2020 our Board approved and authorized
to sell the Dornier Production Line and the trial production line by the way of open tendering at a realizable price. On December 20,
2020, Huizhou Yidu Yuzheng Digital Technology Co. LTD. (“Huizhou Yidu Yuzheng”) won the bidding at a total price of RMB141,100
(or approximately US$21,625) for the Dornier Production Line and the trial production line.
As of March 31, 2021, assets of Dornier Production
Line and the trial production line which was made by Mitsubishi for R&D met the criteria to be classified as held for sale in accordance
with ASC 360-10 and are presented at the lower of the assets' carrying amount or fair value less cost to sell by segment in current assets
in the table below. These assets are considered non-core assets to the company's operations and are idle asset for many years.
|
|
March 31,
2021
|
|
|
December 31, 2020
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Dornier Production Line and the trial production
line
|
|
|
122,919
|
|
|
|
18,761
|
|
|
|
122,919
|
|
|
|
|
122,919
|
|
|
|
18,761
|
|
|
|
122,919
|
|
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the
following:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Buildings
|
|
|
76,613
|
|
|
|
11,693
|
|
|
|
76,613
|
|
Plant and equipment
|
|
|
434,160
|
|
|
|
66,266
|
|
|
|
431,072
|
|
Computer equipment
|
|
|
3,175
|
|
|
|
485
|
|
|
|
3,171
|
|
Furniture and fixtures
|
|
|
18,732
|
|
|
|
2,859
|
|
|
|
20,855
|
|
Motor vehicles
|
|
|
1,546
|
|
|
|
236
|
|
|
|
1,546
|
|
|
|
|
534,226
|
|
|
|
81,539
|
|
|
|
533,257
|
|
Less: accumulated depreciation
|
|
|
(425,347
|
)
|
|
|
(64,921
|
)
|
|
|
(421,949
|
)
|
|
|
|
108,879
|
|
|
|
16,618
|
|
|
|
111,308
|
|
For the three-month periods ended March 31, 2021
and 2020, depreciation expenses were RMB3,162 (US$483) and RMB6,847, respectively.
NOTE 7 - LEASE PREPAYMENTS
Lease prepayments represent the costs of land
use rights in the PRC. Land use rights are carried at cost and charged to expense on a straight-line basis over the respective periods
of rights of 30 years. The current portion of lease prepayments has been included in prepayments and other receivables in the balance
sheet.
Lease prepayments consisted of the following:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Lease prepayment - non current
|
|
|
15,085
|
|
|
|
2,302
|
|
|
|
15,219
|
|
Lease prepayment - current
|
|
|
534
|
|
|
|
82
|
|
|
|
534
|
|
|
|
|
15,619
|
|
|
|
2,384
|
|
|
|
15,753
|
|
Amortization of land use rights for the three
months ended March 31, 2021 and 2020 was RMB134 (US$20) and RMB134, respectively.
Estimated amortization expenses for the next five
years are as follows:
|
|
RMB
|
|
|
US$
|
|
1 year after
|
|
|
534
|
|
|
|
82
|
|
2 years after
|
|
|
534
|
|
|
|
82
|
|
3 years after
|
|
|
534
|
|
|
|
82
|
|
4 years after
|
|
|
534
|
|
|
|
82
|
|
5 years after
|
|
|
534
|
|
|
|
82
|
|
Thereafter
|
|
|
12,949
|
|
|
|
1,974
|
|
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
As of March 31, 2021, the amount of RMB534 (US$82)
will be charged into amortization expenses within one year, and is classified as current asset under the separate line item captioned
as Prepayments and Other Receivables on balance sheets.
NOTE 8 - SHORT-TERM BORROWINGS AND LONG-TERM LOAN
Short-term borrowings and long-term loan consisted
of the following:
|
|
Interest
|
|
|
31 March, 2021
|
|
|
December 31, 2020
|
|
Lender
|
|
rate per annum
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
BANK LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Weifang.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- June 18, 2020 to June 15, 2021
|
|
|
6.5
|
%
|
|
|
15,000
|
|
|
|
2,289
|
|
|
|
15,000
|
|
- July 15, 2020 to July 9, 2021
|
|
|
6.5
|
%
|
|
|
20,000
|
|
|
|
3,053
|
|
|
|
20,000
|
|
- July 9, 2020 to July 9, 2021
|
|
|
6.5
|
%
|
|
|
30,000
|
|
|
|
4,579
|
|
|
|
30,000
|
|
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.
On June 23, 2020, Shandong SNTON Group Co., Ltd.
