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EXCEL - IDEA: XBRL DOCUMENT - Shiner International, Inc. | Financial_Report.xls |
EX-31.1 - EXHIBIT 31.1 - Shiner International, Inc. | v313094_ex31-1.htm |
EX-31.2 - EXHIBIT 31.2 - Shiner International, Inc. | v313094_ex31-2.htm |
EX-32.2 - EXHIBIT 32.2 - Shiner International, Inc. | v313094_ex32-2.htm |
EX-32.1 - EXHIBIT 32.1 - Shiner International, Inc. | v313094_ex32-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
o | Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2012
o | Transition report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from _______ to _______.
001-33960
(Commission file number)
SHINER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Nevada | 98-0507398 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
19/F, Didu Building, Pearl River Plaza,
No. 2 North Longkun Road
Haikou, Hainan Province
China 570125
(Address of principal executive offices)
011-86-898-68581104 (Issuer’s telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes o No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company x |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No o
On May 14, 2012, 27,541,491 shares of the registrant's common stock were outstanding.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION | |||
Item 1. | Financial Statements | 1 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 26 | |
Item 4. | Controls and Procedures | 26 | |
PART II – OTHER INFORMATION | |||
Item 1. | Legal Proceedings | 26 | |
Item 1A. | Risk Factors | 26 | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 26 | |
Item 3. | Defaults Upon Senior Securities | 27 | |
Item 4. | Mine Safety Disclosures | 27 | |
Item 5. | Other Information | 27 | |
Item 6. | Exhibits | 27 |
PART 1 - FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS. |
SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash & equivalents | $ | 2,022,029 | $ | 2,831,808 | ||||
Restricted cash | - | 57,613 | ||||||
Accounts receivable, net of allowance for doubtful | ||||||||
accounts of $146,055 and $121,017 at 2012 and 2011 | 7,866,576 | 7,744,377 | ||||||
Advances to suppliers | 7,860,571 | 10,042,214 | ||||||
Notes receivable | - | 7,865 | ||||||
Inventory, net | 13,737,011 | 10,252,955 | ||||||
Prepaid expenses & other current assets | 936,502 | 1,072,326 | ||||||
Total current assets | 32,422,689 | 32,009,158 | ||||||
Property and equipment, net | 36,291,261 | 27,836,253 | ||||||
Construction in progress | 4,316,566 | 12,037,154 | ||||||
Advance for the purchase of equipment | 852,303 | 763,427 | ||||||
Intangible assets, net | 3,024,048 | 3,063,646 | ||||||
Goodwill | 2,036,205 | 2,023,342 | ||||||
TOTAL ASSETS | $ | 78,943,072 | $ | 77,732,980 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 7,523,788 | $ | 5,133,835 | ||||
Other payables | 7,382,944 | 7,021,179 | ||||||
Unearned revenue | 706,951 | 1,313,320 | ||||||
Accrued payroll | 162,000 | 193,884 | ||||||
Short-term loans | 8,973,908 | 10,684,625 | ||||||
Total current liabilities | 24,749,591 | 24,346,843 | ||||||
Long-term loans | 11,081,000 | 9,957,090 | ||||||
Total Liabilities | 35,830,591 | 34,303,933 | ||||||
Commitments and contingencies | ||||||||
EQUITY | ||||||||
Shiner stockholders' equity: | ||||||||
Common stock, par value $0.001; 75,000,000 shares authorized, | ||||||||
27,603,336 shares issued and 27,541,491 shares outstanding | 27,603 | 27,603 | ||||||
Additional paid-in capital | 14,333,408 | 14,332,392 | ||||||
Treasury stock (61,845 shares) | (58,036 | ) | (58,036 | ) | ||||
Other comprehensive income | 5,693,864 | 5,426,393 | ||||||
Statutory reserve | 3,542,707 | 3,523,273 | ||||||
Retained earnings | 17,904,664 | 18,478,618 | ||||||
Total Shiner stockholders' equity | 41,444,210 | 41,730,243 | ||||||
Noncontrolling interest | 1,668,271 | 1,698,804 | ||||||
Total equity | 43,112,481 | 43,429,047 | ||||||
TOTAL LIABILITIES AND EQUITY | $ | 78,943,072 | $ | 77,732,980 |
The accompanying notes are an integral part of these consolidated financial statements.
1 |
SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
(unaudited)
2012 | 2011 | |||||||
Net Revenue | $ | 17,370,024 | $ | 15,906,845 | ||||
Cost of goods sold | 15,199,083 | 13,539,738 | ||||||
Gross profit | 2,170,941 | 2,367,107 | ||||||
Operating expenses | ||||||||
Selling | 654,531 | 444,676 | ||||||
General and administrative | 1,646,477 | 717,039 | ||||||
Total operating expenses | 2,301,008 | 1,161,715 | ||||||
Income (loss) from operations | (130,067 | ) | 1,205,392 | |||||
Non-operating income (expense): | ||||||||
Other income, net | (101,183 | ) | 194,611 | |||||
Interest income | 8,829 | 6,273 | ||||||
Interest expense | (288,669 | ) | (142,951 | ) | ||||
Exchange (loss) | (5,873 | ) | (55,795 | ) | ||||
Total non-operating income (expense) | (386,896 | ) | 2,138 | |||||
Income (loss) before income tax | (516,963 | ) | 1,207,530 | |||||
Income tax expense | 78,943 | 210,836 | ||||||
Net income (loss) | (595,906 | ) | 996,694 | |||||
Net loss attributed to noncontrolling interest | (41,386 | ) | (8,310 | ) | ||||
Net income (loss) attributed to Shiner | $ | (554,520 | ) | $ | 1,005,004 | |||
Comprehensive income (loss) | ||||||||
Net income (loss) | $ | (595,906 | ) | $ | 996,694 | |||
Foreign currency translation gain | 278,324 | 226,514 | ||||||
Comprehensive income (loss) | $ | (317,582 | ) | $ | 1,223,208 | |||
Weighted average shares outstanding : | ||||||||
Basic | 27,541,491 | 27,541,491 | ||||||
Diluted | 27,541,491 | 27,546,675 | ||||||
Earnings (loss) per share attributed to Shiner common stockholders | ||||||||
Basic | $ | (0.02 | ) | $ | 0.04 | |||
Diluted | $ | (0.02 | ) | $ | 0.04 | |||
The accompanying notes are an integral part of these consolidated financial statements.
