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BEST > SEC Filings for BEST > Form 10-Q/A on 15-Aug-2013All Recent SEC Filings

Show all filings for SHINER INTERNATIONAL, INC.

Form 10-Q/A for SHINER INTERNATIONAL, INC.


15-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as "believe," "expect," "anticipate," "project," "target," "plan," "optimistic," "intend," "aim," "will" or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; and any statements regarding future economic conditions or performance, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements. Potential risks and uncertainties include, among other things, the factors discussed in Item 1A, "Risk Factors" included in the Company annual report on Form 10-K filed on March 29, 2013.

Because the factors discussed in this report could cause our actual results or outcomes to differ materially from those expressed in any forward-looking statement made by us or on our behalf, you should not place undue reliance on any such forward-looking statement. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events, except as required by law. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

Use of Terms

Except as otherwise indicated by the context, all references in this report to:

"Shiner," "Company," "we," "us" or "our" are to Shiner International, Inc., a Nevada corporation, and its direct and indirect subsidiaries: (i) Hainan Shiner Industrial Co., Ltd., or "Hainan Shiner," (ii) Hainan Shiny-Day Color Printing Packaging Co., Ltd., or "Shiny-Day," (iii) Hainan Modern Hi-Tech Industrial Co., Ltd., or "Hainan Modern," (iv) Zhuhai Modern Huanuo Packaging Material Co., Ltd., or "Zhuhai Modern," (v) Shimmer Sun Ltd., or "Shimmer Sun," (vi) Hainan Jingyue New Material Co., Ltd ., or "Jingyue,"
(vii) Hainan Shunhao New Material Co., Ltd., or "Shunhao," (viii) Hainan Yongxin Environmental Co., Ltd., or "Yongxin," and (ix) Ningbo Neisuoer Latex Co., Ltd., or "Ningbo".
"SEC" are to the United States Securities and Exchange Commission;
"Securities Act" are to the Securities Act of 1933, as amended; and "Exchange Act" are to the Securities Exchange Act of 1934, as amended;
"RMB" are to Renminbi, the legal currency of China; and "U.S. dollar," "USD," "US$" and "$" are to the legal currency of the United States;
"China," "Chinese" and "PRC" are to the People's Republic of China; and

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, and Ningbo 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.

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The table below shows the percentage of revenue by each of our business segments for the three and six months ended June 30, 2013, and 2012:

                          Percent of Revenue                 Percent of Revenue
                     Three Months Ended June 30,         Six Months Ended June 30,
                        2013               2012            2013               2012

BOPP tobacco film          56.4%             64.6%            55.0%             61.1%
Water-based latex           1.1%              1.7%             1.3%              0.9%
Coated film                26.1%             23.0%            25.8%             23.4%
Color printing              6.7%              2.4%             6.8%              4.2%
Advanced film               9.7%              8.3%            11.1%             10.4%
                          100.0%            100.0%           100.0%            100.0%

We have 27 patents issued by the State Intellectual Property Office of China and have 75 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.

Principal Factors Affecting Our Financial Performance

We believe that the following factors will continue to affect our financial performance:

Global Economic Fragility - The ongoing turmoil in the global economy may have an impact on our business and our financial condition, and we may face challenges if economic conditions do not improve. These economic conditions impact levels of consumer spending, which have deteriorated and may remain depressed for the foreseeable future. If demand for our products fluctuates as a result of these economic conditions or otherwise, our revenue and gross margin could be harmed.

Fuel Prices - Significant fluctuations in fuel prices could have both a positive and negative effect on our business and operations. Significant fluctuations in world fuel prices could significantly increase the price of shipping or transporting our products which we may not be able to pass on to our customers.

Results of Operations

The following summary of our results of operations should be read in conjunction with our financial statements and the notes thereto for the three-month periods ended June 30, 2013 and 2012 included herein. The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of sales revenue and key components of our revenue for the periods indicated in dollars and percentages.

