As
filed with the Securities and Exchange Commission on January 30,
2008.
Registration
No. 333-148304
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
SB-2
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
Shiner
International, Inc.
(Exact
name of Registrant as specified in its charter)
Nevada
|
2821,
3080
|
98-0507398
|
(State
or jurisdiction of
|
(Primary
Standard Industrial
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Classification
Code Number)
|
Identification
No.)
|
Shiner
International, Inc.
19/F,
Didu Building, Pearl River Plaza,
No.
2 North Longkun Road
Haikou,
Hainan Province
China
570125
86-898-68581104
(Address
and telephone number of principal executive offices)
Mr.
Jian Fu
Chief
Executive Officer
Shiner
International, Inc.
19/F,
Didu Building, Pearl River Plaza,
No.
2 North Longkun Road
Haikou,
Hainan Province
China
570125
86-898-68581104
(Name,
address and telephone number of agent for service)
with
copies to:
Selig
D. Sacks, Esq.
Pryor
Cashman LLP
410
Park Avenue, 10
th
Floor
New
York, NY 10022
(212)
326-0879
Approximate
date of commencement of proposed sale to the public:
From
time to time after the effective date of this registration
statement.
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
¨
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
¨
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
¨
If
delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box.
¨
The
Registrant hereby amends this Registration Statement on such date or dates
as
may be necessary to delay its effective date until the Registrant shall file
a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to Section 8(a), may
determine.
The
information in this prospectus is not complete and may be changed. The Selling
Stockholders may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not soliciting an offer
to
buy these securities in any state where the offer or sale is not
permitted.
PROSPECTUS
SUBJECT
TO COMPLETION,
DATED
___________ ___, 2008
Shiner
International, Inc.
4,470,050
Shares of
Common
Stock
This
prospectus covers the offer and resale, from time to time, of up to 4,470,050
shares of our common stock, par value $0.001 per share, by the selling
stockholders named in this prospectus in the section entitled “Selling
Stockholders,” including their pledgees, assignees and successors-in-interest,
whom we collectively refer to in this document as the “Selling Stockholders.” We
completed a private placement offering in October 2007 pursuant to which we
issued to the Selling Stockholders an aggregate of (i) an 3,500,000 shares
of
common stock and (ii) warrants to purchase up to an aggregate of 970,050 shares
of common stock (the “Warrants”). The common stock being offered in this
prospectus may include shares issued pursuant to the exercise of the Warrants.
The common stock offered by this prospectus shall be adjusted to cover any
additional securities as may become issuable to prevent dilution resulting
from
stock splits, stock dividends or similar transactions. We will not receive
any
of the proceeds from the sale of any of the shares covered by this prospectus.
References in this prospectus to “the Company,” “we,” “our,” and “us” refer to
Shiner International, Inc.
Our
common stock is listed on the Over-The-Counter Bulletin Board under the symbol
“SHNL.OB.” On January 28, 2008, the closing price for our common stock was
$6.90 per share.
AN
INVESTMENT IN SHARES OF OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE “RISK FACTORS” BEGINNING ON PAGE 4 BEFORE YOU
DECIDE WHETHER TO INVEST IN SHARES OF OUR COMMON STOCK.
No
other
underwriter or other person has been engaged to facilitate the sale of shares
of
common stock in this offering. None of the proceeds from the sale of stock
by
the Selling Stockholders will be placed in escrow, trust or any similar
account.
We
may
amend or supplement this prospectus from time to time by filing amendments
or
supplements as required. You should read the entire prospectus and any
amendments or supplements carefully before you make your investment
decision.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The
date of this prospectus
is
, 2008
You
should rely only on the information contained or incorporated by reference
in
this Prospectus. We have not authorized anyone to provide you with different
information.
We
have
not authorized the Selling Stockholders to make an offer of these shares of
common stock in any jurisdiction where the offer is not permitted.
You
should not assume that the information in this prospectus is accurate as of
any
date other than the date on the front of the documents.
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY
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|
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1
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RISK
FACTORS
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|
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5
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CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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17
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USE
OF PROCEEDS
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17
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MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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17
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EQUITY
COMPENSATION PLAN INFORMATION
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18
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DESCRIPTION
OF OUR BUSINESS
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19
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MANAGEMENT’S
DISCUSSION AND ANALYSIS
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32
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DIRECTORS
AND EXECUTIVE OFFICERS
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40
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EXECUTIVE
COMPENSATION
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43
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
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45
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SELLING
STOCKHOLDERS
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46
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PLAN
OF DISTRIBUTION
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51
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DESCRIPTION
OF SECURITIES
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54
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TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL
PERSONS
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54
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INDEMNIFICATION
OF DIRECTORS AND OFFICERS
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54
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LEGAL
MATTERS
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55
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EXPERTS
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55
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WHERE
YOU CAN FIND MORE INFORMATION
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55
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INDEX
TO FINANCIAL STATEMENTS
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F-1
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|
This
summary highlights information contained elsewhere in this Prospectus and may
not contain all of the information that you should consider before investing
in
the shares. You are urged to read this Prospectus in its entirety, including
the
information under the section entitled “Risk Factors” and our consolidated
financial statements and related notes included elsewhere in this
Prospectus.
PROSPECTUS
SUMMARY
History
We
were
incorporated in Nevada on November 12, 2003 as Cartan Holdings Inc. We were
initially formed as an exploration stage company involved in the search for
mineral deposits. On July 23, 2007, we completed a share exchange transaction
with Sino Palace Holdings Ltd., a British Virgin Islands corporation, pursuant
to which, we acquired four companies (the “Shiner Group”) located in The
People’s Republic of China that are engaged in that country’s research,
manufacture, sale and distribution of technology driven advanced packaging
film
products: anti-counterfeit films, coated films, BOPP films and color printed
films. On July 24, 2007, we changed our name to “Shiner International, Inc.”
This transaction is commonly referred to as a “reverse acquisition” in which all
of the outstanding capital stock of the Shiner Group was effectively exchanged
for a controlling interest in our company.
Immediately
prior to reverse acquisition, our structure and ownership was as follows:
The
structure of the reverse acquisition transaction was as
follows:
After
giving effect to the completion of the reverse acquisition, we directly
own the
equity interests in Shiner Industrial, Shiny-day and Zhuhai, and will continue
to conduct our operations through the Shiner Group, our operating subsidiaries.
Unless
the context otherwise requires, this prospectus gives effect to this reverse
acquisition. Our current structure and ownership is as
follows:
Our
common stock became eligible for quotation and commenced trading on the
Over-the-Counter Bulletin Board on August 29, 2007 under the symbol “SHNL.OB.”
Business
We
develop, manufacture and distribute packaging film and color printed packaging
through our four operating subsidiaries, Hainan Shiner Industrial Co., Ltd.
(“Shiner Industrial”), Hainan Shiny-day Color Printing Packaging Co., Ltd.
(“Shiny-day”), Zhuhai Modern Huanuo Packaging Material Co., Ltd. (“Zhuhai”) and
Hainan Modern Hi-Tech Industrial Co., Ltd. (“Modern”). Our products include
coated film, shrink film, common film, anti-counterfeit laser holographic film
and color printed packaging materials. All of our operations are based in the
People’s Republic of China and each of our subsidiaries was formed under the
laws of the People’s Republic of China. We currently conduct our business
through the following four subsidiaries in China:
·
|
Shiner
Industrial located in Haikou, Hainan
province;
|
·
|
Shiny-day
also located in Haikou, Hainan
Province;
|
·
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Zhuhai
located in Zhuhai, Guangdong Province;
and
|
·
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Modern
located in the Shiziling Feidi Industrial Park of Haikou, Hainan
Province.
|
We
operate in several markets within the packaging film segment: Bi-axially
Oriented Polypropylene or BOPP based films, coated films, anti-counterfeit
films
and color printed packaging materials. For the nine months ended September
30,
2007, color printed packaging products made up approximately 36.6% of our
revenues, BOPP tobacco film made up approximately 25.7% of our revenues, coated
film accounted for approximately 33.5% of our revenues and anti-counterfeit
film
sales equaled approximately 4.2% of our revenues. Our current production
capacity consists of:
·
|
Three
coated film lines with total capacity of 6,000 tons a
year;
|
·
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One
BOPP tobacco film production line with total capacity of 3,500
tons a
year;
|
·
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One
BOPP film production line with capacity of 7,000 tons a
year;
|
·
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Three
color printing lines; and
|
·
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Three
anti-counterfeit film lines.
|
We
are
targeting growth through three main channels: (i) continuing our efforts to
gain
international market share in coated film through better pricing strategy and
excellent after-sale service; (ii) expanding sales in anti-counterfeit film,
especially to high-end brand spirits and cigarette manufacturers; (iii) the
development of next generation films, and (iv) acquisition of an anticounterfeit
technology company.
Our
principal executive offices are located at 19/F, Didu Building, Pearl River
Plaza, No. 2 North Longkun Road, Haikou, Hainan Province, China 570125. Our
telephone number is 86-898-68581104. Our website is
http://www.shinerinc.com
. The
information on our website is not incorporated into this
prospectus.
Selected
Financial Information
The
selected financial information presented below is derived from and should be
read in conjunction with our financial statements, including notes thereto,
appearing elsewhere in this Prospectus. See “Financial Statements.” As a result
of our acquisition of the Shiner Group on July 23, 2007, upon which the Shiner
Group was considered to be the acquirer for financial reporting purposes, our
historical financial statements are those of the Shiner Group.
Shiner
International, Inc.
Summary
Operating Information
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|
Fiscal
Year Ended
December
31,
|
|
Nine
Months Ended
September
30,
|
|
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2006
|
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2005
|
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2007
|
|
2006
|
|
Net
revenue
|
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$
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33,951,965
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$
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27,854,924
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$
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27,630,207
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$
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24,146,061
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Net
income
|
|
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3,561,335
|
|
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3,105,268
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|
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2,675,284
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2,933,367
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Net
income per common share
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$
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0.22
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$
|
0.19
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$
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0.15
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$
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0.18
|
|
Weighted
average number of common
shares
outstanding
|
|
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16,500,000
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16,500,000
|
|
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17,675,275
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16,500,000
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Summary
Balance Sheet Information
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December
31, 2006
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September
30, 2007
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Working
capital
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$
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3,286,815
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$
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5,984,591
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Total
assets
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20,097,004
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22,756,847
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Total
liabilities
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10,923,740
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10,949,895
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Stockholders’
equity
|
|
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9,173,264
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|
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11,806,952
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The
Offering
Common
stock offered by selling stockholders
|
|
4,470,050
shares including up to 3,500,000 shares of common stock and up to
970,050
shares of common stock issuable upon the exercise of common stock
purchase
warrants at an exercise price of $6.00 per share.
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Common
stock outstanding and to be outstanding after the offering
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24,650,000,
unless the holders elect to exercise the warrants through a “cashless
exercise” feature.
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Use
of proceeds
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|
We
will not receive any proceeds from the sale of the common stock hereunder.
See “Use of Proceeds” for a complete description. However, 970,050 of
these shares will only be issued upon exercise of warrants. If all
of
these warrants are exercised, we may receive gross proceeds of up
to
$5,820,300.
|
|
|
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Trading
Symbol
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|
SHNL.OB
|
The
Selling Stockholders may sell these shares in the over-the-counter market or
otherwise, at market prices prevailing at the time of sale, at prices related
to
the prevailing market price, or at negotiated prices. We will not receive any
proceeds from the sale of shares by the Selling Stockholders.
Summary
of Recent Transactions and Events
On
November 19, 2007, we appointed four members to our board of directors, Brian
G.
Cunat, Jian Fu
,
Joseph
S. Rizzello and Arnold Staloff, to fill vacancies created by the expansion
of
our Board of Directors from one member to five members. Messrs. Cunat, Rizzello
and Staloff are considered independent directors within the meaning of Nasdaq
Marketplace Rule 4200(a)(15).
On
October 22, 2007, we completed a final closing of a private placement offering
of units pursuant to which we sold an aggregate of 3,500,000 units at an
offering price of $3.00 per unit for aggregate gross proceeds of $10,500,000.
Each unit consisted of one share of our common stock, par value $.001 per share,
and a three year warrant to purchase 15% of one share of our common stock at
an
exercise price of $6.00 per share. Accordingly, we issued an aggregate of
3,500,000 shares of our common stock and warrants to purchase 525,000 shares
of
our common stock to the 76 accredited investors who participated in this
offering. In addition, we compensated four
registered
broker-dealer
s
that
assisted us in the sale of securities in this private placement offering by
(i)
paying them cash equal to 8% of the gross proceeds from the sales of units
placed and (ii) issuing them warrants to purchase that number of shares of
our
common stock equal to 15% of the units placed as follows:
Selected
Finder
|
|
Cash
|
|
Warrants
|
|
Maxim
Group LLC
|
|
$
|
178,400
|
|
|
111,500
|
|
Four
Tong Investments Ltd.
|
|
$
|
153,600
|
|
|
96,000
|
|
Global
Hunter Securities, LLC
|
|
$
|
300,880
|
|
|
188,050
|
|
Basic
Investors, Inc.
|
|
$
|
79,200
|
|
|
49,500
|
|
The
warrants granted to these broker-dealers have the same terms and conditions
as
the warrants granted in the offering. The net proceeds of this private placement
offering will be used for market development, product research, working capital,
the potential acquisition of a BOPP Production Line in Zhuhai, the potential
acquisition of an anti-counterfeit technology company and equipment purchases
for coated film.
RISK
FACTORS
You
should carefully consider the risks described below before making an investment
decision. The risks described below are not the only ones facing our company.
Additional risks not presently known to us or that we currently believe are
immaterial may also impair our business operations. Our business could be harmed
by any of these risks. The trading price of our common stock could decline
due
to any of these risks and you may lose all or part of your investment. In
assessing these risks, you should also refer to the other information
contained in this prospectus, including our consolidated financial
statements and related notes.
General
Risks Related to Our Business
We
cannot be certain that our product innovations and marketing successes will
continue.
We
believe that our past performance has been based on, and our future success
will
depend upon, in part, our ability to continue to improve our existing products
through product innovation and to develop, market and produce new products.
We
cannot assure you that we will be successful in the introduction, marketing
and
production of any new products or product innovations, or that we will develop
and introduce in a timely manner innovations to our existing products which
satisfy customer needs or achieve market acceptance. Although we have developed
products that meet customers’ requirements in the past, there is no assurance
that any of our research and development efforts will necessarily lead to any
new or enhanced products or generate sufficient market share to justify
commercialization. We must continually improve our current products and develop
and introduce new or enhanced products that address the requirements of our
customers and are competitive in terms of functionality, performance, quality
and price in order to maintain and increase our market share. If our new
products are unable to gain market acceptance, we would be forced to write-off
the related inventory and would not be able to generate future revenue from
our
investment in research and development. In such event, we would be unable to
increase our market share and achieve and sustain profitability. Our failure
to
develop new products and introduce them successfully and in a timely manner
could harm our ability to grow our business and could have a material adverse
effect on our business, results of operations and financial
condition.
Our
anti-counterfeiting technology may not satisfy the changing needs of our
customers.
With
any
anti-counterfeiting/product authentication technology, including the technology
of our current and proposed products, there are risks that the technology may
not successfully address all of our customers’ needs. While we have already
established successful relationships with Chinese customers with regard to
our
products, our customers’ ultimate needs may change or vary, thus introducing
variables which may affect the ability of our proposed products to address
all
of our customers’ ultimate technology needs in an economically feasible
manner.
Our
growth strategy and future success is dependent upon commercial acceptance
of
products incorporating technologies we have developed and are continuing to
develop. Technological trends have had and will continue to have a significant
impact on our business. Our results of operations and ability to remain
competitive are largely based upon our ability to accurately anticipate customer
and market requirements. Our success in developing, introducing and selling
new
and enhanced products depends upon a variety of factors, including:
|
·
|
accurate
technology and product selection;
|
|
·
|
timely
and efficient completion of product design and
treatment;
|
|
·
|
timely
and efficient implementation of manufacturing
processes;
|
|
·
|
product
performance; and
|
|
·
|
product
support and effective sales and
marketing.
|
We
may
not be able to accurately forecast or respond to commercial and technological
trends in the industries in which we operate.
We
may not be able to keep pace with rapid technological changes in the
anti-counterfeiting product industry.
The
anti-counterfeiting/product authentication industry is a relatively new industry
and market, especially in China and other parts of Asia, and thus continues
to
evolve in terms of customer’s/market needs, applications, and technology. While
we believe that we have hired or engaged personnel and outside consultants,
who
have experience, and/or are recognized within the industry to be experts, in
the
anti-counterfeiting/product authentication industry, including with respect
to
technology, and while we continue to seek out and develop “next generation”
technology through acquisition, strategic partnerships, and our own research
and
development, there is no guarantee that we will be able to keep pace with
technological developments and market demands in this evolving industry and
market. Technological changes, process improvements, or operating improvements
that could adversely affect us include:
|
·
|
development
of new technologies by our
competitors;
|
|
·
|
changes
in product requirements of our customers;
and
|
|
·
|
improvements
in the alternatives to our
technologies.
|
We
may
not have sufficient funds to devote to research and development, or our research
and development efforts may not be successful in developing products in the
time, or with the characteristics, necessary to meet customer needs, if we
do
not adapt to such changes or improvements, our competitive position, operations
and prospects would be materially affected.
Intense
competition in the
anti-counterfeiting
and
packaging
markets may adversely affect our operating results.
We
operate in highly competitive and rapidly evolving fields, and new developments
are expected to continue at a rapid pace.
We
believe that there are few barriers to entry into many of our markets. As a
result, we may experience competition resulting from new manufacturers of
various types of film in our product lines.
Competitors
may succeed in developing alternative technologies and products that are more
effective, easier to use or less expensive than those which have been or are
being developed by us or that would render our technology and products obsolete
and non-competitive.
Any
of
these actions by our competitors can adversely affect our sales.
In
addition, we face competition from a substantial number of companies, which
sell
similar and substitute packaging products.
Although
we believe that we have developed strategic relationships in China to best
penetrate the China market, we face competition from other providers, some
of
which have greater financial and human resources, have had a longer operating
history, and have greater name recognition than we do. Many of these competitors
have substantially greater financial and technical resources and production
and
marketing capabilities than we do, and may have
extensive
production facilities, well-developed sales and marketing staffs and substantial
financial resources. Competitive products are also available from a number
of
local manufacturers. This results in competition which is highly price
sensitive. We also compete on the basis of quality, service, timely delivery
and
differentiation of product properties.
An
increase in competition could result in material selling price reductions or
loss of our market share. This could materially adversely affect our operations
and financial condition.
We
are a major purchaser of many commodities that we use for raw materials in
the
manufacturing process of our products, and price changes for the commodities
we
depend on may adversely affect our profitability.
With
the
rapid growth of China’s economy, the demand for certain raw materials is great
while the supply may be more limited. This may affect our ability to secure
the
necessary raw materials we need in a cost-effective manner, including chemicals
and other items needed for production of our products at the volume of purchase
orders that we anticipate receiving.
For
example, the PET resin is currently used as a raw material in China’s textile
industry, and the market prices of PET resin may fluctuate due to changes in
supply and demand conditions in that industry. Any sudden shortage of supply,
or
significant increase in demand, of PET resin and additives may result in higher
market prices and thereby increase our cost of sales. The prices of PET resin
and additives are, to a certain extent, affected by the price movement of crude
oil.
If
there
is a significant increase in the cost of our raw materials and we are unable
to
pass on such increase to our customers on a timely basis or at all, our profit
margins and results of operations will be adversely affected.
Rising
energy prices could adversely affect our operating
results.
In
the
last few years, energy prices have risen dramatically, which has resulted in
increased raw materials costs for our branded products. Petroleum is the prime
ingredient in many plastics that we use to make our products. These include
AC,
PET and BOPP. International market prices for crude oil have been subject to
wide swings in the last three years, due in large part to the conflict in Iraq
and pricing increase agreed to among oil producing and consuming countries.
We
estimate that an increase in the price of crude oil of $10.00 per barrel could
cause our gross margin to decline by up to 6% on the sale of these products.
There has been some increase in the cost of our raw materials as a result of
significant crude oil price spikes, and our ability to hedge against these
fluctuations by either entering into long-term supply contracts or otherwise
offsetting our exposure to these commodity price variations has been extremely
limited. Rising oil prices in the international market will continue to increase
our operating costs, which would reduce our operating income and net income
if
we are unable to offset these increased costs with price increases for our
products.
Our
success depends on our management team and other key personnel, the loss of
any
of whom could disrupt our business operations.
Our
success to date has been largely attributable to and our future success will
depend in substantial part on the continued service of our senior management
and
founders. The loss of the services of one or more of our key personnel could
impede implementation and execution of our business strategy and result in
the
failure to reach our goals. We do not carry key person life insurance in respect
of any of our officers or employees and we do not have any employment agreements
with these individuals. Our future success will also depend on the continued
ability to attract, retain and motivate highly qualified personnel in many
fields of our operations. The rapid growth of the economy in The People’s
Republic of China has caused intense competition for qualified personnel. We
cannot assure you that we will be able to retain our key personnel or that
we
will be able to attract, train or retain qualified personnel in the
future.
We
may not be able to adequately protect our technology and other proprietary
rights.
Our
success will depend in part on our ability to obtain and protect our products,
methods, processes and other technologies, to preserve our trade secrets, and
to
operate without infringing on the proprietary rights of third parties both
domestically in the People’s Republic of China and abroad. We rely on patents,
trademarks and licenses to protect our intellectual property. We also have
patent applications pending in The People’s Republic of China, and have worked
and continue to work closely with Chinese patent officials to preserve our
intellectual property rights. If we are unable to adequately protect or enforce
our intellectual property rights with respect to our products, methods,
processes and other technologies, our prospects for revenue growth could be
significantly diminished. Additionally if our products, methods, processes
and
other technologies infringe on the intellectual property rights of other
parties, we could incur substantial costs.
Our
ability to compete in our markets and to achieve future revenue growth will
depend, in significant part, on our ability to protect our proprietary
technology and operate without infringing upon the intellectual property rights
of others. The legal regime in China for the protection of intellectual property
rights is still at its early stage of development. Intellectual property
protection became a national effort in China in 1979 when China adopted its
first statute on the protection of trademarks. Since then, China has adopted
its
Patent Law, Trademark Law and Copyright Law and promulgated related regulations
such as Regulation on Computer Software Protection, Regulation on the Protection
of Layout Designs of Integrated Circuits and Regulation on Internet Domain
Names. China has also acceded to various international treaties and conventions
in this area, such as the Paris Convention for the Protection of Industrial
Property, Patent Cooperation Treaty, Madrid Agreement and its Protocol
Concerning the International Registration of Marks. In addition, when China
became a party to the World Trade Organization in 2001, China amended many
of
its laws and regulations to comply with the Agreement on Trade-Related Aspects
of Intellectual Property Rights. Despite many laws and regulations promulgated
and other efforts made by China over the years with a view to tightening up
its
regulation and protection of intellectual property rights, private parties
may
not enjoy intellectual property rights in China to the same extent as they
would
in many Western countries, including the United States, and enforcement of
such
laws and regulations in China have not achieved the levels reached in those
countries. Both the administrative agencies and the court system in China are
not well-equipped to deal with violations or handle the nuances and complexities
between compliant technological innovation and non-compliant
infringement.
There
is
no assurance that the measures that we have put into place to protect our
intellectual property rights will be sufficient. As the number of patents,
trademarks, copyrights and other intellectual property rights in our industry
increases, and as the coverage of these rights and the functionality of the
products in the market further overlap, we believe that business entities in
our
industry may face more frequent infringement claims. Litigation to enforce
our
intellectual property rights could result in substantial costs and may not
be
successful. If we are not able to successfully defend our intellectual property
rights, we might lose rights to technology that we need to conduct and develop
our business. This may seriously harm our business, operating results and
financial condition, and enable our competitors to use our intellectual property
to compete against us.
Entry
of new BOPP and anti-counterfeiting film producers in the People’s Republic of
China may increase the supply of, and decrease the prices of, BOPP and
anti-counterfeiting film in the industry, and hence lead to a decline in our
profit margins.
