UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

 

For March 31, 2020

 

Commission File No. 001-33176

 

Fuwei Films (Holdings) Co., Ltd. 

 

 

No. 387 Dongming Road

Weifang Shandong

People’s Republic of China, Postal Code: 261061 

 

 

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F x 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:

Yes ¨ No x

 

If “Yes” marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-________

 

 

 

 

 

EXPLANATORY NOTE

 

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, negative impacts of the weak economic recovery of major developed countries and Europe's deteriorating debt crisis on the Company, 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 uncertainty of the antidumping investigation and imposition of an anti-dumping duty on imports of the BOPET films originating from the People’s Republic of China (“China”) conducted by certain countries; uncertainty around U.S.-China trade war and its effect on the Company’s operation, 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 and the Company’s ability to obtain adequate financing for its planned capital expenditure requirements, 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 especially the thick films 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 measures taken by the Chinese government to save energy and reduce emissions, and the changes in the labor law in China 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 (as described herein) 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, uncertainty of the effects of outbreaks of pandemic or contagious diseases, including the length and severity of the recent worldwide outbreak of Coronavirus, now named as COVID-19, including its impact on our business. 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 June 22, 2020, the Company announced its unaudited consolidated financial results for the three-month period ended March 31, 2020.

 

 2 

 

 

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2020 AND DECEMBER 31, 2019

(amounts in thousands except share and per share value)

(Unaudited)

 

   Notes   March 31, 2020   December 31, 2019 
      RMB   US$   RMB 
ASSETS 
Current assets                    
Cash and cash equivalents        55,671    7,862    60,871 
Restricted cash        15,000    2,118    25,500 
Accounts and bills receivable, net   3    41,496    5,860    26,960 
Inventories   4    24,265    3,427    23,584 
Advance to suppliers        12,448    1,758    6,277 
Prepayments and other receivables        1,131    160    1,058 
Deferred tax assets - current        1,333    188    1,266 
Total current assets        151,344    21,373    145,516 
                     
Plant, properties and equipment, net   5    296,159    41,826    302,642 
Lease prepayments, net   6    15,628    2,207    15,762 
Advance to suppliers - long term, net        1,542    218    1,542 
Deferred tax assets - non current        474    67    509 
                     
Total assets        465,147    65,691    465,971 
                     
LIABILITIES AND EQUITY 
Current liabilities                    
Short-term borrowings   7    65,000    9,180    65,000 
Due to related parties   8    120,445    17,010    119,297 
Accounts payables        20,818    2,940    19,532 
Notes payable   9    26,800    3,785    41,000 
Advance from customers        1,664    235    5,204 
Accrued expenses and other payables        7,044    995    5,454 
Total current liabilities        241,771    34,145    255,487 
                     
Deferred tax liabilities        2,228    315    2,290 
                     
Total liabilities        243,999    34,460    257,777 
                     
Equity                    
Shareholders’ equity                    
Registered capital(of US$0.519008 par value; 5,000,000 shares authorized; 3,265,837 issued and outstanding)        13,323    1,882    13,323 
Additional paid-in capital        311,907    44,050    311,907 
Statutory reserve        37,441    5,288    37,441 
Accumulated deficit        (142,363)   (20,105)   (155,317)
Cumulative translation adjustment        840    116    840 
Total shareholders’ equity        221,148    31,231    208,194 
Total equity           221,148    31,231    208,194 
Total liabilities and equity           465,147    65,691    465,971 

 

The accompanying notes are an integral part of these unaudited condensed consolidated statements.

 

 3 

 

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2020 AND DECEMBER 31, 2019

(amounts in thousands except share and per share value)

(Unaudited)

 

       The Three-Month Period Ended March 31, 
   Notes   2020   2019 
      RMB   US$   RMB 
Net sales        83,233    11,755    81,074 
Cost of sales        53,474    7,552    68,670 
                     
Gross Profit        29,759    4,203    12,404 
                     
Operating expenses                    
Selling expenses        4,086    577    2,964 
Administrative expenses        10,955    1,547    10,577 
Total operating expenses        15,041    2,124    13,541 
                     
Operating income (loss)        14,718    2,079    (1,137)
                     
Other income (expense)                    
- Interest income        289    41    213 
- Interest expense        (2,216)   (313)   (2,191)
- Others income (expense),net        69    10    (242)
                     
Total other expense        (1,858)   (262)   (2,220)
                     
Income (loss) before provision for income taxes        12,860    1,817    (3,357)
                     
Income tax benefit (expense)   10    94    13    (17)
                     
Net income (loss)        12,954    1,830    (3,374)
                     
Net loss attributable to non-controlling interests        -    -    - 
Net income (loss) attributable to the Company        12,954    1,830    (3,374)
                     
Other comprehensive income                    
- Foreign currency translation adjustments attributable to non-controlling interest        -    -    - 
- Foreign currency translation adjustments attributable to the Company        -    -    (1)
                     
Comprehensive loss attributable to non-controlling interest        -    -    - 
Comprehensive income (loss) attributable to the Company        12,954    1,830    (3,375)
                     
Earnings (loss) per share, Basic and diluted   11    3.97    0.56    (1.03)
Weighted average number ordinary shares, Basic and diluted        3,265,837    3,265,837    3,265,837 

 

The accompanying notes are an integral part of these unaudited condensed consolidated statements.