(the “SNTON Group”) transferred its equity in Hongkong Ruishang International Trade Co., Ltd. (“Hongkong Ruishang”)
to Shanghai Meicheng Enterprise Management Co., Ltd., (“Shanghai Meicheng”). SNTON Group previously held the Company’s
52.9% controlling outstanding ordinary shares (the “Shares”) indirectly through Hongkong Ruishang. As a result of this transfer,
there is no longer relationship between the Company and Shandong SNTON.
According to the credit of assignment agreement
between Shandong SNTON and Shandong Shengjia Industrial Park Operation and Management (“Shandong Shengjia”), Shandong SNTON
transferred its right of credit in the Company to Shandong Shengjia. Shandong Shengjia further transferred it to Shanghai Meicheng. Due
to the transfer, the related accounts payable to Shanghai Meicheng as of March 31, 2021 was RMB50,519 (US$7,711) after paying back part
of the loan with remaining principal of RMB50,000 (US$7,632) and remaining interest of RMB519 (US$79).
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
NOTE 10 - NOTES PAYABLE
As of March 31, 2021, Shandong Fuwei had banker’s
acceptances opened with a maturity from three to six months totaling RMB25,000 (US$3,816) for payment in connection with raw materials
for a total deposit of RMB12,500 (US$1,908) made to Bank of Weifang.
NOTE 11 - INCOME TAX
Income tax expense was RMB19 and Income tax benefit
was RMB94 for the three months ended March 31, 2021 and 2020, respectively.
NOTE 12 - EARNINGS PER SHARE
Basic and diluted net benefit per share was RMB9.60
(US$1.47) and RMB3.97 for the three-month period ended March 31, 2021 and 2020, respectively.
NOTE 13 - MAJOR CUSTOMERS AND VENDORS
There was one and no major customer who accounted
for more than 10% of the total net revenue for the three-month periods ended March 31, 2021 and 2020, respectively.
|
|
Percentage of total revenue (%)
|
|
Customer
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
Hunan Wujo Hi-Tech Materials Co., Ltd.
|
|
|
14.6
|
%
|
|
|
3.0
|
%
|
The following are the vendors that supplied 10%
or more of our raw materials for March 31, 2021 and 2020:
|
|
|
|
Percentage of total purchases (%)
|
|
Supplier
|
|
Item
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
Sinopec Yizheng Chemical Fiber Company Limited (“Sinopec Yizheng”)
|
|
PET resin and Additive
|
|
|
56.1
|
%
|
|
|
52.3
|
%
|
Hefei Lucky Technology Industry Co., LTD. Jiangyin Branch (“Lucky”)
|
|
PET resin and Additives
|
|
|
-
|
|
|
|
12.2
|
%
|
As of March 31, 2021, the balance of advance to
suppliers to Sinopec Yizheng was RMB724 (US$111).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
References to "dollars" and "US$"
are to United States Dollars. References to "we", "us", the "Company" or "Fuwei Films" include
Fuwei Films (Holdings) Co., Ltd. and its subsidiaries, except where the context requires otherwise.
In the first quarter of 2021, we continued to
be adversely affected by intense competition and increase in supply over demand in China’s BOPET market.
We believe that in the coming quarters of 2021,
there will be continued higher supply over demand in China’s BOPET films industry 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 such competition in the BOPET market.
As a result, we may continue to witness losses in the future.
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. Fuwei was informed by Easebright
that Mr. Qingxin Dong has replaced Mr. Jingang Yang since 2018.
On March 31, 2021, we announced that we have
entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Enesoon New Energy Limited, a British
Virgin Islands company (“Enesoon”), directly and indirectly holding subsidiaries in China primarily engaged in green
thermal energy storage businesses, and Enesoon’s shareholders. The Purchase Agreement will result in the issuance by the
Company of 111,111,111 new ordinary shares (“Consideration Shares”) in exchange for all outstanding shares of Enesoon.
As a result of this transaction, the former shareholders of Enesoon will beneficially own in the aggregate approximately 97.1% of
our outstanding shares.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The closing of the transactions contemplated under
the Purchase Agreement is subject to various closing conditions, including approval of the issuance of Consideration Shares by the shareholders
of the Company, receipt of NASDAQ approval, receipt by the Company of a satisfactory fairness opinion or valuation and other customary
conditions.