We
believe that we are currently one of the few producers of BOPP and
anti-counterfeiting film in the People’s Republic of China with research and
development capability and our past financial performance is attributable to
our
market position in the industry. Over time, there may be new entrants into
our
industry, whether as a result of increased access to the production technology
of BOPP and anti-counterfeiting film or otherwise. Accordingly, we may
experience increased competition and the entry of new BOPP and
anti-counterfeiting producers will also lead to an increase in the industry
supply of BOPP and anti-counterfeiting film resulting in more competitive
pricing. We believe that our major competitors in the BOPP film manufacturing
market in the People’s Republic of China include
Jian su
Zhongda New Material Group Co., Ltd., Fo Shan Plastics Group Co., Ltd.,
Zhanjiang Packaging Materials Enterprises Ltd., Yonnan
Kunlene Film Industries Co., Ltd., Yunnan Hongta Plastics Co., Ltd.
and Hubei Firsta Packaging Co., Ltd.
We may
have to price our products in response to competitive market conditions and
this
may lead to a decline in our profit margins. In the event that we are unable
to
compete successfully or retain effective control over the pricing of our
products, our profit margins will decrease and, our revenues and net income
may
also decrease.
In
addition, China has gradually lifted its import restrictions, lowered import
tariffs and relaxed foreign investment restrictions after its entry into the
World Trade Organization in December 2001. This can lead to increased
competition from foreign companies in our industry, some of which are
significantly larger and financially stronger than us. If we fail to compete
effectively with these companies in the future, our current business and future
growth potential would be adversely affected.
In
each of our product lines, we have a large amount of sales concentrated in
a
small number of customers
.
In
each
of our product lines, we have a large number of sales concentrated in a small
number of customers. For example, approximately 82% of our anti-counterfeiting
film sales in 2006 were to one customer. In 2006, approximately 40% of our
coated film sales in China were to one customer and approximately 20% of our
overall coated film sales were to ten international customers. In 2006,
approximately 12% of our BOPP Tobacco Film Sales were to one customer and
approximately 79% of our color printing sales were to one customer. During
the
nine months ended September 30, 2007, approximately 72% of our
anti-counterfeiting film sales were to one customer. Approximately 30% of
our coated film sales in China were to one customer and approximately
33% of our overall coated film sales were to ten international customers.
Approximately 10% of our BOPP Tobacco Film Sales were to one customer and
approximately 93% of our color printing sales were to one customer.
Any
decrease in the demand for our BOPP Tobacco Film will significantly affect
our
financial performance. Although demand for our BOPP Tobacco Film for packaging
of tobacco products has gradually been increasing, any significant fall in
the
consumption of tobacco, in particular, whether as a result of health concerns
or
otherwise, could result in a decline in the sales of our products and adversely
impact our financial condition, business and operation.
A
disruption in the supply of utilities, fire or other calamity at our
manufacturing plant would disrupt production of our products and adversely
affect our sales.
Our
films
are manufactured solely at our production facility located in Haikou City and
Zhuhai City in the People’s Republic of China. While we have not in the past
experienced any calamities which disrupted production, any disruption in the
supply of utilities, in particular, electricity or power supply or any outbreak
of fire, flood or other calamity resulting in significant damage at our
facilities would severely affect our production of BOPP film, color printing
or
anti-counterfeit film lines and as a result, we could incur substantial
liabilities that could reduce or eliminate the funds available for product
development, or result in a loss of equipment and properties.
While
we
maintain insurance policies covering losses in respect of damage to our
properties, machinery and inventories of raw materials and products, we cannot
assure you that our insurance would be sufficient to cover all of our potential
losses.
We
have limited experience in operating outside mainland China, and failure to
achieve our international marketing and sales strategy may have an adverse
effect on our business growth in the future.
Our
future growth depends, to a considerable extent, on our ability to develop
both
the domestic and overseas markets. We are currently exploring new business
opportunities outside mainland China for our BOPP film, color printing or
anti-counterfeit film products. We have a limited number of customers outside
China, mainly in the United States and Europe. However, we have limited
experience in operating outside mainland China, have limited experience with
foreign regulatory environments and market practices, and cannot guarantee
that
we will be able to penetrate any international market. In connection with our
initial efforts to expand overseas, we have encountered many obstacles,
including cultural and linguistic differences, difficulties in keeping abreast
of market, business and technical developments in foreign jurisdictions, and
political and social disturbances. Failure in the development of international
markets may have an adverse effect on our business growth in the
future.
We
can provide no assurance that our internal control over our financial reporting
will be effective when Section 404 of the Sarbanes-Oxley Act of 2002
becomes applicable to us. Establishing internal controls over our financial
reporting
is
likely to increase our costs.
Section
404 of the Sarbanes-Oxley Act of 2002 (“SOX”) and the rules issued thereunder
have required certain changes in the corporate governance, securities disclosure
and compliance practices of United States public companies. Our compliance
with
these rules and stock exchange listing standards are likely to increase our
general and administrative costs, and we expect these costs to continue to
increase in the future. In particular, our management is required to conduct
an
evaluation of the effectiveness of our internal control over financial reporting
as of each year-end, beginning December 31, 2007. From that point, we will
be
required to include in our annual report on Form 10-K a report on our
management’s assessment of the effectiveness of our internal control over
financial reporting. Our independent registered public accounting firm will
also
issue an audit report on management’s assessment and on our internal control
over financial reporting. We expect that SOX and such other laws, rules and
regulations promulgated thereunder will increase legal and financial compliance
costs and will make our corporate governance activities more difficult,
time-consuming and costly. We also expect that these new requirements will
make
it more difficult and expensive for us to obtain director and officer liability
insurance in the United States.
We
will
shortly begin to undertake significant efforts in preparation for the
requirements of Section 404. We cannot be certain as to the timing of the
completion of our evaluation, testing and remediation actions or the impact
these may have on our operations. Furthermore, given the complexities and
inherent risks associated with the operation of internal control over financial
reporting, we can provide no assurance that our internal control over financial
reporting will be effective when Section 404 becomes applicable to us. Moreover,
we can provide no assurance as to any matters that might be reported in our
management’s assessment of our internal control over financial reporting or our
independent registered public accounting firm’s audit report. If we are not able
to implement the requirements relating to internal controls and all other
provisions of Section 404 in a timely fashion or achieve adequate compliance
with these requirements or other requirements of SOX, we might become subject
to
sanctions or investigation by regulatory authorities such as the SEC or NASD.
Any such action may materially adversely affect our reputation, financial
condition and the value of our securities, including our common stock.
Additionally, ineffective internal control over financial reporting could cause
investors to lose confidence in our reported financial information and could
result in a lower trading price for our securities.
We
are subject to many environmental and safety regulations that may result in
unanticipated costs or liabilities, which could reduce our
profitability.
We
are
subject to extensive federal, local and foreign laws, regulations, rules and
ordinances relating to pollution, protection of the environment and the
generation, storage, handling, transportation, treatment, disposal and
remediation of hazardous substances and waste materials. Actual or alleged
violations of environmental laws or permit requirements could result in
restrictions or prohibitions on plant operations, substantial civil or criminal
sanctions, as well as, under some environmental laws, the assessment of strict
liability and/or joint and several liability. Moreover, changes in environmental
regulations could inhibit or interrupt our operations, or require us to modify
our facilities or operations. Accordingly, environmental or regulatory matters
may cause us to incur significant unanticipated losses, costs or liabilities,
which could reduce our profitability.
In
addition, we could incur significant expenditures in order to comply with
existing or future environmental or safety laws. Capital expenditures and costs
relating to environmental or safety matters will be subject to evolving
regulatory requirements and will depend on the timing of the promulgation and
enforcement of specific standards which impose requirements on our operations.
Capital expenditures and costs beyond those currently anticipated may therefore
be required under existing or future environmental or safety laws.
Furthermore,
we may be liable for the costs of investigating and cleaning up environmental
contamination on or from our properties or at off-site locations where we
disposed of or arranged for the disposal or treatment of hazardous materials
or
from disposal activities that pre-dated our purchase of our businesses. We
may
therefore incur additional costs and expenditures beyond those currently
anticipated to address all such known and unknown situations under existing
and
future environmental laws.
Risks
Related to Conducting Our Business in
The
People’s Republic of China
We
are subject to international economic and political risks over which we have
little or no control and may be unable to alter our business practice in time
to
avoid the possibility of reduced revenues.
A
substantial portion of our business is conducted in The People’s Republic of
China. Doing business outside the United States, particularly in The People’s
Republic of China, subjects us to various risks, including changing economic
and
political conditions, major work stoppages, exchange controls, currency
fluctuations, armed conflicts and unexpected changes in United States and
foreign laws relating to tariffs, trade restrictions, transportation
regulations, foreign investments and taxation. We have no control over most
of
these risks and may be unable to anticipate changes in international economic
and political conditions and, therefore, unable to alter out business practice
in time to avoid the possibility of reduced revenues.
The
People’s Republic of China’s economic policies could affect our
business.
Substantially
all of our assets are located in The People’s Republic of China and a
substantial amount of our revenue is derived from our operations in The People’s
Republic of China. Accordingly, our results of operations and prospects are
subject, to a significant extent, to the economic, political and legal
developments in The People’s Republic of China.
While
The
People’s Republic of China’s economy has experienced significant growth in the
past twenty years, such growth has been uneven, both geographically and among
various sectors of the economy. The Chinese government has implemented various
measures to encourage economic growth and guide the allocation of resources.
Some of these measures benefit the overall economy of The People’s Republic of
China, but they may also have a negative effect on us. For example, operating
results and financial condition may be adversely affected by the government
control over capital investments or changes in tax regulations. The economy
of
The People’s Republic of China has been changing from a planned economy to a
more market-oriented economy. In recent years our government has implemented
measures emphasizing the utilization of market forces for economic reform and
the reduction of state ownership of productive assets, and the establishment
of
corporate governance in business enterprises; however, a substantial portion
of
productive assets in The People’s Republic of China are still owned by our
government. In addition, our
government continues to play a significant role in regulating industry
development by imposing industrial policies. It also exercises significant
control over The People’s Republic of China’s economic growth through the
allocation of resources, the control of payment of foreign currency-denominated
obligations, the setting of monetary policy and the provision of preferential
treatment to particular industries or companies.
We
may have difficulty establishing adequate management, legal and financial
controls in The People’s Republic of China.
The
People’s Republic of China historically has not adopted a Western style of
management and financial reporting concepts and practices, as well as in modern
banking, computer and other control systems. We may have difficulty in hiring
and retaining a sufficient number of qualified employees to work in The People’s
Republic of China. As a result of these factors, we may experience difficulty
in
establishing management, legal and financial controls, collecting financial
data
and preparing financial statements, books of account and corporate records
and
instituting business practices that meet Western standards.
Our
bank accounts are not insured or protected against loss.
We
maintain our cash with various banks and trust companies located in The People’s
Republic of China. Our cash accounts are not insured or otherwise protected.
Should any bank or trust company holding our cash deposits become insolvent,
or
if we are otherwise unable to withdraw funds, we would lose the cash on deposit
with that particular bank or trust company.
As
we have limited business insurance coverage in The People’s Republic of China,
any loss which we suffer may not be insured or may be insured to only a limited
extent.
The
insurance industry in The People’s Republic of China is still in an early state
of development and insurance companies located in The People’s Republic of China
offer limited business insurance products. In the event of damage or loss to
our
properties, our insurance may not provide as much coverage as if we were insured
by insurance companies in the United States.
Tax
laws and regulations in the People's Republic of China are subject to
substantial revision, some of which may adversely affect our
profitability.
The
Chinese tax system is in a state of flux, and it is anticipated that the
People’s Republic of China's tax regime will be altered in the coming years. Tax
benefits that we presently enjoy may not be available in the wake of these
changes, and we could incur tax obligations to our government that are
significantly higher than anticipated. These increased tax obligations could
negatively impact our financial condition and our revenues, gross margins,
profitability and results of operations may be adversely affected as a
result.
Certain
tax exemptions that we presently enjoy in the People's Republic of China are
scheduled to expire over the next several years.
As
a
substantial portion of our operations are located in a privileged economic
zone,
we are entitled to certain tax benefits. These tax benefits are presently
scheduled to expire over the next several years. For example, Shiny-day was
exempt from provincial tax and had a 100% exemption from federal taxes in China
from January 1, 2005 to December 31, 2006. It presently enjoys a 50% exemption
from federal tax from January 1, 2007 to December 31, 2009. Shiner Industrial
currently has a 50% exemption from federal tax from January 1, 2006 to December
31, 2008. When these exemptions expire, our income tax expenses will increase,
reducing our net income below what it would be if we continued to enjoy these
exemptions.
We
may face judicial corruption in The People’s Republic of
China.
Another
obstacle to foreign investment in The People’s Republic of China is corruption.
There is no assurance that we will be able to obtain recourse in any legal
disputes with suppliers, customers or other parties with whom we conduct
business, if desired, through The People’s Republic of China’s poorly developed
and sometimes corrupt judicial systems.
If
relations between the United States and The People’s Republic of China worsen,
investors may be unwilling to hold or buy our stock and our stock price may
decrease.
At
various times during recent years, the United States and The People’s Republic
of China have had significant disagreements over political and economic issues.
Controversies may arise in the future between these two countries. Any political
or trade controversies between the United States and The People’s Republic of
China, whether or not directly related to our business, could reduce the price
of our common stock.
The
government of The People’s Republic of China could change our policies toward
private enterprise or even nationalize or expropriate private enterprises,
which
could result in the total loss of our and your investment.
Our
business is subject to significant political and economic uncertainties and
may
be affected by political, economic and social developments in The People’s
Republic of China. Over the past several years, the government of The People’s
Republic of China has pursued economic reform policies including the
encouragement of private economic activity and greater economic
decentralization. The government of The People’s Republic of China may not
continue to pursue these policies or may significantly alter them to our
detriment from time to time with little, if any, prior notice.
Changes
in policies, laws and regulations or in their interpretation or the imposition
of confiscatory taxation, restrictions on currency conversion, restrictions
or
prohibitions on dividend payments to stockholders, or devaluations of currency
could cause a decline in the price of our common stock, should a market for
our
common stock ever develop. Nationalization or expropriation could even result
in
the total loss of your investment.
The
nature and application of many laws of The People’s Republic of China create an
uncertain environment for business operations and they could have a negative
effect on us.
The
legal
system in The People’s Republic of China is a civil law system. Unlike the
common law system, the civil law system is based on written statutes in which
decided legal cases have little value as precedents. In 1979, The People’s
Republic of China began to promulgate a comprehensive system of laws and has
since introduced many laws and regulations to provide general guidance on
economic and business practices in The People’s Republic of China and to
regulate foreign investment. Progress has been made in the promulgation of
laws
and regulations dealing with economic matters such as corporate organization
and
governance, foreign investment, commerce, taxation and trade. The promulgation
of new laws, changes of existing laws and the abrogation of local regulations
by
national laws could cause a decline in the price of our common stock. In
addition, as these laws, regulations and legal requirements are relatively
recent, their interpretation and enforcement involve significant
uncertainty.
As
we import goods into and export goods out of The People’s Republic of China,
fluctuation of the Renminbi may affect our financial condition by affecting
the
volume of cross-border money flow.
Although
we use the United States dollar for financial reporting purposes, many of the
transactions effected by our operating subsidiaries are denominated in The
People’s Republic of China’s Renminbi. The value of the Renminbi fluctuates and
is subject to changes in The People’s Republic of China’s political and economic
conditions. We do not currently engage in hedging activities to protect against
foreign currency risks. Even if we chose to engage in such hedging activates,
we
may not be able to do so effectively. Future movements in the exchange rate
of
the Renminbi could adversely affect our financial condition as we may suffer
financial losses when transferring money raised outside of China into the
country or paying vendors for services performed outside of China.
We
may not be able to obtain regulatory approvals for our
products.
The
manufacture and sale of our products in The People’s Republic of China are
regulated by The People’s Republic of China and the local provincial
governments. Although our licenses and regulatory filings are current, the
uncertain legal environment in The People’s Republic of China and our industry
may be vulnerable to local government agencies or other parties who wish to
renegotiate the terms and conditions of, or terminate their agreements or other
understandings with us.
It
will be extremely difficult to acquire jurisdiction and enforce liabilities
against our officers, directors and assets based in The People’s Republic of
China.
As
our
executive officers and several of our directors, including the chairman of
our
Board of Directors, are Chinese citizens, it may be difficult, if not
impossible, to acquire jurisdiction over these persons in the event a lawsuit
is
initiated against us and/or our officers and directors by a stockholder or
group
of stockholders in the United States. Also, because our operating subsidiaries
and assets are located in The People’s Republic of China, it may be extremely
difficult or impossible for you to access those assets to enforce judgments
rendered against us or our directors or executive offices by United States
courts. In addition, the courts in The People’s Republic of China may not permit
the enforcement of judgments arising out of United States federal and state
corporate, securities or similar laws. Accordingly, United States investors
may
not be able to enforce judgments against us for violation of United States
securities laws.
We
may face obstacles from the communist system in The People’s Republic of
China.
Foreign
companies conducting operations in The People’s Republic of China face
significant political, economic and legal risks. The Communist regime in The
People’s Republic of China, including a cumbersome bureaucracy, may hinder
Western investment.
Risks
Related to our Securities
Our
common stock price is subject to significant volatility, which could result
in
substantial losses for investors.
Prices
for our shares are determined in the marketplace and may accordingly be
influenced by many factors, including, but not limited to:
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the
depth and liquidity of the market for the
shares;
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quarter-to-quarter
variations in our operating
results;
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announcements
about our performance as well as the announcements of our competitors
about the performance of their
businesses;
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investors’
evaluations of our future prospects and the food industry
generally;
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changes
in earnings estimates by, or failure to meet the expectations of,
securities analysts;
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our
dividend policy; and
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general
economic and market conditions.
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In
addition, the stock market often experiences significant price fluctuations
that
are unrelated to the operating performance of the specific companies whose
stock
is traded. These market fluctuations could adversely affect the trading price
of
our shares.
The
price
at which investors purchase shares of our common stock may not be indicative
of
the price that will prevail in the trading market. Investors may be unable
to
sell their shares of common stock at or above their purchase price, which may
result in substantial losses.
Shares
of our common stock lack a significant trading market.
Shares
of
our common stock are not eligible as yet for trading on any national securities
exchange. Our common stock is eligible for quotation in the over-the-counter
market on the Over-The-Counter Bulletin Board pursuant to Rule 15c2-11 of the
Securities Exchange Act of 1934. This market tends to be highly illiquid. There
can be no assurance that an active trading market in our common stock will
develop, or if such a market develops, that it will be sustained. In addition,
there is a greater chance for market volatility for securities that trade on
the
Over-The-Counter Bulletin Board as opposed to securities that trade on a
national exchange or quotation system. This volatility may be caused by a
variety of factors, including the lack of readily available quotations, the
absence of consistent administrative supervision of “bid” and “ask” quotations
and generally lower trading volume.
Future
sales of shares of our common stock by our stockholders could cause our stock
price to decline.
We
cannot
predict the effect, if any, that market sales of shares of our common stock
or
the availability of shares of common stock for sale will have on the market
price prevailing from time to time. Sales of shares of our common stock in
the
public market covered under an effective registration statement, or the
perception that those sales may occur, could cause the trading price of our
common stock to decrease or to be lower than it might be in the absence of
those
sales or perceptions.
We
may issue additional shares of our capital stock or debt securities to raise
capital or complete acquisitions, which would reduce the equity interest of
our
stockholders.
Our
certificate of incorporation authorizes the issuance of up to 75,000,000 shares
of common stock, par value $.001 per share. There are approximately 50,350,000
authorized and unissued shares of our common stock which have not been reserved
and are available for future issuance. Although we have no commitments as of
the
date of this offering to issue our securities, we may issue a substantial number
of additional shares of our common stock, to complete a business combination
or
to raise capital. The issuance of additional shares of our common
stock:
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may
significantly reduce the equity interest of investors in this offering;
and
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may
adversely affect prevailing market prices for our common
stock.
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The
application of the “penny stock” rules could adversely affect the market price
of our common stock and increase your transaction costs to sell those
shares.
Holders
of shares of our common stock may have difficulty selling those shares because
our common stock will probably be subject to the penny stock rules. Shares
of
our common stock are subject to rules adopted by the Securities and Exchange
Commission that regulate broker-dealer practices in connection with transaction
in “penny stocks.” Penny stocks are generally equity securities with a price of
less than $5.00 which are not registered on a national securities exchange,
provided that current price and volume information with respect to transaction
in those securities is provided by the exchange or system. The penny stock
rules
require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from those rules, to deliver a standardized risk disclosure document
prepared by the Securities and Exchange Commission, which contains the
following:
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a
description of the nature and level of risk in the market for penny
stocks
in both public offerings and secondary
trading;
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a
description of the broker’s or dealer’s duties to the customer and of the
rights and remedies available to the customer with respect to violation
to
such duties or other requirements of securities
laws;
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a
brief, clear, narrative description of a dealer market, including
“bid”
and “ask” prices for penny stocks and the significance of the spread
between the “bid” and “ask” price;
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a
toll-free telephone number for inquiries on disciplinary
actions;
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definitions
of significant terms in the disclosure document or in the conduct
of
trading in penny stocks; and
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such
other information and is in such form (including language, type,
size and
format), as the Securities and Exchange Commission shall require
by rule
or regulation.
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Prior
to
effecting any transaction in penny stock, the broker-dealer also must provide
the customer with the following:
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the
bid and offer quotations for the penny
stock;
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the
compensation of the broker-dealer and our salesperson in the
transaction;
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the
number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the
market
for such stock; and
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monthly
account statements showing the market value of each penny stock held
in
the customer’s account.
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In
addition, the penny stock rules require that, prior to a transaction in a penny
stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment
for
the purchaser and receive the purchaser’s written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules.
Our directors
own a significant amount of our common stock, giving them influence or control
in corporate transactions and other matters, and their interests could differ
from those of other stockholders.
Our
directors own a large percentage of our outstanding common stock. As a result,
they are in a position to significantly influence the outcome of matters
requiring a stockholder vote, including the election of directors, the adoption
of any amendment to our articles of incorporation or bylaws, and the approval
of
significant corporate transactions. Their control may delay or prevent a change
of control on terms favorable to our other stockholders and may adversely affect
your voting and other stockholders rights.
Capital
outflow policies in The People’s Republic of China may hamper our ability to
declare and pay dividends to our shareholders.
The
People’s Republic of China has adopted currency and capital transfer
regulations. These regulations may require us to comply with complex regulations
for the movement of capital. Although our management believes that we will
be in
compliance with these regulations, should these regulations or the
interpretation of them by courts or regulatory agencies change, we may not
be
able to pay dividends to our shareholders outside of The People’s Republic of
China. In addition, under current Chinese law, we must retain a reserve equal
to
10 percent of net income after taxes, not to exceed 50 percent of registered
capital. Accordingly, this reserve will not be available to be distributed
as
dividends to our shareholders. We presently do not intend to pay dividends
in
the foreseeable future. Our management intends to follow a policy of retaining
all of our earnings to finance the development and execution of our strategy
and
the expansion of our business.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus includes 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 have based these forward-looking statements
on our current expectations and projections about future events. These
forward-looking statements are subject to known and unknown risks, uncertainties
and assumptions about us that may cause our actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as “may,” “will,” “should,” “could,” “would,”
“expect,” “plan,” anticipate,” believe,” estimate,” continue,” or the negative
of such terms or other similar expressions. No assurances can be given that
the
future results anticipated by the forward-looking statements will be achieved.
Forward-looking statements reflect management’s current expectations and are
inherently uncertain. Our actual results may differ significantly from
management’s expectations. Some factors that might cause or contribute to such a
discrepancy include, but are not limited to, those listed under the section
entitled “Risk Factors” beginning on page 4 and those listed in our other
Securities and Exchange Commission filings. The following discussion should
be
read in conjunction with our Financial Statements and related Notes thereto
included elsewhere in this prospectus.