 

 4 

 

 

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2020 AND 2019

(amounts in thousands except share and per share value)

(Unaudited)

 

   The Three-Month Period Ended March 31, 
   2020   2019 
   RMB   US$   RMB 
Cash flow from operating activities               
Net income (loss)   12,954    1,829    (3,374)
Adjustments to reconcile net loss to net cash used in operating activities               
- Depreciation of property, plant and equipment   6,847    967    12,044 
- Amortization of intangible assets   134    19    133 
- Deferred income taxes   (94)   (13)   18 
- Bad debt expense   447    63    (286)
-Inventory provision            
Changes in operating assets and liabilities               
- Accounts and bills receivable   (14,984)   (2,116)   (4,123)
- Inventories   (679)   (96)   (814)
- Advance to suppliers   (6,171)   (872)   2,935 
- Prepaid expenses and other current assets   (73)   (10)   13 
- Accounts payable   1,285    182    (589)
- Accrued expenses and other payables           (136)
- Advance from customers   (3,540)   (500)   (700)
- Tax payable   1,590    225    512 
                
Net cash provided by operating activities   (2,284)   (322)   5,633 
                
Cash flow from investing activities               
Purchases of property, plant and equipment   (364)   (51)   (1,529)
Restricted cash related to trade finance            
Advanced to suppliers - non current            
Amount change in construction in progress           345 
                
Net cash provided by investing activities   (364)   (51)   (1,184)
                
Cash flow from financing activities               
Proceeds from related party   1,148    162    1,136 
Payment of capital lease obligation            
Change in notes payable   (14,200)   (2,005)   3,580 
                
Net cash used in financing activities   (13,052)   (1,843)   4,716 
                
Effect of foreign exchange rate changes       (211)   (1)
                
Net decrease in cash and cash equivalent   (15,700)   (2,427)   9,164 
                
Cash and cash equivalent               
At beginning of period/year   86,371    12,407    46,908 
At end of period/year   70,671    9,980    56,072 
                
SUPPLEMENTARY DISCLOSURE:               
Interest paid   2,216    313    2,191 
Income tax paid            
                
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCIAL ACTIVITIES:               
Account payable for plant and equipment:   1,010    143    1,010 

 

The accompanying notes are an integral part of these unaudited condensed consolidated statements.

 

 5 

 

 

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, 2019 filed on April 28, 2020, with the SEC. The results of the three-month period ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year ended December 31, 2020.

 

Principles of Consolidation

 

The condensed consolidated financial statements include the financial statements of the Company and its two subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of the condensed consolidated financial statements in accordance with U.S. GAAP requires management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews its estimates and assumptions, including those related to the recoverability of the carrying amount and the estimated useful lives of long-lived assets, valuation allowances for accounts receivable and realizable values for inventories. Changes in facts and circumstances may result in revised estimates.

 

 6 

 

 

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 2020 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 = RMB7.0808, on the last trading day of the first quarter of 2020 (March 31, 2020) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollar at that rate or at any other certain rate on March 31, 2020, 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 RMB15,000 (US$2,118) and RMB25,500 as of March 31, 2020 and December 31, 2019, respectively.

 

 7 

 

 

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.

 

Construction in progress represents capital expenditures with respect to the BOPET production line. No depreciation is provided with respect to construction in progress.

 

 8 

 

 

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.

 

 9 

 

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share value)

(Unaudited)

 

Goodwill

 

Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. Goodwill is not amortized but is tested for impairment annually, or when circumstances indicate a possible impairment may exist. Impairment testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds the fair value of the reporting unit, with the fair value of the reporting unit determined using a discounted cash flow (“DCF”) analysis. A number of significant assumptions and estimates are involved in the application of the DCF analysis to forecast operating cash flows, including the discount rate, the internal rate of return, and projections of realizations and costs to produce. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated. Goodwill was determined to be fully impaired during the year ended December 31, 2012.

 

Impairment of Long-lived Assets

 

The Company recognizes an impairment loss when circumstances indicate that the carrying value of long-lived assets with finite lives may not be recoverable. Management’s policy in determining whether an impairment indicator exists, a triggering event, comprises measurable operating performance criteria at an asset group level as well as qualitative measures. If an analysis is necessitated by the occurrence of a triggering event, the Company uses assumptions, which are predominately identified from the Company’s strategic long-range plans, in determining the impairment amount. In the calculation of the fair value of long-lived assets, the Company compares the carrying amount of the asset group with the estimated future cash flows expected to result from the use of the assets. If the carrying amount of the asset group exceeds the estimated expected undiscounted future cash flows, the Company measures the amount of the impairment by comparing the carrying amount of the asset group with their estimated fair value. We estimate the fair value of assets based on market prices (i.e., the amount for which the asset could be bought by or sold to a third party), when available. When market prices are not available, we estimate the fair value of the asset group using discounted expected future cash flows at the Company’s weighted-average cost of capital. Management believes its policy is reasonable and is consistently applied. Future expected cash flows are based upon estimates that, if not achieved, may result in significantly different results.

