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Form 6-K Fuwei Films (Holdings), For: Nov 23

November 23, 2020 4:32 PM EST

 

 

 

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 September 30, 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, 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., 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.

 

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On November 23, 2020, the Company announced its unaudited consolidated financial results for the nine-month period ended September 30, 2020.

 

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

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2020, AND DECEMBER 31, 2019

(amounts in thousands except share and per share value)

(Unaudited)

 

       September 30, 2020   December 31, 2019 
   Notes   RMB   US$   RMB 
ASSETS
Current assets                    
Cash and cash equivalents        86,310    12,712    60,871 
Restricted cash        2,500    368    25,500 
Accounts and bills receivable, net   3    23,403    3,447    26,960 
Inventories   4    27,294    4,020    23,584 
Advance to suppliers        7,981    1,175    6,277 
Prepayments and other receivables        1,254    185    1,058 
Deferred tax assets – current        1,286    189    1,266 
Total current assets        150,028    22,096    145,516 
                     
Property, plant and equipment, net   5    278,210    40,976    302,642 
Construction in progress   6    1,069    157    - 
Lease prepayments, net   7    15,351    2,261    15,762 
Advance to suppliers - long term, net        1,542    227    1,542 
Deferred tax assets - non current        403    59    509 
                     
Total assets        446,603    65,776    465,971 
                     
LIABILITIES AND EQUITY
Current liabilities                    
Short-term borrowings   8    65,000    9,573    65,000 
Due to related parties   9    92,846    13,675    119,297 
Accounts payables        23,026    3,391    19,532 
Notes payable   10    3,400    501    41,000 
Advance from customers        5,127    755    5,204 
Accrued expenses and other payables        6,491    956    5,454 
Total current liabilities        195,890    28,851    255,487 
                     
Deferred tax liabilities        2,024    298    2,290 
                     
Total liabilities        197,914    29,149    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    1,962    13,323 
Additional paid-in capital        311,907    45,939    311,907 
Statutory reserve        37,441    5,514    37,441 
Accumulated deficit        (114,822)   (16,911)   (155,317)
Cumulative translation adjustment        840    123    840 
Total equity        248,689    36,627    208,194 
Total liabilities and equity        446,603    65,776    465,971 

 

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

 

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2020 AND 2019

(amounts in thousands except share and per share value)

(Unaudited)

 

       The Three-Month Period Ended
September 30,
   The Nine-Month Period Ended
September 30,
 
       2020   2019   2020   2019 
   Notes   RMB   US$   RMB   RMB   US$   RMB 
Net sales        84,316    12,418    79,586    250,405    36,881    248,777 
Cost of sales        48,276    7,110    57,996    150,171    22,118    196,154 
                                    
Gross profit        36,040    5,308    21,590    100,234    14,763    52,623 
                                    
Operating expenses                                   
Selling expenses        4,200    619    3,236    11,658    1,717    9,737 
Administrative expenses        16,735    2,465    13,083    43,058    6,342    35,113 
Total operating expenses        20,935    3,084    16,319    54,716    8,059    44,850 
                                    
Operating income        15,105    2,224    5,271    45,518    6,704    7,773 
                                    
Other income (expense)                                   
- Interest income        637    94    255    1,494    220    671 
- Interest expense        (2,240)   (330)   (2,240)   (6,697)   (986)   (6,675)
- Others income (expense), net        (118)   (17)   80    -    -    (792)
                                    
Total other expense        (1,721)   (253)   (1,905)   (5,203)   (766)   (6,796)
                                    
Income before provision for income taxes        13,384    1,971    3,366    40,315    5,938    977 
                                    
Income tax benefit   11    99    15    77    180    27    44 
                                    
Net income         13,483    1,986    3,443    40,495    5,965    1,021 
                                    
Other comprehensive loss                                   
- Foreign currency translation adjustments        -    -    1    -    -    - 
                                    
Comprehensive income        13,483    1,986    3,444    40,495    5,965    1,021 
                                    
Income per share, Basic and diluted   12    4.13    0.61    1.05    12.40    1.83    0.31 
Weighted average number ordinary shares, Basic and diluted        3,265,837    3,265,837    3,265,837    3,265,837    3,265,837    3,265,837 

 

 

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

 

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2020 AND 2019

(amounts in thousands except share and per share value)

(Unaudited)

 

   The Nine-Month Period Ended September 30, 
   2020   2019 
   RMB   US$   RMB 
Cash flow from operating activities               
Net income   40,495    5,965    1,021 
Adjustments to reconcile net loss to net cash used in operating activities               
- Depreciation of property, plant and equipment   29,086    4,284    33,957 
- Amortization of intangible assets   401    59    400 
- Deferred income taxes   (180)   (27)   (44)
- Bad debt (recovery) expense   131    19    (897)
-Inventory provision   -    -    724 
Changes in operating assets and liabilities               
- Accounts and bills receivable   3426    505    (72)
- Inventories   (3,710)   (546)   1,815 
- Advance to suppliers   (1,705)   (251)   (4,833)
- Prepaid expenses and other current assets   (186)   (27)   (155)
- Accounts payable   3,494    515    393 
- Accrued expenses and other payables   313    46    501 
- Advance from customers   (77)   (11)   2,447 
- Tax payable   724    107    368 
                
Net cash provided by (used in) operating activities   72,212    10,638    35,625 
                
Cash flow from investing activities               
Purchases of property, plant and equipment   (4,653)   (685)   (12,889)
Restricted cash related to trade finance   -    -    - 
Advance to suppliers - non current   -    -    - 
Amount change in construction in progress   (1,069)   (157)   366 
                
Net cash used in investing activities   (5,722)   (842)   (12,523)
                
Cash flow from financing activities               
Principal payments of bank loans   -    -    - 
Proceeds from short-term bank loans   -    -    50 
Proceeds from related party   (26,451)   (3,896)   3,457 
Change in notes payable   (37,600)   (5,538)   1,400 
                
Net cash provided by financing activities   (64,051)   (9,434)   4,907 
                
Effect of foreign exchange rate changes   -    311    - 
                
Net increase in cash and cash equivalent   2,439    673    28,009 
                
Cash and cash equivalent               
At beginning of period/year   86,371    12,407    46,908 
At end of period/year   88,810    13,080    74,917 
                
SUPPLEMENTARY DISCLOSURE:               
Interest paid   6,697    986    6,675 
Income tax paid   -    -    - 
                
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCIAL ACTIVITIES:               
Account payable for plant and equipment:   1,010    149    1,062 

 

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

 

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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 nine-month period ended September 30, 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.

 

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share value)

(Unaudited)

 

Foreign Currency Transactions

 

The Company’s reporting currency is Chinese Yuan (Renminbi or “RMB”).