USE
OF PROCEEDS
Any
net
proceeds from any sale of shares of our common stock covered by this prospectus
will be received by the Selling Stockholders. We will not receive any proceeds
from the sale of shares by the Selling Stockholders. However, 970,050 of these
shares will only be issued upon exercise of warrants. If all of these warrants
are exercised and their holders do not elect to use cashless exercise provisions
of these warrants, then we will receive gross proceeds of $5,820,300. For those
holders who elect to exercise their warrants using the cashless exercise
provisions, we will receive less cash than the exercise price but issue a lower
number of shares of common stock upon exercise than we would if they did not
elect to use cashless exercise provisions. The amount of cash received and
shares issued upon a cashless exercise will vary based on the market price
of
our common stock on the exercise date of each warrant exercised using cashless
exercise provisions. We will use these proceeds for general corporate and
working capital purposes.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Trading
History
On
August
29, 2007, our Common Stock became eligible for quotation on the Over-the-Counter
Bulletin Board under the symbol “SHNL.OB.” The following table sets forth the
high and low bid prices per share of our Common Stock for the periods indicated,
which information was provided by NASDAQ Trading and Market Services. Prior
to
August 29, 2007, the shares traded very infrequently and the actual price
information is not readily available. The quotations set forth below reflect
inter-dealer prices, without retail mark-up, markdown or commission and may
not
represent actual transactions.
|
|
2007
|
|
|
|
High
|
|
Low
|
|
3
rd
Quarter (commencing August 29, 2007)
|
|
$
|
5.51
|
|
$
|
4.51
|
|
4
th
Quarter
|
|
$
|
9.90
|
|
$
|
5.00
|
|
The
high
and low sales price of our common stock from August 29, 2007 through
September 30, 2007 was $5.51 and $4.81, respectively. On November 19, 2007,
we applied to list our common stock on the Nasdaq Global Market. Our application
is currently pending. On January 28, 2008, the closing bid price of our
common stock was $6.90.
As
of
January 28, 2008, there were approximately 107 holders of record of our common
stock.
Dividends
We
did
not pay any dividends on our common stock in 2006. In 2007,
we paid dividends on our common stock in the aggregate amount of
approximately $1.6 million. However, we currently anticipate that any future
earnings will be retained for the development of our business and do not
anticipate paying any dividends on the common stock in the foreseeable future.
Equity
Compensation Plan Information
During
the year ended December 31, 2006 and the nine months ended September 30, 2007,
we did not have any equity compensation plans in effect.
EQUITY
COMPENSATION PLAN INFORMATION
Plan
category
|
|
Number
of securities
to
be issued upon
exercise
of
outstanding
options,
warrants
and rights
|
|
Weighted
average
exercise
price of
outstanding
options,
warrants
and rights
|
|
Number
of securities
remaining
available for future issuance under equity compensation plans (excluding
securities reflected in column (a)
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
-0-
|
|
|
N/A
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security
holders
|
|
|
-0-
|
|
|
N/A
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
-0-
|
|
|
N/A
|
|
|
-0-
|
|
DESCRIPTION
OF OUR BUSINESS
Overview
of Business
We
develop, manufacture and distribute packaging film and color printed packaging
through our four operating subsidiaries, Hainan Shiner Industrial Co., Ltd.
(“Shiner Industrial”), Hainan Shiny-day Color Printing Packaging Co., Ltd.
(“Shiny-day”), Zhuhai Modern Huanuo Packaging Material Co., Ltd. (“Zhuhai”) and
Hainan Modern Hi-Tech Industrial Co., Ltd. (“Modern”). Our products include
coated film, shrink-wrap film, common film, anti-counterfeit laser holographic
film and color printed packaging materials. All of our operations are based
in
the People’s Republic of China and each of our subsidiaries was formed under the
laws of the People’s Republic of China. We currently conduct our business
through the following four operating subsidiaries in China (collectively, the
“Shiner Group”):
·
|
Shiner
Industrial located in Haikou, Hainan
province;
|
·
|
Shiny-day
also located in Haikou, Hainan
Province;
|
·
|
Zhuhai
located in Zhuhai, Guangdong Province;
and
|
|
Modern
intends locate its operations in the Shiziling Feidi Industrial Park
of
Haikou, Hainan Province by October
2008.
|
We
operate in several markets within the packaging film segment: Bi-axially
Oriented Polypropylene (“BOPP”) based films, coated films, anti-counterfeit
films and color printed packaging materials. For the nine months ended September
30, 2007, color printed packaging products made up approximately 36.6% of our
revenues, BOPP tobacco film made up approximately 25.7% of our revenues, coated
film accounted for approximately 33.5% of our revenues and anti-counterfeit
film
sales equaled approximately 4.2% of our revenues. At December 17, 2007, our
production capacity consisted of:
·
|
Three
coated film lines with total capacity of 6,000 tons per
year;
|
·
|
One
BOPP tobacco film production line with total capacity of 3,500
tons per year;
|
·
|
One
BOPP film production line with capacity of 7,000 tons per
year;
|
·
|
Three
color printing lines; and
|
·
|
Three
anti-counterfeit film lines with capacity of 700 tons per
year.
|
Overall,
our growth strategy is focused on: (i) continuing our efforts to gain
international market share in coated film through better pricing strategy and
excellent after-sale service; (ii) expanding sales in anti-counterfeit film,
especially to high-end brand spirits and cigarette manufacturers; (iii)
developing next generation films; and (iv) acquiring an anti-counterfeit
technology company.
While
we
are not focused on growing our BOPP product sales, the BOPP film business
provides us with steady cash flow to cover operating costs and allows us to
explore other, more sophisticated film technology products. Although we rely
on
the revenue generated from our BOPP based films and coated film sales, we are
also focused on developing and exploiting our anti-counterfeit film technology
and other more sophisticated film products. As a result, we expect to generate
more significant revenues and greater profit margins from our anti-counterfeit
film products over the next year because of the specialized and proprietary
nature of these products. We believe that we will attribute our future growth
to
sales of our anti-counterfeit film products.
History
We
were
incorporated in Nevada on November 12, 2003 as Cartan Holdings Inc. We were
initially formed as an exploration stage company involved in the search for
mineral deposits. On July 23, 2007, we completed a share exchange transaction
with Sino Palace Holdings Ltd., a British Virgin Islands corporation, pursuant
to which we acquired the Shiner Group located in the People’s Republic of China.
On July 24, 2007, we changed our name to “Shiner International, Inc.” This
transaction is commonly referred to as a “reverse acquisition” in which all of
the outstanding capital stock of the Shiner Group was effectively exchanged
for
a controlling interest in our company, which was a publicly held “shell”
corporation within the meaning of within the meaning of Rule 12b-2 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), at the time of
the transaction. Prior to our reverse acquisition with Sino Palace, we owned
a
100% undivided right, title and interest in and to the mineral property known
as
the “Cartan mineral claim.” Our interest in the property consisted of the right
to explore for and remove minerals from the property, which Cartan mineral
claim
expired on December 15, 2007. From and after the closing date of the reverse
acquisition, our primary operations consist of the operations of each of the
subsidiaries of the Shiner Group.
Business
Overview
Shiner
Industrial produces four main types of packaging film: common BOPP film for
package over-wraps, coated films, shrink-wrap and anti-counterfeit films. BOPP
refers to the manufacture of polypropylene(“PP”) films using an orienting
system. BOPP is manufactured by three different processes, with resulting films
having different properties. Production can be achieved through the bubble
process, the sequential-machine direction orienting trans-direction (“MDTD”)
stentering process, or the simultaneous MDTD orienting-stentering process.
Shiner Industrial uses the sequential or the double bubble process, in which
a
polypropylene film is oriented in two directions (machine and transverse
directions). BOPP films are widely applicable for printing, lamination and
over-wrap packaging. The main benefits of BOPP films are its stiffness and
durability, high tensile strength and clear optics. BOPP films range from 15
to
50 microns and can be single or double coated with co-extruded structures,
in
transparent, opaque, or metalized varieties. Additionally, BOPP films can be
treated with acrylic and Poly-vinylidene Chloride (“PVDC”) coatings for
increased sealing and barrier properties. The films use mainly homo-polymer
PP
and random co-polymer PP.
Anti-counterfeit
film is a specialty product derived from BOPP film.
Because
piracy is a major concern both within the People’s Republic of China and
internationally, many companies are attempting to combat this problem on
national and global levels. Many companies currently rely on holographing
technology to address piracy and counterfeiting concerns. However, we believe
that our technology more effectively protects our customers from piracy and
counterfeiting. We have applied proprietary technology in order to develop
specialized anti-counterfeiting film products.
Shiny-day
fulfills printing needs of multiple manufacturers, primarily consumer goods
companies, located in
the
People’s Republic of
China
and
serves as a convenient add-on feature for customers looking for one-stop service
in fulfilling their packaging and color
printing
needs. Shiny-day has two color printing lines.
Zhuhai
has one BOPP film production line with annual capacity of 7,000 tons. We formed
Zhuhai to meet a substantial amount of our BOPP film raw material needs,
including demand for BOPP Tobacco Film.
Modern
currently performs sales and marketing for products produced by other Shiner
Group entities. Modern does not presently own any operating assets. We formed
Modern
in
2006
in
order
to take advantage of special tax treatment in the People's Republic of China
for
technology assets. We have applied for this special tax treatment with the
municipal government and intend to implement operations in Haikou City when
and
if we receive such approval. While there can be no assurance that our
application will be approved by the Chinese government, we are confident that
Modern will receive this approval, which we expect to receive in the first
quarter of fiscal 2008.
Industry
Overview
Economies
with a higher per capita gross domestic product have a greater demand for
packaging films. Packaging films are used mainly by food and consumer products
manufacturers primarily to preserve texture, flavor, hygiene, convenience and
safety of consumer products, such as foods, medicine, tobacco and cosmetics.
Packaging films generally consist of clear flexible films based on
petrochemical-based polymers (polyolefin). Through the process of forming
plastic films in cross-machine directions (biaxial orientation) the underlying
tensile strength of the film can be strengthened and the resulting film product
forms the basis for most packaging films.
Industrial
growth is a key driver of demand for coated and laminated film materials. In
the
People’s Republic of China during the past 3 to 5 years, increasing demand for
coated and laminated film has predominantly been driven by:
|
·
|
international
consumer goods companies relocating operations into mainland
China;
|
|
·
|
concerted
efforts by the Chinese government to improve safety, hygiene and
sanitation in consumer products in order to reduce contamination
and
spoilage;
|
|
·
|
growth
in consumer incomes in the People’s Republic of China during the past 5 to
10 years have led consumers to demand more convenience (individual
packaged snacks) and attractive packaging without adding weight;
and
|
|
·
|
concern
over protection from product
tampering.
|
From
the
manufacturer to the grocer and to the consumer’s home, airtight plastic
packaging helps keep foods and other products fresh and free from contamination
without adding bulk.
Coated
Films, Tobacco and other BOPP Based Films
According
to statistics published by the International Plastics Industry, global and
the
People’s Republic of China’s domestic demand in the packaging film industry for
2006 was as follows:
|
|
Global
demand (tons/year)
|
|
USD$
Million
|
|
China
demand (tons/year)
|
|
USD$
Million
|
|
BOPP
tobacco film
|
|
|
170,000
|
|
$
|
546
|
|
|
80,000
|
|
$
|
256
|
|
Coating
film
|
|
|
400,000
|
|
$
|
1,619
|
|
|
60,000
|
|
$
|
242
|
|
The
packaging film industry in the People’s Republic of China is concentrated among
a relatively few domestic companies
and
scattered smaller producers with limited capacity. Significant initial capital
and technological requirements are necessary to produce coated, shrink-wrap
and
anti-counterfeit films that meet national and international criteria. Stricter
industry regulations and increased product specifications by end-users are
eliminating many of the industry’s smaller players.
We
derive
a substantial portion of our annual revenues from the coated and BOPP based
films market. We plan to continue operating in this market in order to provide
us with the capital necessary to broaden our anti-counterfeit film
business.
Anti-Counterfeit
Film
Piracy
and counterfeit products has resulted in both significant economic losses to
manufacturers and health problems to consumers on a global basis. Consequently,
a market for anti-counterfeiting film packaging and other related products
have
developed.
Accordingly,
we believe it would be valuable for us to place greater emphasis in growing
our
current anti-counterfeit film packaging business.
Products
and Manufacturing
Our
products include a variety of packaging films that are used by food and consumer
products manufacturers to preserve texture, flavor, hygiene, convenience and
to
protect their products. The films are used in a variety of industries, such
as
bakery, beverage, candy/confections, cheese, cosmetics/personal, compact discs,
dairy, fruit/vegetables, nuts, pharmaceuticals and tobacco. In addition, we
provide printing services for a variety of consumer products.
|
·
|
Anti-counterfeit
film is a BOPP film embossed with a high technology, multi-dimensional
insignia that creates eye-catching illusions and makes it easier
to
increase brand identity. It is generally used in the packaging of
high-end
cigarettes, DVDs and other frequently imitated or pirated
products.
|
|
·
|
Coated
film is a functional packaging film in which a thin layer of
polyolefin-based film is sealed either on one or both sides of the
film
with a varying type of chemical substance (coating
layer). Depending on which coating layer is
used, coated films have greater endurance and tensile strength
and can be produced in heat-resistant, shrink-wrapped, pealable or
other
varieties. Coated films are known for their superior moisture, vapor,
flavor and aroma barrier traits, as well as their clarity and superior
printability. The base film is generally either BOPP, Bi-oriented
polyethylene terephthalate polyester film (“PET”) or nylon (“BOPA”),
depending on the needs of the end-user. When BOPP film is used, it
can be
coated with Acrylic (“AC”), PVDC or Thermoplastic Poly Vinyl Alcohol
(“PVOH”). PVDC is a type of recognized packaging material with high
barrier properties for water vapor, oxygen, aroma or flavor and other
gases such as nitrogen and carbon dioxide. PVOH is used for its excellent
oxygen barrier properties. When an AC layer is applied, it works
as a
protective armor and is well-suited for multiple types of water-based
inks
or ultra-violet inks to print upon. The use of water-based inks is
preferred by most customers not only because of its cost savings
but also
its environmentally-beneficial advantages as compared to oil-based
inks.
To our knowledge, we are the only producer of AC coated film in the
People’s Republic of China. In terms of function of oxygen barrier, BOPP
film has an average of 2000 ml oxygen infiltrate for every square
meter.
PVDC has an average of 10 ml oxygen infiltrate for every square meter.
PVOH has an average of 0.7 ml oxygen infiltrate for every square
meter.
All films can be surface-printed, reverse-printed or used
unprinted.
|
|
·
|
BOPP
Tobacco Film is a box over-wrap film designed to meet the industry
requirements for packaging appearance, product freshness and clear
optics.
|
|
·
|
Color
printing services consist of surface printing and reverse printing
services mainly by consumer goods manufacturers and beverage
companies.
|
For
most
packaging films, BOPP film serves as the base film from which anti-counterfeit,
coated, tobacco and other specialty films are designed. There are multiple
manufacturers of BOPP film in the People’s Republic of China qualified to meet
international standards. However, packaged goods require different porosity
levels for water vapor, gases, as well as fragrance and heat resistance barriers
depending on whether the item is edible (such as packaged dates, crackers,
sweet
cakes, freeze-dried coffee) or a non-food product (such as medicine, tobacco,
or
dried flowers). Shiner Industrial uses BOPP as the base film from which more
sophisticated films, such as anti-counterfeit, coated and tobacco films, are
produced.
At
December 17, 2007, Shiner Industrial had:
|
·
|
three
anti-counterfeit film machines;
|
|
·
|
three
coated film lines;
|
|
·
|
one
BOPP tobacco film line; and
|
|
·
|
one
10-color color printing line.
|
Our
coated film lines have the ability to apply single-coated (one-side, either
inside or outside) or double-coated (both inside and outside) layers in a
variety of plastic materials depending on the end-user’s need, such as PVDC,
PVOH or AC.
At
December 17, 2007, Shiny-day had two 8-color printing lines;
At
December 17, 2007, Zhuhai had one BOPP film production line with capacity of
7,000 tons per year; and
At
December 17, 2007, Modern did not have any operating assets.
Sales
and Marketing
Since
inception of our film packaging line of business, we have concentrated on
forming an experienced, knowledgeable and customer-oriented marketing team.
At
December 17, 2007, we had 12 individuals in our marketing group, of which six
have been working in the industry for five years or more and are familiar with
buyers’ changing needs and concerns. In order to effectively serve the needs of
different customers, marketing functions are divided into four units: coated
films, BOPP and tobacco films, color printing and international. Our
international marketing unit services both the coated and BOPP film
products.
Coated
Films
We
have
established relationships with consumer goods manufacturers who compose the
majority of the coated film customers in the People's Republic of China.
Potential customer data is frequently updated through market research we perform
to identify customers and sales calls to potential customers.
Various
packaged goods have a number of different requirements, ranging from different
porosity levels for oxygen, water vapor, and other gases to fragrance and heat
resistance barriers. The specific requirements depend on whether the packaging
is intended for edible items or non-food products. As a result, our marketing
team’s experience plays a key role in gaining access to and servicing such
customers.
Shiny-day’s
marketing personnel typically serves both our coated film products and print
services customers in the People’s Republic of China in order to provide them
with the convenience of “full service” from a single vendor.
BOPP
Tobacco films
We
have
established a well-respected reputation in the People’s Republic of China in the
BOPP tobacco films industry and generally are able to deal directly with our
customer base, as opposed to dealing through intermediaries. Since we have
already achieved the approval of the government of the People’s Republic of
China, quality and price requirements, service and relationships play a greater
role in maintaining established customers and obtaining new ones. Because of
the
attractive location of our plant and facilities in Haikou on Hainan Island,
generally known as the “Hawaii” of China, we frequently invite potential
customers to visit and inspect our operations first-hand and host many of the
annual tobacco and other large industry management conventions.
Anti-Counterfeit
films
Piracy
is
a serious problem in the Chinese consumer marketplace, resulting in economic
losses to manufacturers and health and safety costs to consumers. In an effort
to address this problem and to protect the patent holders, Shiner Industrial
has
developed a unique patented anti-counterfeit packaging film. Our film has
received several recognition awards from national organizations in the People’s
Republic of China and has the beneficial characteristics of other BOPP films,
such as heat and temperature resistance, shrink-wrap, flavor and aroma
barrier.
Shiner
Industrial was nominated as the National Standardization Creator for both coated
and anti-counterfeit films by the Industrial’s Standards Administration of the
People’s Republic of China (“SAC”) in June 2007. This nomination recognizes that
Shiner Industrial’s products are created on the forefront of technology and
perfected through its strong technological strength in the functional packaging
films industry and heightens the barriers of entry for new market
entrants.
In
August
2006, we were awarded the 2004-2005 Annual Technology Advancing Certificate
by
People’s Government of Haikou for our BOPP Laser Holographic anti-counterfeit
shrinkable film. Additionally, our BOPP laser anti-counterfeit film was selected
to be listed in the China Reputable Products Database by China Enterprises
Union
on April 18, 2006. In June 2005, we were honored as the National New Product
by
The Ministry of Science and Technology of the People’s Republic of China and
Ministry of Commerce of the People’s Republic of China for our BOPP laser
anti-counterfeit film.
We
believe that in the next five years, anti-counterfeit film products will play
a
much larger role in our sales growth. As such, we have formed a marketing team
that targets well-known brand liquor and tobacco companies as well as the
entertainment industry to cover such products as DVDs and CDs.
Color
Printing
While
the
color printing industry tends to have a high degree of price elasticity, our
customers are generally brand name consumer goods companies that seek quality
printing. Through our market research, we identify potential customers and
marketing is often performed together with the coated and BOPP film teams by
making joint sales calls.
International
In
late
2004, we began to attend international packaging exhibitions and trade fairs
held in Europe and the Americas, mainly to inform global customers of our
service capabilities and effective distribution system in the international
market. We also sought to communicate the quality, service and price advantages
of our films in a face-to-face setting. This methodology has proven highly
effective in gaining new customers, and also in reaching multiple converters
and
distributors located in the U.S., Europe and South Africa.
In
2006,
we spent over $160,000 on international marketing and promotion and we have
budgeted $400,000 for such expenses in 2007, which includes travel, industry
advertising, and exhibition fees.
Competitive
Advantages
We
believe that we are able to effectively compete in both the domestic Chinese
and
international markets by means of proven quality, cost advantages and a service
team that addresses customers before, during and after the sale process in
order
to build long-term customer relationships. Our customer-oriented perspective
permeates each business unit and is largely responsible for our ability to
penetrate new markets and successfully build on sales to new
customers.
|
·
|
Quality
-
In the domestic Chinese market, our products generally exceed accepted
industry standards, while in the international market, our products
have
received international and U.S. Federal Drug Administration (“FDA”)
certification and have proven to equal or even exceed the quality
of
industry leaders.
|
|
·
|
Price
-
In the People’s Republic of China, we have lower operating cost basis than
most competitors due to economies of scale and the design of our
own
production lines. In the international market, we are able to take
advantage of lower labor and operating costs in comparison with western
industry leaders and our prices are approximately 25% lower on same
product sales.
|
|
·
|
Customer
Service -
For each business line, we have an accomplished sales and after-sales
service team that is trained to promptly respond to
customers.
|
|
·
|
One-Stop
Service
-
By providing film making, packaging, and printing services, we are
able
save customers both lead-time and costs.
|
|
·
|
Research
-
We have 13 patents, 8 patent applications pending and 2 trademarks
issued
from the People’s Republic of China. Our research and development team
includes over 20 engineers, of which several hold masters degrees
in
related fields. In 2006, we entered into a five-year research agreement
with China’s Science & Technology University, under which we own the
proprietary rights to all findings to dedicated research projects,
which
are undertaken at our request. We will pay estimated fees of $12,850
annually under our research
agreement.
|
Suppliers
Major
raw
materials required in the manufacturing processes for our packaging products
include petroleum-based resins and mixing chemicals, which are primarily
supplied to us by large chemical companies. For these raw materials, we
generally maintain purchase contracts for a period of no greater than six
months. However, for many other materials, we can generally choose from multiple
producers and thus orders are placed on an “as-needed” basis
monthly.
As
all
BOPP films, including tobacco and anti-counterfeit, are petroleum based, the
effects of any short-term fluctuations in the price of oil will be averaged
into
the earnings over the period due to the cyclical nature of production, inventory
and sales. Any long-term increases in the price of oil will have an adverse
impact on our earnings. However, as there are currently no synthetics or
substitute materials available in the market, management believes that any
long-term increase in the price of oil will be made up for by an increase in
sales prices by all producers across the board.
The
base
material for many of Shiner Industrial’s products are derived from petroleum.
Approximately 60% of the raw materials for Shiner Industrial’s BOPP tobacco film
operations are imported from multi-national chemical companies such as Exxon
Mobil Corporation, Mitsubishi Chemical Corporation, BP p.l.c. and Sumitomo
Chemical Co., Ltd. In contrast, only about 7.1% of raw materials for coated
films are imported because the current base BOPP film can be supplied through
qualified domestic suppliers in the People’s Republic of China. Due to increases
in demand for our BOPP tobacco films during 2006, we were forced to purchase
2,800 additional tons of BOPP film from the People’s Republic of China domestic
third party sources in order to satisfy the production needs of our coated
film
business.
Shiny-day
purchases all of its raw materials domestically in the People’s Republic of
China. There are numerous suppliers for each raw material internationally and
in
the People’s Republic of China domestic market. We generally select a supplier
based on the best combination of quality, price and service. There are no raw
materials used in Shiny-day’s production process that are provided by any sole
source suppliers.
In
the
future, we anticipate that our new BOPP film line operated by our Zhuhai
subsidiary, with the capacity to provide 7,000 tons of BOPP film annually,
will
produce enough basic BOPP film to satisfy the needs of the coated film group
and
color printing group and alleviate the need to source BOPP film from third
parties. We estimate that this will save us approximately $65 per ton in raw
material costs.
In
general, we do not have long term contracts with our suppliers. We maintain
relationships with 2 to 3 approved suppliers for each raw material purchased
and
generally experience no delay in meeting our production needs on a timely
basis.
Customers
Our
customers are composed mainly of consumer products manufacturers, distributors,
printers and converters. About 60% of our customers are located in the People’s
Republic of China with the remainder located in Southeast Asia, Europe and
North
America. While our coated, tobacco, and anti-counterfeit packaging films are
sold in the international market, our color printing business mainly serves
customers in the People’s Republic of China who are looking for one-stop service
to fulfill their printing and packaging needs by a single vendor.