 

Revenue Recognition

 

Sales of plastic films are reported, net of value added taxes (“VAT”), sales returns, and trade discounts. The standard terms and conditions under which the Company generally delivers allow a customer the right to return product for refund only if the product does not conform to product specifications; the non-conforming product is identified by the customer; and the customer rejects the non-conforming product and notifies the Company within 30 days of receipt for both PRC and overseas customers. The Company recognizes revenue when products are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the 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.

 

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.

 

 10 

 

 

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share value)

(Unaudited)

 

Earnings (loss) Per Share

 

Basic earnings (loss) per share is computed by dividing net earnings by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by dividing net earnings by the weighted average number of ordinary and dilutive potential ordinary shares outstanding during the year. Diluted potential ordinary shares consist of shares issuable pursuant to the Company’s stock option plan.

 

Share-Based Payments

 

The Company accounts for share based payments under the modified-prospective transition method, which requires companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value.

 

Non-controlling interest

 

Non-controlling interest represents the portion of equity that is not attributable to the Company. The net income (loss) attributable to non-controlling interests are separately presented in the accompanying statements of income and other comprehensive income. Losses attributable to non-controlling interests in a subsidiary may exceed the interest in the subsidiary’s equity. The related non-controlling interest continues to be attributed its share of losses even if that attribution results in a deficit of the non-controlling interest balance.

 

Contingencies

 

In the normal course of business, the Company is subject to contingencies, including legal proceedings and claims arising out of the business that relate to a wide range of matters, including among others, product liability. The Company recognizes a liability for such contingency if it determines it is probable that a loss has occurred and a reasonable estimate of the loss can be made. The Company may consider many factors in making these assessments including past history and the specifics of each matter.

 

Reclassification

 

For comparative purposes, the prior year’s consolidated financial statements have been reclassified to conform to reporting classifications of the current year periods. These reclassifications had no effect on net loss or total net cash flows as previously reported.

 

Going Concern Matters

 

The accompanying 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 March 31, 2020, the Company had a working capital deficiency of RMB90,427 (US$12,771). The ability of the Company to operate as a going concern depends upon its ability to obtain outside sources of working capital and/or generate positive cash flow from operations. The Company seeks loans from financing 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 cost reductions on both manufacturing costs and operating expenses to improve profit margins. The accompanying consolidated financial statements do not include any necessary adjustments, should the Company fail to continue as a going concern.

 

 11 

 

 

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. As a result of adoption, this standard did not have a material impact on the Group’s consolidated financial statements.

 

Financial Instruments - Credit Losses

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial statements. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is allowed as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. From an evaluation of the Group’s existing credit portfolio, which includes trade receivables from commodity sales and other receivables, historical credit losses during 90 days have been de minimis and are expected to remain so in the future assuming no substantial changes to the business. ASU 2016-13 did not have a significant impact on the Group’s consolidated financial statements upon adoption on January 1, 2020..

 

Other pronouncements issued by the FASB or other authoritative accounting standards group with future effective dates are either not applicable or not significant to the consolidated financial statements of the Company.

 

NOTE 3 - ACCOUNTS AND BILLS RECEIVABLES

 

Accounts receivables consisted of the following:

 

     March 31, 2020    December 31, 2019 
   RMB   US$   RMB 
Accounts receivable   22,398    3,163    13,990 
Less: Allowance for doubtful accounts   (1,280)   (181)   (833)
    21,118    2,982    13,157 
Bills receivable   20,378    2,878    13,803 
                
    41,496    5,860    26,960 

 

 12 

 

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share value)

(Unaudited)

 

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, 2020    December 31, 2019 
   RMB   US$   RMB 
Raw materials   20,481    2,893    19,108 
Work-in-progress   1,061    150    1,152 
Finished goods   9,437    1,333    10,041 
Consumables and spare parts   895    126    892 
Inventory-impairment   (7,609)   (1,075)   (7,609)
    24,265    3,427    23,584 

 

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET 

 

Property, plant and equipment consisted of the following: 

 

     March 31, 2020    December 31, 2019 
   RMB   US$   RMB 
Buildings   68,319    9,648    68,319 
Plant and equipment   817,951    115,518    817,715 
Computer equipment   3,163    447    3,163 
Furniture and fixtures   19,995    2,824    19,631 
Motor vehicles   1,452    205    1,452 
    910,880    128,642    910,280 
Less: accumulated depreciation   (607,502)   (85,796)   (600,419)
Less: impairment of plant and equipment   (7,219)   (1,020)   (7,219)
    296,159    41,826    302,642 

 

For the three-month periods ended March 31, 2020 and 2019, depreciation expenses were RMB6,847 (US$967) and RMB12,044, respectively.

 

NOTE 6 - 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.