Results of operations for the three months ended
March 31, 2021 and March 31, 2020
The table below sets forth certain line items from
our Statement of Operations as a percentage of revenue:
|
|
Three-Month Period Ended
|
|
|
Three-Month Period Ended
|
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
|
(as % of Revenue)
|
|
Gross profit
|
|
|
41.8
|
|
|
|
35.8
|
|
Operating expenses
|
|
|
(10.3
|
)
|
|
|
(18.1
|
)
|
Operating income
|
|
|
31.5
|
|
|
|
17.7
|
|
Other income (expense)
|
|
|
(0.6
|
)
|
|
|
(2.2
|
)
|
Income tax benefit (expense)
|
|
|
-
|
|
|
|
0.1
|
|
Net income
|
|
|
30.9
|
|
|
|
15.6
|
|
Revenue
Net sales during
the first quarter ended March 31, 2021 were RMB101.6 million (US$15.5 million), compared to RMB83.2 million, during the same period in
2020, representing an increase of RMB18.4 million or 22.1%, mainly due to increased sales volume. The increase of sales volume led to an
increase of RMB12.2 million, and the increase of sales price resulted in the increase of RMB6.2 million.
In the first quarter of 2021, sales of specialty
films were RMB65.0 million (US$9.9 million) or 63.9% of our total revenues as compared to RMB39.9 million or 47.9% in the same period
of 2020. The increase was mainly due to increased sales volume.
The following is a breakdown of commodity and specialty
film sales (amounts in thousands):
|
|
Three-Month
Period Ended
March 31, 2021
|
|
|
% of Total
|
|
|
Three-Month
Period Ended
March 31, 2020
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Stamping and transfer film
|
|
|
25,350
|
|
|
|
3,869
|
|
|
|
25.0
|
%
|
|
|
34,522
|
|
|
|
41.5
|
%
|
Printing film
|
|
|
5,482
|
|
|
|
837
|
|
|
|
5.4
|
%
|
|
|
5,845
|
|
|
|
7.0
|
%
|
Metallization film
|
|
|
1,643
|
|
|
|
251
|
|
|
|
1.6
|
%
|
|
|
1,501
|
|
|
|
1.8
|
%
|
Specialty film
|
|
|
64,963
|
|
|
|
9,915
|
|
|
|
63.9
|
%
|
|
|
39,877
|
|
|
|
47.9
|
%
|
Base film for other application
|
|
|
4,186
|
|
|
|
639
|
|
|
|
4.1
|
%
|
|
|
1,488
|
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,624
|
|
|
|
15,511
|
|
|
|
100.0
|
%
|
|
|
83,233
|
|
|
|
100.0
|
%
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overseas sales were RMB9.0 million or US$1.4 million,
or 8.9% of total revenues, compared with RMB5.8 million or 6.9% of total revenues in the first quarter of 2020, representing an increase
of RMB3.2 million or 55.2%. The increase was mainly due to increased sales volume.
The following is a breakdown of PRC domestic and
overseas sales (amounts in thousands except percentages):
|
|
Three-Month Period Ended
March 31, 2021
|
|
|
% of Total
|
|
|
Three-Month Period Ended
March 31, 2020
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Sales in China
|
|
|
92,596
|
|
|
|
14,133
|
|
|
|
91.1
|
%
|
|
|
77,448
|
|
|
|
93.1
|
%
|
Sales in other countries
|
|
|
9,028
|
|
|
|
1,378
|
|
|
|
8.9
|
%
|
|
|
5,785
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,624
|
|
|
|
15,511
|
|
|
|
100.0
|
%
|
|
|
83,233
|
|
|
|
100.0
|
%
|
Cost of Goods Sold
Our cost of goods sold is mainly comprised of material
costs, factory overhead, power, packaging materials and direct labor. The breakdown of our cost of goods sold in percentage is as follows:
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
|
% of total
|
|
|
% of total
|
|
Materials costs
|
|
|
70.5
|
%
|
|
|
74.0
|
%
|
Factory overhead
|
|
|
9.0
|
%
|
|
|
8.2
|
%
|
Energy expense
|
|
|
9.9
|
%
|
|
|
9.9
|
%
|
Packaging materials
|
|
|
4.6
|
%
|
|
|
4.5
|
%
|
Direct labor
|
|
|
6.0
|
%
|
|
|
3.4
|
%
|
Cost of goods sold during the first quarter of
2021 totaled RMB59.2 million (US$9.0 million) as compared to RMB53.5 million in the same period of 2020. This was RMB5.7 million or 10.7%
higher than the same period in 2020. The decline in unit cost of goods sold caused a decrease of RMB2.1 million and the increase of sales
volume led to an increase of RMB7.8 million.