Coated
Film -
The
People’s Republic of
China
We
are
the leading producer of coated films in the People’s Republic of China with
approximately 55% of market share of the People’s Republic of China domestic
coated film output in 2006. The People’s Republic of China’s domestic
competitors exist only in the form of smaller rivals with average capacity
of
several hundred tons. Approximately 80% of our sales are made directly to
customers, with 20% sold through domestic distributors servicing one-off
small-scale packaging operations. We believe we are a premier producer of coated
films nationally, and enjoy a reputation both for first-rate quality and
service.
We
maintain contracts with our larger customers generally for periods ranging
from
six months to one year. Smaller customers, or those that constitute less than
2%
of our sales, are subject to pre-payment on all orders. Our largest customer
in
the
People’s
Republic of China
,
Dongguan XuFuJi Foods Co., Ltd. (“XuFuJi”), a manufacturer of snacks and cakes,
accounted for approximately 40% of our coated film sales in the
People’s
Republic of China
and
12.5%
of our total sales in 2006. While we anticipate that sales to XuFuJi will
continue to grow at the rate of 20% annually, we expect sales to XuFuJi to
decline as a percentage of our total sales as we continue to grow our customer
base.
We
enter
into contracts bi-annually with XuFuJi based on their six month forecast
production needs and work closely with them throughout the year to meet their
anticipated needs.
Coated
Film - International
During
2006, approximately 10 customers accounted for approximately 20% of our total
coated film sales with an average sale amount of $200,000 per customer.
Approximately 20% of exported coated films are sold to printing and packaging
companies located in the U.S. with the remainder sold to companies located
in
Southeast Asia, Turkey, South Africa, and Australia. Approximately 50% of
exported coated film sales are made to the “converter” industry which represents
mass packaging operations mainly in Southeast Asia and Eastern Europe that
serve
as packaging hubs for products sold in the U.S. and European markets. Rolls
of
finished coated film are sent to the converters where they print, cut, fold,
and
insert re-sealable zips to form pouches for such items as dried fruits, nuts,
beverages and dairy products such as cheese and yogurt. In 2005 and 2006, our
international sales have more than doubled and are expected to account for
50%
of all of our coated film sales in 2007 over 2004 sales levels.
BOPP
Tobacco Film - the
People’s
Republic of China
As
tobacco remains one of the state-controlled industries in the People’s Republic
of China, all of our People’s Republic of China domestic BOPP tobacco film sales
are made to provincial cigarette manufacturers who can buy only from
pre-approved domestic manufacturers meeting the quality and technical
specifications as well as the standard price requirements of the Government.
In
2007, we acquired the business of two additional People’s Republic of China
provincial cigarette manufacturers and have verbally contracted to sell over
3,500 tons of film to the government of the People’s Republic of China during
2007. In 2006, our sales in the People’s Republic of China accounted for over
80% of BOPP Tobacco sales, or approximately $7.9 million.
BOPP
Tobacco Film
-
International
In
the
international market, we sell to cigarette manufacturers in South East Asia,
Africa and Taiwan. Our largest international customer, Vintaba Tobacco of
Vietnam (“Vintaba”), accounted for approximately $1 million in sales during
2006, which represented approximately 12% of our BOPP sales and approximately
3%
of overall sales.
Anti-Counterfeit
We
introduced anti-counterfeit film products in 2005 as a superior alternative
to
the industry’s hologram printed films. Our largest customer in the
People’s
Republic of China
domestic
market is Shanghai Epic Manufacturing Operations, an affiliate of Sony Music
International, and our largest customer in the international market is Vintaba.
Our anti-counterfeit product sales more than doubled in 2006 to over $2 million,
of which Vintaba accounted for approximately 82% of such sales. A majority
of
our customers are brand name producers seeking to protect copyrights and reduce
the occurrence of pirated product. We plan to target tobacco, alcohol and
entertainment companies as sources of new sales.
Color
Printing
The
main
customers of our color printing business are brand-name food and commodity
companies in the
People’s
Republic of China
that
have
strict requirements in terms of quality and service. We believe that our
customers are also attracted to the one-stop service that we offer by fulfilling
both their packaging film and printing requirements.
Our
two
largest customers, Guangzhou LiBai Enterprise Group Co., Ltd. (“LiBai”) and the
Coconut Palm Group Company Limited (“Coconut Group”), accounted for 79% and
3.3%, respectively, of color printing sales in 2006. We have a contract
with LiBai to continue to meet their operating needs through 2010. Coconut
Group
generally renews its specific operating needs on a bi-annual basis.
Research
and Development
To
maintain a competitive advantage in the marketplace and keep pace with current
developments, we engage in continuous research and development. We take great
pride in our research ability both in the production line and in the finished
product. Our internal engineers have designed two of the coated film production
lines. By designing our own production lines, we intend to reduce our fixed
asset investment by approximately 35% and better meet our specific manufacturing
needs. The director of our research department has over 15 years of working
experience in the industry.
During
2005 and 2006, we spent approximately $52,400 and $120,600, respectively, on
research and development projects with the majority expended on new product
trials and experimental manufacturing techniques. In 2007, we plan to spend
a
minimum of approximately $133,700 in the area of new product trials including
fog prevention, high heat shrinkable and powder wrapping films. All research
and
development costs are funded through our operating cash flow and are expensed
as
incurred.
In
addition to in-house research and development, we have sponsored several
projects with research institutions and universities in the People’s Republic of
China to which we retain all proprietary rights for the research funded by
us.
We also have a formal agreement with China’s Science & Technology University
through 2010 for which we have proprietary rights to all findings based upon
dedicated research conducted on our behalf. We also have informal alliances
with
Fudan University in Shanghai, Sun Yat Sen University (Zhong Shan) in Guangzhou
and Tsinghua University in Beijing.
Intellectual
Property
We
hold
13 patents on both products and production equipment which have been issued
by
the State Intellectual Property Office of the People’s Republic of China. We
have additional products and production equipment for which 8 patent
applications are currently pending and we expect to receive during the first
half of 2008. We also have one trademark issued by the State Intellectual
Property Office of the People’s Republic of China.
Employees
We
have a
centralized labor management system for all operating units. Labor and
employment affairs of each subsidiary are managed by our central human resources
department.
At
December 17, 2007, we had 483 full-time employees. Of these
employees,
254
employees are employed by Shiner Industrial,
182
employees are employed by Shiny-day and
47
employees are employed by Zhuhai. Modern has no employees. Our employees work
in
the functional units as indicated in the table below.
Department
|
|
Total
Number
|
|
Shiner
Industrial
|
|
Shiny-day
|
|
Zhuhai
|
|
Management
|
|
|
7
|
|
|
5
|
|
|
2
|
|
|
0
|
|
All
administration
|
|
|
23
|
|
|
9
|
|
|
10
|
|
|
4
|
|
Sales
|
|
|
22
|
|
|
16
|
|
|
6
|
|
|
0
|
|
Production
|
|
|
431
|
|
|
224
|
|
|
164
|
|
|
43
|
|
Total
Employees
|
|
|
483
|
|
|
254
|
|
|
182
|
|
|
47
|
|
Government
and Environmental Regulation
Through
the laws and regulations of the People’s Republic of China and the provincial
government of Haikou City government, our products are subject to regulation
by
governmental agencies responsible for food packaging and hygiene.
In
general, the quality and hygiene requirements of customers, especially those
located internationally, exceed government requirements in the People’s Republic
of China. Our PVDC and all coated films have already met the approval of U.S.
FDA requirements as well as those required for food products sold in the
European Union.
For
the
purposes of medical packaging, Shiny-day’s compound film has received
certification by China’s Food & Drug Administration.
As
such,
the business registrations, production process, and certain products are
certified on a regular basis and must be in compliance with the state
governments and industry agencies.
Shiner
Industrial has been assessed and certified as meeting the requirements of ISO
9001:2000 for designing and manufacture of BOPP films, PVDC coated film, BOPP
laser holographic anti-counterfeit film for package by SGS. The certificate
is
valid until January 2009.
We
are
also subject to China’s National Environmental Protection Law as well as a
number of other national and local laws and regulations regarding pollutant
discharge for air, water and noise pollution. We believe that we are in
compliance with such laws and regulations.
In
2007,
we incurred approximately $10,000 to comply with governmental and environmental
regulations in the People’s Republic of China.
Competition
Coated
Film
We
are
the leading producer of coated films in the People’s Republic of China with
domestic competition only in the form of smaller rivals with average capacity
of
several hundred tons. We believe that we have numerous competitive advantages
over our smaller domestic rivals with regard to total capacity, service, market
research, quality, research and production line design.
In
the
international market we face strong competition from industry leaders such
as
Dupont Energy Co., Innovia Films Ltd. and Exxon Mobil Corporation. Each of
these
corporations has much larger production capacity than us and have strong
reputations as they have significant experience in the coated films market.
Distinct from many other Chinese producers, we are able to effectively compete
in the international arena. We believe that our combination of
internationally-certified product quality with FDA and EEC, experienced
after-sales service team and product selection in a low-cost setting continue
to
attract multinational buyers and propel sales growth.
BOPP
Tobacco Film
As
tobacco remains a state-owned and operated industry in the People’s Republic of
China, the government buys only from approved People’s Republic of China
domestic vendors and competition exists only in the form of other domestic
film
companies. In addition, each province is required to maintain 2 to 3 suppliers,
thus competition among qualified players is limited. In the domestic market
there are several qualified large producers including:
|
·
|
Jian
su Zhongda New Material Group Co., Ltd.
,
a
Nanjing-based company listed in the Shanghai Stock Exchange. It is
the
largest manufacturer of BOPP Tobacco film in
China;
|
|
·
|
Fo
Shan Plastics Group Co., Ltd.
,
listed in Shanghai Stock Exchange;
|
|
·
|
Zhanjiang
Packaging Enterprises Ltd.
,
in Guangdong;
|
|
·
|
Yunnan
Kunlene Film Industries Co., Ltd.
,
in Yunnan;
|
|
·
|
Yunnan
Hongta Plastics Co., Ltd.
,
in Yunnan; and
|
|
·
|
Hubei
Firsta Packaging Co., Ltd.
,
in Hubei.
|
As
we
have attained certification as a government supplier, a certain level of annual
sales
are
guaranteed to us from the Government. However, the process of maintaining and
building the volume of sales has become largely a matter of industry
relationships in which we have extensive experience.
In
the
international market, we face competition from large multi-nationals as well
as
Southeast Asian and Japanese firms. We believe we have an absolute price
advantage over our western competitors due to our lower production costs.
Accordingly, it is Asian-based producers that pose the greater degree of
competition. As we increase both our production capacity and marketing efforts,
we expect our international sales to continue to grow. However, we continue
to
focus our efforts more on expanding our anti-counterfeit and specialty films
as
opposed to our international market for BOPP tobacco film.
Anti-counterfeit
film
Because
our anti-counterfieting product is unique, we do not face direct competition.
However, established international producers such as Applied Extrusion
Technologies, Inc. and Innovia Films Ltd. do produce their own anti-counterfeit
films based mainly on printed holograms, which are relatively simple to
duplicate. Rather than direct competition, we are focusing on market awareness
and educating buyers as to the superior quality of our products over these
hologram-based counterfeit films. The advantages of our BOPP anti-counterfeit
laser holograph films include:
|
·
|
Specially
designed BOPP basic film which has all the excellent characteristics
of
high polish shrinkable films, increasing the aesthetic feeling of
packaged
products. BOPP basic films can endure oil ink erosion and have a
barrier
to vapor and oxygen, which will maintain the aroma and extend storage
life;
|
|
·
|
The
laser holograph layer improves the anti-static ability and prevents
the
conglutination of films; and
|
|
·
|
To
produce BOPP anti-counterfeit films, the manufacturers need to buy
BOPP
film production lines that are expensive for smaller players in this
field.
|
With
traditional laser holography using anti-counterfeit signs, counterfeit
manufacturers can easily purchase these signs from the printing companies.
In
fact, counterfeit manufacturers can even illegally buy the mother board from
these printing companies, so that they can be easily copied. In comparison,
BOPP
laser holograph anti-counterfeit films uses specially designed BOPP basic films
and laser holograph technology with secret micro code which effectively prevents
the duplication of the design.
Compared
with other chemical or oil ink printing anti-counterfeit technology, our
products are more environmentally friendly as consumers can directly tear the
films and throw them away.
Compared
with code and call center technology, it is easier for consumers to identify
the
products. The consumers do not need to call an anti-counterfeit center as well
as having the added benefits of BOPP film.
Color
Printing
We
are
the largest color printing service provider in Hainan province and rank
approximately 20th in the overall Chinese market. Due to low operating costs,
the printing industry is highly fragmented with approximately 4,000 soft
packaging and printing companies in the People’s Republic of China. Total
domestic industry sales in the People’s Republic of China for 2006 were
approximately $9.5 billion with projected industry annual growth rate of
16.1%.
With
over
4,000 domestic printers, competition in the People’s Republic of China is fierce
and industry margins are low. Accordingly, we maintain our printing services
mainly as a convenience for current film customers who are more concerned with
quality, service, and one-stop printing and packaging service than with
price.
Large
printers in the People’s Republic of China include Huanshan Yongxing in Anhui
province whose main customers include The Proctor & Gamble Company and
Guanghzhou Langqi, as well as Haining Changhai Packaging and Printing Co.,
Ltd.
in Zhejiang province.
Description
of Property
Our
properties are located primarily in Haikou City in the Hainan Province and
Zhuhai City in the Guangdong Province as described below.
Shiner
Industrial
We
have
been granted the right to use two plots of land in Haikou City by the Municipal
Administration of the People’s Republic of China for state-owned land through
January 2059 and October 2060 on which we own
four
buildings dedicated to film production and office facilities. We own three
coated film production lines, three anti-counterfeit film production lines,
one
BOPP tobacco film line and all production equipment and research facilities
at
the site. We also rent one color printing line from Hainan Rixin Co., Ltd.
Shiny-day
We
do not
own any land, but rather lease a factory and one color printing line from Hainan
Rixin Co., Ltd. for current operations under leases extending
through December 31, 2009 for which we pay annual rent and equipment
usage fees of approximately $14,000 and $59,000, respectively. At December
17,
2007, we owned one color printing line and related equipment, a
warehouse and telecommunications equipment.
Zhuhai
We
lease
a factory for our production operations in Zhuhai City for a period of 10
years through 2016. Annual rent and equipment usage fees for this space equal
approximately $85,000 and $175,000, respectively. We own one BOPP basic film
production line in Zhuhai in order to produce our own BOPP basic film and to
eliminate the need to source the People’s Republic of China domestically in
2007.
Modern
Modern
does not own or rent any property, however, it intends to conduct operations
in
Shiziling Feidi Industrial Park beginning in October 2008.
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 business. We are currently not aware
of
any such legal proceedings or claims that will have, individually or in the
aggregate, a material adverse affect on our business, financial condition or
operating results.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion and analysis of our financial condition and results
of
operations should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this prospectus and in
conjunction with the unaudited consolidated financial statements and footnotes
included in our Quarterly Report on Form 10-QSB filed with the Securities
and
Exchange Commission on November 14, 2007 and audited consolidated financial
statements and footnotes included in our Current Report on Form 8-K, as amended,
filed with the Securities and Exchange Commission on July 27, 2007. As a
result
of our reverse acquisition of the outstanding equity interest of Sino
Palace on July 24, 2007, as we previously reported in our Current Report
on Form
8-K, as amended, filed with the Securities and Exchange Commission on July
27, 2007, upon which the Shiner Group was considered to be the acquirer for
financial reporting purposes. Our historical financial statements for any
period
prior to July 24, 2007 are those of the Shiner Group.
Overview
We
develop, manufacture and distribute packaging film and color printed packaging
through our four operating subsidiaries, Shiner Industrial, Shiny-day, Zhuhai
and Modern. Our products include coated film, shrink film, common film,
anti-counterfeit laser holographic film and color printed packaging materials.
All of our operations are based in the People’s Republic of China and each of
our subsidiaries was formed under the laws of the People’s Republic of
China.
We
currently conduct our business through the following four operating subsidiaries
in China:
|
·
|
Shiner
Industrial located in Haikou, Hainan
province;
|
|
·
|
Shiny-day
also located in Haikou, Hainan
Province;
|
|
·
|
Zhuhai
located in Zhuhai, Guangdong Province;
and
|
|
·
|
Modern
located in the Shiziling Feidi Industrial Park of Haikou, Hainan
Province.
|
We
operate in several markets within the packaging film segment: Bi-axially
Oriented Polypropylene or BOPP based films, coated films, anti-counterfeit
films
and color printed packaging materials. For the nine months ended September
30,
2007, color printed packaging products made up approximately 40% of our
revenues, BOPP tobacco film made up approximately 21.5% of our revenues, coated
film accounted for approximately 35% of our revenues and anti-counterfeit film
sales equaled approximately 3.5% of our revenues.
At
September 30, 2007, our production capacity consisted of:
|
·
|
Three
coated film lines with total capacity of 6,000 tons a
year;
|
|
·
|
One
BOPP tobacco film production line with total capacity of 3,500 tons
a
year;
|
|
·
|
One
BOPP film production line with capacity of 7,000 tons a
year;
|
|
·
|
Three
color printing lines; and
|
|
·
|
Three
anti-counterfeit film lines.
|
We
are
targeting growth through three main channels: (i) continuing our efforts to
gain
international market share in coated film through better pricing strategy and
excellent after-sale service; (ii) expanding sales in anti-counterfeit film,
especially to high-end brand spirits and cigarette manufacturers; (iii) the
development of next generation films, and (iv) acquisition of an anticounterfeit
technology company.
Critical
Accounting Policies
In
presenting our financial statements in conformity with accounting principles
generally accepted in the United States, we are required to make estimates
and
assumptions that affect the amounts reported therein. Several of the estimates
and assumptions we are required to make relate to matters that are inherently
uncertain as they pertain to future events. However, events that are outside
of
our control cannot be predicted and, as such, they cannot be contemplated in
evaluating such estimates and assumptions. If there is a significant unfavorable
change to current conditions, it will likely result in a material adverse impact
to our consolidated results of operations, financial position and in liquidity.
We believe that the estimates and assumptions we used when preparing our
financial statements were the most appropriate at that time. Presented below
are
those accounting policies that we believe require subjective and complex
judgments that could potentially affect reported results.
Use
of
Estimates
Our
discussion and analysis of our financial condition and results of operations
are
based upon our consolidated financial statements, which have been prepared
in
accordance with accounting principles generally accepted in the United States
of
America. The preparation of these consolidated financial statements requires
us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates, including
those
related to impairment of long-lived assets, and allowance for doubtful accounts.
We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results
may
differ from these estimates under different assumptions or conditions; however,
we believe that our estimates, including those for the above-described items,
are reasonable.
Areas
that require estimates and assumptions include valuation of accounts receivable
and inventory, determination of useful lives of property and equipment,
estimation of certain liabilities and sales returns.
Allowance
For Doubtful Accounts
The
Company continually monitors customer payments and maintains a reserve for
estimated losses resulting from its customers’ inability to make required
payments. In determining the reserve, the Company evaluates the collectibility
of its accounts receivable based upon a variety of factors. In cases where
the
Company becomes aware of circumstances that may impair a specific customer’s
ability to meet its financial obligations, the Company records a specific
allowance against amounts due. For all other customers, the Company recognizes
allowances for doubtful accounts based on its historical write-off experience
in
conjunction with the length of time the receivables are past due, customer
creditworthiness, geographic risk and the current business environment. Actual
future losses from uncollectible accounts may differ from the Company’s
estimates.
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out method. The Company evaluates its ending inventories
for
estimated excess quantities and obsolescence. The Company’s evaluation includes
the analysis of future sales demand by product, within specific time horizons.
Inventories in excess of projected future demand are written down to net
realizable value. In addition, the Company assesses the impact of changing
technology on inventory balances and writes-down inventories that are considered
obsolete. Inventory obsolescence and excess quantities have historically
been
minimal.
Long-Lived
Assets
The
Company periodically assesses potential impairments to its long-lived assets
in
accordance with the provisions of SFAS No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets.” SFAS No. 144 requires, among other things,
that an entity perform an impairment review whenever events or changes in
circumstances indicate that the carrying value may not be fully recoverable.
Factors considered by the Company include, but are not limited to: significant
underperformance relative to expected historical or projected future operating
results; significant changes in the manner of use of the acquired assets
or the
strategy for the Company’s overall business; and significant negative industry
or economic trends. When the Company determines that the carrying value of
a
long-lived asset may not be recoverable based upon the existence of one or
more
of the above indicators of impairment, the Company estimates the future
undiscounted cash flows expected to result from the use of the asset and
its
eventual disposition. If the sum of the expected future undiscounted cash
flows
and eventual disposition is less than the carrying amount of the asset, the
Company recognizes an impairment loss. An impairment loss is reflected as
the
amount by which the carrying amount of the asset exceeds the fair market
value
of the asset, based on the fair market value if available, or discounted
cash
flows. To date, there has been no impairment of long-lived assets.
Property
and equipment: Useful lives of property and equipment is based on historical
experience and industry norms. Changes in useful lives due to changes in
technology or other factors can affect future depreciation
estimates.
Revenue
Recognition
Our
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 exist and
collectibility is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue.
The
company’s sales contracts do not have any special terms or right of return. The
Company does not offer any volume rebates to its customers. Sales are recorded
net of Value Added Tax. Sales returns and allowances have historically been
insignificant.
Recent
Accounting Pronouncements
Fair
Value Measurements
In
September 2006, FASB issued SFAS No. 157, “Fair Value Measurements,” which
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements required under the accounting pronouncements, but does
not change existing guidance as to whether or not an instrument is carried
at
fair value. Additionally, it establishes a fair value hierarchy that prioritizes
the information used to develop those assumptions. SFAS No. 157 is effective
for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. Earlier application is
encouraged, provided that the reporting entity has not yet issued financial
statements for fiscal year, including financial statements for an interim period
within the fiscal year. We are currently evaluating the impact, if any, that
SFAS No. 157 will have on our consolidated financial statements.
Fair
Value Option for Financial Assets and Financial Liabilities
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement No.
115.” The statement permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The statement is effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007. We are analyzing the potential
accounting treatment.
Considering
the Effects of Prior Year Misstatements in Current Year Financial
Statements
In
September 2006, the SEC SAB No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements,” (“SAB 108”),which provides interpretive guidance on the
consideration of the effects of prior year misstatements in quantifying current
year misstatements for the purpose of a materiality assessment. We adopted
SAB
108 in the fourth quarter of 2006 with no impact on our consolidated financial
statements.
Results
of Operations
Nine
Months Ended September 30, 2007 Compared to Nine Months Ended September 30,
2006
|
|
Nine
Months
Ended
September
30,
2007
|
|
Nine
Months
Ended
September
30,
2006
|
|
$
Change
|
|
%
Change
|
|
Revenues
|
|
$
|
27,630,207
|
|
$
|
24,146,061
|
|
|
3,484,146
|
|
|
14.4
|
%
|
Cost
of Goods Sold
|
|
|
22,996,228
|
|
|
19,171,705
|
|
|
3,824,523
|
|
|
20.0
|
%
|
Gross
Profit
|
|
|
4,633,979
|
|
|
4,974,356
|
|
|
(340,377
|
)
|
|
(6.8
|
)%
|
Selling,
General and Administrative Expenses
|
|
|
2,026,069
|
|
|
1,965,532
|
|
|
60,537
|
|
|
3.1
|
%
|
Interest
Expense (net)
|
|
|
49,052
|
|
|
32,985
|
|
|
16,067
|
|
|
48.7
|
%
|
Other
Income (Expense)
|
|
|
496,692
|
|
|
123,918
|
|
|
372,774
|
|
|
300.8
|
%
|
Income
Tax Expense
|
|
|
245,979
|
|
|
157,058
|
|
|
88,921
|
|
|
56.62
|
%
|
Net
Income
|
|
|
2,675,284
|
|
|
2,933,367
|
|
|
(258,083
|
)
|
|
(8.8
|
)%
|
Revenues
The
increase in revenues for the nine months ended September 30, 2007 compared
to
the same period last year was largely due to a 37.8% rise in coated film sales
and a 19% increase in tobacco BOPP sales. The increase in revenues was due
to
higher sales volumes and increases in the average unit prices. For BOPP
products, we derived a gain of $60,000 from an increase in average unit price,
and $1,148,000 from an increase in sales volume. Coated film sales grew by
$466,666 due to higher unit prices and $2,125,333 due to higher sales volumes.