 

 13 

 

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share value)

(Unaudited)

 

Lease prepayments consisted of the following: 

 

     March 31, 2020    December 31, 2019 
   RMB   US$   RMB 
Lease prepayment - non current   15,628    2,207    15,762 
Lease prepayment - current   524    74    524 
    16,152    2,281    16,286 

 

Amortization of land use rights for the three months ended March 31, 2020 and 2019 was RMB134 (US$19) and RMB133, respectively.

 

Estimated amortization expenses for the next five years are as follows: 

 

   RMB   US$ 
1 year after   524    74 
2 years after   524    74 
3 years after   524    74 
4 years after   524    74 
5 years after   524    74 
Thereafter   13,532    1,911 

 

As of March 31, 2020, the amount of RMB524 (US$74) 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 7 - SHORT-TERM BORROWINGS AND LONG-TERM LOAN

 

Short-term borrowings and long-term loan consisted of the following:

 

Lender  Interest
rate per
annum
     31 March, 2020    December 31, 2019 
       RMB   US$   RMB 
BANK LOANS                    
  Bank of Weifang.                    
- June 19, 2019 to June 18, 2020   6.5%   15,000    2,118    15,000 
- July 15, 2019 to July 15, 2020   6.5%   20,000    2,825    20,000 
- July 18, 2019 to July 9, 2020   6.5%   30,000    4,237    30,000 

 

Notes:

 

The principal amounts of the above loans are repayable at the end of the loan period.

 

 14 

 

 

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share value)

(Unaudited)

 

 

NOTE 8 - 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 March 31, 2020, the principal of this loan from Shandong SNTON was RMB86,796 and the interest payable was RMB33,649.

 

The related accounts payable as of March 31, 2020 and December 31, 2019 was RMB120,445 and RMB119,297, respectively.

 

NOTE 9 - NOTES PAYABLE

 

As of March 31, 2020, Shandong Fuwei had banker’s acceptances opened with a maturity from three to six months totaling RM26,800 (US$3,785) for payment in connection with raw materials for a total deposit of RMB15,000 (US$2,118) made to Bank of Weifang.

 

NOTE 10 - INCOME TAX

 

Income tax benefit was RMB94 and Income tax expense was RMB17 for the three months ended March 31, 2020 and 2019, respectively.

 

NOTE 11 - EARNINGS (LOSS) PER SHARE

 

Basic and diluted net benefit per share was RMB3.97 (US$0.56) and basic and diluted net loss per share RMB1.03 for the three-month period ended March 31, 2020 and 2019, respectively.

 

NOTE 12 - MAJOR CUSTOMERS AND VENDORS

 

There were no major customers who accounted for more than 10% of the total net revenue for the three-month periods ended March 31, 2020 and 2019.

 

 15 

 

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share value)

(Unaudited)

 

The following are the vendors that supplied 10% or more of our raw materials for March 31, 2020 and 2019:

 

      Percentage of total purchases (%) 
Supplier  Item  March 31, 2020   March 31, 2019 
Sinopec Yizheng Chemical Fiber Company Limited (“Sinopec Yizheng”)   PET resin and Additive   52.3%   61.6%
Hefei Lucky Technology Industry Co., LTD. Jiangyin Branch (“Lucky”)   PET resin and Additives   12.2%   9.2%

 

As of March 31, 2020, the balance of advance to suppliers to Sinopec Yizheng and Lucky was RMB969 (US$137) and RMB 8,196 (US$1,157), respectively.

 

 16 

 

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 2020, 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 2020, 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.

 

 17 

 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

 

On January 28, 2019, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Gold Glory Blockchain Inc. ("Gold Glory"), a California-headquartered company focused on blockchain technology applications and digital asset services. The Purchase Agreement will result in the issuance by us of 9,500,000 new ordinary shares in exchange for all outstanding shares of Gold Glory. We concurrently entered into a Share Transfer Agreement (the “Transfer Agreement”) with Hong Kong Ruishang International Trade Co. Ltd. ("Ruishang"), the current majority owner of our equity shares. Pursuant to the Transfer Agreement, we agreed to sell, assign and deliver all shares of Fuwei Films (BVI) Co. Ltd. ("Fuwei BVI"), a subsidiary directly owned by us, plus cash consideration of USD3 million to Ruishang, in exchange for all 1,728,126 ordinary shares of the Company owned by Ruishang, representing 52.9% of our outstanding shares. This transaction will effectively transfer our existing business to Ruishang, after which we will only own the shares of Gold Glory.

 

The closing of the transaction is subject to the following conditions, (i) concurrent divesture of our current business, which is to be effected through sale of Fuwei BVI to Ruishang, pursuant to the Transfer Agreement (ii) approval of the transactions contemplated by the Purchase Agreement and the Transfer Agreement by our Board of Directors and shareholders; (iii) receipt of necessary regulatory approvals, including NASDAQ approval, and (iv) a private placement of ordinary shares by Gold Glory raising at least USD10 million.

 

We were previously informed that Gold Glory needs additional time to complete its audit. No formal amendment reflecting an extension has been entered into by the parties. We are still waiting for the completion of Gold Glory’s audit and will provide further updates when available.

