Overview

We develop, manufacture and distribute packaging film and color printed packaging through our operating subsidiaries. Our products include coated film, shrink-wrap film, common film, anti-counterfeit laser holographic film and color printed packaging materials. All of our operations are based in the PRC and each of our subsidiaries was formed under the laws of the PRC.

We currently conduct our business through the following four operating subsidiaries in the PRC:

· Shiner Industrial located in Haikou, Hainan Province;

· Shiny-day also located in Haikou, Hainan Province;

· Zhuhai located in Zhuhai, Guangdong Province; and

· Modern located in Haikou, Hainan Province.

We operate in several markets within the packaging film segment: BOPP based film, coated film, anti-counterfeit film and color printed packaging. For the three months ended March 31, 2009, color printed packaging products made up 7.8% of our revenue, BOPP tobacco film made up 47.4% of our revenue, coated film accounted for 27.7% of our revenue and anti-counterfeit film sales equaled 17.1% of our revenue.

Our current production capacity consists of:

· Five coated film lines with total capacity of 15,000 tons per year;

· One BOPP tobacco film production line with total capacity of 3,500 tons per year;

· One BOPP film production line with capacity of 7,000 tons per year;

· Three color printing lines; and

· Four anti-counterfeit film lines, with a total capacity of 2,500 tons per year.

We are targeting growth through four main channels: (i) the continuation of our efforts to gain international market share in coated film through better pricing and excellent after-sale service; (ii) the expansion of our sales in anti-counterfeit film, especially to high-end brand spirits and cigarette manufacturers; (iii) the development of "next generation" films, and (iv) the possible acquisition of an anti-counterfeit technology company.

Results of Operations

Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31,
2008

                                                   For the Three Months
                                                          Ended
                                                        March 31,                    $               %
                                                  2009             2008            Change         Change

Revenues                                       $ 7,070,408     $ 11,277,937     $ (4,207,529 )       (37.3 )%
Cost of Goods Sold                               6,598,923        8,739,790       (2,140,867 )       (24.5 )%
Gross Profit                                       471,485        2,538,147       (2,066,662 )       (81.4 )%
Selling, general and administrative expenses       801,769          833,305          (31,536 )        (3.8 )%
Interest Expense                                    46,049           16,832           29,217         173.6 %
Income tax expense (benefit)                       (81,883 )        159,054         (240,937 )      (151.5 )%
Net income (loss)                                 (275,013 )      1,563,883       (1,838,896 )      (117.6 )%

Revenues

Our revenues for the three months ended March 31, 2009 decreased 37.3% or $4,207,529 compared to the same period last year. The decrease in revenues resulted from a 6.6% decrease in tobacco BOPP sales, a 26.2% decrease in coated film sales, a 45.3% decrease in the sales of anti-counterfeit film sales, and a 80.6% decrease in color printing sales, coupled with a decrease in the selling price of our products. The decrease in sales was attributable in large part to the global economic crisis and the melamine milk scare that began in late 2008.

International sales for the three months ended March 31, 2009 totaled $1,831,177 accounting for 25.9% of total revenues in comparison to $2,531,907 or 22.5% for the three months ended March 31, 2008. A 27.7% or $700,730 decrease in international sales was primarily due to a 45.4% decrease in anti-counterfeit film sales.

Cost of Goods Sold

Cost of goods sold during the three months ended March 31, 2009 was $6,598,923 or 93.3% of revenues as compared to $8,739,790 or 77.5% of revenues during the three months ended March 31, 2008. The decrease in cost of goods sold was directly related to the decrease in revenue. The increase in cost of goods sold as a percentage of revenue was due to lower selling prices for our products as a result of current market conditions.

Gross Profit

Our gross profit for the three months ended March 31, 2009 was $471,485, representing a gross margin of 6.7%, a decrease of 15.8% from the gross margin of 22.5% for the three months ended March 31, 2008. The decrease in gross margin is a direct consequence of a decrease in the selling prices of our products.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses decreased by 3.8% or $31,536 to $801,769 for the three months ended March 31, 2009 compared to $833,305 for the three months ended March 31, 2008. General and administrative expenses include rent, management and staff salaries, general insurance, marketing, accounting and legal expenses. Selling expenses for the three months ended March 31, 2009 decreased by 10.7% to $277,851 in comparison to the same period in 2008 due to cost being paid as a direct result in the decease in revenue. General and administrative expenses for the three months ended March 31, 2009 increased only slightly in comparison to the same period in 2008.

Interest Expense

Interest expense in the three months ended March 31, 2009 increased by 173.6% from the same period in 2008. This increase is mainly attributable to the increase in our outstanding short-term debt.

Other Income (Expense)

The decrease in other income was due in large part to a decrease in waste materials that can be sold.

Income Tax Expense

For the three months ended March 31, 2009 we recorded a tax benefit due to the net loss incurred. Our effective tax rate for the three months ended March 31, 2008 was 9.2%. Since we operate in a privileged economic zone, we will continue to enjoy certain tax privileges as a result of a reduced rate.

Net Income

The decrease in our net income (loss) for the three months ended March 31, 2009 as compared to the same period for 2008 was the result of lower sales, decreased margins on those sales and higher interest costs.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements during the three months ended March 31, 2009 that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our interests.