 

Fuwei Films (Holdings) Co., Ltd. and Fuwei (BVI) operate in Hong Kong as investment holding companies and their financial records are maintained in Hong Kong dollars, being the functional currency of these two entities. Assets and liabilities are translated into RMB at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates and income, expenses, and cash flow items are translated using the average rate for the period. The translation adjustments are recorded in accumulated other comprehensive income in the statements of equity. The changes in the translation adjustments for the current period were reported as the line items of other comprehensive income in the consolidated statements of comprehensive income.

 

Transactions denominated in currencies other than RMB are translated into RMB at the exchange rates quoted by the People’s Bank of China (the “PBOC”) prevailing at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies are translated into RMB using the applicable exchange rates quoted by the PBOC at the balance sheet dates. The resulting exchange differences are recorded in the consolidated statements of comprehensive income.

 

RMB is not fully convertible into foreign currencies. All foreign exchange transactions involving RMB must take place either through the PBOC or other institutions authorized to buy and sell foreign currency. The exchange rate adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC which are determined largely by supply and demand.

 

Commencing July 21, 2005, the PRC government moved the RMB into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies.

 

For the convenience of the readers, the third quarter of 2020 RMB amounts included in the accompanying condensed consolidated financial statements in our quarterly report have been translated into U.S. dollars at the rate of US$1.00 = RMB6.7896, on the last trading day of the third quarter of 2020 (September 30, 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 September 30, 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, maintained within the United States as well as in foreign countries to be cash and cash equivalents. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for the banks located in the United States. Balances at financial institutions within certain foreign countries are not covered by insurance. Restricted cash refers to the cash balance held by bank as deposit for Letters of Credit and Bank Acceptance Bill. The Company had restricted cash of RMB2,500 (US$368) and RMB25,500 as of September 30, 2020 and December 31, 2019, respectively.

 

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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.

 

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share value)

(Unaudited)

 

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

 

Leased Assets

 

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

 

Classification of assets leased to the Group. Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under capital leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases.

 

Assets acquired under capital leases. Where the Group acquires the use of assets under capital leases, the amounts representing the fair value of the leased asset, or, if lower, the present value of the minimum lease payments, of such assets are included in property, plant and equipment and the corresponding liabilities, net of finance charges, are recorded as obligations under capital leases. Depreciation is provided at rates which write off the cost or valuation of the assets over the term of the relevant lease or, where it is likely the Group will obtain ownership of the asset, the life of the asset. Finance charges implicit in the lease payments are charged to the consolidated income statement over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period. Contingent rentals are charged to the consolidated income statement in the accounting period in which they are incurred.

 

Operating lease charges. Where the Group has the use of assets held under operating leases, payments made under the leases are charged to the consolidated income statement in equal installments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognized in the consolidated income statement as an integral part of the aggregate net lease payments made. Contingent rentals are charged to the consolidated income statement in the accounting period in which they are incurred.

 

Sale and leaseback transactions. Gains or losses on equipment sale and leaseback transactions which result in capital leases are deferred and amortized over the terms of the related leases. Gains or losses on equipment sale and leaseback transactions which result in operating leases are recognized immediately if the transactions are established at fair value. Any loss on the sale perceived to be a real economic loss is recognized immediately. However, if a loss is compensated for by future rentals at a below-market price, then the artificial loss is deferred and amortized over the period that the equipment is expected to be used. If the sale price is above fair value, then any gain is deferred and amortized over the useful life of the assets.

 

Lease Prepayments

 

Lease prepayments represent the costs of land use rights in the PRC. Land use rights are carried at cost and charged to expense on a straight-line basis over the respective periods of rights of 30 years. The non-current portion and current portion of lease prepayments have been reported in Lease Prepayments, Prepayments and Other Receivables in the balance sheets, respectively.

 

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share value)

(Unaudited)

 

Impairment of Long-lived Assets

 

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

 

Revenue Recognition

 

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

 

In the PRC, VAT of 13% on the invoice amount is collected with respect to the sales of goods on behalf of tax authorities. The VAT collected is not revenue of the Company, instead, the amount is recorded as a liability on the consolidated balance sheet until such VAT is paid to the authorities.

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

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.

 

11

 

 

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share value)

(Unaudited)

 

Share-Based Payments

 

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

 

Contingencies

 

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

 

Reclassification

 

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

 

Going Concern Matters

 

The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the company as a going concern. However, as of September 30, 2020 and 2019, the Company had a working capital deficiency of RMB45,862 (US$6,755) and RMB130,371, respectively and accumulated surplus of RMB40,495 (US$5,965) and RMB1,021 incurred during the first nine months of 2020 and 2019, respectively. The ability of the Company to operate as a going concern depends upon its ability to obtain loans from financial institutions and a related party and/or generate positive cash flow from operations. The Company accordingly has obtained loans from financial institutions and related party to meet the need of working capital for our operation or debts. At the same time, the Company will continue implementing strict cost reductions on both manufacturing costs and operating expenses to improve profit margins. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

 

12

 

 

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 and bills receivables consisted of the following:

 

   September 30, 2020   December 31, 2019 
   RMB   US$   RMB 
Accounts receivable   19,072    2,809   13,990 
Less: Allowance for doubtful accounts   (964)   (142)  (833)
    18,108    2,667   13,157 
Bills receivable   5,295    780   13,803 
    23,403    3,447   26,960 

 

The Group has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. These receivables are due within 7 to 90 days from the date of billing. Generally, the Group does not obtain collateral from customers. Bills receivable are banker’s acceptance bills, which are guaranteed by the bank.

 

13

 

 

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share value)

(Unaudited)

 

NOTE 4 - INVENTORIES 

 

 Inventories consisted of the following:

 

   September 30, 2020   December 31, 2019 
   RMB   US$   RMB 
Raw materials   26,712    3,935   19,108 
Work-in-progress   1,358    200   1,152 
Finished goods   5,929    873   10,041 
Consumables and spare parts   904    133   892 
Inventory--impairment   (7,609)   (1,121)  (7,609)
    27,294    4,020   23,584 

 

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET

 

Property, plant and equipment consisted of the following: 

 

   September 30, 2020   December 31, 2019 
   RMB   US$   RMB 
Buildings   68,903    10,148   68,319 
Plant and equipment   821,253    120,957   817,715 
Computer equipment   3,199    471   3,163 
Furniture and fixtures   20,739    3,055   19,631 
Motor vehicles   1,546    228   1,452 
    915,640    134,859   910,280 
Less: accumulated depreciation   (630,211)   (92,820)  (600,419)
Less: impairment of plant and equipment   (7,219)   (1,063)  (7,219)
    278,210    40,976   302,642 

 

Total depreciation for the nine-month periods ended September 30, 2020 and 2019 was RMB29,086 (US$4,284) and RMB33,957, respectively. For the three-month periods ended September 30, 2020 and 2019, depreciation expenses were RMB11,100 (US$1,738) and RMB10,065, respectively.

