Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BEST > SEC Filings for BEST > Form 10-K on 29-Mar-2013All Recent SEC Filings

Show all filings for SHINER INTERNATIONAL, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-K for SHINER INTERNATIONAL, INC.


29-Mar-2013

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

We were incorporated in Nevada in November 2003, but since July 2007, have been headquartered in Hainan, China. Through our operating subsidiaries, Hainan Shiner, Shiny-Day, Hainan Modern, Zhuhai Modern, Shimmer Sun, Ningbo and Shanghai Juneng we manufacture and sell packaging and anti-counterfeit plastic film to manufacturers and producers in China. We sell anti-counterfeit film, coated film, and color printing, in international markets through a network of distributors and converters.

Our primary business consists of the manufacture and distribution of technology driven advanced packaging film products in five business segments: bi-axially oriented polypropylene, or BOPP, film for wrapping tobacco; water-based latex; coated film; color printed packaging; and advanced film. Our products are sold to customers in the food, tobacco, chemical, medical and pharmaceutical, personal care, electronics, automotive, construction, graphics, music and video publishing industries. Our current production capacity consists of: five coated film lines with a capacity of 15,000 tons a year; two BOPP tobacco film production lines with a capacity of 13,500 tons a year; one BOPP film production line with a capacity of 7,000 tons a year; three color printing lines; four anti-counterfeit film lines with a capacity of 2,500 tons a year; and two water-based latex reaction kettles with a capacity of 3,000 tons a year.

The table below shows the percentage of revenue by each of our business segments for the years ended December 31, 2012 and 2011:

                                            2012       2011

                       BOPP tobacco film    62.1%      51.0%
                       Water-based latex     0.5%       0.5%
                       Coated film          23.4%      30.1%
                       Color printing        4.6%       7.6%
                       Advanced film         9.4%      10.8%
                                           100.0%     100.0%

We have 21 patents issued by the State Intellectual Property Office of China and have 22 patent applications relating to our products and manufacturing processes pending. Although our patents and processes provide us a competitive advantage, we do not believe the loss of any single patent would have a material adverse effect on our business.

Our principal executive offices are located at 19th Floor, Didu Building, Pearl River Plaza, No. 2 North Longkun Road, Haikou, Hainan Province, China 570125. Our telephone number is +86-898-68581104 and our website is www.shinerinc.com.

Comparison of the Years Ended December 31, 2012 and 2011

                                  Year Ended December 31,
                                   2012            2011           $ Change       % Change
Revenues                      $  72,036,187   $  75,294,512   $   (3,258,325 )       -4.3%
Cost of goods sold               67,397,899      65,275,356        2,122,543          3.3%
Gross profit                      4,638,288      10,019,156       (5,380,868 )      -53.7%
Selling, general and              8,896,294       7,988,178          908,116         11.4%
administrative expenses
Impairment of intangible          3,819,214               -        3,819,214           N/A
assets
Loss on sale and write down       2,106,379               -        2,106,379           N/A
of assets
Interest expense, net of          1,423,227       1,093,095          330,132         30.2%
interest income
Other income (expense), net       1,651,176       1,404,336          246,840         17.6%
Exchange gain (loss)                (55,588 )        61,442         (117,030 )     -190.5%
Income tax expense                  546,057         763,424         (217,367 )      -28.5%
Net loss attributed to            1,496,446         102,239        1,394,207       1363.7%
noncontrolling interest
Net income (loss) attributed  $  (9,060,849 ) $   1,742,476   $  (10,803,325 )     -620.0%
to Shiner

Revenues

Revenues in 2012 decreased $3.3 million (or 4.3%), to $72.0 million compared to $75.3 million in 2011. The decrease was primarily attributable to decreased revenues generated from coated film, color printing and advanced film, which was partially offset by increase in revenues generated from BOPP tobacco and water-based latex. In 2012, there was a $6.4 million (or 16.6%) increase in sales from tobacco film , which, was offset by decreases in sales from coated film (25.5%), color printing (42.5%), water-based latex (5.6%), and advanced film (17.2%) compared to 2011. In 2012 compared to 2011, revenue from advanced film decreased $1.4 million (or 17.2%) to $6.7 million, down from $8.1 million, revenue from BOPP tobacco increased $6.4 million (or 16.6%) to $44.8 million from $38.4 million, and revenue from water based latex decreased $0.01 million (or 5.6%) to $0.4 million from $0.4 million. In 2012 compared to 2011, revenue from coated film decreased $5.8 million (or 25.5%) to $16.9 million from $22.6 million, and revenue from color printing decreased $2.4 million (or 42.5%) to $3.3 million from $5.7 million. In 2012, the division between our domestic and international sales remained stable compared to 2011. In 2012 and 2011, sales generated domestically accounted for 85.0% and 83.9%, respectively, of our total revenues, and sales generated internationally from selling our advanced film, coated film, and color printing accounted for 15% and 16.1%, respectively.