 

Results of operations for the three months ended March 31, 2020 and March 31, 2019

 

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, 2020   March 31, 2019 
   (as % of Revenue) 
Gross profit   35.8    15.3 
Operating expenses   (18.1)   (16.7)
Operating income (loss)   17.7    (1.4)
Other income (expense)   (2.2)   (2.7)
Income tax benefit (expense)   0.1    - 
Net income (loss)   15.6    (4.2)

 

Revenue 

 

Net sales during the first quarter ended March 31, 2020 were RMB83.2 million (US$11.8 million), compared to RMB81.1 million, during the same period in 2019, representing an increase of RMB2.1 million or 2.6%, mainly due to the increased sales price.

 

In the first quarter of 2020, sales of specialty films were RMB39.9 million (US$5.6 million) or 47.9% of our total revenues as compared to RMB32.2 million or 39.7% in the same period of 2019. The increase was mainly due to increased sales volume.  

 

 18 

 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

 

The following is a breakdown of commodity and specialty film sales (amounts in thousands):

 

   Three-Month Period Ended
March 31, 2020
   % of Total   Three-Month Period Ended
March 31, 2019
   % of Total 
   RMB   US$       RMB 
Stamping and transfer film   34,522    4,876    41.5%   31,529    38.9%
Printing film   5,845    825    7.0%   12,219    15.1%
Metallization film   1,501    212    1.8%   676    0.8%
Specialty film   39,877    5,632    47.9%   32,196    39.7%
Base film for other application   1,488    210    1.8%   4,454    5.5%
                          
    83,233    11,755    100.0%   81,074    100.0%

 

Overseas sales were RMB5.8 million or US$0.8 million, or 6.9% of total revenues, compared with RMB16.2 million or 20.0% of total revenues in the first quarter of 2019, representing a decrease of RMB10.4 million or 64.2%. The decrease was mainly due to decreased sales volume.

 

The following is a breakdown of PRC domestic and overseas sales (amounts in thousands except percentages):

 

   Three-Month Period Ended
March 31, 2020
   % of Total   Three-Month Period Ended
March 31, 2019
   % of Total 
   RMB   US$      RMB     
Sales in China   77,448    10,938    93.1%   64,854    80.0%
Sales in other countries   5,785    817    6.9%   16,220    20.0%
                          
    83,233    11,755    100.0%   81,074    100.0%

 

 19 

 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

 

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, 2020   March 31, 2019 
   % of total   % of total 
Materials costs   74.0%   73.2%
Factory overhead   8.2%   11.0%
Energy expense   9.9%   7.8%
Packaging materials   4.5%   4.1%
Direct labor   3.4%   3.9%

 

Cost of goods sold during the first quarter of 2020 totaled RMB53.5 million (US$7.6 million) as compared to RMB68.7 million in the same period of 2019. This was RMB15.2 million or 22.1% lower than the same period in 2019. This decrease was mainly due to decreased prices of main raw materials.

 

Gross Profit

 

Our gross profit was RMB29.8 million (US$4.2 million) for the first quarter ended March 31, 2020, representing a gross margin of 35.8%, as compared to a gross profit of RMB12.4 million and gross margin of 15.3% for the same period in 2019. Our average product sales prices increased by 5.4% while our average cost of goods sold decreased by 20.0% compared to the same period in 2019. 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, 2020 contributed to the increase in our gross profit and gross margin during the period.

 

 20 

 

 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Operating Expenses 

 

Operating expenses for the first quarter ended March 31, 2020 were RMB15.0 million (US$2.1 million), which was RMB1.5 million, or 11.1% higher than the same period in 2019. This increase was mainly due to the increased allowance for doubtful accounts receivable and increased transportation expenses.

 

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, 2020 was RMB1.9 million (US$0.3 million), while total other expense was RMB2.2 million for the same period in 2019.

 

Income Tax Benefit (Expense)

 

The income tax benefit was RMB0.09 million (US$0.01 million) during the first quarter ended March 31, 2020, compared to income tax expense of RMB0.02 million during the same period in 2019. This increase of income tax benefit was due to changes in deferred tax.

 

Net Profit (Loss)

 

Net profit attributable to the Company during the first quarter ended March 31, 2020 was RMB13.0 million (US$1.8 million) compared to net loss attributable to the Company of RMB3.4 million during the same period in 2019.

 

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 2019 to the first quarter of 2020 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 we will pay off the principal of this loan plus interest upon availability of new loans from banks or other financial institutions.

 

As of March 31, 2020, the principal of this loan from Shandong SNTON was RMB86.80 million and the interest payable was RMB33.6 million.

 

 21 

 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The related accounts payable as of March 31, 2020 and December 31, 2019 was RMB120.4 million and RMB119.3 million, respectively.