2 |
SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
(unaudited)
2012 | 2011 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | (595,906 | ) | $ | 996,694 | |||
Adjustments to reconcile net income (loss) to net cash | ||||||||
provided by (used in) operating activities: | ||||||||
Depreciation | 676,373 | 518,462 | ||||||
Amortization | 59,148 | 1,809 | ||||||
Stock compensation expense | 1,016 | 695 | ||||||
Change in working capital components: | ||||||||
Accounts receivable | (73,060 | ) | 589,310 | |||||
Inventory | (3,423,193 | ) | (1,526,012 | ) | ||||
Advances to suppliers | 2,248,321 | (4,456,522 | ) | |||||
Other assets | 136,476 | (74,521 | ) | |||||
Accounts payable and accrued expenses | 2,360,516 | (2,287,552 | ) | |||||
Unearned revenue | (612,876 | ) | 844,269 | |||||
Other payables | 319,373 | 14,066 | ||||||
Accrued payroll | (33,158 | ) | (6,377 | ) | ||||
Net cash provided by (used in) operating activities | 1,063,030 | (5,385,679 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Issuance of notes receivable | - | (173,074 | ) | |||||
Payment on note receivable | 7,925 | - | ||||||
Payments for property and equipment | (1,242,044 | ) | (9,089,081 | ) | ||||
Payments for construction in progress | - | (738,208 | ) | |||||
(Increase)/decrease in restricted cash | 58,052 | - | ||||||
Net cash used in investing activities | (1,176,067 | ) | (10,000,363 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Repayment of short-term loans | (8,555,000 | ) | (6,848,001 | ) | ||||
Proceeds from short-term loans | 6,774,112 | 16,602,598 | ||||||
Proceeds from long-term loans | 1,061,950 | - | ||||||
Net cash provided by (used in) financing activities | (718,938 | ) | 9,754,597 | |||||
Effect of exchange rate changes on cash and equivalents | 22,196 | 31,785 | ||||||
NET DECREASE IN CASH AND EQUIVALENTS | (809,779 | ) | (5,599,660 | ) | ||||
CASH AND EQUIVALENTS, BEGINNING BALANCE | 2,831,808 | 8,622,035 | ||||||
CASH & EQUIVALENTS, ENDING BALANCE | $ | 2,022,029 | $ | 3,022,375 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Interest paid | $ | - | $ | 142,784 | ||||
Income taxes paid | $ | - | $ | 219,128 |
The accompanying notes are an integral part of these consolidated financial statements.
3 |
SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND 2011
Note 1 - Organization and Basis of Presentation
The unaudited consolidated financial statements were prepared by Shiner International, Inc., a Nevada corporation (the “Company” or “Shiner”), pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). 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 present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) were omitted pursuant to such rules and regulations. These 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 10-K. The results for the three months ended March 31, 2012, are not necessarily indicative of the results to be expected for the year ending December 31, 2012.
Organization and Line of Business
Shiner International, Inc. was incorporated in the State of Nevada on November 12, 2003. The Company, through its subsidiaries manufactures Biaxially Oriented Polypropylene (“BOPP”) tobacco film, coated films, color printing products, advanced film, and water based coatings selling to customers throughout China, Asia, Australia, Europe, the Middle East and North America. Our products are sold to companies in these industries: food, tobacco, chemical, agribusiness, medical, pharmaceutical, personal care, electronics, automotive, construction, graphics, music and video publishing and other consumer goods.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Shiner and its subsidiaries as follows:
Place | Percentage | |||||||||||||
Subsidiary | Incorporated | Owned | Parent | |||||||||||
Shiner International, Inc. | Nevada, USA | None | ||||||||||||
Shiner Industrial Co. | China | 100% | Shiner International, Inc. | |||||||||||
Shiny Day | China | 100% | Shiner International, Inc. | |||||||||||
Modern Hi-Tech | China | 100% | Shiny Day | |||||||||||
Zhuhai | China | 100% | Shiny Day | |||||||||||
Neng Film | China | 70% | Shiner International, Inc. | |||||||||||
Shimmer Sun Ltd. | China | 100% | Shiner International, Inc. | |||||||||||
Jingyue | China | 100% | Shimmer Sun Ltd. | |||||||||||
Shunhao | China | 100% | Jingyue | |||||||||||
Yongxin | China | 100% | Shunhao | |||||||||||
Ningbo | China | 65% | Yongxin | |||||||||||
The accompanying consolidated financial statements were prepared in conformity with US GAAP. The Company’s functional currency is the Chinese Yuan Renminbi (“RMB”); however, the accompanying consolidated financial statements were translated and presented in United States Dollars (“$” or “USD”).
Noncontrolling Interest
On September 20, 2010, the Company commenced operations of a majority-owned subsidiary, Shanghai Juneng Functional Film Company, Ltd. (“Shanghai Juneng”), with Shanghai Shifu Film Material, Co., Ltd., (‘Shanghai Shifu”). Under the terms of the agreement, Shiner owns 70% of Shanghai Juneng, and Shanghai Shifu owns 30%. The general manager of Shanghai Juneng reports directly to Shiner’s Chief Executive Officer. Shanghai Juneng pursues sales opportunities among China’s leading food producers in the Yangtze River Delta, one of China’s largest economic centers.
4 |
On May 2, 2011, Shiner acquired 100% of the stock of Shimmer Sun Ltd. ("Shimmer") for $3.2 million. The Company paid $1.3 million in cash and the remaining $1.9 million was recorded as “other payables’ which was paid by September 30, 2011. The acquisition gave Shiner a 65% controlling interest in Shimmer's subsidiary, Ningbo Neisuoer Latex Co., Ltd. ("Ningbo"). The transaction was accounted for under the acquisition method of accounting, with the purchase price allocated based on the fair value of the individual assets acquired and liabilities assumed.
The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation,” which governs the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. This standard also required changes to certain presentation and disclosure requirements.
The net income (loss) attributed to the NCI was separately designated in the accompanying statements of operations and other comprehensive income. Losses attributable to the NCI in a subsidiary may exceed the NCI’s interests in the subsidiary’s equity. The excess attributable to the NCI is attributed to those interests. The NCI shall continue to be attributed its share of losses even if that attribution results in a deficit NCI balance.
Principles of Consolidation
The accompanying consolidated financial statements include the account of Shiner International, Inc. and its subsidiaries. All significant intercompany transactions and balances were eliminated in consolidation.
Foreign Currency Translation
The accounts of the Company’s Chinese subsidiaries are maintained in the RMB and the accounts of the U.S. parent company are maintained in the USD. The accounts of the Chinese subsidiaries are translated into USD in accordance with ASC Topic 830 “Foreign Currency Matters,” with the RMB as the functional currency for the Chinese subsidiaries. According to Topic 830, all assets and liabilities are translated at the exchange rate on the balance sheet date, stockholders’ equity is translated at historical rates and statement of operations items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statement of operations.
Note 2 - Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Equivalents
Cash and equivalents include cash in hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.
5 |
Restricted Cash
Restricted cash consists of monies restricted by the Company’s lender related to its outstanding debt obligations.
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.
Advances to Suppliers
To insure a steady supply of raw materials, the Company is required from time to time to make cash advances when placing its purchase orders. Management determined that no reserve was necessary for advances to suppliers and the balances were $7,860,571 and $10,042,214 as of March 31, 2012 and December 31, 2011, respectively. The advances to suppliers are interest free and unsecured.
Inventory
Inventory is valued at the lower of the inventory’s cost (weighted average basis) or the current market price of the inventory. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower.