-31-


Cost of Goods Sold

In 2012 compared to 2011, cost of goods sold ("COGS") increased $2.1 million (or 3.3%) from $65.3 million to $67.4 million. COGS for 2012 and 2011 was 93.6% and 86.7% of our revenues, respectively. The increase in COGS was primarily caused by an increase in raw material costs due to petroleum price fluctuations, cost of labor, and the amortization of the added depreciation of Phase I of the Hainan manufacturing facility.

Gross Profit

Our gross profit in 2012 was $4.6 million, a profit margin of 6.4%, a decrease of 6.9% from 13.3% compared to 2011. The decrease in profit margin was primarily a consequence of an increase in our COGS as a result of increase in raw material costs, labor costs and depreciation of the new property.

Selling, General and Administrative ("SG&A") Expenses

In 2012, our SG&A expenses increased by $0.9 million (or 11.4%) to $8.9 million compared to $8.0 million in 2011. SG&A expenses include rent, management and staff salaries, insurance, marketing, accounting, legal, and research and development ("R&D") expenses. Although we have strict standards to control our operating expenses, we increased our R&D expenditures in 2012 by $1.3 million compared to 2011. The increase in SG&A expenses was mainly due to an increase of $0.6 million in marketing expenses, and an increase of $1.0 million in bad debt provision, offset by a decrease of $0.4 million in insurance and a decrease of $0.3 million in sales commissions.

Impairment of Intangible Assets

At December 31, 2012, we evaluated our goodwill and patents for impairment and concluded that the assets should be impaired in their entirety. Accordingly the we recognized an impairment loss of $2,038,778 and $1,780,436 related to goodwill and patents, respectively.

Loss on Sale and Write Off of Assets

During 2012, we sold certain subsidiary assets for a loss of $1,510,215 and wrote off the value of other assets by $596,164.

Interest Expense, net

In 2012, interest expense increased by $330,132 (or 30.2%) to $1,423,227 compared to $1,093,095 in 2011, primarily due to additional short-term and long-term loans, which increased by $6.9 million in 2012.

Other Income

In 2012, other income increased by $0.24 million (17.6%) to $1.7 million compared to $1.4 million in 2011. In 2012, we recognized $2.0 million in subsidy income from PRC governmental agencies for developing technology and R&D projects compared to $1.5 million in 2011.

Income Tax Expense

In 2012, we recorded a tax provision of $546,057 compared to $763,424 in 2011. Our effective tax rates for 2012 and 2011 were (8.8%) and 31.8%, respectively. The change in the effective tax rate is due to losses incurred by certain subsidiaries where the loss was not able to offset income generated by other subsidiaries. In 2012 this resulted in us providing a provision for income taxes even though we incurred an overall net loss.

-32-


Net Income (Loss)

In 2012, we suffered a net loss of $9.1 million, representing a decrease of $10.8 million (or 620%) from a net income of $1.7 million in 2011. The decrease in our net income in 2012 compared to 2011 was mainly due to a decrease in revenue and increases in COGS and SG&A expenses, the impairment of intangible assets and the loss on the sale and write-off of assets, which was partially offset by an increase in other income, as explained above.

Liquidity and Capital Resources

At December 31, 2012, we had $4.2 million in cash and equivalents on hand, compared to $2.8 million at December 31, 2011, and had working capital of $6.3 million at December 31, 2012 compared to $7.7 million at December 31, 2011. The decrease in working capital is primarily due to the increased short-term borrowings to cover the net losses incurred in 2012. Our principal demands for liquidity are: increasing capacity, purchasing raw materials, sales distribution and the possible acquisition of new subsidiaries in our industry, as well as other general corporate purposes.