 

NOTE 6 - CONSTRUCTION IN PROGRESS

 

Construction-in-progress represents capital expenditure in respect to the BOPET production line. Construction in progress was RMB1,069 (US$157) as of September 30, 2020, and RMB0 as of December 31, 2019, 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.

 

14

 

 

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: 

 

   September 30, 2020   December 31, 2019 
   RMB   US$   RMB 
Lease prepayment - non current   15,351    2,261   15,762 
Lease prepayment - current   534    79   524 
    15,885    2,340   16,286 

 

Amortization of land use rights for the nine months ended September 30, 2020 and 2019 was RMB401 (US$59) and RMB400, respectively. Amortization of land use rights for the three months ended September 30, 2020 and 2019 was RMB134 (US$21) and RMB133, respectively.

 

Estimated amortization expenses for the next five years after September 30, 2020 are as follows: 

 

   RMB   US$ 
1 year after   534    79 
2 years after   534    79 
3 years after   534    79 
4 years after   534    79 
5 years after   534    79 
Thereafter   13,215    1,945 

 

As of September 30, 2020, the amount of RMB534 (US$79) 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:

 

Lender  Interest rate per annum   September 30, 2020   December 31, 2019 
       RMB   US$   RMB 
BANK LOANS                    
Bank of Weifang                    
- June 19, 2019 to June 18, 2020   6.5%   -    -    15,000 
- July 15, 2019 to July 15, 2020   6.5%   -    -    20,000 
- July 18, 2019 to July 9, 2020   6.5%   -    -    30,000 
- June 18, 2020 to June 15, 2021   6.5%   15,000    2,209    - 
- July 15, 2020 to July 9, 2021   6.5%   20,000    2,946    - 
- July 9, 2020 to July 9, 2021   6.5%   30,000    4,418    - 

 

Notes:

 

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

 

15

 

 

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share value)

(Unaudited)

 

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 transfer of loan 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 of loan, the related accounts payable to Shanghai Meicheng as of September 30, 2020 was RMB92,846 (US$13,675) after paying back part of the loan.

 

NOTE 10 - NOTES PAYABLE

 

As of September 30, 2020, and December 31, 2019, Shandong Fuwei had banker’s acceptances opened with a maturity from three to six months totaling RMB3,400 (US$501) and RMB41,000, respectively, for payment in connection with raw materials for a total security deposits of RMB2,500 (US$368) and RMB25,500 made to Bank of Weifang, respectively.

 

Notes payable consisted of the following: 

 

Issuing bank  September 30, 2020   December 31, 2019 
   RMB   US$   RMB 
Bank of Weifang   3,400    501    41,000 
    3,400    501    41,000 

 

NOTE 11 - INCOME TAX

 

Income tax benefit was RMB99 (US$15) and RMB77 for the three months ended September 30, 2020 and 2019, respectively.

 

Income tax benefit was RMB180 (US$27) and RMB44 for the nine months ended September 30, 2020 and 2019, respectively.

 

16

 

 

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share value)

(Unaudited)

 

NOTE 12 - EARNINGS PER SHARE

 

Basic and diluted net earnings per share was RMB4.13 (US$0.61) and RMB1.05 for the three-month period ended September 30, 2020 and 2019, respectively.

 

Basic and diluted net earnings per share was RMB12.40 (US$1.83) and RMB0.31 for the nine-month period ended September 30, 2019 and 2018, respectively.

 

NOTE 13 - MAJOR CUSTOMERS AND VENDORS

 

There were no major customers who accounted for more than 10% of the total net revenue for the three-month periods ended September 30, 2020 and 2019.

 

The following are the vendors that supplied 10% or more of our raw materials for September 30, 2020 and 2019:

 

      Percentage of total purchases (%) 
Supplier  Item  September 30, 2020   September 30, 2019 
Sinopec Yizheng Chemical Fibre Company Limited)  PET resin and Additives   48.3%   59.6%
Weifang Power Supply Company.  Electric power   10.2%   8.1%

 

The balance of advance to supplier to Sinopec Yizheng was RMB1,655 (US$244) as of September 30, 2020, respectively.

 

17

 

 

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 third quarter of 2020, although sales were higher, we continued to be adversely affected by enhanced competition and increased supply over demand in China’s BOPET market.

 

We believe that in the remaining quarter of 2020, there will be a growing capacity of BOPET films in China and stronger competition in the market. Our ability to retain effective control over the pricing of our products on a timely basis is limited due to the enhanced competition in the BOPET market.

 

On August 14, 2013, we announced the receipt of the first notice from our controlling shareholder, the Weifang State-owned Assets Operation Administration Company, a wholly-owned subsidiary of Weifang State-owned Asset Management and Supervision Committee (collectively, the “Administration Company”) indicating that the Administration Company had determined to place control over 6,912,503 (or 52.9%) of its outstanding ordinary shares up for sale at a public auction to be held in China. Four public auctions were held in Jinan, Shandong Province, China. We learned that they failed due to a lack of bidders registered for the auction. On March 25, 2014, the fifth public auction was held in Jinan, Shandong Province, China. The beneficial ownership of 6,912,503 of our ordinary shares previously owned by the Administration Company through Apex Glory Holdings Limited, a British Virgin Islands corporation, was bid on by Shandong SNTON Optical Materials Technology Co., Ltd (“Shandong SNTON”) through the public auction. Shandong SNTON received 6,912,503 (or 52.9%) of our outstanding ordinary shares at a price of RMB101,800,000 (approximately US$16,572,787) or approximately US$2.40 per ordinary share.

 

On May 12, 2014, we announced that we had learned that the successful bidder, Shandong SNTON in the fifth public auction of 6,912,503 (or 52.9%) of our outstanding ordinary shares (the “Shares”) held on March 25, 2014, was entrusted by Hongkong Ruishang International Trade Co., Ltd., a Hong Kong corporation, (“Hongkong Ruishang”) to handle all the formalities and procedure in connection with the public auction. As a result of the entrusted arrangement, we believe Hongkong Ruishang is the party controlling the Shares acquired in the fifth public auction. According to publicly available information in the People’s Republic of China, Shandong SNTON is a wholly owned subsidiary of Shandong SNTON Group Co., Ltd. (the “SNTON Group”). Mr. Xiusheng Wang, the chairman of the Board of Directors of SNTON Group is also Hongkong Ruishang’s chairman.

 

On May 14, 2014, we announced that we 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.