Notes Receivable
Notes receivable consist of bank notes received from customers as payment of their accounts receivable balance. The notes are guaranteed by a bank and bear no interest. The notes are generally due within six months from the date of issuance.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and repairs are expenses as incurred; additions, renewals and improvements are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:
Operating equipment | 10 years | |||
Vehicles | 8 years | |||
Office equipment | 5 years | |||
Buildings and improvements | 20 years |
The following are the details regarding the Company’s property and equipment at March 31, 2012 and December 31, 2011:
2012 | 2011 | |||||||
(audited) | ||||||||
Operating equipment | $ | 30,070,891 | $ | 14,028,345 | ||||
Vehicles | 705,204 | 801,057 | ||||||
Office equipment | 253,714 | 250,809 | ||||||
Buildings | 12,168,118 | 18,912,102 | ||||||
Building and equipment improvements | 506,406 | 538,930 | ||||||
43,704,333 | 34,531,243 | |||||||
Less accumulated depreciation | (7,413,072 | ) | (6,694,990 | ) | ||||
$ | 36,291,261 | $ | 27,836,253 |
6 |
Construction in Progress and Government Grants
Construction in progress mainly consists of amounts expended to build a manufacturing workshop in Hainan and a product line for a BOPP tobacco line. The costs incurred and capitalized as construction in progress at March 31, 2012 and December 31, 2011 are $4.3 million and $12.0 million, respectively, which includes the facility and the equipment. Once the project is completed, the project will be transferred from “Construction in progress” to “Property and equipment. The first phase of the project was completed during 2010. The total cost of the new Hainan manufacturing workshop and the BOPP tobacco line is expected to be $25.1 million. In October 2009, the Company received a government grant for this project of $4.3 million from the Hainan Province Finance Bureau (“HPFB”). The Company is required to provide detailed expenses of the construction project to the HPFB. At the end of the project, the government will determine if the funds were used in accordance with the grant. At March 31, 2012 and December 31, 2011 and 2010, the RMB 29.1 million ($4.6 million at March 31, 2012) government grant was recorded in “Other payables” on the accompanying consolidated financial statements. If the government determines the funds were used for their intended purpose, the amount of the government grant is then amortized into other income over the useful life of the asset on the same basis used to depreciate the asset.
In 2011, the Company received a government grant of RMB 14 million ($2.2 million) from the Haikou Finance Bureau (“HFB”) for the construction of a new structure and the purchase and installation of related equipment. The Company is required to provide detailed expenses of the construction project to the HFB. At the end of the project, the government will determine if the funds were used in accordance with the grant. At March 31, 2012 and December 31, 2011, the grant was recorded in “Other payables” on the accompanying consolidated financial statements. If the government determines the funds were used for their intended purpose, the amount of the government grant is then amortized into other income over the useful life of the asset on the same basis being used to depreciate the asset.
Long-Lived Assets
The Company applies ASC Topic 360, “Property, Plant, and Equipment,” which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced to recognize the cost of disposal. Based on its review, the Company believes that as of March 31, 2012 and December 31, 2011, there was no significant impairment of its long-lived assets.
Intangible Assets
Intangible assets consist of rights to use three plots of land in Haikou City by the Municipal Administration of China for state-owned land. For two of these plots, the Company’s rights run through January 2059 and, for the third plot, the Company’s rights run through October 2060. The Company also acquired a patent with the acquisition of Shimmer that is being amortized over 10 years. The Company evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible and other long-lived assets is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss.
7 |
Goodwill
Goodwill represents the excess of purchase price over the underlying net assets of businesses acquired. Under accounting requirements, goodwill is not amortized but is subject to annual impairment tests. The impairment testing is based on the fair value of the reporting units, which is estimated based on a discounted cash flow valuation model and the projected future cash flows of the underlying businesses. As of December 31, 2011 the Company performed the required impairment review which resulted in no impairment adjustments.
Summary of changes in goodwill by reporting segments is as follows:
Water-based | ||||||||
latex | Total | |||||||
Balance, December 31, 2011 | $ | 2,023,342 | $ | 2,023,342 | ||||
Foreign currency adjustment | 12,863 | 12,863 | ||||||
Balance, March 31, 2012 | $ | 2,036,205 | $ | 2,036,205 |
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, advances to suppliers, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. In addition, the Company has long-term debt with financial institutions. The carrying amounts of the line of credit and other long-term liabilities approximate their fair values based on current rates of interest for instruments with similar characteristics.
ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value (“FV”) of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines FV, and establishes a three-level valuation hierarchy for disclosures of FV measurement that enhances disclosure requirements for FV measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
· | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. |
· | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
· | Level 3 inputs to the valuation methodology us one or more unobservable inputs which are significant to the fair value measurement. |
The Company analyzes all financial instruments with features of both liabilities and equity under ASC Topic 480, “Distinguishing Liabilities from Equity,” and ASC Topic 815, “Derivatives and Hedging.”
As of March 31, 2012 and December 31, 2011, the Company did not identify any assets and liabilities required to be presented on the balance sheet at FV.
Revenue Recognition
The Company’s revenue recognition policies comply with SEC Staff Accounting Bulletin 104 (codified in FASB ASC Topic 605). 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.
8 |
Sales revenue consists of the invoiced value of goods, which is net of value-added tax (“VAT”). All of the Company’s products sold in the People’s Republic of China (“PRC”) 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.
Sales returns and allowances was $0 for the three months ended March 31, 2012 and 2011. The Company does not provide unconditional right of return, price protection or any other concessions to its dealers or other customers.
Other Income
The Company recognizes other income in the period the Company has earned the revenue and collectability is reasonably assured. Other income in 2011 consists primarily of subsidy income which is received from Chinese Government Agencies for developing technology and research and development. The Company must manage the funds according to government requirements. The Company recognizes the revenue over the contract period.
Advertising Costs
The Company expenses the cost of advertising as incurred or, as appropriate, the first time the advertising takes place. Advertising costs for the three months ended March 31, 2012 and 2011, were not significant.
Research and Development
The Company expenses its research and development (“R&D”) costs as incurred. R&D costs included in general and administrative expenses for the three months ended March 31, 2012 and 2011 were $ 649,976 and $195,795, respectively.
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 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 fair value of stock options and other equity-based compensation issued to employees and non-employees. There were 120,000 options outstanding as of March 31, 2012.