 

The main source of cash inflow for the next twelve months will come from sales of products, and the estimated inflow is RMB354.4 million. The estimated cash outflow is RMB254.0 million. The amount of cash used in the purchase of raw materials and packaging materials is estimated to be RMB157.8 million and RMB11.2 million, respectively. Cash used for power costs, labor costs, maintenance and renovation expenses is estimated to be RMB24.4 million, RMB17.5 million and RMB10.3 million, respectively. Total cash used in sales expenses, financial expenses and administrative expenses is estimated to be RMB32.8 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 used in operating activities for the three months ended March 31, 2020 was RMB2.3 million (US$0.3 million) compared to net cash provided by operating activities of RMB5.6 million for the three months ended March 31, 2019. This increase in net cash flows used in operating activities was primarily attributable to the increase in accounts receivable.

 

Working Capital

 

As of March 31, 2020 and December 31, 2019, we had a working capital deficit of RMB90.4 million (US$12.8 million) and RMB110.0 million, respectively. Working capital deficit decreased by RMB19.6 million (US$2.8 million), or 17.8% compared to the amount as of December 31, 2019. 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, 2020 (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   86,796    86,796                
-Interest   4,531    4,531                
Bank loans                         
-Principal   65,000    65,000                
-Interest   4,225    4,225              - 
Notes payable   26,800    26,800                
Operating leases   20    20         -    - 
Total   188,382    188,382    -           

 

 22 

 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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.

 

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Exhibit Index

 

Exhibit No.   Description 
99.1   Press Release dated June 22, 2020.

 

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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: June 22, 2020

 

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Exhibit 99.1

 

 

Fuwei Films Announces Its Unaudited Financial Results for the First Quarter of 2020

 

-Teleconference to be Held on Tuesday, June 23, 2020 at 9:00 am ET-

 

BEIJING, June 22, 2020 - Fuwei Films (Holdings) Co., Ltd. (Nasdaq: FFHL) (“Fuwei Films” or the “Company”), a manufacturer and distributor of high-quality BOPET plastic films in China, today announced its unaudited financial results for the first quarter of 2020 ended March 31, 2020.

 

 

First quarter highlights

 

·Net sales during the first quarter ended March 31, 2020 were RMB83.2 million (US$11.8 million), up from RMB81.1 million during the same period in 2019, representing an increase of RMB2.1 million or 2.6%.
·Sales of specialty films were RMB39.9 million (US$5.6 million) or 47.9% of our total revenues, up from RMB32.2 million or 39.7% in the same period of 2019.
·Our gross profit was RMB29.8 million (US$4.2 million) for the first quarter ended March 31, 2020, representing a gross margin of 35.8%, up from a gross profit of RMB12.4 million and gross margin of 15.3% for the same period in 2019.
·Net profit attributable to the Company during the first quarter ended March 31, 2020 was RMB13.0 million (US$1.8 million) compared to net loss attributable to the Company of RMB3.4 million during the same period in 2019.

 

 

Mr. Zengyong Wang, Chairman and CEO of Fuwei Films, commented, “Despite the oversupply in the marketplace and the outbreak of COVID-19 pandemic which has caused significant adverse effects on the world economy, we achieved positive trends in overall sales, especially sales of specialty films which accounted for 47.9% of our total revenues. In addition, we achieved net profit for four consecutive quarters. We believe these results benefit from our commitment to innovation and differentiated marketing strategy which have expanded the end-user applications of our films products. We will continue with these efforts and expect that they will enable the Company to capitalize on new opportunities despite challenging industry and economic conditions.”

 

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First Quarter 2020 Results

 

Net sales during the first quarter ended March 31, 2020 were RMB83.2 million (US$11.8 million), compared to RMB81.1 million, during the same period in 2019, representing an increase of RMB2.1 million or 2.6%, mainly due to increased sales price.

 

In the first quarter of 2020, sales of specialty films were RMB39.9 million (US$5.6 million) or 47.9% of our total revenues as compared to RMB32.2 million or 39.7% in the same period of 2019. 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, 2020
   % of Total   Three-Month Period
Ended
March 31, 2019
   % of Total 
   RMB   US$       RMB     
Stamping and transfer film   34,522    4,876    41.5%   31,529    38.9%
Printing film   5,845    825    7.0%   12,219    15.1%
Metallization film   1,501    212    1.8%   676    0.8%
Specialty film   39,877    5,632    47.9%   32,196    39.7%
Base film for other application   1,488    210    1.8%   4,454    5.5%
                          
    83,233    11,755    100.0%   81,074    100.0%

 

Overseas sales were RMB5.8 million (US$0.8 million), or 6.9% of total revenues, compared with RMB16.2 million or 20.0% of total revenues in the first quarter of 2019, representing a decrease of RMB10.4 million or 64.2%. The decrease was mainly due to decreased sales volume.

 

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The following is a breakdown of PRC domestic and overseas sales (amounts in thousands except percentages):

 

   Three-Month Period
Ended
March 31, 2020
   % of Total   Three-Month Period
Ended
March 31, 2019
   % of Total 
   RMB   US$       RMB     
Sales in China   77,448    10,938    93.1%   64,854    80.0%
Sales in other countries   5,785    817    6.9%   16,220    20.0%
                          
    83,233    11,755    100.0%   81,074    100.0%

 

Our gross profit was RMB29.8 million (US$4.2 million) for the first quarter ended March 31, 2020, representing a gross margin of 35.8%, as compared to a gross profit of RMB12.4 million and gross margin of 15.3% for the same period in 2019. Our average product sales prices increased by 5.4% while our average cost of goods sold decreased by 20.0% compared to the same period in 2019. Consequently, our gross profit and gross margin was higher during the period.