 

18

 

 

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

 

On July 2, 2020, we announced receipt of a notification from Shanghai Meicheng Enterprise Management Co., Ltd., (“Shanghai Meicheng”) with respect to an ownership transfer from Shandong SNTON Group Co., Ltd. (the “SNTON Group”) to Shanghai Meicheng, of our 52.9% controlling outstanding ordinary shares (the “Shares”). SNTON Group held the Shares indirectly through an intermediate holding company, Hongkong Ruishang International Trade Co., Ltd. (“Hongkong Ruishang”). SNTON Group transferred its equity in Hongkong Ruishang to Shanghai Meicheng on June 23, 2020, due to SNTON Group’s asset reorganization. As a result of this transfer, Shanghai Meicheng now indirectly owns the Shares through Hongkong Ruishang and Hongkong Ruishang in turn holds the Shares through Apex Glory Holdings Limited, a British Virgin Islands corporation.

 

Shanghai Meicheng is a diversified investment management company located in the Yuhaitang Science and Technology Park of Chongwen District in Shanghai, P.R. China. Its area of investment includes new material, smart city, new energy, culture and entertainment.

 

Results of operations for the three-month periods ended September 30, 2020 compared to September 30, 2019

 

The table below sets forth certain line items from our Statement of Income as a percentage of revenue:

 

   Three-Month Period Ended   Three-Month Period Ended 
   September 30,
2020
   September 30,
2019
 
   (as % of Revenue) 
Gross profit (loss)   42.7    27.1 
Operating expenses   (24.8)   (20.5)
Operating income (loss)   17.9    6.6 
Other income (expense)   (2.0)   (2.4)
Provision for income taxes   0.1    0.1 
Net income (loss)   16.0    4.3 

 

Revenue 

 

Net sales during the third quarter ended September 30, 2020 were RMB84.3 million (US$12.4 million), compared to RMB79.6 million during the same period in 2019, representing a year-over-year increase of RMB4.7 million or 5.9%. The decrease of average sales price caused a decrease of RMB3.2 million and the sales volume increase caused an increase of RMB7.9 million.

 

In the third quarter of 2020, sales of specialty films were RMB54.4 million (US$8.0 million) or 64.6% of our total revenues as compared to RMB40.6 million or 51.0% in the same period of 2019, representing a year-over-year increase of RMB13.8 million, or 34.0% as compared to the same period in 2019. The decrease in average sales price caused a decrease of RMB2.0 million and the increase in the sales volume caused an increase of RMB15.8 million.

 

19

 

 

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
September 30, 2020
   % of Total   Three-Month Period Ended
September 30, 2019
   % of Total 
   RMB   US$       RMB     
Stamping and transfer film   19,860    2.926    23.6%   26,552    33.3%
Printing film   6,261    922    7.4%   7,881    9.9%
Metallization film   451    66    0.5%   1,197    1.5%
Specialty film   54,435    8,017    64.6%   40,559    51.0%
Base film for other application   3,309    487    3.9%   3,397    4.3%
    84,316    12,418    100.0%   79,586    100.0%

 

Overseas sales were RMB7.8 million or US$1.1 million, or 9.2% of total revenues, compared with RMB11.6 million or 14.6% of total revenues in the third quarter of 2019. The decrease in average sales price caused a decrease of RMB0.6 million and the decrease in sales volume resulted in a decrease of RMB3.2 million.

 

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

 

   Three-Month Period Ended
September 30, 2020
   % of Total   Three-Month Period Ended
September 30, 2019
   % of Total 
   RMB   US$       RMB     
Sales in China   76,518    11,270    90.8%   67,993    85.4%
Sales in other countries   7,798    1,148    9.2%   11,593    14.6%
    84,316    12,418    100.0%   79,586    100.0%

 

Cost of Goods Sold 

 

Our cost of goods sold comprises mainly of material costs, factory overhead, power, packaging materials and direct labor. The breakdown of our cost of goods sold in percentage is as follows:

 

   Three-Month
Period Ended
September 30,
2020
   Three-Month
Period Ended
September 30,
2019
 
   % of total   % of total 
Materials costs   69.3%   75.4%
Factory overhead   7.0%   8.9%
Energy expense   11.6%   9.1%
Packaging materials   5.4%   3.7%
Direct labor   6.7%   2.9%

 

Cost of goods sold during the third quarter of 2020 totaled RMB48.3 million (US$7.1 million) as compared to RMB58.0 million in the same period of 2019. This was RMB9.7 million, or 16.7% lower than the same period in 2019. The decrease in unit cost of goods sold caused a decrease of RMB15.5 million and the increase in sales volume caused an increase of RMB5.8 million.

 

20

 

 

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

 

Gross Profit

 

Our gross profit was RMB36.0 million (US$5.3 million) for the third quarter ended September 30, 2020, representing a gross margin rate of 42.7%, as compared to gross profit of RMB21.6 million and a gross margin rate of 27.1% for the same period in 2019. Correspondingly, gross margin rate increased by 15.6 percentage point compared to the same period in 2019.

 

Operating Expenses 

 

Operating expenses for the third quarter ended September 30, 2020 were RMB20.9 million (US$3.1 million), which was RMB4.6 million, or 28.2% higher than the same period in 2019. This increase was mainly due to the change of accounting estimate which caused the increase of accrual depreciation of the third production line.

 

 Other Expense

 

Total other expense is a combination result of interest income, interest expense and others income (expense). Total other expense during the third quarter ended September 30, 2020 was RMB1.7 million (US$0.3 million), RMB0.2 million lower than the same period in 2019.

Income Tax Expense

 

The income tax benefit was RMB0.1 million (US$0.01 million) during the third quarter ended September 30, 2020, compared to income tax benefit of RMB0.1 million during the same period in 2019.

 

Net Profit

 

Net profit attributable to the Company during the third quarter ended September 30, 2020 was RMB13.5million (US$2.0 million) compared to net profit attributable to the Company of RMB3.4 million during the same period in 2019, representing an increase in profit of RMB10.1million.

 

Results of operations for the nine-month periods ended September 30, 2020 compared to September 30, 2019

 

The table below sets forth certain line items from our Statement of Income as a percentage of revenue:

 

   Nine-Month Period Ended   Nine-Month Period Ended 
   September 30, 2020   September 30, 2019 
   (as % of Revenue) 
Gross profit(loss)   40.0    21.2 
Operating expenses   (21.9)   (18.0)
Operating income (loss)   18.2    3.1 
Other income (expense)   (2.1)   (2.7)
Provision for income taxes   0.1    - 
Net income (loss)   16.2    0.4 

 

21

 

 

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

 

Revenue

 

Net sales during the nine-month period ended September 30, 2020 were RMB250.4 million (US$36.9 million), compared to RMB248.8 million, during the same period in 2019, representing an increase of RMB1.6 million or 0.6%, mainly due to the increase in sales volume.