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 more than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
9 |
Basic and Diluted Earnings Per Share
Earnings per share is calculated in accordance with the ASC Topic 260, “Earnings Per Share.” Basic earnings per share (“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. There were 120,000 options and 521,664 warrants outstanding as of March 31, 2012 with weighted-average exercise prices of $1.03 and $1.70, respectively. All options and warrants were excluded from the diluted loss per share for the three months ended March 31, 2012 due to the anti-diluted effect. There were 60,000 options and 521,664 warrants outstanding as of March 31, 2011 with weighted-average exercise prices of $1.25 and $1.70, respectively. The following is a reconciliation of the number of shares (denominator) used in the basic and diluted EPS computations for three months ended March 31, 2012 and 2011:
2012 | 2011 | |||||||||||||||
Per Share | Per Share | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Basic earnings per share | 27,541,491 | $ | (0.02 | ) | 27,541,491 | $ | 0.04 | |||||||||
Effect of dilutive stock options | ||||||||||||||||
and warrants | - | - | 5,184 | - | ||||||||||||
Diluted earnings per share | 27,541,491 | $ | (0.02 | ) | 27,546,675 | $ | 0.04 |
Foreign Currency Translation
The accounts of the Company’s Chinese subsidiaries are maintained in RMB and the accounts of the U.S. parent company are maintained in USD. The accounts of the Chinese subsidiaries were translated into USD in accordance with ASC Topic 830, “Foreign Currency Matters,” with the RMB as the functional currency for the Chinese subsidiaries. According to ASC Topic 830, all assets and liabilities were translated at the exchange rate on the balance sheet date, stockholders’ equity is translated at historical rates and statement of operations items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statement of operations.
Foreign Currency Transactions and Comprehensive Income
US GAAP generally requires recognized revenue, expenses, gains and losses be included in net income. Certain statements, however, require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. The functional currency of the Company’s Chinese subsidiaries is the RMB. Translation gains of $5,693,864 and $5,426,393 at March 31, 2012 and December 31, 2011, respectively, are classified as an item of other comprehensive income in the stockholders’ equity section of the consolidated balance sheets.
Statement of Cash Flows
In accordance with ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rates. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.
10 |
Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company has determined it has five reportable segments. See Note 12.
Dividends
The Company's Chinese subsidiaries have restrictions on the payment of dividends to the Company. China has adopted currency and capital transfer regulations that may require the Company's Chinese subsidiaries to comply with complex regulations for the movement of capital. These regulations include a public notice issued in October 2005 by the State Administration of Foreign Exchange (“SAFE”) requiring PRC residents, including both legal persons and natural persons, to register with the competent local SAFE branch before establishing or controlling any company outside of China. Although the Company believes its Chinese subsidiaries are in compliance with these regulations, should these regulations or the interpretation of them by courts or regulatory agencies change, the Company may not be able to pay dividends outside of China.
Recent Accounting Pronouncements
In May 2011, the FASB issued ASU 2011-04 to provide a consistent definition of FV and ensure that the FV measurement and disclosure requirements are similar between US GAAP and IFRS. ASU 2011-04 changes certain FV measurement principles and enhances the disclosure requirements particularly for Level 3 FV measurements. This guidance was effective for the Company on January 1, 2012. The adoption of ASU 2011-04 did not have a significant impact the Company’s consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. ASU 2011-05 revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in Accounting Standards Codification (ASC) 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 2011-12 which defers the requirement in ASU 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 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 2011-05, as amended by ASU 2011-12, did not have a significant impact the Company’s consolidated financial statements.
In September 2011, the FASB issued ASU 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 the Company for its annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 is not expected to significantly impact the Company’s consolidated financial statements.
Note 3 - Inventory
Inventory at March 31, 2012 and December 31, 2011 consisted of the following:
2012 | 2011 | |||||||
(audited) | ||||||||
Raw Material | $ | 6,124,705 | $ | 4,093,316 | ||||
Work in process | 1,171,167 | 1,724,754 | ||||||
Finished goods | 6,839,454 | 4,781,927 | ||||||
14,135,326 | 10,599,997 | |||||||
Less: Obsolescence reserve | (398,315 | ) | (347,042 | ) | ||||
$ | 13,737,011 | $ | 10,252,955 |
11 |
Note 4 - Intangible Assets
Intangible assets at March 31, 2012 and December 31, 2011consisted of the following:
2012 | 2011 | |||||||
(audited) | ||||||||
Patent | $ | 2,133,826 | $ | 2,120,348 | ||||
Right to use land | 1,160,767 | 1,153,434 | ||||||
Less: Accumulated amortization | (270,545 | ) | (210,136 | ) | ||||
Intangible assets, net | $ | 3,024,048 | $ | 3,063,646 |
Pursuant to the regulations, the PRC government owns all land. The Company has recognized the amounts paid for the acquisition of rights to use land as an intangible asset and amortizing such rights over the period the Company has use of the land, which range from 54 to 57 years.
Note 5 – Other Payables
Other payables at March 31, 2012 and December 31, 2011consisted of the following:
2012 | 2011 | |||||||
(audited) | ||||||||
Special purpose fund for Shi Zi Ling workshop | $ | 4,606,530 | $ | 4,577,430 | ||||
Special purpose fund for structure and equipment | 2,498,766 | 2,202,200 | ||||||
Other | 277,648 | 241,549 | ||||||
$ | 7,382,944 | $ | 7,021,179 |
The $4,606,530 and $2,216,200 payables at March 31, 2012 are liabilities recorded pursuant to the funds received as part of government grants. See “Construction in Progress and Government Grants in Note 2.
12 |
Note 6 - Debt
Short-term loans at March 31, 2012 and December 31, 2011consisted of the following:
2012 | 2011 | |||||||
(audited) | ||||||||
From February 28, 2011 to February 28, 2012, with interest of 6.06% at December 31, 2011. The loan is collateralized by equipment | $ | - | $ | 4,247,100 | ||||
From March 16, 2012 to February 18, 2013, with interest of 8.53% at March 31, 2012. The loan is collateralized by equipment | 1,583,000 | - | ||||||
From June 30, 2011 to June 30, 2012, with interest of 8.203% at March 31, 2012. The loan is collateralized by buildings and equipment | 1,583,000 | 1,573,000 | ||||||
Various short-term loans payable to bank, with interest from 3.27% to 6.41%. The loans are due ranging from April 18, 2012 to June 5, 2012 and are collateralized by accounts receivable. | 3,100,954 | 2,795,039 | ||||||
Various bank acceptance bills that are payable on various dates through June 23, 2012. | 2,706,954 | 2,069,486 | ||||||
$ | 8,973,908 | $ | 10,684,625 |
Long-term loans at March 31, 2012 and December 31, 2011 consisted of the following:
2012 | 2011 | |||||||
(audited) | ||||||||
From January 24, 2011 to January 24, 2018, with interest of 6.60%. The loan is collateralized by buildings and land use rights | $ | 2,532,800 | $ | 2,516,800 | ||||
From February 10, 2011 to February 10, 2018, with interest of 6.60%. The loan is collateralized by buildings and land use rights | 2,849,400 | 2,831,400 | ||||||
From February 16, 2011 to February 16, 2018, with interest of 6.60%. The loan is collateralized by buildings and land use rights | 2,295,350 | 2,280,850 | ||||||
From February 17, 2011 to February 17, 2018, with interest of 6.60%. The loan is collateralized by buildings and land use rights | 1,250,570 | 1,242,670 | ||||||
From March 25, 2011 to March 25, 2018, with interest of 6.60%. The loan is collateralized by buildings and land use rights | 427,410 | 424,710 | ||||||
From November 30, 2011 to November 30, 2018, with interest of 6.60%. The loan is collateralized by buildings and land use rights | 158,300 | 157,300 | ||||||
From December 23, 2011 to December 23, 2018, with interest rate of 6.60%. The loan is collateralized by buildings and land use rights | 506,560 | 503,360 | ||||||
From March 19, 2012 to January 18, 2018, with interest of 6.60%. The loan is collateralized by buildings and land use rights | 1,060,610 | - | ||||||
$ | 11,081,000 | $ | 9,957,090 |
13 |
On August 2, 2010, Hainan Shiner Industrial Co., Ltd. (“Hainan Shiner”), the Company’s wholly owned subsidiary, entered into a credit facility with the Hainan Branch of the Bank of China. The credit facility is a seven-year 70 million RMB, or approximately $11.1 million, secured revolving credit facility. 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 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 the benchmark. Additional interest will be paid on an 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, have provided guarantees and certain land, 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.