Comparison of Three Months Ended June 30, 2013 and 2012

The following table summarizes the results of our operations during the
three-month periods ended June 30, 2013 and 2012 and provides information
regarding the dollar and percentage increase or (decrease) in such periods:

                                Three Months Ended June 30,           $              %
                                   2013              2012           Change        Change
Revenues                     $   17,950,297    $   16,401,485   $  1,548,812          9.4%
Cost of goods sold               16,127,248        15,913,476        213,772          1.3%
Gross profit                      1,823,049           488,009      1,335,040        273.6%
Selling, general and              2,267,489         1,964,468        303,021         15.4%
administrative expenses
Interest expense, net of            498,439           313,631        184,808         58.9%
interest income
Other income, net                 3,572,108           294,712      3,277,396      1,112.1%
Exchange (loss)                     (41,011 )          (3,775 )      (37,236 )      986.4%
Income tax expense (benefit)        284,684           (63,222 )      347,906        550.3%
Net income (loss) attributed          7,137           (21,641 )       28,778        133.0%
to noncontrolling interest
Net income attributed to     $    2,296,397    $   (1,414,290 ) $  3,710,687        262.4%
Shiner

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Revenues

Revenues for the three months ended June 30, 2013 increased $1.5 million (or 9.4%), to $17.9 million, compared to $16.4 million in the 2012 period. The increase was primarily attributable to increased revenues generated from the sale of coated film, color printing and advanced film, which, was partially offset by a decrease in revenues generated from the sale of BOPP tobacco and water-based latex. In the second quarter of 2013, revenue from advanced film increased $0.37 million (or 27.0%) to $1.7 million, up from $1.4 million; revenue from coated film increased $0.9 million (or 24.1%) to $4.7 million, from $3.8 million, revenue from color printing increased $0.8 million (or 214.0%) to $1.2 million, from $0.4 million; revenue from BOPP tobacco decreased $0.5 million (or 4.5%) to $10.1 million, down from $10.6 million and revenue from water-based latex decreased $78,768 (or 28.2%) to $0.2 million, from $0.3 million, as compared to the 2012 period. In the second quarter of 2013, our domestic sales (in mainland China) increased as a percentage of total sales, from 82.7% in the second quarter of 2012, to 83.8% in the second quarter of 2013.

Cost of Goods Sold

For the three months ended June 30, 2013, cost of goods sold ("COGS") increased $0.2 million (or 1.3%), from $15.9 million in the 2012 period, to $16.1 million. COGS for the second quarters of 2013 and 2012 were 89.8% and 97.0% of our revenues, respectively. The decrease in COGS as a percentage of revenues was primarily caused by improved utilization of equipment and higher material utilization.

Gross Profit

Our gross profit for the three months ended June 30, 2013 was $1.8 million, with a profit margin of 10.2%, a 7.2% increase from 3.0% in the second quarter of 2012. The increase in profit margin was primarily a consequence of increased sales revenue resulting from an increase in unit price and the improved utilization of equipment and material that lowered our cost of goods sold.

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

For the three months ended June 30, 2013, our SG&A expenses increased by $0.3 million (or 15.4%) to $2.3 million, compared to $2.0 million in the 2012 period. SG&A expenses include rent, management and staff salaries, insurance, marketing, accounting, legal, and research and development ("R&D") expenses. The increase in SG&A expenses was mainly due to an increase of $0.3 million R&D expenses.

Interest Expense, net

For the three months ended June 30, 2013, interest expense, net increased by $184,808 (or 58.9%) to $498,439 compared to $313,631 in the 2012 period, primarily due to additional short-term and long-term loans.

Other Income, net

For the three months ended June 30, 2013, there was other income of $3.6 million, representing an increase of $3.3 million (or 1,112.1%), compared to $294,712 for the same period in 2012. In the second quarter of 2013 and 2012, we recognized approximately $0.3 million in subsidy income from PRC governmental agencies for developing technology and R&D projects. In addition, in the second quarter of 2013, we also recognized approximately $3.2 million as a gain from the sale of a patent.