 

In the nine-month period ended September 30, 2020, sales of specialty films were RMB142.4 million (US$21.0 million) or 56.9% of our total revenues as compared to RMB114.7 million or 46.1% in the same period of 2019, which was an increase of RMB27.7 million, or 24.1% as compared to the same period in 2019. The decrease of average sales price caused a decrease of RMB6.0 million and the increase in the sales volume caused an increase of RMB33.7 million.

 

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

  

   Nine-Month Period Ended
September 30, 2020
   % of Total   Nine-Month Period Ended
September 30, 2019
   % of Total 
   RMB   US$       RMB     
Stamping and transfer film   80,267    11,823    32.1%   86,675    34.9%
Printing film   17,851    2,629    7.1%   28,613    11.5%
Metallization film   3,112    458    1.2%   3,811    1.5%
Specialty film   142,400    20,973    56.9%   114,713    46.1%
Base film for other applications   6,775    998    2.7%   14,965    6.0%
    250,405    36,881    100.0%   248,777    100.0%

 

Overseas sales during the nine months ended September 30, 2020 were RMB21.1 million (US$3.1 million), or 8.4% of total revenues, compared with RMB42.2 million or 16.9% of total revenues in the same period in 2019. This was RMB21.1 million lower than the same period in 2019. The decrease in sales volume resulted in a decrease of RMB21.6 million and the increase of average sales price caused an increase of RMB0.5 million.

 

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

 

   Nine-Month Period Ended
September 30, 2020
   % of Total   Nine-Month Period Ended
September 30, 2019
   % of Total 
   RMB   US$       RMB     
Sales in China   229,301    33,772    91.6%   206,625    83.1%
Sales in other countries   21,104    3,109    8.4%   42,152    16.9%
    250,405    36,881    100.0%   248,777    100.0%

 

22

 

 

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

 

Cost of Goods Sold

 

Our cost of goods sold comprises mainly of material costs, factory overhead, power, packaging materials and direct labor. The breakdown of our cost of goods sold in percentage is as follows:

 

   Nine-Month Period Ended
September 30, 2020
   Nine-Month Period Ended
September 30, 2019
 
   % of total   % of total 
Materials costs   71.7%   73.8%
Factory overhead   7.2%   10.3%
Energy expense   11.4%   8.5%
Packaging materials   5.1%   4.0%
Direct labor   4.6%   3.4%

 

Cost of goods sold during the first nine months of 2020 totaled RMB150.2 million (US$22.1 million) as compared to RMB196.2 million in the same period of 2019. This was RMB46.0 million or 23.4% lower than the same period in 2019. The decrease was mainly due to the decrease of unit cost of goods sold caused by the reduction of prices of main materials.

 

Gross Profit

 

Our gross profit was RMB100.2 million (US$14.8 million) for the first nine months ended September 30, 2020, representing a gross margin of 40.0%, as compared to a gross margin of 21.2% for the same period in 2019. Correspondingly, gross margin increased by 18.8 percentage. Our average product sales prices decreased by 0.9% compared to the same period last year while the average cost of goods sold decreased by 24.7% compared to the same period last year. This resulted in an increase in our gross profit.

 

Operating Expenses 

 

Operating expenses for the nine months ended September 30, 2020 were RMB54.7 million (US$8.1 million), compared to RMB44.9 million in the same period in 2019, which was RMB9.8 million or 21.8% higher than the same period in 2019. This increase was mainly due to the change of accounting estimate which caused the increase of accrual depreciation of the third production line.

 

Other Expense

 

Total other expense is a combination result of interest income, interest expense and other income (expense). Total other expense during the first nine months of 2020 was RMB5.2 million (US$0.8 million), RMB1.6 million lower than the same period in 2019.

 

Income Tax Benefit

 

The income tax benefit was RMB0.2 million (US$0.03 million) during the nine months ended September 30, 2020, compared to income tax benefit of RMB0.04 million during the same period in 2019. This increase of income tax benefit was due to changes in deferred tax.

 

23

 

 

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

 

Net Profit

 

Net profit attributable to the Company during the first nine-month period of 2020 was RMB40.5 million (US$6.0 million) compared to net profit attributable to the Company of RMB1.0 million during the same period in 2019, representing an increase of RMB39.5 million from the same period in 2019 due to the factors described above.

 

Liquidity and Capital Resources

 

Our capital expenditures have been financed primarily through cash generated from our operations and borrowings from related parties, financial institutions. The interest rates of borrowings from financial institutions during the period from the third quarter of 2019 to the third quarter of 2020 ranged from 5.22% to 6.50%.

 

In April 2014, we obtained a loan for a total amount of RMB105.0 million from Shandong SNTON Optical Materials Technology Co., Ltd. (the “Shandong SNTON”) to pay off certain short-term loans due to Bank of Communications Co., Ltd. The interest shall be calculated at the benchmark rate, plus an additional 20% of the said benchmark rate, for the loan of the same term announced by the People’s Bank of China. The interest must be paid quarterly and settled in full at the end of the year. As of December 31, 2014, the principal of this loan and the interest have not been paid. In March 2015, we entered into a supplemental agreement with Shandong SNTON pursuant to which the parties agreed that we will pay off the principal of this loan plus interest upon availability of new loans from banks or other financial institutions.

 

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 transfer of loan 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 of loa, the related accounts payable to Shanghai Meicheng as of September 30, 2020 was RMB92.8 million (US$13.7 million) after paying back part of the loan.

 

We believe that, after taking into consideration our present and potential future loans from related parties and banking facilities, existing cash and the expected cash flows to be generated from our operations, we will have adequate sources of liquidity to meet our short-term obligations and our working capital requirements.

 

Operating Activities

 

Net cash provided by operating activities for the nine months ended September 30, 2020 was RMB72.2 million (US$10.6 million) compared to net cash provided by operating activities of RMB35.6 million for the nine months ended September 30, 2019. This increase in cash flows provided by operating activities was primarily attributable to the increased profit.

 

24

 

 

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

 

Investing Activities

 

Net cash flows used in investing activities for the nine months ended September 30, 2020 was RMB5.7 million (US$0.8 million) compared to net cash used in investing activities of RMB12.5 million for the nine months ended September 30, 2019. This decrease in cash flows used in investing activities was primarily attributable to the decreased expenditure of purchasing fixed assets.

 

Financing Activities

 

Net cash used in financing activities for the nine months ended September 30, 2020 was RMB64.1 million (US$9.4 million) compared to net cash provided by financing activities of RMB4.9 million for the nine months ended September 30, 2019, which is an increase of RMB69.0 million (US$10.2million). This increase in cash flows used in financing activities was primarily attributable to paying back part of the loan to the related party and changes of notes payable.