These increases were offset by decreases in color sales printing during the
first and second quarter of 2007 due to lower sales to Libai, a major household
chemicals manufacturer in China.
Cost
of Goods Sold
Cost
of
goods sold during the nine months ended September 30, 2007 were 83.2% of
revenues as compared to 79.4% of revenues during the nine months ended September
30, 2006. Higher costs were due to the increase in the prices of raw materials,
such as polypropylene, a raw material that is derived directly from crude oil
and is subject to the price increases that crude oil has experienced throughout
the world.
Gross
Profit
Our
gross
profit for the nine months ended September 30, 2007 was $4,633,979, representing
a gross margin of 16.8%, a decrease of 3.8% from the gross margin of 20.6%
for
the nine months ended September 30, 2006. The decrease in gross margin is a
direct result of the increase in the costs of raw materials.
Selling,
General and Administrative Expenses (SG&A)
Our
selling, general and administrative expenses increased by 3.1% or $60,537 to
$2,026,069 for the nine months ended September 30, 2007 compared to $1,965,532
for the nine months ended September 30, 2006. General and administrative
expenses include rent, management and staff salaries, general insurance,
marketing, accounting and legal expenses. Selling expenses for the period
decreased by 27.6% to $835,176 in comparison to the same period last year due
to
a 34% decrease in freight costs. During this period, we continued to implement
better cost controls and management. During nine months ended September 30,
2007, we more effectively controlled travel and entertainment expenses. The
increase in general and administrative expense is mainly due to $133,333 of
expenses related to the opening of the new facility in Zhuhai and the raises
of
key employees’ salaries and social insurance. We anticipate that salary expense
will continue to increase as sales increase. Research and development expenses
will also increase as we work to bring new products to the market. We intend
to
control increases in other administrative expenses in order to partially offset
these increases.
Interest
Expense
The
increase in interest expense during the nine months ended September 30, 2007
was
the result of a new bank loan in the principal amount of RMB 6,000,000, or
approximately $800,766, that we received in December 2006.
Other
Income (Expense)
The
increase in Other Income was due to proceeds we received from the disposal
of
some obsolete raw materials and products in 2007.
Income
Tax Expense
The
effective tax rate for the nine months ended September 30, 2007 was equivalent
to 8.4% as opposed to 5.1% for the nine months ended September 30, 2006. Since
we operate in a privileged economic zone, we will continue to enjoy certain
tax
privileges albeit at a reduced rate.
Net
Income
The
decrease in net income during the nine months ended September 30, 2007 is
attributable to lower revenues from the color printing segment during the first
and second quarters of 2007, higher raw material prices, a 13.3% decrease in
the
operating income, higher exchange loss and an increase in the income tax
burden.
Year
Ended December 31, 2006 Compared to the Year Ended December 31,
2005
|
|
Year
Ended
December
31, 2006
|
|
Year
Ended
December
31, 2005
|
|
$
Change
|
|
%
Change
|
|
Revenues
|
|
$
|
33,951,965
|
|
$
|
27,854,924
|
|
$
|
6,097,041
|
|
|
21.9
|
%
|
Cost
of Goods Sold
|
|
|
27,328,787
|
|
|
21,986,202
|
|
|
5,342,585
|
|
|
24.3
|
%
|
Gross
Profits
|
|
|
6,623,178
|
|
|
5,868,722
|
|
|
754,456
|
|
|
12.9
|
%
|
Selling,
General and Administrative Expenses
|
|
|
2,773,496
|
|
|
2,462,923
|
|
|
310,573
|
|
|
12.6
|
%
|
Interest
Expense (net)
|
|
|
329,087
|
|
|
407,421
|
|
|
(78,334
|
)
|
|
(19.2
|
%)
|
Other
Income (Expense)
|
|
|
278,545
|
|
|
109,002
|
|
|
148,354
|
|
|
155.5
|
%
|
Income
Tax Expense
|
|
|
214,504
|
|
|
-
|
|
|
214,504
|
|
|
-
|
|
Net
Income
|
|
|
3,561,335
|
|
|
3,105,268
|
|
|
456,067
|
|
|
14.7
|
%
|
Revenues
The
primary reasons for the increase of revenues for the year ended December 31,
2006 were (i) a 29.5% or $3.12 million increase in sales to Libai, our largest
color printing client, and (ii) a 41.6 % or $1.02 million growth in coated
film
sales.
International
sales for the year ended December 31, 2006 were $6.02 million, accounting for
approximately 17.7 % of total revenues in comparison to $4.23 million or
approximately 15.2 % of total revenues for 2005, an increase of 42.3%.
International sales increased in 2006 due to increased international marketing
efforts, especially in relation to coated film sales.
Cost
of Goods Sold
Cost
of
goods sold during the year ended December 31, 2006 were 80.5% of revenues as
compared to 78.9% of revenues during the year ended December 31, 2005. Higher
costs were due to the increase in the prices of raw materials, such as
polypropylene that comes from crude oil. The price of polypropylene is directly
affected by the floating of crude oil price. Compared with 2005, the price
of
main raw materials increased by approximately 8.5% during 2006.
Gross
Profit
Our
gross
profit during the year ended December 31, 2006 was $6,623,178, representing
a
gross margin of 19.5%, a decrease of 1.6% from gross margin of 21.1% that we
experienced during the year ended December 31, 2005. The decrease in gross
margin can be attributed to the increase in the costs of raw
materials.
Selling,
General and Administrative Expenses
Our
general and administrative expenses increased by 19.1% or $191,649 to $1,194,911
for the year ended December 31, 2006 compared to $1,003,262 for the year ended
December 31, 2005. General and administrative expenses include rent, management
and staff salaries, general insurance, marketing, accounting and legal expenses.
Selling expenses for 2006 increased by 8.2% to $1,578,585 in comparison to
2005
due to a 21.9% increase in sales during 2006. During 2006, we continued to
implement better cost controls and management. In the year ended December 31,
2006, we more effectively controlled travel and entertainment expenses. The
increase in general and administrative expense is mainly due to the raises
of
key employees’ salaries and social insurance. We anticipate that salary expense
will continue to increase as sales increase. Research and development expenses
will also increase as we work to bring new products to the market. We intend
to
control increases in other administrative expenses in order to partially offset
these increases.
Interest
Expense
Lower
interest expense during the year ended December 31, 2006 was mainly the result
of repayment of $1,825,120 debt, replaced by a new loan of $366,000. Interest
expense declined by $ 78,334 in the year ended December 31, 2006.
Other
Income (Expense)
The
increase in Other Income was due to sale of leftover materials and unusable
film. The prices of these materials have increased because of an increase in
the
price of oil in the same period.
Income
Tax Expense
The
effective tax rate for the year ended December 31, 2006 was equivalent to 5.7%
as opposed to 0.0% for the year ended December 31, 2005. Since we operate in
a
privileged economic zone, we will continue to enjoy certain tax privileges
albeit at a reduced rate.
Net
Income
The
increase in our net income in 2006 as compared to 2005 resulted from a 14.7%
increase in our operating income from $3,405,799 for 2005 to $3,849,682 for
2006, a decrease of $78,334 in Interest Expense in 2006 and an increase of
$148,354 in Other Income in 2006, offset by an increase in income tax expense
from $0 for 2005 to $214,504 for 2006.
Off-Balance
Sheet Arrangements
There
were no off-balance sheet arrangements during the nine months ended September
30, 2007 that have, or are reasonably likely to have, a current or future affect
on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to our interests.
Liquidity
and Capital Resources
Cash
Flows
At
September 30, 2007, we had $929,884 cash and cash equivalents on hand. Our
principal demands for liquidity are to increase capacity, raw materials
purchase, sales distribution and the possible acquisition of new subsidiaries
in
our industry as opportunities present themselves, as well as general corporate
purposes. At September 30, 2007, we had one short-term loan of $800,766, with
an
interest rate of 6.732%, originally due July 15, 2007 and collateralized by
our
buildings, land use rights and equipment. The maturity date of the loan was
extended to January 15, 2008. At September 30, 2007, we had working capital
of
$5,984,591, an increase of $2,697,776 on our working capital at December 31,
2006.
On
October 22, 2007, we completed the closing of a private placement offering
of
units pursuant to which we sold an aggregate of 3,500,000 units at an offering
price of $3.00 per unit for aggregate gross proceeds of $10,500,000. Each unit
consisted of one share of our common stock, par value $.001 per share, and
a
three year warrant to purchase 15% of one share of our common stock at an
exercise price of $6.00 per share. Accordingly, we issued an aggregate of
3,500,000 shares of our common stock and warrants to purchase 525,000 shares
of
our common stock to the 76 accredited investors who participated in this
offering. In addition, we compensated four dealers that assisted us in the
sale
of securities in this private placement offering by (i) paying them cash equal
to 8% of the gross proceeds from the sales of units placed and (ii) issuing
them
warrants to purchase that number of shares of our common stock equal to 15%
of
the units placed. The warrants granted to these finders have the same terms
and
conditions as the warrants granted in the offering. We anticipate that the
net
proceeds of this private placement offering will be used in the following
manner:
|
·
|
$3,500,000
for the purchase of the currently leased BOPP production line in
Zhuhai;
|
|
·
|
$1,140,000
for the acquisition of the fourth coated film
line;
|
|
·
|
$400,000
for coated and anti-counterfeit films R&D;
and
|
|
·
|
$400,000
for marketing.
|
The
remaining amount will be used for working capital and acquisition of an
anti-counterfeit partner with strong distribution channels. We intend to meet
our liquidity requirements for the next twelve months, 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 existing cash and cash equivalents. We anticipate that we have adequate
working capital to fund our operations and growth for at least the next twelve
months.
Net
cash
provided by operating activities for the nine months ended September 30, 2007
was primarily due to our net income, depreciation of $490,344, a decrease in
advances to suppliers of $215,631, an increase in accounts payable of $616,955,
an increase in other payables of $2,556,195 and an increase in unearned revenue
of $744,938, offset by an increase in accounts receivables of $436,192 and
an
increase in inventory of $1,959,974.
Net
cash
used in investing activities during the nine months ended September 30, 2007
was
due to the acquisition of property and equipment for $201,730 offset by
collections of $18,186 on notes receivable.
Net
cash
used in financing activities during the nine months ended September 30, 2007
was
due to $3,604,422 used in the repayment of related parties’ (stockholder’s)
advances and $1,618,945 used in the payment of dividends offset by $223,526
in
capital contributions that we received from one of our
shareholders.
Assets
As
of
September 30, 2007, our accounts receivable increased by $732,593 compared
with
the balance as of December 31, 2006. The increase in accounts receivable
at
September 30, 2007 was due to increased sales compared to the same period
in
2006. We intend to continue our efforts to maintain accounts receivable at
reasonable levels in relation to our sales. Other receivables fell by $51,759
in
the same period. Advances to suppliers decreased by $165,861 while inventory
increased by $2,214,974 during nine months ended September 30, 2007. Our
inventory increased during this period as we purchased more raw materials
than
we normally require in anticipation of increases in the price of crude oil
in
the international market.
Liabilities
Our
accounts payable increased by $829,366 in the nine months ended September
30,
2007. Other payables increased by $2,649,042 as a result of short-term
borrowings from unrelated companies. Unearned revenues (payments received
before
all the relevant criteria for revenue recognition are satisfied) grew by
$779,096 and tax and welfare payable increased by $165,086 over the same
period.
The
majority of our revenues and expenses were denominated primarily in Renminbi
(“RMB”), the currency of the People’s Republic of China. There is no assurance
that exchange rates between the RMB and the U.S. Dollar will remain stable.
We
do not engage in currency hedging. Inflation has not had a material impact
on
our business.
DIRECTORS
AND EXECUTIVE OFFICERS
Executive
Officers and Directors
The
following sets forth certain biographical information concerning our directors
and executive officers as of January 28, 2008:
Name
|
|
Position
|
|
Age
|
Jian
Fu
|
|
Chief
Executive Officer and Director
|
|
44
|
|
|
|
|
|
XueZhu
Xu
|
|
Chief
Financial Officer
|
|
45
|
|
|
|
|
|
MingBiao
Li
|
|
Vice
President of Technology
|
|
42
|
|
|
|
|
|
Ying
Yuet
|
|
Chairman
of the Board of Directors
|
|
54
|
|
|
|
|
|
Brian
G. Cunat
|
|
Director
|
|
51
|
|
|
|
|
|
Joseph
S. Rizzello
|
|
Director
|
|
60
|
|
|
|
|
|
Arnold
Staloff
|
|
Director
|
|
63
|
Jian
Fu, 44,
has
served as our Chief Executive Officer since July 2007. Prior to that, Mr. Fu
served as Chief Executive Officer and a director of Sino Palace Holdings Limited
from January 2004 to July 2007. He worked at Hainan Plastic Industrial Co.,
Ltd.
as Vice-Chairman of the Hainan Modern Technology Group from 1998 to December
2003 and as General Manager from 1985 to 1997. Mr. Fu received his undergraduate
degree in Plastic Engineering Technique from South China Institute of Technology
in 1985. He received an Advanced Certificate of MBA studies from Renmin
University in 2004.
XueZhu
Xu, 45,
has
served as our Chief Financial Officer since July 2007. Prior to that, Ms. Xu
served as Chief Financial Officer of Sino Palace from January 2004 to July
2007.
She worked at Hisense Company Limited as Chief Financial Officer from 1996
to
December 2003. From 1990 to 1996 Ms. Xu worked as Accounting Manager at Hainan
Hisense Group. She worked as the Accounting Manager in Hainan WenChang Foreign
Trade Co. from 1981 to 1990. Ms. Xu graduated from Hainan Supply and Marketing
School in 1981 with a Bachelor’s Degree in Accounting. She received an Advanced
certificate of MBA studies from Renmin University in 2004.
MingBiao
Li, 42,
has
served as our Vice President of Technology since July 2007. Prior to that,
Mr.
Li served as General Manager of Hainan Shiner Technology Co., Ltd. from January
2003 to March 2005 and Chairman of Hainan Shiner Co. Ltd. from July 2004 to
July
2007. He served as Chairman of the Board of the Color Printing Packaging Co.
Ltd. from September 2003 to May 2004. From October 1997 to December 2002, he
worked in Hainan Weilin Electron Co. as General Manager. Mr. Li served as
Section Chief of the Project Investment and Evaluation group of the Guangxi
Auto
& Tractor Research Institution from 1995 to 1997. From 1990 to 1995, he
headed up the automated equipment group at the Guangxi Auto & Tractor
Research Institution. Mr. Li graduated from Tsinghua University in 1987 with
a
Bachelor’s degree in Automotive Engineering. He later obtained his Master’s in
Transport Engineering from Beijing University in 1991.
Ying
Yuet, 54,
has
served as our Chairman since July 2007. Prior to that, Mr. Ying served as
Chairman and a director of Sino Palace from January 2004 to July 2007. He served
as Chairman of Nainan Modern Technology, the State-Owned predecessor company
of
Sino Palace from 1996 to December 2003. Mr. Ying received his Bachelor’s Degree
in Management from the Institute of the CPC Party School in April 2004. He
received an Advanced certificate of MBA studies from Renmin People’s University
in 2004 during a one-year study program he attended.
Brian
G. Cunat, 51,
has
served as the President of Cunat, Inc., a land development, construction and
property management firm since 1976. Since October 2007, he also has served
as
Chairman of Golden Eagle Community Bank, a full service bank that he founded.
From 1996 to November 2005, he was the Vice Chairman of the Board for Illinois
State Bank, a bank that he founded in 1996. From 1993 to March 2004, Mr. Cunat
was President of Royal Japan Corporation, a real estate development and property
management firm based in Japan. In 1991, he founded Shamrock Health &
Fitness Corporation, a full service health and fitness club. In 1984, he founded
Westlane Bowling Center, a successful bowling facility business where he served
as its President from inception to January 2006. Mr. Cunat has been active
on
many charitable and community organizations, including Kiwanis International
President, Family Services and Community Mental Health, Home Builders
Association, and Chicagoland Apartment Association. In 1997, he received the
Entrepreneur of the Year Award from Ernst and Young and Inc.
Magazine.
Joseph
S. Rizzello, 60,
has
served as the Chief Executive Officer of National Stock Exchange, Inc. (“NSX”),
the first all-electronic stock exchange in the United States and one of the
largest stock markets in the United States since October 2006. Mr. Rizzello
also
has currently served as the Chairman of the Board of Directors and Chief
Executive Officer of NSX Holdings, Inc., the parent company to NSX, since
October 2006. Prior to that, Mr. Rizzello served as Special Advisor to the
NSX
Chief Executive Officer and Board of Directors from September 2004 to October
2006. He served as a Director on NSX’s Board from January 2002 to September
2004. From January 2001 to December 2003, Mr. Rizzello was Managing Director
of
Pershing LLC, a Bank of New York subsidiary and a leading global provider of
securities processing and investment-related products and services. In addition,
he served as President of Pershing Trading Company, LP (PTC) from January 2002
to December 2003. Before joining Pershing, Mr. Rizzello served as a Principal
at
Vanguard Brokerage Services (VBS), the brokerage arm of The Vanguard Group,
Inc., in charge of Vanguard’s broker-dealer from 1998 to 2001. Earlier in his
career, he served as Executive Vice President of Business Development, Products
Development and Strategy at the Philadelphia Stock Exchange from 1985 through
1998 and President of the Philadelphia Board of Trade, the Philadelphia Stock
Exchange’s futures subsidiary from 1987 through 1998. Mr. Rizzello was employed
by Thomson McKinnon Securities, Inc. from 1974 to 1985 and served as Vice
President of Sales and Branch Manager, where he built one of the firm’s top
producing offices. In addition, Mr. Rizzello has served on a number of boards
including the International Visitors Council, the Community College of
Philadelphia Foundation, Temple University’s Business Curriculum Advisory Board
and the Philadelphia chapter of the Pennsylvania Partnership on Economic
Education.
Arnold
Staloff, 63,
has
served on the Board of Directors of Lehman Brothers Derivative Products Inc.
since 1998, Lehman Brothers Financial Products Inc. since 1994 and Exchange
Lab
Inc. since September 2001. Mr. Staloff served as Chairman of SFB Market Systems,
Inc., a firm that manages all options symbols within the United States, from
December 2005 to May 2007. He served as President and Chief Executive Officer
of
Bloom Staloff Corporation, an equity and options market making firm and foreign
currency options floor broker from 1990 to February 2003. Throughout various
periods of time from 1990 to 2003, Mr. Staloff served as a member of the Board
of Governors, Executive Committee and Chairman of the Foreign Currency Options
Committee of the Philadelphia Stock Exchange and its Finance, Marketing,
Steering and New Products Committees. In 1995, Mr. Staloff was featured as
the
inventor of currency options in “The Vandals’ Crown” (Millman, Free Press,
1995). From 1989 to 1990, Mr. Staloff served as President and Chief Executive
Officer of Commodity Exchange Inc. Prior to that, Mr. Staloff served as an
officer of the Philadelphia Stock Exchange from 1971 to 1989. He served as
the
President of the Philadelphia Board of Trade from 1985 to 1989. From 1968 to
1971, Mr. Staloff began his career with the U.S. Securities and Exchange
Commission, Trading and Markets Division. In addition, Mr. Staloff has served
as
a board member of other organizations such as the Options Clearing Corporation,
the Composite Tape Association, the Options Price Reporting Authority, the
National Futures Association, the Swiss Commodities, Futures and Options
Association, and the Variety Club for Handicapped Children. Mr. Staloff holds
a
Bachelor of Business Administration from the University of Miami.
Our
directors are elected by the vote of a plurality in interest of the holders
of
our voting stock and hold office for a term of one year and until a successor
has been elected and qualified. Our executive officers are appointed annually
by
the Board of Directors, at our annual meeting, to hold such office until an
officer’s successor has been duly appointed and qualified, unless an officer
sooner dies, resigns or is removed by the Board. Messrs. Cunat, Rizzello and
Staloff qualify as “independent” directors within the meaning of Nasdaq
Marketplace Rule 4200(a)(15).
Code
of Ethics
On
November 28, 2007, our board of directors adopted a Code of Conduct applicable
to all members of the board of directors, our executive officers and employees.
The Code of Conduct is filed as Exhibit 14.1 to this Registration Statement
and
is incorporated herein by reference. Our Code of Conduct is available on our
website at
http://www.shinerinc.com
.
Committees
of the Board of Directors
The
board
of directors has established an Audit Committee, a Compensation Committee and
a
Nominating Committee. The Audit Committee is responsible for recommending
independent auditors for selection by the board of directors, reviewing with
the
independent auditors the scope and results of the audit engagement, monitoring
our financial policies and internal control procedures, and reviewing and
monitoring the provisions of non-audit services performed by our independent
auditors. The Compensation Committee is responsible for reviewing and
recommending salaries, bonuses and other compensation for our officers. The
Compensation Committee is also responsible for the administering our stock
option plan and for establishing terms and conditions of all stock options
granted under this plan.
The
Nominating Committee is responsible for reviewing and recommending directors
to
be nominated to the board of directors. All of the members of the Audit
Committee, the Compensation Committee and the Nominating Committee are
non-employee directors. Mr. Staloff has been appointed to sit on the audit
committee to serve as the audit committee financial expert. Mr. Staloff is
considered independent within the meaning of Rule 4200(a)(15) of the National
Association of Securities Dealers listing standards, as amended.
Our
Board
of Directors has appointed the following members to following designated
committees:
Audit:
|
|
Messrs.
Cunat, Rizzello and Staloff, with Mr. Staloff as
Chairman.
|
|
|
|
Compensation:
|
|
Messrs.
Cunat, Rizzello and Staloff, with Mr. Rizzello as
Chairman.
|
|
|
|
Nominating:
|
|
Messrs.
Cunat, Rizzello and Staloff, with Mr. Cunat as
Chairman.
|
Audit
Committee Financial Expert
The
board
of directors has an Audit Committee, which is comprised of Messrs. Cunat,
Rizzello and Staloff. The board of directors has examined the composition of
the
Audit Committee in light of the listing standards of the Nasdaq Stock Market
and
the regulations under the Exchange Act applicable to audit committees. Based
upon this examination, the board of directors has determined that each of the
Audit Committee members is an “independent” director within the meaning of such
listing standards and the Exchange Act and the rules and regulations thereunder.
Mr. Staloff qualifies as an “audit committee financial expert” as that term is
defined in applicable regulations of the Securities and Exchange
Commission.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
table
below summarizes all compensation awarded to, earned by, or paid to our former
executive officer by any person for all services rendered in all capacities
to
us for the fiscal year ended December 31, 2006.
Name
and Principal Position
|
|
Fiscal
Year
|
|
Salary
|
|
Bonus
|
|
Total
|
|
|
|
|
|
($)
|
|
($)
|
|
($)
|
|
Zubeda
Mohamed-Lakhani,
Former
President and Chief
Executive
Officer
1
|
|
|
2006
|
|
|
0
|
|
|
0
|
|
|
0
|
|
1
Ms.
Mohamed-Lakhani resigned as our
President
and Chief Executive Officer
on
July
24, 2007.
Ms.
Mohamed-Lakhani was our sole executive officer for the fiscal year ended
December 31, 2006 and did not receive any compensation for services provided
to
us.
We did
not have any employment or consulting agreement with Ms. Mohamed-Lakhani.
The
table
below summarizes all compensation awarded to, earned by, or paid to our current
executive officers by any person for all services rendered in all capacities
to
the Shiner Group, as our predecessor, for the fiscal year ended December 31,
2006.