Income Tax Expense (benefit)

For the three months ended June 30, 2013, we recorded a tax provision of $284,684, compared to a tax benefit of $63,222 in the 2012 period. Our effective tax rates for the second quarters of 2013 and 2012 were 11.0% and 4.2%, 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.

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Net Income (Loss)

For the three months ended June 30, 2013, we generated net income of $2.3 million, representing an increase of $3.7 million (or 262.4%) from a net loss of $1.4 million during the 2012 period. The change in net income (loss) was principally due to an increase in revenue and increases in our gross margins, as explained above.

Comparison of Six Months Ended June 30, 2013 and 2012

The following table summarizes the results of our operations during the
three-month periods ended June 30, 2013 and 2012 and provides information
regarding the dollar and percentage increase or (decrease) in such periods:

                                 Six Months Ended June 30,            $              %
                                    2013            2012           Change         Change
Revenues                      $   31,793,826   $  33,771,509   $ (1, 977,683 )       -5.9%
Cost of goods sold                29,057,338      31,112,559      (2,055,221 )       -6.6%
Gross profit                       2,736,488       2,658,950          77,538          2.9%
Selling, general and               4,364,007       4,265,476          98,531          2.3%
administrative expenses
Interest expense, net of             811,245         593,471         217,774         36.7%
interest income
Other income, net                  4,579,548         193,529       4,386,019      2,266.3%
Exchange (loss)                      (79,071 )        (9,648 )       (69,423 )      719.6%
Income tax expense                   284,684          15,721         268,963       1710.9%
Net income (loss) attributed           7,152         (63,027 )        70,179        111.3%
to noncontrolling interest
Net income (loss) attributed  $    1,769,877   $  (1,968,810 ) $   3,738,687        189.9%
to Shiner

Revenues

Revenues for the six months ended June 30, 2013 decreased $2.0 million (or 5.9%), to $31.8 million, compared to $33.8 million in the 2012 period. The decrease was primarily attributable to decreased revenues generated from the sale of BOPP tobacco and advanced film which was partially offset by an increase in coated film, color printing, and water-based latex. In the six months ended June 30, 2013 revenue from BOPP tobacco decreased $3.1 million (or 15.1%) to $17.5 million, down from $20.6 million; revenue from advanced film decreased $15,280 (or 0.4%) to $3.5 million; revenue from water-based latex increased $0.1 million (or 36.4%) to $0.4 million from $0.3 million; revenue from coated film increased $0.3 million (or 3.9%) to $8.2 million, from $7.9 million, and revenue from color printing increased $0.7 million (or 52.7%) to $2.2 million, from $1.4 million. In the six months ended June 30, 2013 the percentage of revenue from domestic and international sales did not change significantly from the percentages in 2012. In the six months ended June 30 of 2013 and 2012, sales generated domestically accounted for 80.9% and 82.8%, respectively.

Cost of Goods Sold

For the six months ended June 30, 2013, COGS decreased $2.1 million (or 6.6%), from $31.1 million in the 2012 period, to $29.1 million. COGS for the six months ended June 30, 2013 and 2012 was 91.4% and 92.1% of our revenues, respectively. The decrease in COGS as a percentage of revenues was not significant.

Gross Profit

Our gross profit for the six months ended June 30, 2013 was $2.7 million, with a profit margin of 8.6%, a .07% increase from 7.9% for the six months ended June 30, 2012. The increase in profit margin was primarily a consequence of increased sales revenue resulting from an increase in unit price and the improved utilization of equipment and material that lowered our cost of goods sold.

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

For the six months ended June 30, 2013, our SG&A expenses increased by $98,531 (or 2.3%) to $4.4 million, compared to $4.3 million in the 2012 period. SG&A expenses include rent, management and staff salaries, insurance, marketing, accounting, legal, and research and development ("R&D") expenses. The increase in SG&A expenses was not significant.

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Interest Expense, net

For the six months ended June 30, 2013, interest expense, net increased by $217,774 (or 36.7%) to $811,245 compared to $593,471 in the 2012 period, primarily due to additional short-term and long-term loans.