 

Working Capital

 

As of September 30, 2020, and December 31, 2019, we had a working capital deficit of RMB45.9 million (US$6.8 million) and RMB110.0 million, respectively. Working capital deficit decreased by RMB64.1 million (US$9.4 million), or 58.3% compared to the amount as of December 31, 2019. Our main current liabilities were loans from a related party and bank.

 

Contractual Obligations

 

The following table is a summary of our contractual obligations as of September 30, 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   65,000    65,000                
-Interest   3,393    3,393                
Bank loans                         
-Principal   65,000    65,000                
-Interest   4,225    4,225              - 
Notes payable   3,400    3,400                
Operating leases   50    50         -    - 
Total   142,078    142,078                

 

25

 

 

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.

 

26

 

 

Exhibit Index

 

Exhibit No.   Description
4.1   Transfer of Loan Agreement between Shandong SNTON Optical Materials Technology Co., Ltd. and Shandong Shengjia Industrial Park Operation and Management dated June 10, 2020
     
4.2   Transfer of Loan Agreement between Shandong Shengjia Industrial Park Operation and Management and Shanghai Meicheng Enterprise Management Co., Ltd. dated June 16, 2020
     
99.1   Press Release dated November 23, 2020.

 

27

 

 

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/ Lei Yan
     
    Name: Lei Yan
     
    Title: Chairman and Chief Executive Officer

 

Dated: November 23, 2020

 

28

 

 

Exhibit 4.1

 

Transfer of Loan Agreement

(Unofficial Summary English Translation Solely for Convenience)

 

Party A: Shandong SNTON Optical Materials Technology Co., Ltd. (the “Shandong SNTON”)

Legal Representative: Zengyong Wang

 

Party B: Shandong Shengjia Industrial Park Operation and Management (“Shandong Shengjia”)

Legal Representative: Yawen Zhang

 

Considering:

 

In April 2014, Fuwei Films (Shandong) Co., Ltd. (the “Fuwei Shandong”) entered into one Use of Capital Agreement with Shandong SNTON pursuant to which Fuwei Shandong obtained a loan for a total amount of RMB105.0 million from 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 Fuwei Shandong entered into a supplemental agreement with Shandong SNTON pursuant to which the parties agreed that Fuwei Shandong will pay off the principal of this loan plus interest upon availability of new loans from banks or other financial institutions. To date, Fuwei Shandong paid back part of the loan.

 

Shandong SNTON and Shandong Shengjia have agreed on terms and conditions set forth as below:

 

1.Shandong SNTON transferred the remaining principal of this loan together with the related interest to Shandong Shengjia.

 

2.The consideration of this transfer is 87.02 million and payment has been made on June 4, 2020.

 

Any dispute arising from this Agreement shall be settled through arbitration. If no agreement can be reached through arbitration, both parties shall have the right to bring an action against the other party with the court where the agreement is signed.

 

This agreement is in duplicates and each party holds one copy.

 

Shandong SNTON Optical Materials Technology Co., Ltd. (chop)

 

Shandong Shengjia Industrial Park Operation and Management (chop)

 

Date: June 10, 2020.

 

 

 

 

Exhibit 4.2

 

Transfer of Loan Agreement

(Unofficial Summary English Translation Solely for Convenience)

 

Party A: Shandong Shengjia Industrial Park Operation and Management (“Shandong Shengjia”)

Legal Representative: Yawen Zhang

 

Party B: Shanghai Meicheng Enterprise Management Co., Ltd., (“Shanghai Meicheng”)

Legal Representative: Miaomiao Yan

 

Considering:

 

Shandong SNTON and Shandong Shengjia have entered into a transfer of loan agreement pursuant to which Shandong SNTON transferred the remaining principal of its loan to Fuwei Shandong together with the related interest to Shandong Shengjia.

 

Shandong Shengjia and Shanghai Meicheng have agreed on terms and conditions set forth as below:

 

1.Shandong Shengjia transferred the remaining principal of its loan to Fuwei Shandong and the related interest to Shanghai Meicheng.

 

2.After this transfer of the loan, Shandong Shengjia shall no longer have the right to this loan.

 

Any dispute arising from this Agreement shall be settled through arbitration. If no agreement can be reached through arbitration, both parties shall have the right to bring an action against the other party with the court where the agreement is signed.

 

This agreement is in duplicates and each party holds one copy.

 

Shandong Shengjia Industrial Park Operation and Management (chop)

 

Shanghai Meicheng Enterprise Management Co., Ltd. (chop)

 

Date: June 16, 2020.

 

 

 

 

Exhibit 99.1

 

 

 

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

 

-Teleconference to be held on November 24, 2020 at 8:00 am ET-

 

BEIJING, November 23, 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 third quarter of 2020 ended September 30, 2020.

 

Third Quarter 2020 Financial Highlights

 

lNet sales were RMB84.3 million (US$12.4 million), compared to RMB79.6 million during the same period in 2019.

 

lSales of specialty films were RMB54.4 million (US$8.0 million) or 64.6% of total revenues as compared to RMB40.6 million or 51.0% in the same period of 2019.

 

lOverseas sales were RMB7.8 million or US$1.1 million, or 9.2% of total revenues, compared with RMB11.6 million or 14.6% of total revenues in the third quarter of 2019.

 

lGross profit was RMB36.0 million (US$5.3 million), representing a gross margin rate of 42.7%, as compared to gross profit of RMB21.6 million and a gross margin rate of 27.1% for the same period in 2019.

 

lNet profit attributable to the Company was RMB13.5million (US$2.0 million) compared to net profit attributable to the Company of RMB3.4 million during the same period in 2019, representing an increase in profit of RMB10.1 million.

 

First Nine Months of 2020 Financial Highlights

 

lNet sales were RMB250.4 million (US$36.9 million), compared to RMB248.8 million during the same period in 2019.

 

lSales of specialty films were RMB142.4 million (US$21.0 million) or 56.9% of total revenues as compared to RMB114.7 million or 46.1% in the same period of 2019.

 

lOverseas sales were RMB21.1 million (US$3.1 million), or 8.4% of total revenues, compared with RMB42.2 million or 16.9% of total revenues in the same period in 2019.

 

lGross profit was RMB100.2 million (US$14.8 million), representing a gross margin of 40.0%, compared with gross profit of RMB52.6 million or a gross margin of 21.2% in the same period of 2019.

 

1

 

 

lNet profit attributable to the Company was RMB40.5 million (US$6.0 million) compared to net profit attributable to the Company of RMB1.0 million during the same period in 2019, representing an increase of RMB39.5 million from the same period in 2019.