Liquidity and Capital Resources

Cash Flows

At March 31, 2009, we had $3,885,841 in cash and cash equivalents on hand. Our principal demands for liquidity are increasing capacity, purchasing raw materials, sales distribution and the possible acquisition of new subsidiaries in our industry as opportunities present themselves, as well as general corporate purposes. As of March 31, 2009, we had five short-term loans outstanding for a total of $3,479,253, with interest rates between 5.58% and 8.21%. The loans are due between April 24, 2009 and May 30, 2009 and are collateralized by a one year time deposit or by buildings and equipment. As of March 31, 2009, we had working capital of $15,693,940, a decrease of $392,621 from December 31, 2008. We anticipate we will have adequate working capital to fund our operations and growth in the foreseeable future.

On October 22, 2007, we completed a private placement offering pursuant to which we sold an aggregate of 3,500,000 units at an offering price of $3.00 per unit for aggregate gross proceeds of $10,500,000. Each unit consisted of one share of our common stock, par value $.001 per share, and a three year warrant to purchase 15% of one share of common stock at an exercise price of $6.00 per share. Accordingly, we issued an aggregate of 3,500,000 shares of common stock and warrants to purchase 525,000 shares of our common stock to the 76 accredited investors who participated in this offering. In addition, we compensated four finders that assisted in the sale of securities in this private placement offering by (i) paying them cash equal to 8% of the gross proceeds from the sales of units placed and (ii) issuing them warrants to purchase that number of shares of our common stock equal to 15% of the units placed. The warrants granted to these finders have the same terms and conditions as the warrants granted in the offering.

Net cash flows provided by operating activities for the three months ended March 31, 2009 was $1,331,196 compared to cash used in operating activities of $(2,450,234) for the three months ended March 31, 2008. This change in cash flows from operating activities was mainly due to a large reduction in accounts payable and accrued expenses and an increase in advances to suppliers during the three months ended March 31, 2008.

We used $856,889 in investing activities during the three months ended March 31, 2009 for the issuance of a note receivable and acquisition of property and equipment.

Cash provided used in financing activities during the three months ended March 31, 2009 was $399,976 due to a reduction in short term loans.

Assets

As of March 31, 2009, our accounts receivable decreased by $1,018,977 compared with the balance as of December 31, 2008. The decrease in accounts receivable during then three months ended March 31, 2009 was due primarily to a decreased sales. We intend to continue our efforts to maintain accounts receivable at reasonable levels in relation to our sales. Notes receivables increased by $640,684 in the same period. Prepaid expenses and other current assets increased by $485,847 and inventory decreased by $393,496 during three months ended March 31, 2009.

Liabilities

Our accounts payable increased by $207,893 during the three months ended March 31, 2009 and unearned revenues (payments received before all the relevant criteria for revenue recognition are satisfied) increased by $180,594 over the same period.

Short-term loans decreased by $404,944 due to the repayment of one of our short-term loans during the three months ended March 31, 2009.

We intend to meet our liquidity requirements, including capital expenditures related to the purchase of equipment, purchase of raw materials, and the expansion of our business, through cash flow provided by operations and funds raised through private placement offerings of our securities.

The majority of our revenues and expenses were denominated primarily in RMB, the currency of the PRC.

There is no assurance that exchange rates between the RMB and the USD will remain stable. We do not engage in currency hedging. Inflation has not had a material impact on our business.

Recent Accounting Pronouncements

In April 2009, the FASB issued FSP No. FAS 157-4, "Determining Fair Values When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly." This FSP provides guidance on (1) estimating the fair value of an asset or liability when the volume and level of activity for the asset or liability have significantly declined and (2) identifying transactions that are not orderly. The FSP also amends certain disclosure provisions of SFAS No. 157 to require, among other things, disclosures in interim periods of the inputs and valuation techniques used to measure fair value. This pronouncement is effective prospectively beginning April 1, 2009. We are currently evaluating the impact of this standard, but would not expect it to have a material impact on our consolidated results of operations or financial condition.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments" (FSP 115-2). This FSP modifies the requirements for recognizing other-than-temporarily impaired debt securities and changes the existing impairment model for such securities. The FSP also requires additional disclosures for both annual and interim periods with respect to both debt and equity securities. Under the FSP, impairment of debt securities will be considered other-than-temporary if an entity (1) intends to sell the security, (2) more likely than not will be required to sell the security before recovering its cost, or (3) does not expect to recover the security's entire amortized cost basis (even if the entity does not intend to sell). The FSP further indicates that, depending on which of the above factor(s) causes the impairment to be considered other-than-temporary, (1) the entire shortfall of the security's fair value versus its amortized cost basis or (2) only the credit loss portion would be recognized in earnings while the remaining shortfall (if any) would be recorded in other comprehensive income. FSP 115-2 requires entities to initially apply the provisions of the standard to previously other-than-temporarily impaired debt securities existing as of the date of initial adoption by making a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The cumulative-effect adjustment potentially reclassifies the noncredit portion of a previously other-than-temporarily impaired debt security held as of the date of initial adoption from retained earnings to accumulated other comprehensive income. This pronouncement is effective April 1, 2009. We do not believe this standard will have a material impact on our consolidated results of operations or financial condition.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments." This FSP essentially expands the disclosure about fair value of financial instruments that were previously required only annually to also be required for interim period reporting. In addition, the FSP requires certain additional disclosures regarding the methods and significant assumptions used to estimate the fair value of financial instruments. These additional disclosures will be required beginning with the quarter ending June 30, 2009. We are currently evaluating the requirements of these additional disclosures.