As of March 31, 2012,, the Company drew down the entire $11.0 million.
Note 7 - Stock Options and Warrants
Stock Options
The following is a summary of the Company’s stock option activity for the three months ended March 31, 2012:
Weighted | ||||||||||||
Average | Aggregate | |||||||||||
Options | Exercise Price | Intrinsic | ||||||||||
Outstanding | Price | Value | ||||||||||
Outstanding at December 31, 2011 | 120,000 | $ | 1.03 | $ | - | |||||||
Granted | - | - | ||||||||||
Canceled | - | - | ||||||||||
Exercised | - | - | ||||||||||
Outstanding at March 31, 2012 | 120,000 | $ | 1.03 | $ | - | |||||||
Exercisable at March 31, 2012 | 100,000 | $ | 1.07 | $ | - |
14 |
The number and weighted average exercise prices of all options outstanding as of March 31, 2012, are as follows:
Options Outstanding | ||||||||||||||
Weighted | ||||||||||||||
Weighted | Average | |||||||||||||
Number | Average | Remaining | ||||||||||||
Range of | Outstanding | Exercise | Contractual Life | |||||||||||
Exercise Price | March 31, 2012 | Price | (Years) | |||||||||||
$ | 0.80 | 60,000 | $ | 0.80 | 4.69 | |||||||||
1.25 | 60,000 | 1.25 | 1.18 | |||||||||||
120,000 |
The number and weighted average exercise prices of all options exercisable as of March 31, 2012, are as follows:
Options Exercisable | ||||||||||||||
Weighted | ||||||||||||||
Weighted | Average | |||||||||||||
Number | Average | Remaining | ||||||||||||
Range of | Outstanding | Exercise | Contractual Life | |||||||||||
Exercise Price | March 31, 2012 | Price | (Years) | |||||||||||
$ | 0.80 | 40,000 | $ | 0.80 | 4.69 | |||||||||
1.25 | 60,000 | 1.25 | 1.18 | |||||||||||
100,000 |
Warrants
The following is a summary of the Company’s warrant activity for the three months ended March 31, 2012:
Weighted | ||||||||||||
Weighted | Average | |||||||||||
Average | Remaining | |||||||||||
Warrants | Exercise Price | Contractual Life | ||||||||||
Outstanding | Price | (Years) | ||||||||||
Outstanding at December 31, 2011 | 521,664 | $ | 1.70 | |||||||||
Granted | - | - | ||||||||||
Canceled | - | - | ||||||||||
Exercised | - | - | ||||||||||
Outstanding at March 31, 2012 | 521,664 | $ | 1.70 | 0.99 | ||||||||
Exercisable at March 31, 2012 | 521,664 | $ | 1.70 | 0.99 |
Note 8 - Employee Welfare Plans
The expense for employee common welfare was $40,302 and $62,814 for the three months ended March 31, 2012 and 2011, respectively. The Company did not record a welfare payable as of March 31, 2012 or December 31, 2011. The Chinese government abolished the 14% welfare plan policy in 2007. The Company is not required to establish welfare and common welfare reserves.
15 |
Note 9 - Statutory Common Welfare Fund
As stipulated by the Company Law of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following:
- Making up cumulative prior years’ losses, if any;
- Allocations to the “statutory surplus reserve” of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the reserve reaches 50% of the Company’s registered capital;
- Allocations of 5% to 10% of income after tax, as determined under PRC accounting rules and regulations, to the Company’s “statutory common welfare fund,” which is established for the purpose of providing employee facilities and other collective benefits to the Company’s employees; and
- Allocations to the discretionary surplus reserve, if approved in the stockholders’ general meeting.
The Company appropriated $19,434 and $115,124 as reserve for the statutory surplus reserve and statutory common welfare fund for the three months ended March 31, 2012 and 2011, respectively.
Note 10 - Current Vulnerability Due to Certain Concentrations
Two customers accounted for 5% and 5%, respectively, of the Company’s sales for the three months ended March 31, 2012.
Two customers accounted for 9% and 7%, respectively, of the Company’s sales for the three months ended March 31, 2011.
One vendor provided 17% of the Company’s raw materials for the three months ended March 31, 2012.
One vendor provided 15% of the Company’s raw materials for the three months ended March 31, 2011.
The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC and by the general state of the PRC’s economy. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Note 11 – Commitments and Contingencies
At March 31, 2012, the Company is contingently liable to banks for discounted notes receivable and to vendors for endorsed notes receivable of $704,529.
Note 12 – Segment Information
The Company reclassified its business segment information at the end of 2010 to more closely align its financial reporting with its business structure. Prior period amounts were restated to conform to the current presentation. The Company recognized our products as five segments: BOPP tobacco films, water-based latex, coated film, color printed packaging, and advanced film. The water-base latex is one of the raw materials used in coated film to make the packaging more environmental and the barrier property better; therefore, approximately 70% of the water-base latex products manufactured by Ningbo are sold to Hainan Shiner, Hainan shiny-day and Zhuhai Huanuo.