 

Mr. Lei Yan, Chairman and CEO of Fuwei Films, commented, “Despite the challenging industry environment and the outbreak of the COVID-19 pandemic which has caused significant and adverse effects on the global economy, our orders remain solid and sales are relatively stable. Sales of specialty films increased continuously which accounted for 64.6% of our total revenues during the quarter. In addition, we maintained profitability for six 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.”

 

Third Quarter 2020 Results

 

Net sales during the third quarter ended September 30, 2020 were RMB84.3 million (US$12.4 million), compared to RMB79.6 million during the same period in 2019, representing a year-over-year increase of RMB4.7 million or 5.9%. The decrease of average sales price caused a decrease of RMB3.2 million and the sales volume increase caused an increase of RMB7.9 million.

 

In the third quarter of 2020, sales of specialty films were RMB54.4 million (US$8.0 million) or 64.6% of total revenues as compared to RMB40.6 million or 51.0% in the same period of 2019, representing a year-over-year increase of RMB13.8 million, or 34.0% as compared to the same period in 2019. The decrease in average sales price caused a decrease of RMB2.0 million and the increase in the sales volume caused an increase of RMB15.8 million.

 

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

 

   Three-Month Period Ended
September 30, 2020
   % of Total   Three-Month Period Ended
September 30, 2019
   % of Total 
   RMB   US$       RMB     
Stamping  and transfer film   19,860    2,926    23.6%   26,552    33.3%
Printing film   6,261    922    7.4%   7,881    9.9%
Metallization film   451    66    0.5%   1,197    1.5%
Specialty film   54,435    8,017    64.6%   40,559    51.0%
Base film for other application   3,309    487    3.9%   3,397    4.3%
                          
    84,316    12,418    100.0%   79,586    100.0%

 

2

 

 

Overseas sales were RMB7.8 million or US$1.1 million, or 9.2% of total revenues, compared with RMB11.6 million or 14.6% of total revenues in the third quarter of 2019. The decrease in average sales price caused a decrease of RMB0.6 million and the decrease in sales volume resulted in a decrease of RMB3.2 million.

 

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

 

   Three-Month Period Ended
September 30, 2020
   % of Total   Three-Month Period Ended
September 30, 2019
   % of Total 
   RMB   US$      RMB     
Sales in China   76,518    11,270    90.8%   67,993    85.4%
Sales in other countries   7,798    1,148    9.2%   11,593    14.6%
                          
    84,316    12,418    100.0%   79,586    100.0%

 

Gross profit was RMB36.0 million (US$5.3 million) for the third quarter ended September 30, 2020, representing a gross margin rate of 42.7%, as compared to gross profit of RMB21.6 million and a gross margin rate of 27.1% for the same period in 2019. Correspondingly, gross margin rate increased by 15.6 percentage point compared to the same period in 2019.

 

Operating expenses for the third quarter ended September 30, 2020 were RMB20.9 million (US$3.1 million), which was RMB4.6 million, or 28.2% higher than the same period in 2019. This increase was mainly due to the change of accounting estimate which caused the increase of accrual depreciation of the third production line.

 

Net profit attributable to the Company during the third quarter ended September 30, 2020 was RMB13.5 million (US$2.0 million) compared to net profit attributable to the Company of RMB3.4 million during the same period in 2019, representing an increase in profit of RMB10.1 million.

 

Financial Results for the Nine Months Ended September 30, 2020

 

Net sales during the nine-month period ended September 30, 2020 were RMB250.4 million (US$36.9 million), compared to RMB248.8 million, during the same period in 2019, representing an increase of RMB1.6 million or 0.6%, mainly due to the increase in sales volume.

 

3

 

 

In the nine-month period ended September 30, 2020, sales of specialty films were RMB142.4 million (US$21.0 million) or 56.9% of total revenues as compared to RMB114.7 million or 46.1% in the same period of 2019, which was an increase of RMB27.7 million, or 24.1% as compared to the same period in 2019. The decrease of average sales price caused a decrease of RMB6.0 million and the increase in the sales volume caused an increase of RMB33.7 million.

 

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

 

   Nine-Month Period Ended
September 30, 2020
   % of Total   Nine-Month Period Ended
September 30, 2019
   % of Total 
   RMB   US$       RMB     
Stamping and transfer film   80,267    11,823    32.1%   86,675    34.9%
Printing film   17,851    2,629    7.1%   28,613    11.5%
Metallization film   3,112    458    1.2%   3,811    1.5%
Specialty film   142,400    20,973    56.9%   114,713    46.1%
Base film for other applications   6,775    998    2.7%   14,965    6.0%
                          
    250,405    36,881    100.0%   248,777    100.0%

 

Overseas sales during the nine months ended September 30, 2020 were RMB21.1 million (US$3.1 million), or 8.4% of total revenues, compared with RMB42.2 million or 16.9% of total revenues in the same period in 2019. This was RMB21.1 million lower than the same period in 2019. The decrease in sales volume resulted in a decrease of RMB21.6 million and the increase of average sales price caused an increase of RMB0.5 million.

 

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

 

   Nine-Month Period Ended
September 30, 2020
   % of Total   Nine-Month Period Ended
September 30, 2019
   % of Total 
   RMB   US$      RMB    
Sales in China   229,301    33,772    91.6%   206,625    83.1%
Sales in other countries   21,104    3,109    8.4%   42,152    16.9%
                          
    250,405    36,881    100.0%   248,777    100.0%

 

Gross profit was RMB100.2 million (US$14.8 million) for the first nine months ended September 30, 2020, representing a gross margin of 40.0%, as compared to a gross margin of 21.2% for the same period in 2019. Correspondingly, gross margin increased by 18.8 percentage. Average product sales prices decreased by 0.9% compared to the same period last year while the average cost of goods sold decreased by 24.7% compared to the same period last year.

 

4

 

 

Operating expenses for the nine months ended September 30, 2020 were RMB54.7 million (US$8.1 million), compared to RMB44.9 million in the same period in 2019, which was RMB9.8 million or 21.8% higher than the same period in 2019. This increase was mainly due to the change of accounting estimate which caused the increase of accrual depreciation of the third production line.

 

Net profit attributable to the Company during the first nine-month period of 2020 was RMB40.5 million (US$6.0 million) compared to net profit attributable to the Company of RMB1.0 million during the same period in 2019, representing an increase of RMB39.5 million from the same period in 2019 due to the factors described above.

 

Cash, cash equivalent and restricted cash totaled RMB88.8 million (US$13.1 million) as of September 30, 2020. Total shareholders’ equity was RMB248.7 million (US$36.6 million).

 

As of September 30, 2020, the Company had 3,265,837 basic and diluted total ordinary shares outstanding.