Name
and Principal Position
|
|
Fiscal
Year
|
|
Salary
|
|
Bonus
|
|
Total
|
|
|
|
|
|
($)
|
|
($)
|
|
($)
|
|
Jian
Fu
1
|
|
|
2006
|
|
$
|
3,846
|
|
$
|
1,212
|
|
$
|
5,058
|
|
XueZhu
Xu
2
|
|
|
2006
|
|
$
|
3,690
|
|
$
|
1,212
|
|
$
|
4,902
|
|
MingBiao
Li
3
|
|
|
2006
|
|
$
|
3,644
|
|
$
|
1,164
|
|
$
|
4,808
|
|
1
|
Prior
to July 24, 2007, Mr. Fu served as the Chief Executive Officer of
Shiner
International, Inc., which was acquired by us on July 24, 2007.
Compensation in 2006 represented compensation paid to Mr. Fu by
the
Shiner Group
.
|
2
|
Prior
to July 24, 2007, Ms. Xu served as the Chief Financial Officer of
Shiner
International, Inc., which was acquired by us on July 24, 2007.
Compensation in 2006 represented compensation paid to Ms. Xu by
the
Shiner Group
.
|
3
|
Prior
to July 24, 2007, Mr. Li served as the Vice President of Technology
of
Shiner International, Inc., which was acquired by us on July 24,
2007.
Compensation in 2006 represented compensation paid to Mr. Li by
the
Shiner Group
.
|
Stock
Option Grants
We
have
not granted any stock options to the executive officer since our
inception.
Equity
Compensation Plan Information
There
has
been no common stock authorized for issuance with respect to any equity
compensation plan as of the fiscal year ended December 31, 2006.
Option
Grants During 2006 Fiscal Year
Aggregated
Option Exercises During 2006 Fiscal Year and Fiscal Year-End Option
Values
None.
Employment
Agreements
We
currently have employment agreements with our executive officers, but do not
provide for any compensatory plans or arrangements resulting from the
resignation, retirement or any other termination of any of our executive
officers, from a change-in-control, or from a change in any executive officer’s
responsibilities following a change-in-control.
The
current annual compensation for our executive officers for the fiscal year
ended
December 31, 2007 is as follows:
Fu
Jian,
our Chief Executive Officer, will receive an annual base salary of $5,162,
and a
performance bonus of $7,788.
XueZhu
Xu
,
our
Chief Financial Officer, will receive an annual base salary of $7,629, with
a
performance bonus of $7,629.
MingBiao
Li, our Vice President of Technology, will receive an annual base salary of
$4,908, with a performance bonus of $7,470.
Directors’
Compensation
In
2006,
our directors did not receive any compensation for their service as directors.
On November 19, 2007, four individuals, Jian Fu, Brian Cunat, Joseph Rizzello
and Arnold Staloff joined the board of directors. Messrs. Cunat, Rizzello and
Staloff each qualify as independent directors under the definition of
“independence” as defined in Rule 4200 of the NASDAQ Rules. We have agreed to
pay the following annual compensation to our independent directors:
Mr.
Staloff will receive $40,000 in cash, to be paid in equal quarterly
installments, of which $10,000 will be paid for his services as Chairman of
the
Audit Committee. In addition, Mr. Staloff received options to purchase 30,000
shares of our common stock, expiring on November 19, 2012, at an exercise price
of $7.00 per share, with a three year vesting schedule.
Mr.
Cunat
will receive $30,000 in cash, to be paid in equal quarterly installments. In
addition, Mr. Cunat received options to purchase 30,000 shares of our common
stock, expiring on November 19, 2012, at an exercise price of $7.00 per share,
with a three year vesting schedule.
Dr.
Rizzello will receive $30,000 in cash, to be paid in equal quarterly
installments. In addition, Mr. Rizzello received options to purchase 30,000
shares of our common stock, expiring on November 19, 2012, at an exercise price
of $7.00 per share, with a three year vesting schedule.
Mr.
Yuet,
the Chairman of our board of directors, will receive $5,703.00 in cash, to
be
paid in equal monthly installments. In addition, Mr. Yuet will receive an bonus
of $10,331 for the fiscal year ended December 31, 2007.
Our
remaining directors will not receive any additional compensation for their
service as directors.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information, as of January 28, 2008, with
respect to the beneficial ownership of the outstanding common stock by (i)
any
holder of more than five (5%) percent; (ii) each of our executive officers
and
directors; and (iii) our directors and executive officers as a group. Except
as
otherwise indicated, each of the stockholders listed below has sole voting
and
investment power over the shares beneficially owned.
|
|
|
|
Number
of Shares
|
|
Percent
of Shares
|
|
Title
of
|
|
|
|
Beneficially
|
|
Beneficially
|
|
Class
|
|
Name
of beneficial owner
1
|
|
Owned
|
|
Owned
2
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Jian
Fu
|
|
|
0
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
XueZhu
Xu
|
|
|
0
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
MingBiao
Li
|
|
|
0
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Ying
Yuet
|
|
|
11,518,408
|
|
|
46.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Brian
Cunat
|
|
|
0
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Joesph
Rizzello
|
|
|
23,000
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Arnold
Staloff
|
|
|
82,534
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
All
officers and directors (7 persons
)
|
|
|
11,623,942
|
|
|
47.13
|
%
|
1
|
Except
as otherwise indicated, the address of each beneficial owner is c/o
9/F.
Didu Bldg. No. 2. North Longkun Road, Haikou Hainan,
China.
|
2
|
Beneficial
ownership has been determined in accordance with Rule 13d-3 under
the
Securities and Exchange Act of 1934. Unless otherwise noted, we believe
that all person named in the table have sole voting and investment
power
with respect to all shares of common stock beneficially owned by
them.
|
SELLING
STOCKHOLDERS
Of
the
4,470,050 shares of our common stock registered for public resale pursuant
to
this prospectus and listed under the column “Number of Shares to be Sold in the
Offering” on the table set forth below, 3,500,000 shares are issued and
outstanding and 970,050 are issuable upon exercise of outstanding warrants.
All
such securities were issued in connection with our private placement offering
that had a final closing in October 2007, in which we sold units at $3.00 per
share to 76 accredited investors, with each unit consisting of one share of
common stock and warrants to purchase 15% of one share of common stock at an
exercise price of $6.00 per share. Four dealers, Maxim Group LLC, Four Tong
Investments, Ltd., Global Hunter Securities, LLC and Basic Investors, Inc.
each
received warrants to purchase shares of common stock at $6.00 per share. All
of
these shares of our common stock are included in this prospectus pursuant to
registration rights we granted in this private placement offering.
The
following table presents information as of January 28, 2008 and sets
forth the number of shares beneficially owned by each of the Selling
Stockholders as of such date. The following table assumes that all of the
currently outstanding warrants will be exercised into common stock and
all of
the shares being registered pursuant to this prospectus will be sold. The
Selling Stockholders are not making any representation that any shares
covered
by this prospectus will be offered for sale. All information contained
in the
table below is based upon information provided to us by the Selling Stockholders
and we have not independently verified this information. The Selling
Stockholders may from time to time offer and sell pursuant to this prospectus
any or all of the common stock being
registered.
Name
of Selling Stockholder
|
|
Total
Shares Beneficially Owned Before the Offering**
|
|
Number
of Shares Offered
|
|
Number
of Beneficially Shares Owned After the Offering**
|
|
Percent
of
Shares
of Beneficially Owned After the Offering**
|
|
|
|
|
|
|
|
|
|
|
|
Arnold
Staloff
|
|
|
82,534
|
|
|
82,034
|
(1)
|
|
500
|
|
|
*
|
|
M.
Craig Aaronberg
|
|
|
|
|
|
40,250
|
(2)
|
|
-
|
|
|
-
|
|
Midsouth
Investor Fund LP
|
|
|
|
|
|
153,333
|
(3)
|
|
-
|
|
|
-
|
|
Wang
Jiahua
|
|
|
|
|
|
103,500
|
(4)
|
|
-
|
|
|
-
|
|
Michael
R. Holly
|
|
|
|
|
|
23,000
|
(5)
|
|
-
|
|
|
-
|
|
Andrew
J. DeGroat
|
|
|
|
|
|
11,500
|
(6)
|
|
-
|
|
|
-
|
|
Thomas
M. Conroy
|
|
|
|
|
|
11,500
|
(7)
|
|
-
|
|
|
-
|
|
Longview
Fund LP
|
|
|
|
|
|
325,834
|
(8)
|
|
-
|
|
|
-
|
|
Robert
J. Kreb III and Pat Riley
|
|
|
|
|
|
11,500
|
(9)
|
|
-
|
|
|
-
|
|
Nancy
Palmero and Herman Palmero JTWROS
|
|
|
|
|
|
23,000
|
(10)
|
|
-
|
|
|
-
|
|
Domaco
Venture Capital Fund
|
|
|
|
|
|
11,500
|
(11)
|
|
-
|
|
|
-
|
|
Equity
Interest, Inc.
|
|
|
|
|
|
11,500
|
(12)
|
|
-
|
|
|
-
|
|
Anthony
Polak
|
|
|
|
|
|
23,000
|
(13)
|
|
-
|
|
|
-
|
|
Vincent
Russo
|
|
|
|
|
|
13,500
|
(14)
|
|
-
|
|
|
-
|
|
IRA
FBO Ronald M. Lazar Pershing LLC as Cust
|
|
|
|
|
|
11,500
|
(15)
|
|
-
|
|
|
-
|
|
RL
Capital Partners
|
|
|
|
|
|
34,500
|
(16)
|
|
-
|
|
|
-
|
|
Berlin
Capital Growth LP
|
|
|
|
|
|
97,750
|
(17)
|
|
-
|
|
|
-
|
|
J.
George Investments LLC
|
|
|
|
|
|
97,750
|
(18)
|
|
-
|
|
|
-
|
|
Robert
N. Masucci
|
|
|
|
|
|
59,500
|
(19)
|
|
-
|
|
|
-
|
|
Charles
M. Hallinan
|
|
|
|
|
|
92,000
|
(20)
|
|
-
|
|
|
-
|
|
Wei
Li
|
|
|
|
|
|
57,500
|
(21)
|
|
-
|
|
|
-
|
|
Chestnut
Ridge Partners LP
|
|
|
|
|
|
134,167
|
(22)
|
|
-
|
|
|
-
|
|
Jonathan
E. Rothschild
|
|
|
|
|
|
11,500
|
(23)
|
|
-
|
|
|
-
|
|
SI
Private Trust Co FAO JM Smucker CoMaster Trust
|
|
|
|
|
|
209,300
|
(24)
|
|
-
|
|
|
-
|
|
Coronado
Capital Partners LP
|
|
|
|
|
|
78,200
|
(25)
|
|
-
|
|
|
-
|
|
Keegan
Family Partnership LP
|
|
|
|
|
|
38,714
|
(26)
|
|
|
|
|
|
|
Matt
Hayden
|
|
|
|
|
|
38,334
|
(27)
|
|
-
|
|
|
-
|
|
David
P. Masucci
|
|
|
|
|
|
11,500
|
(28)
|
|
-
|
|
|
-
|
|
Robert
N. Masucci, Jr.
|
|
|
|
|
|
11,500
|
(29)
|
|
-
|
|
|
-
|
|
Far
Ventures, LLC
|
|
|
|
|
|
11,500
|
(30)
|
|
-
|
|
|
-
|
|
Lake
Street Fund, LP
|
|
|
|
|
|
377,583
|
(31)
|
|
-
|
|
|
-
|
|
Feliks
Zlochistyy
|
|
|
|
|
|
5,750
|
(32)
|
|
-
|
|
|
-
|
|
Fred
L. Astman Wedbush Securities Inc CTDN IRA R/O Holding
10/13/92
|
|
|
|
|
|
115,000
|
(33)
|
|
-
|
|
|
-
|
|
William
L. Caton, III Wedbush Securities Inc. CTDN IRA R/O Holding
12/11/92
|
|
|
|
|
|
19,167
|
(34)
|
|
-
|
|
|
-
|
|
Gregory
Cook Wedbush Securities Inc CTDN IRA Contributory 1/16/02
|
|
|
|
|
|
19,167
|
(35)
|
|
-
|
|
|
-
|
|
John
Peter Selda Wedbush Securities Inc. CTDN IRA Cont 8/27/96
|
|
|
|
|
|
38,333
|
(36)
|
|
-
|
|
|
-
|
|
Clarion
World Offshore Fund, Ltd.
|
|
|
|
|
|
46,000
|
(37)
|
|
-
|
|
|
-
|
|
Amended
and Restated Declaration of Trust of Morton A. Cohen, Dated May
9,
2005
|
|
|
|
|
|
69,000
|
(38)
|
|
-
|
|
|
-
|
|
Enable
Growth Partners LP
|
|
|
|
|
|
488,750
|
(39)
|
|
-
|
|
|
-
|
|
Enable
Opportunity Partners LP
|
|
|
|
|
|
57,500
|
(40)
|
|
-
|
|
|
-
|
|
Pierce
Diversified Strategy Master Fund LLC, Ena
|
|
|
|
|
|
28,750
|
(41)
|
|
-
|
|
|
-
|
|
James
G. Irvine
|
|
|
|
|
|
11,500
|
(42)
|
|
-
|
|
|
-
|
|
Edward
B. Newman
|
|
|
|
|
|
23,000
|
(43)
|
|
-
|
|
|
-
|
|
Barry
Goldin
|
|
|
|
|
|
11,500
|
(44)
|
|
-
|
|
|
-
|
|
Norton
Hight and Joan Hight JTWROS
|
|
|
|
|
|
11,500
|
(45)
|
|
-
|
|
|
-
|
|
Anthony
R. & Gabriella Peraccia
|
|
|
|
|
|
11,500
|
(46)
|
|
-
|
|
|
-
|
|
Edward
H. Margolis
|
|
|
|
|
|
11,500
|
(47)
|
|
-
|
|
|
-
|
|
Gary
Perez
|
|
|
|
|
|
23,000
|
(48)
|
|
-
|
|
|
-
|
|
Lorna
Chen
|
|
|
|
|
|
11,500
|
(49)
|
|
-
|
|
|
-
|
|
Kalman
A. Barson
|
|
|
|
|
|
11,500
|
(50)
|
|
-
|
|
|
-
|
|
Allan
L. Dorfman
|
|
|
|
|
|
11,500
|
(51)
|
|
-
|
|
|
-
|
|
Vanguard
Fiduciary Trust Company FBO Joseph
S.
Rizzello
|
|
|
|
|
|
23,000
|
(52)
|
|
-
|
|
|
-
|
|
Allied
Diesel Service Inc. Profit Sharing Plan
|
|
|
|
|
|
11,500
|
(53)
|
|
-
|
|
|
-
|
|
Dominic
F. Nappi, Jr.
|
|
|
|
|
|
11,500
|
(54)
|
|
-
|
|
|
-
|
|
James
J. Meehan
|
|
|
|
|
|
11,500
|
(55)
|
|
-
|
|
|
-
|
|
The
Eleanor Mae Daniels Trust
|
|
|
|
|
|
76,667
|
(56)
|
|
-
|
|
|
-
|
|
John
Lenoard Kenyon
|
|
|
|
|
|
16,000
|
(57)
|
|
-
|
|
|
-
|
|
Randall
W Hight
|
|
|
|
|
|
11,500
|
(58)
|
|
-
|
|
|
-
|
|
TriCap
International LLC
|
|
|
|
|
|
11,500
|
(59)
|
|
-
|
|
|
-
|
|
Edward
Moss and Adena Moss
|
|
|
|
|
|
11,500
|
(60)
|
|
-
|
|
|
-
|
|
Whitebox
Intermarket Partners, LP
|
|
|
|
|
|
191,667
|
(61)
|
|
-
|
|
|
-
|
|
Tom
Knox
|
|
|
|
|
|
23,000
|
(62)
|
|
-
|
|
|
-
|
|
TJH
Knox and B Knox Trust
|
|
|
|
|
|
23,000
|
(63)
|
|
-
|
|
|
-
|
|
Inderjit
Singh and Jasjit Singh
|
|
|
|
|
|
11,500
|
(64)
|
|
-
|
|
|
-
|
|
Maura
Kelly
|
|
|
|
|
|
11,500
|
(65)
|
|
-
|
|
|
-
|
|
Robert
& Sandra Shapiro
|
|
|
|
|
|
11,500
|
(66)
|
|
-
|
|
|
-
|
|
Marc
Engelbert
|
|
|
|
|
|
11,500
|
(67)
|
|
-
|
|
|
-
|
|
Li
Su Lian
|
|
|
|
|
|
58,650
|
(68)
|
|
-
|
|
|
-
|
|
Xing
Die
|
|
|
|
|
|
46,000
|
(69)
|
|
-
|
|
|
-
|
|
Wu
Shu Qiun
|
|
|
|
|
|
28,750
|
(70)
|
|
-
|
|
|
-
|
|
Fu
Ji Wei
|
|
|
|
|
|
62,100
|
(71)
|
|
-
|
|
|
-
|
|
Xie
Jin Mo
|
|
|
|
|
|
26,450
|
(72)
|
|
-
|
|
|
-
|
|
Lin
Shi Ming
|
|
|
|
|
|
36,800
|
(73)
|
|
-
|
|
|
-
|
|
Xing
Qing Zheng
|
|
|
|
|
|
28,750
|
(74)
|
|
-
|
|
|
-
|
|
Xu
Shu Quan
|
|
|
|
|
|
34,500
|
(75)
|
|
-
|
|
|
-
|
|
Lin
Shu Feng
|
|
|
|
|
|
23,000
|
(76)
|
|
-
|
|
|
-
|
|
Maxim
Group LLC
|
|
|
|
|
|
111,500
|
(77)
|
|
-
|
|
|
-
|
|
Four
Tong Investments, Ltd.
|
|
|
|
|
|
96,000
|
(78)
|
|
-
|
|
|
-
|
|
Global
Hunter Securities, LLC
|
|
|
|
|
|
188,050
|
(79)
|
|
-
|
|
|
-
|
|
Basic
Investors, Inc.
|
|
|
|
|
|
49,500
|
(80)
|
|
-
|
|
|
-
|
|
Total
|
|
|
4,502,050(81
|
)
|
|
4,501,550
|
(81)
|
|
500
|
|
|
*
|
|
*
|
Less
than 1%
|
|
|
**
|
Assumes
that all securities registered will be sold. Beneficial ownership
has been
determined in accordance with Rule 13d-3 under the Securities
and Exchange
Act of 1934. Unless otherwise noted, we believe that all person
named in
the table have sole voting and investment power with respect
to all shares
of common stock beneficially owned by them.
|
|
|
(1)
|
Includes
10,700 shares of common stock issuable upon the exercise of
10,700
warrants. Mr. Arnold Staloff has sole voting and investment
power with
respect to 81,200 shares of common stock. Mr. Staloff and Mrs.
Sharon
Staloff have joint voting and investment power with respect
to 1,334
shares of common stock.
|
|
|
(2)
|
Includes
5,250 shares of common stock issuable upon the exercise of
5,250 warrants.
|
|
|
(3)
|
Includes
20,000 shares of common stock issuable upon the exercise of
20,000
warrants. Mr. Lyman O. Heidke, the general partner of MidSouth
Investment
Fund, has sole voting and investment power with respect to
these shares of
common stock.
|
|
|
(4)
|
Includes
13,500 shares of common stock issuable upon the exercise of
13,500
warrants.
|
|
|
(5)
|
Includes
3,000 shares of common stock issuable upon the exercise of
3,000 warrants.
|
|
|
(6)
|
Includes
1,500 shares of common stock issuable upon the exercise of
1,500 warrants.
|
|
|
(7)
|
Includes
1,500 shares of common stock issuable upon the exercise of
1,500 warrants.
|
|
|
(8)
|
Includes
42,500 shares of common stock issuable upon the exercise of
42,500
warrants. The managing member of Longview Fund LP is Viking
Asset
Management LLC. Mr. Peter T. Benz has sole voting and investment
power
with respect to these shares of common stock.
|
|
|
(9)
|
Includes
1,500 shares of common stock issuable upon the exercise of
1,500 warrants.
Robert J. Kreb III and Pat Riley have joint voting and investment
power
with respect to these shares of common stock.
|
|
|
(10)
|
Includes
3,000 shares of common stock issuable upon the exercise of
3,000 warrants.
Nancy Palmero and Herman Palmero have joint voting and investment
power
with respect to these shares of common stock.
|
|
|
(11)
|
Includes
1,500 shares of common stock issuable upon the exercise of
1,500 warrants.
Mr.
Jack Polak, father of Anthony Polak, employed by Maxim Group,
LLC, a
finder in connection with the October 2007 Private Placement,
has sole
voting and investment power with respect to these shares of
common
stock.
|
|
|
(12)
|
Includes
1,500 shares of common stock issuable upon the exercise of
1,500 warrants.
Mr. Jack Polak, father of Anthony Polak, employed by Maxim
Group, LLC, a
finder in connection with the October 2007 Private Placement,
has sole
voting and investment power with respect to these shares of
common
stock.
|
|
|
(13)
|
Includes
3,000 shares of common stock issuable upon the exercise of
3,000 warrants.
Mr. Anthony Polak, employed by Maxim Group, LLC, a finder in
connection
with the October 2007 Private Placement, has sole voting and
investment
power with respect to these shares of common stock.
|
|
|
(14)
|
Includes
1,500 shares of common stock issuable upon the exercise of
1,500
warrants.
|
|
|
(15)
|
Includes
1,500 shares of common stock issuable upon the exercise of
1,500 warrants.
Ronald M. Lazar has sole voting and investment power with respect
to these
shares of common stock. Mr. Lazar is an officer, director,
general
partner, associated person or employee of a
broker-dealer.
|
|
|
(16)
|
Includes
4,500 shares of common stock issuable upon the exercise of
4,500 warrants.
The managing member of RL Capital Partners is RL Capital Management,
LLC,
the managing members of which are Mr. Ronald Lazar and Mr.
Anthony Polak,
who have joint voting and investment power with respect to
these shares of
common stock. Mr. Polak is employed by Maxim Group, LLC, a
finder in
connection with the October 2007 Private Placement.
|
|
|
(17)
|
Includes
12,750 shares of common stock issuable upon the exercise of
12,750
warrants.
|
|
|
(18)
|
Includes
12,750 shares of common stock issuable upon the exercise of
12,750
warrants.
|
|
|
(19)
|
Includes
4,500 shares of common stock issuable upon the exercise of
4,500 warrants.
|
|
|
(20)
|
Includes
12,000 shares of common stock issuable upon the exercise of
12,000
warrants.
|
|
|
(21)
|
Includes
7,500 shares of common stock issuable upon the exercise of
7,500
warrants.
|
|
|
(22)
|
Includes
17,500 shares of common stock issuable upon the exercise of
17,500
warrants. The managing entity of Chestnut Ridge Partners LP
is Chestnut
Ridge Capital, LLC, and Mr. Kenneth Pasternak has sole voting
and
investment power with respect to these shares of common
stock.
|
(23)
|
Includes
1,500 shares of common stock issuable upon the exercise of
1,500 warrants.
|
|
|
(24)
|
Includes
27,300 shares of common stock issuable upon the exercise of
27,300
warrants. SI Private Trust Co FAO JM Smucker CoMaster Trust
is managed by
Coronado Capital Management LLC. Mr. Zachary Easton has sole
voting and
investment power with respect to these shares of common
stock.
|
|
|
(25)
|
Includes
10,200 shares of common stock issuable upon the exercise of
10,200
warrants. Coronado Capital Partners LP is managed by Coronado
Capital
Management LLC. Mr. Zachary Easton has sole voting and investment
power
with respect to these shares of common stock.
|
|
|
(26)
|
Includes
5,050 shares of common stock issuable upon the exercise of
5,050 warrants.
|
|
|
(27)
|
Includes
5,000 shares of common stock issuable upon the exercise of
5,000 warrants.
|
|
|
(28)
|
Includes
1,500 shares of common stock issuable upon the exercise of
1,500
warrants.
|
|
|
(29)
|
Includes
1,500 shares of common stock issuable upon the exercise of
1,500 warrants.
|
|
|
(30)
|
Includes
1,500 shares of common stock issuable upon the exercise of
1,500 warrants.
Mr. S. Edmond Farber and Mr. Steven M. Farber have joint voting
and
investment power with respect to these shares of common
stock.
|
|
|
(31)
|
Includes
49,250 shares of common stock issuable upon the exercise of
49,250
warrants.