The following tables summarize the Company’s segment information for the three months ended March 31, 2012 and 2011:
2012 | 2011 | |||||||
Revenues from unrelated entities | ||||||||
Tobacco film | $ | 10,038,041 | $ | 8,035,528 | ||||
Water-based latex | 13,811 | - | ||||||
Coated film | 4,117,416 | 4,919,591 | ||||||
Color printing | 1,030,806 | 1,656,174 | ||||||
Advanced film | 2,169,950 | 1,295,552 | ||||||
$ | 17,370,024 | $ | 15,906,845 |
16 |
Intersegment revenues | ||||||||
Tobacco film | $ | 5,251,085 | $ | 1,897,087 | ||||
Water-based latex | 169,067 | - | ||||||
Coated film | 2,153,897 | 389,590 | ||||||
Color printing | 539,234 | 274,082 | ||||||
Advanced film | 1,135,141 | - | ||||||
$ | 9,248,424 | $ | 2,560,759 | |||||
Total Revenues | ||||||||
Tobacco film | $ | 15,289,126 | $ | 9,932,615 | ||||
Water-based latex | 182,878 | - | ||||||
Coated film | 6,271,313 | 5,309,181 | ||||||
Color printing | 1,570,040 | 1,930,256 | ||||||
Advanced film | 3,305,091 | 1,295,552 | ||||||
Less Intersegment revenues | (9,248,424 | ) | (2,560,759 | ) | ||||
$ | 17,370,024 | $ | 15,906,845 | |||||
Income (loss) from operations | ||||||||
Tobacco film | $ | 500,214 | $ | 1,105,513 | ||||
Water-based latex | 683 | - | ||||||
Coated film | (385,004 | ) | 262,794 | |||||
Color printing | (123,384 | ) | (149,107 | ) | ||||
Advanced film | (57,418 | ) | 81,673 | |||||
Holding Company | (65,158 | ) | (95,481 | ) | ||||
$ | (130,067 | ) | $ | 1,205,392 | ||||
Interest income | ||||||||
Tobacco film | $ | 5,102 | $ | 2,266 | ||||
Water-based latex | 7 | - | ||||||
Coated film | 2,093 | 1,401 | ||||||
Color printing | 524 | 453 | ||||||
Advanced film | 1,103 | 265 | ||||||
Holding Company | - | 1,889 | ||||||
$ | 8,829 | $ | 6,273 | |||||
Interest Expense | ||||||||
Tobacco film | $ | 156,240 | $ | 68,135 | ||||
Water-based latex | 215 | - | ||||||
Coated film | 75,270 | 44,550 | ||||||
Color printing | 19,356 | 18,344 | ||||||
Advanced film | 36,912 | 11,922 | ||||||
Holding Company | 676 | - | ||||||
$ | 288,669 | $ | 142,951 |
17 |
Income tax expense (benefit) | ||||||||
Tobacco film | $ | 74,042 | $ | 118,859 | ||||
Water-based latex | - | - | ||||||
Coated film | 4,901 | 79,239 | ||||||
Color printing | - | - | ||||||
Advanced film | - | 12,738 | ||||||
Holding Company | - | - | ||||||
$ | 78,943 | $ | 210,836 | |||||
Net Income (loss) | ||||||||
Tobacco film | $ | 244,949 | $ | 964,268 | ||||
Water-based latex | 475 | - | ||||||
Coated film | (511,796 | ) | 157,427 | |||||
Color printing | (142,216 | ) | (175,441 | ) | ||||
Advanced film | (121,484 | ) | 152,392 | |||||
Holding Company | (65,834 | ) | (93,642 | ) | ||||
$ | (595,906 | ) | $ | 1,005,004 | ||||
Provision for depreciation | ||||||||
Tobacco film | $ | 361,392 | $ | 275,276 | ||||
Water-based latex | 10,730 | - | ||||||
Coated film | 174,102 | 62,563 | ||||||
Color printing | 44,770 | 79,246 | ||||||
Advanced film | 85,379 | 101,377 | ||||||
Holding Company | - | - | ||||||
$ | 676,373 | $ | 518,462 | |||||
As of | As of | |||||||
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
Total Assets | ||||||||
Tobacco film | $ | 34,590,498 | $ | 31,239,495 | ||||
Water-based latex | 961,826 | 797,500 | ||||||
Coated film | 17,350,072 | 20,810,552 | ||||||
Color printing | 4,461,552 | 5,768,795 | ||||||
Advanced film | 8,508,365 | 7,470,573 | ||||||
Holding Company | 13,070,759 | 11,646,065 | ||||||
$ | 78,943,072 | $ | 77,732,980 |
Note 13 - Geographical Sales
The geographical distribution of Shiner’s revenue for the three months ended March 31, 2012 and 2012 is as follows:
Geographical Areas | 2012 | 2011 | ||||||
Chinese Main Land | $ | 14,377,941 | $ | 13,084,399 | ||||
Asia (outside Mainland China) | 1,172,563 | 1,227,574 | ||||||
Australia | 923,223 | 416,298 | ||||||
Middle East | 319,837 | 575,093 | ||||||
North America | 257,939 | 601,418 | ||||||
Africa | 33,841 | - | ||||||
Europe | 260,334 | - | ||||||
South America | 24,346 | 2,063 | ||||||
$ | 17,370,024 | $ | 15,906,845 |
18 |
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Special Note Regarding Forward Looking Statements
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 April 12, 2012.
Because the factors discussed in this report could cause 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 wholly-owned subsidiaries, Hainan Shiner Industrial Co., Ltd., or “Hainan Shiner,” a PRC company, and Shimmer Sun Ltd., or “Shimmer Sun,” a PRC company; it’s 70% majority-owned subsidiary, Shanghai Juneng Functional Film Company, Ltd. or “Shanghai Juneng,” a PRC company; Shiner Industrial’s wholly-owned subsidiaries, Hainan Shiny-Day Color Printing Packaging Co., Ltd., or “Shiny-Day,” a PRC company, Hainan Modern Hi-Tech Industrial Co., Ltd., or “Hainan Modern,” a PRC company, and Zhuhai Modern Huanuo Packaging Material Co., Ltd., or “Zhuhai Modern”, a PRC company; and Shimmer Sun's 65% majority-owned subsidiary company, Ningbo Neisuoer Latex Co., Ltd., or "Ningbo," a PRC company. |
● | “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 |
● | “BVI” are to the British Virgin Islands. |
19 |
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 also sell three of our products, 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 total 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 total capacity of 2,500 tons a year; and two water-based latex reaction kettles with a total capacity of 3,000 tons a year.
The table below shows the percentage of revenue by each of our business segments for the three months ended March 31, 2012 and 2011:
Percent of Revenue | ||||||||
2012 | 2011 | |||||||
BOPP tobacco film | 57.8 | % | 50.5 | % | ||||
Water-based latex | 0.1 | % | 0.0 | % | ||||
Coated film | 23.7 | % | 30.9 | % | ||||
Color printing | 5.9 | % | 8.2 | % | ||||
Advanced film | 12.5 | % | 10.4 | % | ||||
100.0 | % | 100.0 | % |
We have 19 patents by the State Intellectual Property Office of China and have 10 patent applications relating to our products and manufacturing processes pending. Although our patents and processes provide us with a competitive advantage, we do not believe the loss of any single patent would have a material adverse effect on our business as a whole.
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 accessible via www.shinerinc.com.