 

Conference Call Information

 

The Company will host a teleconference on Tuesday, November 24, 2020, at 8:00 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: 38820. The replay will be available until December 8, 2020.

 

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.

 

5

 

 

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.

 

For more information, please contact:

 

In China:

 

Ms. Xiaoli Yu
Investor Relations Officer
Phone: +86-133-615-59266
Email:
[email protected]

 

In the U.S.:

 

Shiwei Yin
Investor Relations
Grayling
Phone: +1-646-284-9474
Email: [email protected]

 

Financial Tables to Follow

 

6

 

 

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

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

AS OF SEPTEMBER 30, 2020 AND DECEMBER 31, 2019

 

(amounts in thousands except share and per share value)

 

(Unaudited)

 

   September 30, 2020   December 31, 2019 
   RMB   US$   RMB 
ASSETS               
Current assets               
Cash and cash equivalents   86,310    12,712    60,871 
Restricted cash   2,500    368    25,500 
Accounts and bills receivable, net   23,403    3,447    26,960 
Inventories   27,294    4,020    23,584 
Advance to suppliers   7,981    1,175    6,277 
Prepayments and other receivables   1,254    185    1,058 
Deferred tax assets – current   1,286    189    1,266 
Total current assets   150,028    22,096    145,516 
                
Property, plant and equipment, net   278,210    40,976    302,642 
Construction in progress   1,069    157    - 
Lease prepayments, net   15,351    2,261    15,762 
Advance to suppliers - long term, net   1,542    227    1,542 
Deferred tax assets - non current   403    59    509 
                
Total assets   446,603    65,776    465,971 
                
LIABILITIES AND EQUITY               
Current liabilities               
Short-term borrowings   65,000    9,573    65,000 
Due to related parties   92,846    13,675    119,297 
Accounts payables   23,026    3,391    19,532 
Notes payable   3,400    501    41,000 
Advance from customers   5,127    755    5,204 
Accrued expenses and other payables   6,491    956    5,454 
Total current liabilities   195,890    28,851    255,487 
                
Deferred tax liabilities   2,024    298    2,290 
                
Total liabilities   197,914    29,149    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    1,962    13,323 
Additional paid-in capital   311,907    45,939    311,907 
Statutory reserve   37,441    5,514    37,441 
Accumulated deficit   (114,822)   (16,911)   (155,317)
Cumulative translation adjustment   840    123    840 
Total equity   248,689    36,627    208,194 
Total liabilities and equity   446,603    65,776    465,971 

 

7

 

 

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

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2020 AND 2019

 

(amounts in thousands except share and per share value)

 

(Unaudited)

 

   The Three-Month Period Ended
September 30,
   The Nine-Month Period Ended
September 30,
 
   2020   2019   2020   2019 
   RMB   US$   RMB   RMB   US$   RMB 
Net sales   84,316    12,418    79,586    250,405    36,881    248,777 
Cost of sales   48,276    7,110    57,996    150,171    22,118    196,154 
                               
Gross profit   36,040    5,308    21,590    100,234    14,763    52,623 
                               
Operating expenses                              
Selling expenses   4,200    619    3,236    11,658    1,717    9,737 
Administrative expenses   16,735    2,465    13,083    43,058    6,342    35,113 
Total operating expenses   20,935    3,084    16,319    54,716    8,059    44,850 
                               
Operating income   15,105    2,224    5,271    45,518    6,704    7,773 
                               
Other income (expense)                              
- Interest income   637    94    255    1,494    220    671 
- Interest expense   (2,240)   (330)   (2,240)   (6,697)   (986)   (6,675)
- Others income (expense), net   (118)   (17)   80    -    -    (792)
                               
Total other expense   (1,721)   (253)   (1,905)   (5,203)   (766)   (6,796)
                               
Income before provision for income taxes   13,384    1,971    3,366    40,315    5,938    977 
                               
Income tax benefit   99    15    77    180    27    44 
                               
Net income   13,483    1,986    3,443    40,495    5,965    1,021 
                               
                               
Other comprehensive loss                              
- Foreign currency translation adjustments   -    -    1    -    -    - 
                               
Comprehensive income   13,483    1,986    3,444    40,495    5,965    1,021 
                               
Income per share,
Basic and diluted
   4.13    0.61    1.05    12.40    1.83    0.31 
Weighted average number ordinary shares,
Basic and diluted
   3,265,837    3,265,837    3,265,837    3,265,837    3,265,837    3,265,837 

 

8

 

 

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

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2020 AND 2019

 

(amounts in thousands except share and per share value)

 

(Unaudited)

 

   The Nine-Month Period Ended September 30, 
   2020   2019 
   RMB   US$   RMB 
Cash flow from operating activities               
Net income   40,495    5,965    1,021 
Adjustments to reconcile net loss to net cash used in operating activities               
- Depreciation of property, plant and equipment   29,086    4,284    33,957 
- Amortization of intangible assets   401    59    400 
- Deferred income taxes   (180)   (27)   (44)
- Bad debt (recovery) expense   131    19    (897)
-Inventory provision   -    -    724 
Changes in operating assets and liabilities               
- Accounts and bills receivable   3426    505    (72)
- Inventories   (3,710)   (546)   1,815 
- Advance to suppliers   (1,705)   (251)   (4,833)
- Prepaid expenses and other current assets   (186)   (27)   (155)
- Accounts payable   3,494    515    393 
- Accrued expenses and other payables   313    46    501 
- Advance from customers   (77)   (11)   2,447 
- Tax payable   724    107    368 
                
Net cash provided by (used in) operating activities   72,212    10,638    35,625 
                
Cash flow from investing activities               
Purchases of property, plant and equipment   (4,653)   (685)   (12,889)
Restricted cash related to trade finance   -    -    - 
Advance to suppliers - non current   -    -    - 
Amount change in construction in progress   (1,069)   (157)   366 
                
Net cash used in investing activities   (5,722)   (842)   (12,523)
                
Cash flow from financing activities               
Principal payments of bank loans   -    -    - 
Proceeds from short-term bank loans   -    -    50 
Proceeds from related party   (26,451)   (3,896)   3,457 
Change in notes payable   (37,600)   (5,538)   1,400 
                
Net cash provided by financing activities   (64,051)   (9,434)   4,907 
                
Effect of foreign exchange rate changes   -    311    - 
                
Net increase in cash and cash equivalent   2,439    673    28,009 
                
Cash and cash equivalent               
At beginning of period/year   86,371    12,407    46,908 
At end of period/year   88,810    13,080    74,917 
                
SUPPLEMENTARY DISCLOSURE:               
Interest paid   6,697    986    6,675 
Income tax paid   -    -    - 
                
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCIAL ACTIVITIES:               
Account payable for plant and equipment:   1,010    149    1,062 

 

9

 



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