Lake Street Management, LLC is the general partner of Lake
Street Fund,
LP, and First Wilshire Securities Management, Inc. has been
retained to
manage the account. Mr. Scott W. Hood and Mr. Fred L. Astman
share voting
and investment power with respect to these shares of common
stock.
|
|
|
(32)
|
Includes
750 shares of common stock issuable upon the exercise of 750
warrants. Mr.
Feliks Zlochistyy is an employee of First Wilshire Securities
Management,
Inc., a broker-dealer.
|
|
|
(33)
|
Includes
15,000 shares of common stock issuable upon the exercise of
15,000
warrants. Fred Astman has sole voting and investment power
with respect to
these shares of common stock. Mr. Astman is the Chairman of
the Board of
Directors and an employee of First Wilshire Securities Management,
Inc., a
broker-dealer.
|
|
|
(34)
|
Includes
2,500 shares of common stock issuable upon the exercise of
2,500 warrants.
William L. Caton has sole voting and investment power with
respect to
these shares of common stock.
|
|
|
(35)
|
Includes
2,500 shares of common stock issuable upon the exercise of
2,500 warrants.
Gregory Cook has sole voting and investment power with respect
to these
shares of common stock.
|
|
|
(36)
|
Includes
5,000 shares of common stock issuable upon the exercise of
5,000 warrants.
John Peter Selda has sole voting and investment power with
respect to
these shares of common stock.
|
|
|
(37)
|
Includes
6,000 shares of common stock issuable upon the exercise of
6,000 warrants.
Clarion World Offshore Fund, Ltd. is managed by Orbital Management
Ltd.
Mr. Morton A. Cohen has sole voting and investment power with
respect to
these shares of common stock.
|
(38)
|
Includes
9,000 shares of common stock issuable upon exercise of 9,000
warrants.
Morton A. Cohen has sole voting and investment power with respect
to these
shares of common stock.
|
|
|
(39)
|
Includes
63,750 shares of common stock issuable upon the exercise of
63,750
warrants. Mr. Mitch Levine has sole voting and investment power
with
respect to these shares of common stock.
|
|
|
(40)
|
Includes
7,500 shares of common stock issuable upon the exercise of
7,500 warrants.
Mr. Mitch Levine has sole voting and investment power with
respect to
these shares of common stock.
|
|
|
(41)
|
Includes
3,750 shares of common stock issuable upon the exercise of
3,750 warrants.
Mr. Mitch Levine has sole voting and investment power with
respect to
these shares of common stock.
|
|
|
(42)
|
Includes
1,500 shares of common stock issuable upon the exercise of
1,500 warrants.
|
|
|
(43)
|
Includes
3,000 shares of common stock issuable upon the exercise of
3,000
warrants
.
Mr.
Newman is an officer, director, general partner, associated
person or
employee of a broker-dealer.
|
|
|
(44)
|
Includes
1,500 shares of common stock issuable upon the exercise of
1,500
warrants.
|
|
|
(45)
|
Includes
1,500 shares of common stock issuable upon the exercise of
1,500 warrants.
Norton and Joan Hight have joint voting and investment power
with respect
to these shares of common
stock.
|
(46)
|
Includes
1,500 shares of common stock issuable upon the exercise of 1,500
warrants.
Anthony and Gabriella Peraccia have joint and voting power with
respect to
these shares of common stock.
|
|
|
(47)
|
Includes
1,500 shares of common stock issuable upon the exercise of 1,500
warrants.
Mr. Edward Margolis is a licensed Series 6 representative through
GWN
Securities, a broker-dealer, and the President of Kades-Margolis
Corp., a
company that markets 403(b) retirement programs.
|
|
|
(48)
|
Includes
3,000 shares of common stock issuable upon the exercise of 3,000
warrants.
|
|
|
(49)
|
Includes
1,500 shares of common stock issuable upon the exercise of 1,500
warrants.
|
|
|
(50)
|
Includes
1,500 shares of common stock issuable upon the exercise of 1,500
warrants.
|
|
|
(51)
|
Includes
1,500 shares of common stock issuable upon the exercise of 1,500
warrants.
|
|
|
(52)
|
Includes
3,000 shares of common stock issuable upon the exercise of 3,000
warrants.
Mr. Joseph S. Rizzello is the Chief Executive Officer of National
Stock Exchange, Inc., a national securities exchange, which owns
a single
purpose broker-dealer. Mr. Rizzello has sole voting and
investment power with respect to these shares of common
stock.
|
|
|
(53)
|
Includes
1,500 shares of common stock issuable upon the exercise of 1,500
warrants.
Mr. Ralph A. Darienzo, Sr. and Mr. Ralph A. Darienzo, Jr. have
joint
voting and investment power with respect to these shares of common
stock.
|
|
|
(54)
|
Includes
1,500 shares of common stock issuable upon the exercise of 1,500
warrants.
|
|
|
(55)
|
Includes
1,500 shares of common stock issuable upon the exercise of 1,500
warrants.
|
|
|
(56)
|
Includes
10,000 shares of common stock issuable upon the exercise of 10,000
warrants. Mr. Gary E. Daniels and Mr. Jesse H. Daniels, as trustees,
have
joint voting and investment power with respect to these shares
of common
stock.
|
|
|
(57)
|
Includes
1,500 shares of common stock issuable upon the exercise of 1,500
warrants.
|
|
|
(58)
|
Includes
1,500 shares of common stock issuable upon the exercise of 1,500
warrants.
|
|
|
(59)
|
Includes
1,500 shares of common stock issuable upon the exercise of 1,500
warrants.
Mr. Bidyut Sen has sole voting and investment power with respect
to these
shares of common stock.
|
|
|
(60)
|
Includes
1,500 shares of common stock issuable upon the exercise of 1,500
warrants.
Edward and Adena Moss have joint voting and investment power
with respect
to these shares of common stock.
|
|
|
(61)
|
Includes
25,000 shares of common stock issuable upon the exercise of 25,000
warrants. Whitebox Intermarket Partners, LP is managed by Whitebox
Intermarket Advisors LLC, which is managed by Whitebox Advisors,
LLC. Mr.
Andrew Leaf has sole voting and investment power with respect
to these
shares of common stock.
|
|
|
(62)
|
Includes
3,000 shares of common stock issuable upon the exercise of 3,000
warrants.
|
|
|
(63)
|
Includes
3,000 shares of common stock issuable upon the exercise of 3,000
warrants.
Ms. Linda Knox, as trustee, as sole voting and investment power
with
respect to these shares of common stock.
|
|
|
(64)
|
Includes
1,500 shares of common stock issuable upon the exercise of 1,500
warrants.
Inderjit and Jasjit Singh have joint voting and investment power
with
respect to these shares of common stock.
|
|
|
(65)
|
Includes
1,500 shares of common stock issuable upon the exercise of 1,500
warrants.
|
|
|
(66)
|
Includes
1,500 shares of common stock issuable upon the exercise of 1,500
warrants.
Robert and Sandra Shapiro have joint voting and investment power
with
respect to these shares of common stock.
|
|
|
(67)
|
Includes
1,500 shares of common stock issuable upon the exercise of 1,500
warrants.
|
|
|
(68)
|
Includes
7,650 shares of common stock issuable upon the exercise of 7,650
warrants.
|
|
|
(69)
|
Includes
6,000 shares of common stock issuable upon the exercise of 6,000
warrants.
|
|
|
(70)
|
Includes
3,750 shares of common stock issuable upon the exercise of 3,750
warrants.
|
|
|
(71)
|
Includes
8,100 shares of common stock issuable upon the exercise of 8,100
warrants.
|
|
|
(72)
|
Includes
3,450 shares of common stock issuable upon the exercise of 3,450
warrants.
|
|
|
(73)
|
Includes
4,800 shares of common stock issuable upon the exercise of 4,800
warrants.
|
|
|
(74)
|
Includes
3,750 shares of common stock issuable upon the exercise of 3,750
warrants.
|
|
|
(75)
|
Includes
4,500 shares of common stock issuable upon the exercise of 4,500
warrants.
|
|
|
(76)
|
Includes
3,000 shares of common stock issuable upon the exercise of 3,000
warrants.
|
|
|
(77)
|
Includes
111,500 shares of common stock issuable upon the exercise of
111,500
warrants. Maxim Group LLC served as a finder in the October 2007
Private
Placement of common stock. Maxim Group LLC is managed by MJR
Holdings LLC.
Mr. Michael Rabinowitz has sole voting and investment power with
respect
to these shares of common stock.
|
|
|
(78)
|
Includes
96,000 shares of common stock issuable upon the exercise of 96,000
warrants. Four Tong Investments Ltd. served as a finder in the
October
2007 Private Placement of common stock. Ming Li has sole voting
and
investment power with respect to these shares of common
stock.
|
|
|
(79)
|
Includes
188,050 shares of common stock issuable upon the exercise of
188,050
warrants. Global Hunter Securities LLC is a broker-dealer and
served as a
finder in the October 2007 Private Placement of common stock.
Mr. Daniel
O. Conwill, IV, Mr. Edward Lainfiesta, and Mr. John Hagestad
of Global
Hunter Securities LLC share voting and investment power with
respect to
these shares of common stock.
|
|
|
(80)
|
Includes
49,500 shares of common stock issuable upon the exercise of 49,500
warrants. Basic Investors, Inc., a broker-dealer, seved as a
finder in the
October 2007 Private Placement of common stock. Mr. Thomas Landrie,
Mr.
Richard Beltz, and Mr. Gary Purcell share voting and investment
power with
respect to these shares of common stock.
|
|
|
(81)
|
Includes
970,050
shares of common stock issuable upon the exercise of 970,050
warrants.
|
PLAN
OF DISTRIBUTION
The
Selling Stockholders and any of their pledgees, donees, transferees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These sales may be
at
fixed or negotiated prices. The Selling Stockholders may use any one or more
of
the following methods when selling shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits investors;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
to
cover short sales and other hedging transactions made after the date
that
the registration statement of which this prospectus is a part is
declared
effective by the Securities and Exchange Commission
(“SEC”);
|
|
·
|
Broker-dealers
may agree with the Selling Stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
|
·
|
a
combination of any such methods of sale;
and
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
Selling Stockholders may also sell shares under Rule 144 promulgated under
the
Securities Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the Selling Stockholders (or, if any broker-dealer acts as agent for the
investor of shares, from the purchaser) in amounts to be negotiated. The Selling
Stockholders do not expect these commissions and discounts to exceed what is
customary in the types of transactions involved.
The
Selling Stockholders may from time to time pledge or grant a security interest
in some or all of the Shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell shares of common stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act amending the list of Selling
Stockholders to include the pledgees, transferees or other successors in
interest as Selling Stockholders under this prospectus.
Upon
our
being notified in writing by a Selling Stockholder that any material arrangement
has been entered into with a broker-dealer for the sale of common stock through
a block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, a supplement to this prospectus will be
filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing
(i) the name of each such Selling Stockholder and of the participating
broker-dealer(s), (ii) the number of shares involved, (iii) the price at which
such shares of common stock were sold, (iv) the commissions paid or discounts
or
concessions allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information
set
out or incorporated by reference in this prospectus, and (vi) other facts
material to the transaction. In addition, upon our being notified in writing
by
a Selling Stockholder that a donee or pledge intends to sell more than 500
shares of common stock, a supplement to this prospectus will be filed if then
required in accordance with applicable securities law.
The
Selling Stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this
prospectus.
The
Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Discounts, concessions, commissions and
similar selling expenses, if any, that can be attributed to the sale of
securities will be paid by the Selling Stockholders and/or the purchasers of
the
securities.
Maxim
Group LLC is a registered broker-dealer and NASD member firm and listed as
a
selling stockholder in this prospectus. Maxim Group LLC served as a finder
in
our private placement offering completed on October 22, 2007, and received
cash
fees of $
178,400
and
warrants to purchase an aggregate of
111,500
shares
of
our common stock with an exercise price of $6.00 per share. The registration
statement of which this prospectus forms a part includes the shares underlying
the warrants held by Maxim Group LLC.
Four
Tong
Investments Ltd.
is a
registered broker-dealer and NASD member firm and listed as a selling
stockholder in this prospectus.
Four
Tong
Investments Ltd.
served
as
a finder in our private placement offering completed on October 22, 2007, and
received cash fees of $
153,600
and
warrants to purchase an aggregate of
96,000
shares
of
our common stock with an exercise price of $6.00 per share. The registration
statement of which this prospectus forms a part includes the shares underlying
the warrants held by
Four
Tong
Investments Ltd.
Global
Hunter Securities, LLC
is a
registered broker-dealer and NASD member firm and listed as a selling
stockholder in this prospectus.
Global
Hunter Securities, LLC
served
as a finder in our private placement offering completed on October 22, 2007,
and
received cash fees of $
300,880
and
warrants to purchase an aggregate of
188,050
shares
of
our common stock with an exercise price of $6.00 per share. The registration
statement of which this prospectus forms a part includes the shares underlying
the warrants held by
Global
Hunter Securities, LLC
.
Basic
Investors, Inc.
is a
registered broker-dealer and NASD member firm and listed as a selling
stockholder in this prospectus.
Basic
Investors, Inc.
served
as a finder in our private placement offering completed on October 22, 2007,
and
received cash fees of $
79,200
and
warrants to purchase an aggregate of
49,500
shares
of
our common stock with an exercise price of $6.00 per share. The registration
statement of which this prospectus forms a part includes the shares underlying
the warrants held by
Basic
Investors, Inc.
The
warrants held by Maxim Group LLC,
Four
Tong
Investments Ltd.,
Global
Hunter Securities, LLC
and
Basic
Investors, Inc.
expire
on
October 22, 2010. The shares of common stock issuable upon conversion of the
warrants received by Maxim Group LLC,
Four
Tong
Investments Ltd.
,
Global
Hunter Securities, LLC
and
Basic
Investors, Inc.
are
restricted from sale, transfer, assignment, pledge or hypothecation or from
being the subject of any hedging, short sale, derivative, put, or call
transaction that would result in the effective economic disposition of the
securities by any person for a period of 180 days immediately following the
effective date of the registration statement of which this prospectus forms
a
part, except transfers of the warrants to officers or partners of Maxim Group
LLC,
Four
Tong
Investments Ltd.,
Global
Hunter Securities, LLC
or
Basic
Investors, Inc.
as
allowed under NASD Rule 2710 (g)(1) and (2).
Maxim
Group LLC,
Four
Tong
Investments Ltd.,
Global
Hunter Securities, LLC
and
Basic
Investors, Inc.
have
each
indicated to us their willingness to act as selling agent on behalf of certain
of the selling stockholders named in the prospectus under the section titled
“Selling Stockholders” that purchased our privately-placed securities. All
shares sold, if any, on behalf of selling stockholders by Maxim Group LLC,
Four
Tong
Investments Ltd.,
Global
Hunter Securities, LLC
or
Basic
Investors, Inc.
would
be
in transactions executed by Maxim Group LLC,
Four
Tong
Investments Ltd.,
Global
Hunter Securities, LLC
or
Basic
Investors, Inc.
on
an
agency basis and commissions charged to their customers in connection with
each
transaction shall not exceed a maximum of 5% of the gross proceeds.
Neither
Maxim Group LLC,
Four
Tong
Investments Ltd.,
Global
Hunter Securities, LLC
nor
Basic
Investors, Inc.
has
an
underwriting agreement with us and/or the selling stockholders and no selling
stockholders are required to execute transactions through Maxim Group LLC,
Four
Tong
Investments Ltd.,
Global
Hunter Securities, LLC
or
Basic
Investors, Inc.
Further,
other than any existing brokerage relationship as customers with Maxim Group
LLC,
Four
Tong
Investments Ltd.,
Global
Hunter Securities, LLC
or
Basic
Investors, Inc.
,
no
selling stockholder has any pre-arranged agreement, written or otherwise, with
Maxim Group LLC,
Four
Tong
Investments Ltd.,
Global
Hunter Securities, LLC
or
Basic
Investors, Inc.
to sell
their securities through Maxim Group LLC,
Four
Tong
Investments Ltd.,
Global
Hunter Securities, LLC
or
Basic
Investors, Inc.
NASD
Rule
2710 requires NASD members firms (unless an exemption applies) to satisfy the
filing requirements of Rule 2710 in connection with the resale, on behalf of
selling shareholders, of the securities on a principal or agency basis. NASD
Notice to Members 88-101 states that in the event a selling shareholder intends
to sell any of the shares registered for resale in this prospectus through
a
member of the NASD participating in a distribution of our securities, such
member is responsible for insuring that a timely filing, if required, is first
made with the Corporate Finance Department of the NASD and disclosing to the
NASD the following:
|
·
|
it
intends to take possession of the registered securities or to facilitate
the transfer of such certificates;
|
|
·
|
the
complete details of how the selling shareholders' shares are and
will be
held, including location of the particular
accounts;
|
|
·
|
whether
the member firm or any direct or indirect affiliates thereof have
entered
into, will facilitate or otherwise participate in any type of payment
transaction with the selling shareholders, including details regarding
any
such transactions; and
|
|
·
|
in
the event any of the securities offered by the selling shareholders
are
sold, transferred, assigned or hypothecated by any selling shareholder
in
a transaction that directly or indirectly involves a member firm
of the
NASD or any affiliates thereof, that prior to or at the time of said
transaction the member firm will timely file all relevant documents
with
respect to such transaction(s) with the Corporate Finance Department
of
the NASD for review.
|
No
NASD
member firm may receive compensation in excess of that allowable under NASD
rules, including Rule 2710, in connection with the resale of the securities
by
the selling shareholders, which total compensation may not exceed
8%.
Each
Selling Stockholder that is affiliated with a registered broker-dealer has
confirmed to us that, at the time it acquired the securities subject to the
registration statement of which this prospectus is a part, it did not have
any
agreement or understanding, directly or indirectly, with any person to
distribute any of such securities. We have advised each Selling Stockholder
that
it may not use shares registered on the registration statement of which this
prospectus is a part to cover short sales of our common stock made prior to
the
date on which such registration statement was declared effective by the
SEC.
We
are
required to pay certain fees and expenses incident to the registration of the
shares. We have agreed to indemnify the Selling Stockholders against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act. We agreed to keep this prospectus effective until the earlier
of
(i) the date on which the shares may be resold by the Selling Stockholders
without registration and without regard to any volume limitations by reason
of
Rule 144(e) under the Securities Act or any other rule of similar effect and
(ii) such time as all of the shares have been publicly sold.
DESCRIPTION
OF SECURITIES
The
following description of our securities and provisions of our articles of
incorporation and bylaws is only a summary. You should also refer to the copies
of our certificate and bylaws, copies of which have been incorporated by
reference as exhibits to the Current Report on Form 8-K filed with the SEC
on
July 27, 2007. The following discussion is qualified in its entirety by
reference to such exhibits.
Our
authorized capital stock consists of 75,000,000 shares of common stock, par
value $0.001. As of January 28, 2008, 24,650,000 shares of common stock
were issued and outstanding and held of record by 107 stockholders.
Under
the
articles of incorporation and bylaws, holders of common stock do not have
cumulative voting rights. Holders of common stock, on the basis of one vote
per
share, have the right to vote for the election of the members of the board
of
directors and the right to vote on all other matters, except those matters
on
which a separate class of stockholders vote by class to the exclusion of the
shares of common stock. Holders of common stock do not have any preemptive,
subscription or conversion rights.
Holders
of common stock are entitled to receive dividends declared by the board of
directors out of legally available funds. Since our inception, we have not
declared or paid any cash dividends on our common stock. We presently intend
to
retain future earnings, if any, for use in the operation and expansion of our
business. We do not anticipate paying cash dividends in the foreseeable future.
In the event of our liquidation, dissolution or winding up, common stockholders
are entitled to share ratably in all assets legally available for distribution
after payment of all debts and other liabilities, subject to the prior rights
of
any holders of outstanding shares of preferred stock, if any.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Holladay Stock Transfer,
Inc., 2939 N. 67th Place, Scottsdale, Arizona 85251. Our transfer agent’s
telephone number is (480) 481-3940.
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL
PERSONS
Effective
on the commencement of operations in July 2005, we began recognizing
donated services of $500 per month that Zubeda Mohamed-Lakhani, our president
at
that time, provided to us. During the year ended December 31, 2006, we
recognized $6,000 in donated services.
We
incurred indebtedness of $791 to Ms. Mohamed-Lakhani, our president at that
time, for expenses she paid on our behalf, which amount was non-interest
bearing, unsecured and due on demand.
This
amount was paid by us in connection with the share exchange
transaction.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Unless
otherwise provided in our articles of incorporation, we have the power to
indemnify any individual made a party to a proceeding because he or she is
or
was an officer, director, employee or agent of our company against liability
incurred in the proceeding, provided that, such individual acted in good faith
and in a manner which such person reasonably believed has in the best interests
of our company and, in the case of criminal proceedings, had no reasonable
cause
to believe the conduct was unlawful.
The
expenses of officers and directors incurred in defending a civil or criminal
action, suit or proceeding may be paid by us as they are incurred and in advance
of the final disposition of the action, suit or proceeding, but only after
we
receive an undertaking by or on behalf of the officer or director on terms
set
by the Board of Directors, to repay the expenses advanced if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to
be
indemnified by the corporation.
The
indemnification permitted herein is intended to be to the fullest extent
permissible under the laws of the State of Nevada, and any amendments
thereto.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933,
as
amended, may permit for directors, executive officers or persons controlling
us
pursuant to the foregoing provisions or otherwise, we have been advised that
in
the opinion of the Securities and Exchange Commission, such indemnification
is
against public policy as expressed in the Securities Act of 1933, and is,
therefore, unenforceable.
LEGAL
MATTERS
The
validity of the shares of our common stock offered by the Selling Stockholders
will be passed upon by the law firm of Pryor Cashman LLP, New York, New
York.
EXPERTS
Our
consolidated financial statements as of December 31, 2006 and for the years
ended December 31, 2006 and 2005 have been included herein and in this
Registration Statement on Form SB-2 in reliance upon the reports of Goldman
Parks Kurland Mohidin LLP, independent registered public accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
This
prospectus is part of a Registration Statement on Form SB-2 we have filed with
the SEC. We have not included in this prospectus all of the information
contained in the Registration Statement, and you should refer to the
Registration Statement and its exhibits for further information.
We
file
annual, quarterly, and special reports, proxy statements, and other information
with the SEC. You may read and copy any document we file at the SEC’s public
reference room at 100 F. Street, N.E., Washington, D.C. 20549. Copies of
these materials may also be obtained from the SEC at prescribed rates by writing
to the Public Reference Section of the SEC, 100 F. Street, N.E., Washington,
D.C. 20549. You may obtain information about the operation of the SEC public
reference room in Washington, D.C. by calling the SEC at 1-800-SEC-0330. Our
filings are also available to the public from commercial document retrieval
services and at the Web site maintained by the SEC at
http://www.sec.gov.
Our
Web
site address is
http://www.shinerinc.com
. The
information on our Web site is not incorporated into this
prospectus.
INDEX
TO FINANCIAL STATEMENTS
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Financial
Statements:
|
|
|
|
Combined Balance
Sheet at December 31, 2006
|
F-3
|
|
|
Combined Statements
of Income and Other Comprehensive Income for the years ended December
31,
2006 and 2005
|
F-4
|
|
|
Combined Statement
of Stockholders’ Equity for the years ended December 31, 2006 and
2005
|
F-5
|
|
|
Combined Statements
of Cash Flows for the years ended December 31, 2006 and
2005
|
F-6
|
|
|
Notes
to Combined Financial Statements
|
F-7
|
|
|
Consolidated
Balance Sheet at September 30, 2007
|
F-21
|
|
|
Consolidated
Statements of Income and Other Comprehensive Income for the nine
months
ended September 30, 2007 and 2006
|
F-22
|
|
|
Consolidated
Statements of Cash Flows for the nine months ended September 30,
2007 and
2006
|
F-23
|
|
|
Notes
to Consolidated Financial Statements
|
F-24
|
Report
of Independent Registered Public Accounting Firm
Board
of
Directors and Stockholders of
Shiner
Group
We
have
audited the accompanying combined balance sheet of Shiner Group as of December
31, 2006, and the related combined statements of income and other comprehensive
income, stockholders' equity, and cash flows for the years ended December
31,
2006 and 2005. These combined financial statements are the responsibility
of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the combined
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall combined financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In
our
opinion, the combined financial statements referred to above present fairly,
in
all material respects, the combined financial position of Shiner Group Limited
as of December 31, 2006, and the combined results of their operations and
their
combined cash flows for the years ended December 31, 2006 and 2005, in
conformity with U.S. generally accepted accounting principles.