Below is a tabular summary of our cash flows for the years ended December 31, 2012 and 2011:

                                                         2012              2011
Net cash (used in) provided by operating           $    (2,559,753 ) $       379,709
activities
Net cash used in investing activities                   (2,768,009 )     (19,641,558 )
Net cash provided by financing activities                6,699,931        13,347,652
Effect of exchange rate changes on cash and                 29,206           123,970
equivalents
Net increase (decrease) in cash and equivalents          1,401,375        (5,790,227 )
Cash and equivalents at beginning of the year            2,831,808         8,622,035
Cash and equivalents at end of the year            $     4,233,183   $     2,831,808

Operating Activities

Net cash flows used in operating activities in 2012 was $2.6 million, a decrease of $2.9 million, compared to $379,709 provided in2011. The increase in the use of cash in operating activities during 2012, compared to 2011, was comprised primarily of a decrease in net income of $8.4 million and adjustments as a result of changes in working capital components. The changes in working capital components that primarily contributed to the increase in cash flow used in operating activities for 2012 was an increase in advances to suppliers of $5.0 million, which was partially offset by an increase in accounts payable and accrued expenses of $1.6 million and an increase in other payables of $1.1 million.

Investing Activities

Net cash flows used in investing activities in 2012 was $2.8 million, a decrease of $16.9 million compared to $19.6 million in 2011. During 2011, we invested $3.2 million in acquiring Shimmer Sun, and $16.7 million in purchasing property and equipment and construction in progress. During 2012, we did not acquire any subsidiary and used $2.6 million for the acquisition of property and equipment. The property and equipment were purchased for the construction of a new BOPP film production line and a fully automated plant equipped with state-of-the-art production machinery, which commenced in 2010.

Financing Activities

Net cash provided by financing activities for 2012 was $6.7 million, a decrease of $6.6 million compared to 2011. During 2012 compared to 2011, we decreased our net cash provided by financing activities by repaying $22.4 million of short-term loans, an increase of $15.4 million from $7.0 million, and decreasing our proceeds from our long-term loans from $9.8 million to $1.1 million, a decrease of $8.7 million. The foregoing decrease in net cash provided by financing activities was partially offset by our increase in proceeds from short-term loans to $28.0 million, an increase of $17.5 million from $10.5 million 2011.

Assets

Our total assets as of December 31, 2012 were $77.5 million, an decrease of $0.2 million, compared to $77.7 million as of December 31, 2011. The decrease was primarily due to the increase of $5.1 million in our advances to suppliers, $1.4 million in cash and equivalents and $2.9 million of property and equipment, offset by a decrease of $6.2 million in construction in progress, $2.0 million in goodwill and $2.0 million in intangible assets. We intend to continue our efforts to maintain accounts receivable at reasonable levels in relation to our sales.

-33-


Liabilities

Our current liabilities increased by $8.8 million as of December 31, 2012 compared to December 31, 2011, principally due to increase in short-term loans from $10.7 million to $16.4 million, an increase of $5.7 million and an increase in accounts payable of $1.7 million and other payables of $1.2 million.

Loan Commitments

On August 2, 2010, Hainan Shiner, our wholly owned subsidiary, entered into a credit facility with the Hainan Branch of the Bank of China. The credit facility is comprised of a seven-year RMB70 million , or $11.1 million, secured revolving credit facility. On each of January 24, February 10, February 16, February 17, March 25, November 30, December 23, 2011 and March 19, 2012, Hainan Shiner made withdrawals on the credit facility of $2.5 million, $2.6 million, $2.2 million, $1.2 million, $0.4 million, $0.2 million, $0.5 million and $1.1 million, respectively. Hainan Shiner may only use the loan proceeds to improve the technology of its BOPP film and to purchase certain equipment necessary for these improvements. Proceeds under the facility not used for these purposes may be subject to a misappropriation penalty interest rate of 100% of the current interest rate (6.6% at December 31, 2012) on the loan.

The initial interest rate on each withdrawal from the facility will be the 5-year benchmark lending rate announced by the People's Bank of China on the date of such withdrawal, and is subject to adjustment every 12 months based upon this benchmark. Additional interest will be paid on any overdue loan under this credit facility of 50% of the current interest rate on the loan. Hainan Shiner and certain of its affiliates, including the Company, provided guarantees and certain land use rights, buildings, and property as collateral under this facility.