Gross Profit
Our gross profit was RMB42.5 million (US$6.5 million)
for the first quarter ended March 31, 2021, representing a gross margin of 41.8%, as compared to a gross profit of RMB29.8 million and
gross margin of 35.8% for the same period in 2020. Our average product sales prices increased by 6.5% while our average cost of goods
sold decreased by 3.5% compared to the same period in 2020. Consequently, the increase in average product sales prices and the decrease
in the average cost of goods sold during the first quarter ended March 31, 2021 contributed to the increase in our gross profit and gross
margin during the period.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Operating Expenses
Operating expenses for the first quarter ended
March 31, 2021 were RMB10.5 million (US$1.6 million), which was RMB4.5 million, or 30.0% lower than the same period in 2020. This decrease
was mainly due to the decreased depreciation on the Dornier Production Line and the trial production line as assets of these two production
lines were classified as assets as held for sale.
Other Income (Expense)
Total other income is a combination of interest
income, interest expense and others income (expense). Total other expense during the first quarter ended March 31, 2021 was RMB0.6 million
(US$0.09 million), while total other expense was RMB1.9 million for the same period in 2020.
Income Tax Benefit (Expense)
The income tax expense was RMB0.02 million (US$0.003
million) during the first quarter ended March 31, 2021, compared to income tax benefit of RMB0.09 million during the same period in 2020.
This increase of income tax expense was due to changes in deferred tax.
Net Profit
Net profit attributable to the Company during
the first quarter ended March 31, 2021 was RMB31.4 million (US$4.8 million) compared to net profit attributable to the Company of RMB13.0
million during the same period in 2020.
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 during
the period from the first quarter of 2020 to the first quarter of 2021 ranged from 5.22% to 6.5%.
In April 2014, we obtained a loan for a total
amount of RMB105.0 million from Shandong SNTON Optical Materials Technology Co., Ltd. (the “Shandong SNTON”) to pay off certain
short-term loans due to Bank of Communications Co., Ltd. The interest shall be calculated at the benchmark rate, plus an additional 20%
of the said benchmark rate, for the loan of the same term announced by the People’s Bank of China. The interest must be paid quarterly
and settled in full at the end of the year. As of December 31, 2014, the principal of this loan and the interest have not been paid. In
March 2015, 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.
On June 23, 2020, Shandong SNTON Group Co., Ltd.
(the “SNTON Group”) transferred its equity in Hongkong Ruishang International Trade Co., Ltd. (“Hongkong Ruishang”)
to Shanghai Meicheng Enterprise Management Co., Ltd., (“Shanghai Meicheng”). SNTON Group previously held the Company’s
52.9% controlling outstanding ordinary shares (the “Shares”) indirectly through Hongkong Ruishang. As a result of this transfer,
there is no longer relationship between the Company and Shandong SNTON.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
According to the credit of assignment
agreement between Shandong SNTON and Shandong Shengjia Industrial Park Operation and Management (“Shandong Shengjia”),
Shandong SNTON transferred its right of credit in the Company to Shandong Shengjia. Shandong Shengjia further transferred it to
Shanghai Meicheng. Due to the transfer, the related accounts payable to Shanghai Meicheng as of March
31, 2021 was RMB50.5 million (US$7.7 million) after paying back part of the loan with remaining principal of RMB50.0 million (US$7.6
million) and remaining interest of RMB0.5 million (US$0.1 million).
We believe that, after taking into consideration
our present and potential future loans from related parties and banking facilities, existing cash and the expected cash flows to be generated
from our operations, we will have adequate sources of liquidity to meet our short-term obligations and our working capital requirements.
Operating Activities
Net cash provided by operating activities for
the three months ended March 31, 2021 was RMB4.8 million (US$0.7 million) compared to net cash used in operating activities of RMB2.3
million for the three months ended March 31, 2020. This increase in net cash flows provided by operating activities was primarily attributable
to the increase of profit.
Working Capital
As of March 31, 2021 and December 31, 2020, we
had a working capital of RMB135.6 million (US$20.7 million) and RMB101.1 million, respectively. Working capital increased by RMB34.5 million
(US$5.3 million), or 34.1% compared to the amount as of December 31, 2020. Our current liability is mainly borrowings from related parties.
Contractual Obligations
The following table is a summary of our contractual
obligations as of March 31, 2021 (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
|
|
|
1,010
|
|
|
|
1,010
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Due to related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Principal
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Interest
|
|
|
2,610
|
|
|
|
2,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Principal
|
|
|
65,000
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Interest
|
|
|
4,225
|
|
|
|
4,225
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Notes payable
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
38
|
|
|
|
23
|
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
147,883
|
|
|
|
147,868
|
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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