Other Income, net

For the six months ended June 30, 2013, other income increased by $4.4 million (or 2,266.3%) to $4.6 million, compared to $0.2 in the 2012 period. For the six months ended June 30, 2013 we recognized $1.1 million in subsidy income from PRC governmental agencies for developing technology and R&D projects compared to $0.2 million in the 2012 period and recognized approximately $3.2 million as a gain from the sale of a patent in 2013.

Income Tax Expense

For the six months ended June 30, 2013, we recorded a tax provision of $284,684, compared to $15,721 in the 2012 period. Our effective tax rates for the six months ended June 30 2013 and 2012 were 13.8% and (.08)%, 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. This resulted in us providing a provision for income taxes in the six months ended June 30, 2012 even though we incurred an overall net loss.

Net Income (Loss)

For the six months ended June 30, 2013, we incurred a net income of $1.8 million, representing an increase of $3.7 million or 189.9% from a net loss of $2.0 million during the 2012 period. The change in net income (loss) was principally due to an increase in revenue and increases in our gross margins, as explained above.

Liquidity and Capital Resources

At June 30, 2013, we had $5.4 million in cash and equivalents on hand, compared to $4.2 million at December 31, 2012. We had working capital of $9.9 million at June 30, 2013, compared to $6.3 million at December 31, 2012. The increase in working capital is attributed to the net income generated during the first half of 2013. 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 six months ended June 30, 2013, and 2012:

                                                       Six Months Ended June 30,
                                                        2013               2012
Net cash used in operating activities             $      (694,494 )  $    (5,552,021 )
Net cash used in investing activities                    (985,008 )       (1,847,774 )
Net cash provided by financing activities               2,715,853          7,977,939
Effect of exchange rate changes on cash and               111,511             25,348
equivalents
Net increase in cash and equivalents                    1,147,862            603,492
Cash and equivalents at beginning of period             4,233,183          2,831,808
Cash and equivalents at end of period             $     5,381,045    $     3,435,300

Operating Activities

Net cash flows used in operating activities during the six months ended June 30, 2013 was $0.7 million, a decrease of $4.9, compared to $5.6 million in the 2012 period. The decrease in cash used in operating activities during the six months ended June 30, 2013 was primarily attributable to our generating net income during the six months ended June 30, 2013 compared to a net loss during the same period in 2012.

Investing Activities

Net cash flows used in investing activities during the six months ended June 30, 2013 was $1.0 million, a decrease of $0.9 million, compared to $1.9 million in the 2012 period. During 2012, we used $1.6 million for the acquisition of property and equipment, compared to $48,258 in 2013. 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. In the 2013 period there was cash provided from the repayment of notes receivable of $0.5 million, offset by an increase in restricted cash of $1.5 million.

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Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2013 was $2.7 million, a decrease of $5.3 million compared to the 2012 period. During the 2013 period, we decreased our net cash provided by financing activities by repaying $16.6 million of short-term loans, an increase of $4.9 million from $11.7 million in the 2012 period, and increased our proceeds from our loans from $18.6 million during the 2012 period to $19.3 in 2013.

Assets

Our total assets as of June 30, 2013 were $84.7 million, an increase of $7.2 million, compared to $77.5 million as of December 31, 2012. The increase was primarily due to the increase of cash of $1.1 million, restricted cash of $1.6 million, accounts receivable of $2.3 million and inventory of $4.2 million, offset by a decrease in advances to suppliers of $1.6 million. We intend to continue our efforts to maintain accounts receivable at reasonable levels in relation to our sales.

Liabilities

Our current liabilities increased by $4.5 million as of June 30, 2013, compared to December 31, 2012, principally due to an increase in accounts payable of $1.8 million and short-term loans of $3.1 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 June 30, 2013) on the loan.

The initial interest rate on each withdrawal from the facility is 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 is 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 the six months ended June 30, 2013, we paid $16.6 million of our short-term loans and borrowed an additional $19.3 million in short-term loans. The current outstanding short-term loans are due through June 2014. 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.

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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, Net

Inventory is valued at the lower of cost (determined on a weighted average . . .

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