Results of Operations
Comparison of the Three Months Ended March 31, 2012 and 2011
$ | % | |||||||||||||||
2012 | 2011 | Change | Change | |||||||||||||
Revenues | $ | 17,370,024 | $ | 15,906,845 | $ | 1,463,179 | 9.2 | % | ||||||||
Cost of goods sold | 15,199,083 | 13,539,738 | 1,659,345 | 12.3 | % | |||||||||||
Gross profit | 2,170,941 | 2,367,107 | (196,166 | ) | -8.3 | % | ||||||||||
Selling, general and administrative expenses | 2,301,008 | 1,161,715 | 1,139,293 | 98.1 | % | |||||||||||
Interest expense, net of interest income | 279,840 | 136,678 | 143,162 | 104.7 | % | |||||||||||
Other income (expense), net | (101,183 | ) | 194,611 | (295,794 | ) | 152.0 | % | |||||||||
Exchange loss | (5,873 | ) | (55,795 | ) | 49,922 | -89.5 | % | |||||||||
Income tax expense | 78,943 | 210,836 | (131,893 | ) | -62.6 | % | ||||||||||
Net loss attributed to noncontrolling interest | 41,386 | 8,310 | 33,076 | 398.0 | % | |||||||||||
Net income (loss) attributed to Shiner | $ | (554,520 | ) | $ | 1,005,004 | $ | (1,559,524 | ) | 155.2 | % |
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Revenues
Revenues for the three months ended March 31, 2012 increased 9.2%, or $1.5 million, to $ 17.4 million, compared to $15.9 million in 2011. Advanced film sales increased 67.1% to $2.2 million, up from $1.3 million in 2011. This increase was mainly a result of increased sales across all of our product lines. BOPP tobacco revenue increased 24.9%, or $2.0 million, to $10.0 million in the three months ended March 31, 2012, from $8.0 million in 2011. Coated film revenue decreased 16.3%, or $0.8 million, to $4.1 million in the three months ended March 31, 2012, from $4.9 million in 2011. Our anti-counterfeit revenue increased 67.1%, or $0.9 million, to $2.2million in the three months ended March 31, 2012, from $1.3 million in of 2011. Our color printing segment revenues decreased 37.8%, or $0.63 million, to $1.0 million in the three months ended March 31, 2012, from $1.7 million in 2011.
The increase in revenue was primarily caused by a 9.9%, or $1.3 million, increase in the volume of our domestic sales during the three months ended March 31, 2012. Our domestic sales accounted for 82.8%, or $14.4 million of our sales during the three months ended March 31, 2012, while only 82.0%, or $13.1 million, of our sales were made domestically in the same 2011 period. The Company provides coated film to its largest customer, who manufactures snack cakes, and our remaining top three customers are tobacco manufacturers who use our BOPP tobacco film.
Internationally, we sell three lines of products: advanced film (anti-counterfeit film), coated film, and color printing. International sales for the three months ended March 31 2012 were $3.0 million, or 17.2%, of our revenues in 2012 as compared to $2.8 million or 18.0% of revenue for the same 2011 period. The increase was not significant. All international sales are indirect using a network of distributors and converters.
Cost of Goods Sold
Cost of goods sold (“COGS”) increased $1.7 million, or 12.3%, from $13.5 million for the three months ended March 31, 2011, to $15.2 million for the 2012 period. The COGS was 87.5% and 85.1% of our revenue in the three months ended March 31, 2012 and 2011, respectively.
The principal cost component of our COGS is raw materials which includes petroleum. The increase in COGS year to year was primarily caused by an increase in raw material costs due to petroleum price fluctuations, an increase in the cost of labor, and the amortization of the added depreciation of Phase I of the Hainan manufacturing facility into the COGS. We estimate that a $10 per barrel increase in the price of crude oil would cause our raw material costs to increase by approximately 6%. There was some increase in the cost of our raw materials as a result of an increase in crude oil prices throughout the period. There has not been a significant difference in the COGS percentages among our different product lines and therefore, any increase or decrease in our raw material costs would be expected to have a similar impact on the profitability of our various product lines.
In a corporate effort to be environmentally friendly and improve work conditions in our production facilities, we had previously switched to non-benzene based ink products, which was appreciated by our customers at the time. Food safety regulations subsequently mandated the use of non-benzene based products in the packaging of foods and our prior switch helped our food packaging operations, which are conducted in the same production facilities, to easily comply.
Gross Profit
Our gross profit for the three months ended March 31, 2012 was $2.2 million, a profit margin of 12.5%, a decrease of 2.4% from 14.9% for the same 2011 period. The decrease in profit margin was primarily a consequence of an increase during the 2012 period in overhead unit rates as a result of increased labor costs and depreciation of the new property.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses increased by 98.1%, or $1.1 million, to $2.3 million for the three months ended March 31, 2012, compared to $1.2 million in the same 2011 period. General and administrative expenses include rent, management and staff salaries, insurance, marketing, accounting, legal, and research and development expenses (“R&D”). Although we have strict standards to control our general and administrative expenses, during the 2012 period we increased our R&D expenditures, as compared to the 2011 period. The increase in selling, general and administrative expenses is mainly due to an increase of $0.5 million in R&D expenses and an increase of $0.2 million for marketing activities.
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Interest Expense, net
Interest expense increased by 104.7%, or $143,162, to $279,840 in the three months ended March 31, 2012, compared to $136,678 in the same period of 2011, primarily due to additional short-term and long-term loans.
Other Income (Expense)
Other income decreased by $295,794, or 152.0%, to ($101,183) for the three months ended March 31, 2012, compared to income of $194,611 in the same period of 2011. During the three months ended March 31, 2012, we received $ 0.3 million in subsidy income from Chinese Governmental Agencies for developing technology and for R&D projects.
Income Tax Expense
For the three months ended March 31, 2012, we recorded a tax provision of $78,943, compared to $210,836 for the same period of 2011. Our effective tax rates for 2012 and 2011 were 28.9% and 19%, respectively. The increase 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.
Net Income (Loss)
We had a net loss of ($554,520) during the three months ended March 31, 2012, which was a $1.5 million, or 155.2%, decrease from a $1.0 million net income during the same 2011 period. The decrease in net income was mainly due to increased labor costs, depreciation of our new property, no other income from a former landlord (related to payments received for vacating a leased property early in 2011) , offset by an increase in subsidy income.
Liquidity and Capital Resources
At March 31, 2012, we had $2.0 million in cash and equivalents on hand, compared to $2.8 million at December 31, 2011, and we had working capital of $7.7 million at both March 31, 2012 and December 31, 2011. The decrease in working capital is primarily due to the use of current assets such as cash, other payables and short-term loans to purchase non-current assets. 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 the cash flows for the three months ended March 31, 2012 and 2011:
2012 | 2011 | |||||||
Net cash (used in) provided by operating activities | $ | 1,063,030 | $ | (5,385,679 | ) | |||
Net cash used in investing activities | (1,176,067 | ) | (10,000,363 | ) | ||||
Net cash provided by (used in) financing activities | (718,938 | ) | 9,754,597 | |||||
Effect of exchange rate changes on cash and equivalents | 22,196 | 31,785 | ||||||
Net (decrease)/increase in cash and equivalents | (809,779 | ) | (5,599,660 | ) | ||||
Cash and cash equivalents at beginning of the period | 2,831,808 | 8,622,035 | ||||||
Cash and cash equivalents at end of the period | $ | 2,022,029 | $ | 3,022,375 |
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Operating Activities
Net cash flows provided by operating activities for the three months ended March 31, 2012 was $1.1 million, as compared to (5,385,679) used in operating activities during the same 2011 period. Net cash flows was comprised primarily of net loss of $0.6 million, offset by depreciation and amortization of $0.7 million and an increase in working capital components of $0.9 million.