 

Operating expenses for the first quarter ended March 31, 2020 were RMB15.0 million (US$2.1 million), which was RMB1.5 million, or 11.1% higher than the same period in 2019. This increase was mainly due to the increased accrued allowance for doubtful accounts receivable and increased transportation expenses.

 

Net profit attributable to the Company during the first quarter ended March 31, 2020 was RMB13.0 million (US$1.8 million) compared to net loss attributable to the Company of RMB3.4 million during the same period in 2019.

 

Basic and diluted net earnings per share was RMB3.97 (US$0.56) for the three-month period ended March 31, 2020 while basic and diluted net loss per share was RMB1.03 for the three-month period ended March 31, 2019.

 

Total shareholders’ equity was RMB221.1 million or US$31.2 million as of March 31, 2020, compared with RMB208.2 million as of December 31, 2019.

 

As of March 31, 2020, the Company had 3,265,837 basic and diluted ordinary shares outstanding.

 

Conference Call Information

 

The Company will host a teleconference on Tuesday, June 23, 2020, at 9:00 a.m. ET / 9:00 p.m. Beijing time to discuss the financial results. To participate in the call, please dial +1-844-369-8770 in North America, or +1-862-298-0840 internationally, approximately 5 minutes prior to the scheduled start time.

 

A replay of the call can also be accessed via telephone by calling +1-877-481-4010 in North America, or +1-919-882-2331 internationally, and entering the following Conference ID: 35316. The replay will be available until July 7, 2020.

 

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About Fuwei Films

 

Fuwei Films conducts its business through its wholly owned subsidiary, Fuwei Films (Shandong) Co., Ltd. (“Fuwei Shandong”). Fuwei Shandong develops, manufactures and distributes high-quality plastic films using the biaxial oriented stretch technique, otherwise known as BOPET film (biaxially oriented polyethylene terephthalate). Fuwei's BOPET film is widely used to package food, medicine, cosmetics, tobacco, and alcohol, as well as in the imaging, electronics, and magnetic products industries.

 

Safe Harbor

 

This press release contains information that constitutes forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to risks. Risk factors that could contribute to such differences include those matters more fully disclosed in the Company's reports filed with the U.S. Securities and Exchange Commission which, among other things, include 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 uncertainty of the antidumping investigation and imposition of an anti-dumping duty on imports of the BOPET films originating from the People's Republic of China ("China") conducted by certain countries; uncertainty around coronavirus (COVID-19) outbreak and the effects of government and other measures seeking to contain its spread, uncertainty around U.S.-China trade war and its effect on the Company's operation, fluctuations of the RMB exchange rate, and our ability to obtain adequate financing for our planned capital expenditure requirements; uncertainty as to our ability to continuously develop new BOPET film products and keep up with changes in BOPET film technology; risks associated with possible defects and errors in our products; uncertainty as to our ability to protect and enforce our intellectual property rights; uncertainty as to our ability to attract and retain qualified executives and personnel; and uncertainty in acquiring raw materials on time and on acceptable terms, particularly in view of the volatility in the prices of petroleum products in recent years. The forward-looking information provided herein represents the Company's estimates as of the date of the press release, and subsequent events and developments may cause the Company's estimates to change. The Company specifically disclaims any obligation to update the forward-looking information in the future. Therefore, this forward-looking information should not be relied upon as representing the Company's estimates of its future financial performance as of any date subsequent to the date of this press release. Actual results of our operations may differ materially from information contained in the forward-looking statements as a result of the risk factors.

 

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For more information, please contact:

 

In China:

 

Ms. Xiaoli Yu
Investor Relations Officer
Phone: +86-133-615-59266
Email: fuweiIR@fuweifilms.com

 

In the U.S.:

 

Shiwei Yin
Investor Relations
Grayling
Phone: +1-646-284-9474
Email: shiwei.yin@grayling.com

 

 

 

Financial Tables to Follow

 

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FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2020 AND DECEMBER 31, 2019

(amounts in thousands except share and per share value)

(Unaudited)

   March 31, 2020   December 31, 2019 
   RMB   US$   RMB 
ASSETS
Current assets               
Cash and cash equivalents   55,671    7,862    60,871 
Restricted cash   15,000    2,118    25,500 
Accounts and bills receivable, net   41,496    5,860    26,960 
Inventories   24,265    3,427    23,584 
Advance to suppliers   12,448    1,758    6,277 
Prepayments and other receivables   1,131    160    1,058 
Deferred tax assets - current   1,333    188    1,266 
Total current assets   151,344    21,373    145,516 
                
Plant, properties and equipment, net   296,159    41,826    302,642 
Lease prepayments, net   15,628    2,207    15,762 
Advance to suppliers - long term, net   1,542    218    1,542 
Deferred tax assets - non current   474    67    509 
                