The credit facility includes financial covenants that prohibit Hainan Shiner from making distributions to its sole shareholder if (a) its after-tax net income for the fiscal year is zero or negative, (b) its after-tax net income is insufficient to make up its accumulated loss for the last several fiscal years,
(c) its income before tax is not utilized in paying off the capital, interest and expense of the lender, or (d) the income before tax is insufficient to pay the capital, interest and expense of the lender.

During 2012, we paid $22.4 million of our short-term loans and borrowed an additional $28.0 million in short-term loans. The current outstanding short-term loans are due through June 2013. 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 our current credit facilities.

Obligations under Material Contracts

We have no material payment obligations other than the loan commitments disclosed above.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management's difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments.

Accounts Receivable

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.

Inventory

Inventory is valued at the lower of cost (determined on a weighted average basis) or market. Management compares the cost of inventory with this market value and allowance is made to write down inventory to market value, if lower.

-34-


Revenue Recognition

The Company's revenue recognition policies comply with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 605, "Revenue Recognition." Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

Sales revenue consists of the invoiced value of goods, which is net of value-added tax ("VAT"). All of the Company's products are sold in the PRC and are subject to Chinese VAT of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their end product. The Company recorded VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables.

Sales and purchases are recorded net of VAT collected and paid. VAT taxes are not affected by the income tax holiday.

Stock-Based Compensation

The Company records stock-based compensation in accordance with ASC Topic 718, "Compensation - Stock Compensation." ASC 718 requires companies to measure compensation cost for stock-based employee compensation at fair value ("FV") at the grant date and recognize the expense over the employee's requisite service period. The Company recognizes in the statement of operations the grant-date FV of stock options and other equity-based compensation issued to employees and non-employees.

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, "Income Taxes." ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Under ASC 740, a tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. The adoption had no effect on the Company's consolidated financial statements.

Basic and Diluted Earnings Per Share

Earnings per share ("EPS") is calculated in accordance with the ASC Topic 260, "Earnings Per Share." Basic EPS is based upon the weighted average number of common shares outstanding. Diluted EPS is based on the assumption that all dilutive convertible shares and stock warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-04 which was issued to provide a consistent definition of FV and ensure that the FV measurement and disclosure requirements are similar between US GAAP and IFRS. ASU No. 2011-04 changes certain FV measurement principles and enhances the disclosure requirements particularly for Level 3 FV measurements. This guidance was effective for us on January 1, 2012. The adoption of this ASU did not have an impact on our consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. ASU No. 2011-05 revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in ASC Topic 220, "Comprehensive Income," and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The ASU does not change the items that must be reported in other comprehensive income. In December 2011, the FASB issued ASU No. 2011-12 which defers the requirement in ASU No. 2011-05 that companies present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. ASU No. 2011-05 is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2011, with early adoption permitted. The adoption of ASU No. 2011-05, as amended by ASU No. 2011-12, did not significantly impact our consolidated financial statements as we did not have any reclassifications to or from comprehensive income (loss).

-35-


In September 2011, the FASB issued ASU No. 2011-08 which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The revised standard is effective for us for our annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU No. 2011-08 did not significantly impact our consolidated financial statements.

In July 2012, the FASB issued ASU No. 2012-02, Intangibles - Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment. ASU No. 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-life intangible asset is impaired as a basis for determining whether it is necessary to perform quantitative impairment in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. ASU No. 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. We adopted ASU No. 2012-02, as permitted, for our annual impairment test for 2012. The adoption did not have a material impact on our consolidated financial statements.

Contractual Obligations

Our significant contractual obligations as of December 31, 2012 are as follows:

                                             Payments Due by Period
                    Less than        One to         Three to       More Than
                    One Year       Three Years     Five Years     Five Years         Total
Short-term loan  $  16,404,115   $           -   $          -   $           -   $  16,404,115
Long-term loans              -               -              -      11,095,000      11,095,000
Interest on loan     1,069,401       1,464,540      1,464,540         110,276       4,108,757
obligations
Total            $  17,473,516   $   1,464,540   $  1,464,540   $  11,205,276   $  31,607,872

Seasonality of Our Sales

The first quarter of the calendar year is typically the slowest season of the year for us due to the Chinese New Year holiday. During this period, accounts receivable collection tends to be very slow and we also need to purchase raw material to prepare for upcoming busier seasons.

Inflation

Inflation does not materially affect our business or the results of our operations.

Off-Balance Sheet Arrangements

As of December 31, 2012, we did not have any off-balance sheet arrangements.

  Add BEST to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BEST - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.