As of March 31, 2012, our accounts receivable increased by $0.07 million compared with December 31, 2011. We intend to continue our efforts to maintain accounts receivable at reasonable levels in relation to our sales. As of March 31, 2012, our inventory increased by $3.4 million compared with December 31, 2011 and our advances to suppliers decreased by $2.2 million.
Investing Activities
We used $1.2 million from our investing activities during the three months ended March 31, 2012, as compared to $10.0 million used in investing activities during the same 2011 period. We primarily invested in the acquisition of property and equipment. We are building a new tobacco film production line in a fully automated plant equipped with state-of-the-art production machinery.
Financing Activities
Net cash used in financing activities during the three months ended March 31, 2012 was $0.7 million, as compared to $9.7 million provided by financing activities during the same 2011 period. During the three months ended March 31, 2012, we repaid $8.6 million of short term loans and received proceeds of $6.8 million and $1.0 million for short-term and long-term loans, respectively.
Loan Commitments
Our current liabilities increased by $1.8 million during the three months ended March 31, 2012, principally due to the increase in accounts and other payables. As of March 31, 2012, the amount, maturity date and term of each of our bank loans were as follows: (All amounts in U.S. Dollars)
Lender | Interest rate | Maturity date | Balance | ||
The Hainan Branch of Shenzhen Development Bank | 8.53% | Feb 18, 2013 | $ | 1,583,000 | |
The Hainan Branch of Shenzhen Development Bank | 8.20% | Jun 30, 2012 | 1,583,000 | ||
The Hainan Branch of Industrial and Commercial Bank of China | 3.27%-6.41% | Jun 5, 2012 | 3,100,954 | ||
The Hainan Branch of Nanyang Commercial Bank (China) | N/A | Jun 23, 2012 | 2,706,954 | ||
The Hainan Branch of the Bank of China | 6.60% | Jan 24, 2018 | 2.532,800 | ||
The Hainan Branch of the Bank of China | 6.60% | Feb 10, 2018 | 2,849,400 | ||
The Hainan Branch of the Bank of China | 6.60% | Feb 16, 2018 | 2,295,350 | ||
The Hainan Branch of the Bank of China | 6.60% | Feb 17, 2018 | 1,250,570 | ||
The Hainan Branch of the Bank of China | 6.60% | Mar 25, 2018 | 427,410 | ||
The Hainan Branch of the Bank of China | 6.60% | Nov 30, 2018 | 158,300 | ||
The Hainan Branch of the Bank of China | 6.60% | Dec 23, 2018 | 506,560 | ||
The Hainan Branch of the Bank of China | 6.60% | Jan 18, 2018 | 1,060,610 | ||
Total | 20,054,908 |
During the three months ended March 31, 2012, we paid approximately $8.6 million of our short-term loans and borrowed an additional $6.8 million in short-term loans. These loans are due between June 30, 2012 and February 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 facility.
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 70 million RMB, or approximately $11.1 million, secured revolving credit facility. Hainan Shiner may not make any draw downs under this facility after March 31, 2012. 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 approximately $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 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. As collateral under this facility, Hainan Shiner and certain of its affiliates, including the Company, provided guarantees and certain land, buildings and property.
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.
Obligations under Material Contracts
We have the following material payment obligations:
Payments due by Period | ||||||||||||||||||||
Less than | One to | Three to | More Than | |||||||||||||||||
One Year | Three Years | Five Years | Five Years | Total | ||||||||||||||||
Short-term loan | $ | 8,973,908 | $ | - | $ | - | $ | - | $ | 8,973,908 | ||||||||||
Long-term loans | - | - | - | 11,081,000 | 11,081,00 | 0 | ||||||||||||||
Interest on loan obligations | 927,034 | 1,462,692 | 1,462,692 | 548,510 | 4,400,928 | |||||||||||||||
Lease obligations | 428,928 | 689,500 | - | - | 1,118,428 | |||||||||||||||
Total | $ | 10,329,870 | $ | 2,152,192 | $ | 1,462,692 | $ | 11,629,510 | $ | 25,574,264 |
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Critical Accounting Policies
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.
Revenue Recognition
The Company’s revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (“SAB”) 104. 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 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 fair value of stock options and other equity-based compensation issued to employees and non-employees. There were 120,000 options outstanding as of March 31, 2012.
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.
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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. There were 120,000 options and 521,664 warrants outstanding as of March 31, 2012. All options and warrants were excluded from the diluted loss per share calculation due to their anti-dilutive effect since the exercise prices are greater than the average stock price.
Recent Accounting Pronouncements
In May 2011, the FASB issued ASU 2011-04 which was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This guidance is effective for us beginning on January 1, 2012. The adoption of ASU 2011-04 did not have a significant impact our consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. ASU 2011-05 revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in Accounting Standards Codification (ASC) 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 2011-12 which defers the requirement in ASU 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 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 2011-05, as amended by ASU 2011-12, did not have a significant impact our consolidated financial statements.
In September 2011, the FASB issued ASU 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 2011-08 did not have a significant impact our consolidated financial statements.
Seasonality of our Sales
The first quarter of the calendar year is typically the slowest season of the year due to the Chinese New Year holiday. During this period, accounts receivable collection is very slow and we also need to prepare for upcoming busier seasons by making payments for inventory.
Off-Balance Sheet Arrangements
For the period ended March 31, 2012, we did not have any off-balance sheet arrangements.
Inflation
Inflation does not have a material effect on our business or operations.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable.
Item 4. | Controls and Procedures |
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(e), our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, Mr. Qingtao Xing and our Interim Chief Financial Officer, Xuezhu Xu, of the effectiveness of the design and operation of our disclosure controls and procedures, as of March 31, 2012. Based upon, and as of the date of this evaluation, Mr. Xing and Mr. Xu, determined that, as of March 31, 2011, and as of the date of this report, our disclosure controls and procedures were effective.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting during the first quarter of fiscal 2012 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.
Item 1A. | Risk Factors. |
There are no material changes from the risk factors previously disclosed in Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2011.
Item 2. | Unregistered Sales of Equity Securities and Use Of Proceeds. |
None.
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Item 3. | Defaults Upon Senior Securities. |
None.
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Other Information |
We have no information to disclose that was required to be in a report on Form 8-K during the period covered by this report, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.
Item 6. | Exhibits |
Exhibit | Description of Exhibit | |
31.1 | Certification of our Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended, filed herewith | |
31.2 | Certification of our Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended, filed herewith | |
32.1 | Certification of our Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith | |
32.2 | Certification of our Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith | |
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SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) 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.
Shiner International, Inc. | |
May 21, 2012 | By: /s/ Qingtao Xing |
Name: Qingtao Xing | |
Title: President and Chief Executive Officer (Principal Executive Officer) | |
May 21, 2012 | By: /s/ Xuezhu Xu |
Name: Xuezhu Xu | |
Title: Interim Chief Financial Officer (Principal Financial and Accounting Officer) |
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