Total assets   465,147    65,691    465,971 
                
LIABILITIES AND EQUITY
Current liabilities               
Short-term borrowings   65,000    9,180    65,000 
Due to related parties   120,445    17,010    119,297 
Accounts payables   20,818    2,940    19,532 
Notes payable   26,800    3,785    41,000 
Advance from customers   1,664    235    5,204 
Accrued expenses and other payables   7,044    995    5,454 
Total current liabilities   241,771    34,145    255,487 
                
Deferred tax liabilities   2,228    315    2,290 
                
Total liabilities   243,999    34,460    257,777 
                
Equity               
Shareholders’ equity               
Registered capital(of US$0.519008 par value; 5,000,000 shares authorized; 3,265,837 issued and outstanding)   13,323    1,882    13,323 
Additional paid-in capital   311,907    44,050    311,907 
Statutory reserve   37,441    5,288    37,441 
Accumulated deficit   (142,363)   (20,105)   (155,317)
Cumulative translation adjustment   840    116    840 
Total shareholders’ equity   221,148    31,231    208,194 
Total equity   221,148    31,231    208,194 
Total liabilities and equity   465,147    65,691    465,971 

 

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FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2020 AND 2019

(amounts in thousands except share and per share value)

(Unaudited)

 

   The Three-Month Period Ended March 31, 
   2020   2019 
   RMB   US$   RMB 
Net sales   83,233    11,755    81,074 
Cost of sales   53,474    7,552    68,670 
                
Gross Profit   29,759    4,203    12,404 
                
Operating expenses               
Selling expenses   4,086    577    2,964 
Administrative expenses   10,955    1,547    10,577 
Total operating expenses   15,041    2,124    13,541 
                
Operating income (loss)   14,718    2,079    (1,137)
                
Other income (expense)               
- Interest income   289    41    213 
- Interest expense   (2,216)   (313)   (2,191)
- Others income (expense),net   69    10    (242)
                
Total other expense   (1,858)   (262)   (2,220)
                
Income (loss) before provision for income taxes   12,860    1,817    (3,357)
                
Income tax benefit (expense)   94    13    (17)
                
Net income (loss)   12,954    1,830    (3,374)
                
Net loss attributable to non-controlling interests   -    -    - 
Net income (loss) attributable to the Company   12,954    1,830    (3,374)
                
Other comprehensive income               
- Foreign currency translation adjustments attributable to non-controlling interest   -    -    - 
- Foreign currency translation adjustments attributable to the Company   -    -    (1)
                
Comprehensive loss attributable to non-controlling interest   -    -    - 
Comprehensive income (loss) attributable to the Company   12,954    1,830    (3,375)
                
Earnings (loss) per share,
Basic and diluted
   3.97    0.56    (1.03)
Weighted average number ordinary shares,
Basic and diluted
   3,265,837    3,265,837    3,265,837 

 

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FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2020 AND 2019

(amounts in thousands except share and per share value)

(Unaudited)

 

   The Three-Month Period Ended March 31, 
   2020   2019 
   RMB   US$   RMB 
Cash flow from operating activities               
Net income (loss)   12,954    1,829    (3,374)
Adjustments to reconcile net loss to net cash               
used in operating activities               
- Depreciation of property, plant and equipment   6,847    967    12,044 
- Amortization of intangible assets   134    19    133 
- Deferred income taxes   (94)   (13)   18 
- Bad debt expense   447    63    (286)
-Inventory provision   -    -    - 
Changes in operating assets and liabilities               
- Accounts and bills receivable   (14,984)   (2,116)   (4,123)
- Inventories   (679)   (96)   (814)
- Advance to suppliers   (6,171)   (872)   2,935 
- Prepaid expenses and other current assets   (73)   (10)   13 
- Accounts payable   1,285    182    (589)
- Accrued expenses and other payables   -    -    (136)
- Advance from customers   (3,540)   (500)   (700)
- Tax payable   1,590    225    512 
                
Net cash provided by operating activities   (2,284)   (322)   5,633 
                
Cash flow from investing activities               
Purchases of property, plant and equipment   (364)   (51)   (1,529)
Restricted cash related to trade finance   -    -    - 
Advanced to suppliers - non current   -    -    - 
Amount change in construction in progress   -    -    345 
                
Net cash provided by investing activities   (364)   (51)   (1,184)
                
Cash flow from financing activities               
Proceeds from related party   1,148    162    1,136 
Payment of capital lease obligation   -    -    - 
Change in notes payable   (14,200)   (2,005)   3,580 
                
Net cash used in financing activities   (13,052)   (1,843)   4,716 
                
Effect of foreign exchange rate changes   -    (211)   (1)
                
Net decrease in cash and cash equivalent   (15,700)   (2,427)   9,164 
                
Cash and cash equivalent               
At beginning of period/year   86,371    12,407    46,908 
At end of period/year   70,671    9,980    56,072 
                
SUPPLEMENTARY DISCLOSURE:               
Interest paid   2,216    313    2,191 
Income tax paid   -    -    - 
                
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCIAL ACTIVITIES:
Account payable for plant and equipment:   1,010    143    1,010 

 

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