Goldman
& Parks LLP
Tarzana,
California
June
10,
2007
|
|
December
31,
|
|
|
|
2006
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
& cash equivalents
|
|
$
|
938,268
|
|
Accounts
receivable, net of allowance for doubtful accounts
|
|
|
6,909,100
|
|
Advances
to suppliers
|
|
|
1,311,639
|
|
Other
receivable
|
|
|
440,388
|
|
Note
Receivable
|
|
|
94,726
|
|
Inventory
|
|
|
4,482,772
|
|
Prepaid
expense and other current assets
|
|
|
33,662
|
|
|
|
|
|
|
Total
current assets
|
|
|
14,210,555
|
|
|
|
|
|
|
Property
and Equipment, net
|
|
|
5,562,946
|
|
Deposit
|
|
|
-
|
|
Intangible
assets
|
|
|
323,503
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
20,097,004
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
Accounts
payable
|
|
$
|
4,194,865
|
|
Other
payables
|
|
|
158,359
|
|
Unearned
revenue
|
|
|
431,799
|
|
Accrued
payroll
|
|
|
51,115
|
|
Short
term loans
|
|
|
768,840
|
|
Advance
from related party
|
|
|
3,536,094
|
|
Dividend
Payable
|
|
|
1,649,116
|
|
Tax
and welfare payable
|
|
|
133,552
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
10,923,740
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
Common
stock
|
|
|
16,500
|
|
Additonal
paid-in capital
|
|
|
1,288,825
|
|
Other
comprehensive income
|
|
|
431,310
|
|
Statutory
reserve
|
|
|
1,875,939
|
|
Retained
earnings
|
|
|
5,560,690
|
|
Total
stockholders' equity
|
|
|
9,173,264
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
20,097,004
|
|
The
accompanying notes are an integral part of these combined financial
statements.
SHINER
GROUP
COMBINED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR
THE YEARS ENDED DECEMBER 31, 2006 and 2005
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
|
|
$
|
33,951,965
|
|
$
|
27,854,924
|
|
|
|
|
|
|
|
|
|
Cost
of Revenue
|
|
|
27,328,787
|
|
|
21,986,202
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
6,623,178
|
|
|
5,868,722
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
1,578,585
|
|
|
1,459,661
|
|
General
and administrative expenses
|
|
|
1,194,911
|
|
|
1,003,262
|
|
Total
operating expenses
|
|
|
2,773,496
|
|
|
2,462,923
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
3,849,682
|
|
|
3,405,799
|
|
|
|
|
|
|
|
|
|
Non-operating
income (expense):
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
278,545
|
|
|
109,002
|
|
Interest
income
|
|
|
1,443
|
|
|
1,510
|
|
Interest
expense
|
|
|
(330,530
|
)
|
|
(408,931
|
)
|
Exchange
Gain (Loss)
|
|
|
(23,301
|
)
|
|
(2,112
|
)
|
|
|
|
|
|
|
|
|
Total
non-operating income (expense)
|
|
|
(73,843
|
)
|
|
(300,531
|
)
|
|
|
|
|
|
|
|
|
Income
before income tax
|
|
|
3,775,839
|
|
|
3,105,268
|
|
|
|
|
|
|
|
|
|
Income
tax
|
|
|
214,504
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
3,561,335
|
|
$
|
3,105,268
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
Foreign
currency translation gain
|
|
|
282,693
|
|
|
148,617
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$
|
3,844,028
|
|
$
|
3,253,885
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
|
16,500,000
|
|
|
16,500,000
|
|
Diluted
|
|
|
16,500,000
|
|
|
16,500,000
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
$
|
0.19
|
|
Diluted
|
|
$
|
0.22
|
|
$
|
0.19
|
|
The
accompanying notes are an integral part of these combined financial
statements.
SHINER
GROUP
COMBINED
STATEMENT OF STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Additional
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
Stock
|
|
Paid
in
|
|
Comprehensive
|
|
Statutory
|
|
Retained
|
|
Stockholders'
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Income
|
|
Reserve
|
|
Earnings
|
|
Equity
|
|
Balance
January 1, 2005
|
|
|
16,500,000
|
|
|
16,500
|
|
$
|
1,228,712
|
|
$
|
-
|
|
$
|
551,844
|
|
$
|
2,136,125
|
|
$
|
3,933,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
contribution
|
|
|
|
|
|
|
|
|
60,113
|
|
|
|
|
|
|
|
|
|
|
|
60,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in foreign currency translation gain
|
|
|
|
|
|
|
|
|
|
|
|
148,617
|
|
|
|
|
|
|
|
|
148,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,105,268
|
|
|
3,105,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
to statutory reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
606,660
|
|
|
(606,660
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2005
|
|
|
16,500,000
|
|
|
16,500
|
|
|
1,288,825
|
|
|
148,617
|
|
|
1,158,504
|
|
|
4,634,733
|
|
|
7,247,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in foreign currency translation gain
|
|
|
|
|
|
|
|
|
|
|
|
282,693
|
|
|
|
|
|
|
|
|
282,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,917,943
|
)
|
|
(1,917,943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,561,335
|
|
|
3,561,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
to statutory reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
717,435
|
|
|
(717,435
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2006
|
|
|
16,500,000
|
|
|
16,500
|
|
$
|
1,288,825
|
|
$
|
431,310
|
|
$
|
1,875,939
|
|
$
|
5,560,690
|
|
$
|
9,173,264
|
|
The
accompanying notes are an integral part of these
combined financial statements.
SHINER
GROUP
COMBINED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2006 and 2005
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
income
|
|
$
|
3,561,335
|
|
$
|
3,105,268
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
provided
in operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
494,216
|
|
|
440,296
|
|
Loss
on disposal of property and equipment
|
|
|
17,991
|
|
|
2,613
|
|
Amortization
|
|
|
5,948
|
|
|
5,787
|
|
(Increase)
/ decrease in assets:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1,064,201
|
)
|
|
717,208
|
|
Other
receivable
|
|
|
(9,573
|
)
|
|
238,993
|
|
Subsidy
receivable
|
|
|
-
|
|
|
-
|
|
Inventory
|
|
|
200,212
|
|
|
(716,452
|
)
|
Advances
to suppliers
|
|
|
(224,483
|
)
|
|
(728,296
|
)
|
Other
assets
|
|
|
15,599
|
|
|
66,902
|
|
Increase
/ (decrease) in current liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
735,793
|
|
|
738,957
|
|
Unearned
revenue
|
|
|
111,142
|
|
|
231,837
|
|
Other
payables
|
|
|
(706,358
|
)
|
|
(7,444
|
)
|
Due
to related party
|
|
|
|
|
|
|
|
Accrued
payroll
|
|
|
6,143
|
|
|
5,878
|
|
Tax
and welfare payable
|
|
|
31,206
|
|
|
(52,288
|
)
|
Deposit
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
3,174,970
|
|
|
4,049,259
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Payments
on (issuance of) notes receivable
|
|
|
394,772
|
|
|
(59,385
|
)
|
Construction-in-process
|
|
|
1,187,706
|
|
|
(218,556
|
)
|
Acquisition
of property and equipment
|
|
|
(2,288,639
|
)
|
|
(285,795
|
)
|
Short-term
Investment
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(706,161
|
)
|
|
(563,736
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Short
-term loan payable
|
|
|
752,580
|
|
|
-
|
|
Repayment
of related parties advances
|
|
|
(3,094,115
|
)
|
|
(2,849,892
|
)
|
Dividend
payable
|
|
|
(303,703
|
)
|
|
-
|
|
Capital
contribution
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(2,645,238
|
)
|
|
(2,849,892
|
)
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
33,081
|
|
|
20,599
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH & CASH
EQUIVALENTS
|
|
|
(143,348
|
)
|
|
656,230
|
|
|
|
|
|
|
|
|
|
CASH
& CASH EQUIVALENTS, BEGINNING BALANCE
|
|
|
1,081,616
|
|
|
425,386
|
|
|
|
|
|
|
|
|
|
CASH
& CASH EQUIVALENTS, ENDING BALANCE
|
|
$
|
938,268
|
|
$
|
1,081,616
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
Loan
interest paid
|
|
$
|
21,841
|
|
$
|
-
|
|
Notes
discount interest paid
|
|
$
|
32,794
|
|
$
|
34,742
|
|
Income
taxes paid
|
|
$
|
119,230
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these combined financial
statements.
Shiner
Group
Notes
to Combined Financial Statements
For
the Years Ended December 31, 2006 and 2005
Note
1 - Organization and Basis of Presentation
Organization
and Line of Business
The
accompanying combined financial statements of the Shiner Group (the “Company”)
include the accounts of Hainan Shiner Industrial Co., Ltd. (“Shiner”), Hainan
Shiny-day Color Printing Packaging Co., Ltd., (“Shiny-day”), Hainan Modern
Hi-Tech Industrial Co., Ltd.(“Modern”), and Zhuhai Modern Huano Packaging Co.,
Ltd. (“Zhuhai”). All four limited liability companies
are
formed under the laws of the People’s Republic of China (“PRC”).
All
significant inter-company accounts and transactions have been eliminated
in
combined financial statements. Shiner and Shiny-day have one common equity
holder, Sino Palace Holdings Limited (“Sino Palace”), a British Virgin Islands
company. Modern, formed in December 2006, is 40% owned by Shiny-day and
60%
owned by Shiner. Zhuhai, formed in January 2007, was 70% owned by Shiner
and 30%
owned by Hua Hai Sheng Hui (HK) Company Limited (“Hua Hai”) as of March 31,
2007. At June 8, 2007, Hua Hai transferred its 30% equity interest of
Zhuhai to Sino Palace. The financial statements are shown on a combined
basis as
all four companies are under common ownership.
The
Company is engaged in research, manufacture, sale, and distribution of packaging
film and color printing for the packaging industry.
Basis
of Presentation
The
accompanying combined financial statements have been prepared in conformity
with
accounting principles generally accepted in the United States of America.
The
Company’s functional currency is the Chinese Renminbi; however the accompanying
combined financial statements have been translated and presented in United
States Dollars ($).
Foreign
Currency Translation
As
of
December 31, 2006, the accounts of the Company were maintained, and their
financial statements were expressed in the Chinese Yuan Renminbi (CNY). Such
financial statements were translated into U.S. Dollars (USD) in accordance
with
Statement of Financial Accounts Standards ("SFAS") No. 52, "Foreign Currency
Translation," with the CNY as the functional currency. According to the
Statement, all assets and liabilities were translated at the exchange rate
on
the balance sheet date, stockholder's equity are translated at the historical
rates and statement of operations items are translated at the weighted average
exchange rate for the year. The resulting translation adjustments are reported
under other comprehensive income in accordance with SFAS No. 130, "Reporting
Comprehensive Income.” Gains and losses resulting from the translations of
foreign currency transactions and balances are reflected in the income
statement.
Note
2 - Summary of Significant Accounting Policies
Use
of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles 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 financial statements
and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Shiner
Group
Notes
to Combined Financial Statements
For
the Years Ended December 31, 2006 and 2005
Cash
and Cash Equivalents
Cash
and
cash 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.
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. Allowance for doubtful debts amounted to $52,460 at
December 31, 2006.
Advances
to Suppliers
The
Company advances to certain vendors for purchase of its material. The advances
to suppliers are interest free and unsecured. The advances to suppliers amounted
to $1,311,639 at December 31, 2006.
Inventories
Inventories
are valued at the lower of cost (determined on a weighted average basis)
or
market. The Management compares the cost of inventories with the market value
and allowance is made for writing down their inventories to market value,
if
lower.
Notes
Receivable
Notes
receivable consist of several notes that are due from third parties that
accrue
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
charged to earnings as incurred; additions, renewals and betterments 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 of:
Operating
equipment
|
10
years
|
Vehicles
|
8
years
|
Office
equipment
|
5
years
|
Buildings
and improvements
|
30
years
|
Shiner
Group
Notes
to Combined Financial Statements
For
the Years Ended December 31, 2006 and 2005
At
December 31, 2006, the following are the details of the property and
equipment:
|
|
December
31, 2006
|
|
|
|
|
|
Operating
equipment
|
|
$
|
5,411,886
|
|
Vehicles
|
|
|
65,943
|
|
Office
equipment
|
|
|
275,281
|
|
Buildings
and improvements
|
|
|
1,250,026
|
|
|
|
|
7,003,136
|
|
Less
accumulated depreciation
|
|
|
(1,440,190
|
)
|
|
|
$
|
5,562,946
|
|
Depreciation
expense for the years ended December 31, 2006 and 2005 was $494,216 and
$440,296, respectively.
Long-Lived
Assets
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
144”), which addresses financial accounting and reporting for the impairment
or
disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
the Results of Operations for a Disposal of a Segment of a Business.” The
Company periodically evaluates the carrying value of long-lived assets to
be
held and used in accordance with SFAS 144. SFAS 144 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 market value of the long-lived assets. Loss on long-lived assets to
be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal. Based on its review, the Company believes
that, as of December 31, 2006 there were no significant impairments of its
long-lived assets.
Intangible
Assets
Intangible
assets consist of Rights to use land. The Company evaluates intangible assets
for impairment, at least on an annual basis and whenever events or changes
in
circumstances indicate that the carrying value may not be recoverable from
its
estimated future cash flows. Recoverability of intangible assets, other
long-lived assets and, goodwill 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.
Shiner
Group
Notes
to Combined Financial Statements
For
the Years Ended December 31, 2006 and 2005
Fair
Value of Financial Instruments
Statement
of financial accounting standard No. 107, Disclosures about fair value of
financial instruments, requires that the Company disclose estimated fair
values
of financial instruments. The carrying amounts reported in the statements
of
financial position for current assets and current liabilities qualifying
as
financial instruments are a reasonable estimate of fair value.
Revenue
Recognition
The
Company’s revenue recognition policies are in compliance with 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 collectibility is reasonably assured. Payments received before all of
the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue.
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 years ended
December 31, 2006 and 2005 were not significant.
Stock-Based
Compensation
The
Company accounts for its stock-based compensation in accordance with SFAS
No.
123R, “Share-Based Payment, an Amendment of FASB Statement No. 123.” 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.
No
options have been granted.
Income
Taxes
The
Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized for
the tax
consequences in future years of differences between the tax bases of assets
and
liabilities and their financial reporting amounts at each period end based
on
enacted tax laws and statutory tax rates applicable to the periods in which
the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
Earnings
Per Share
Earnings
per shares is not presented since these accompanying financial statements
are
presented on a combined basis and presenting earnings per share based on
the
total shares outstanding among the four combined entities would not be
meaningful.
Foreign
Currency Transactions and Comprehensive Income
Accounting
principles generally require that 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 is Chinese
Renminbi. The unit of Renminbi is in Yuan. Translation gains of $431,310
at
December 31, 2006 and March 31, 2007 are classified as an item of other
comprehensive income in the stockholders’ equity section of the combined balance
sheet. During the years ended December 31, 2006 and 2005, other comprehensive
income in the combined statements of income and other comprehensive income
included translation gains of $282,694 and $148,616, respectively.
Shiner
Group
Notes
to Combined Financial Statements
For
the Years Ended December 31, 2006 and 2005
Statement
of Cash Flows
In
accordance with Statement of Financial Accounting Standards No. 95, “Statement
of Cash Flows,” cash flows from the Company’s operations are calculated based
upon the local currencies. As a result, amounts related to assets and
liabilities reported on the statement of cash flows will not necessarily
agree
with changes in the corresponding balances on the balance sheet.
Segment
Reporting
Statement
of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure About
Segments of an Enterprise and Related Information” 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. Reportable segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a company.
The
Company has determined that it has two reportable segments (See Note 13).
Recent
Pronouncements
Fair
Value Measurements
In
September 2006, FASB issued SFAS No. 157,
“
Fair
Value Measurements,” which
establishes a framework for measuring fair value, and expands disclosures
about
fair value measurements required under the accounting pronouncements, but
does
not change existing guidance as to whether or not an instrument is carried
at
fair value. Additionally, it establishes a fair value hierarchy that prioritizes
the information used to develop those assumptions. SFAS No. 157 is effective
for
financial statements issued for fiscal years beginning after November 15,
2007,
and interim periods within those fiscal years. Earlier application is
encouraged, provided that the reporting entity has not yet issued financial
statements for fiscal year, including financial statements for an interim
period
within the fiscal year. The Company is currently evaluating the impact, if
any,
that SFAS No. 157 will have on its combined financial statements.
Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans, an
Amendment of FASB Statements No. 87, 88, 106, and 132R
Shiner
Group
Notes
to Combined Financial Statements
For
the Years Ended December 31, 2006 and 2005
In
September 2006, the FASB, issued SFAS, No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB
Statements No. 87, 88, 106, and 132R,” which requires employers to recognize the
underfunded or overfunded status of a defined benefit postretirement plan
as an
asset or liability in its statement of financial position and to recognize
changes in the funded status in the year in which the changes occur through
accumulated other comprehensive income. Additionally, SFAS No. 158 requires
employers to measure the funded status of a plan as of the date of its year-end
statement of financial position. The new reporting requirements and related
new
footnote disclosure rules of SFAS No. 158 are effective for fiscal years
ending
after December 15, 2006. We adopted the provisions of SFAS No. 158 for the
year
end 2006, and the effect of recognizing the funded status in accumulated
other
comprehensive income was not significant. The new measurement date requirement
applies for fiscal years ending after December 15, 2008.
Fair
Value Option for Financial Assets and Financial Liabilities
In
February of 2007 the FASB issued SFAS 159, “
The
Fair
Value Option for Financial Assets and Financial Liabilities
—Including
an amendment of FASB Statement No. 115.” The statement permits entities to
choose to measure many financial instruments and certain other items at fair
value. The objective is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. The statement is effective as of the
beginning of an entity’s first fiscal year that begins after November 15, 2007.
The Company is analyzing the potential accounting treatment.
Other-Than-Temporary
Impairment
FASB
Staff Position on FAS No. 115-1 and FAS No. 124-1 (“the FSP”), “The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments,” was
issued in November 2005 and addresses the determination of when an investment
is
considered impaired, whether the impairment on an investment is
other-than-temporary and how to measure an impairment loss. The FSP also
addresses accounting considerations subsequent to the recognition of
other-than-temporary impairments on a debt security, and requires certain
disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. The FSP replaces the impairment guidance
on
Emerging Issues Task Force (EITF) Issue No. 03-1 with references to
existing authoritative literature concerning other-than-temporary
determinations. Under the FSP, losses arising from impairment deemed to be
other-than-temporary, must be recognized in earnings at an amount equal to
the
entire difference between the securities cost and its fair value at the
financial statement date, without considering partial recoveries subsequent
to
that date. The FSP also required that an investor recognize other-than-temporary
impairment losses when a decision to sell a security has been made and the
investor does not expect the fair value of the security to fully recover
prior
to the expected time of sale. The FSP is effective for reporting periods
beginning after December 15, 2005. The adoption of this statement will not
have
a material impact on our combined financial statements.
FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No.109.”
Shiner
Group
Notes
to Combined Financial Statements
For
the Years Ended December 31, 2006 and 2005
Interpretation
48 prescribes a recognition threshold and a measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Benefits from tax positions should
be
recognized in the financial statements only when it is more likely than not
that
the tax position will be sustained upon examination by the appropriate taxing
authority that would have full knowledge of all relevant information. The
amount
of tax benefits to be recognized for a tax position that meets the
more-likely-than-not recognition threshold is measured as the largest amount
of
benefit that is greater than fifty percent likely of being realized upon
ultimate settlement. Tax benefits relating to tax positions that previously
failed to meet the more-likely-than-not recognition threshold should be
recognized in the first subsequent financial reporting period in which that
threshold is met or certain other events have occurred. Previously recognized
tax benefits relating to tax positions that no longer meet the
more-likely-than-not recognition threshold should be derecognized in the
first
subsequent financial reporting period in which that threshold is no longer
met.
Interpretation 48 also provides guidance on the accounting for and disclosure
of
tax reserves for unrecognized tax benefits, interest and penalties and
accounting in interim periods. Interpretation 48 is effective for fiscal
years
beginning after December 15, 2006. The change in net assets as a result of
applying this pronouncement will be a change in accounting principle with
the
cumulative effect of the change required to be treated as an adjustment to
the
opening balance of retained earnings on January 1, 2007, except in certain
cases
involving uncertainties relating to income taxes in purchase business
combinations. In such instances, the impact of the adoption of Interpretation
48
will result in an adjustment to goodwill. While the Company analysis of the
impact of adopting Interpretation 48 is not yet complete, it do not currently
anticipate it will have a material impact on the Company’s combined financial
statements.
Considering
the Effects of Prior Year Misstatements in Current Year Financial
Statements
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements,” (“SAB
108”),which provides interpretive guidance on the consideration of the effects
of prior year misstatements in quantifying current year misstatements for
the
purpose of a materiality assessment. The Company adopted SAB 108 in the fourth
quarter of 2006 with no impact on its combined financial
statements.
Note
3 - Inventory
The
inventory as of December 31, 2006 consisted of the following:
|
|
December
31, 2006
|
|
|
|
|
|
Raw
Material
|
|
$
|
2,232,647
|
|
Work
in process
|
|
|
707,457
|
|
Finished
goods
|
|
|
1,617,188
|
|
|
|
|
4,557,292
|
|
Less
: Obsolescence Reserve
|
|
|
(74,520
|
)
|
Net
Inventory
|
|
$
|
4,482,772
|
|
Shiner
Group
Notes
to Combined Financial Statements
For
the Years Ended December 31, 2006 and 2005
Note
4 - Intangible Assets
Intangible
assets at December 31, 2006 were as follows:
|
|
December
31, 2006
|
|
|
|
|
|
Rights
to use land
|
|
$
|
341,862
|
|
Less
Accumulated amortization
|
|
|
(18,359
|
)
|
|
|
$
|
323,503
|
|
Per
the
People's Republic of China's governmental regulations, the Government owns
all
land.
The
Company has recognized the amounts paid for the acquisition of rights to
use
land as intangible asset and amortizing over the period the Company has use
of
the land which range from 54 to 57 years.
Amortization
expense for the Company’s intangible assets for the years ended December 31,
2006 and 2005 amounted to $5,948 and $5,787, respectively.
Amortization
expense for the Company’s intangible assets over the next five fiscal years is
estimated to be: 2007-$5,787, 2008-$5,787, 2009-$5,787, 2010-$5,787, and
2011-$5,787.
Note
5 - Short-term loans
Short-term
loans at December 31, 2006 consist of the following:
|
|
December
31, 2007
|
|
|
|
|
|
Short-term
bank loan. The term of the loan is from December 15, 2006 to July
15, 2007
with an interest rate of 6.732%. The loan is collateralized by
buildings
land use rights and machines.
|
|
$
|
768,840
|
|
Note
6 - Advances from Related Parties.
Advances
from related parties at December 31, 2006 of $3,536,094 consist of amount
due to
certain stockholders of the Company. An advance from one related party bears
interest rate of 6.732% and the others are interest free and payable upon
demand.
Note
7 - Stockholders’ Equity
At
December 31, 2006, two of the combining companies had un-called capital of
$480,525.
Note
8 - Income Taxes
Local
PRC
Income Tax
Shiner
Group
Notes
to Combined Financial Statements
For
the Years Ended December 31, 2006 and 2005
Pursuant
to the tax laws of China, general enterprises are subject to income tax at
an
effective rate of 33% (30% federal and 3% provincial).
A
reconciliation of tax at United States federal statutory rate to provision
for
income tax recorded in the financial statements is as follows:
|
|
Years
Ended
|
|
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Tax
provision at statutory rate
|
|
|
34
|
%
|
|
34
|
%
|
Foreign
tax rate difference
|
|
|
(1
|
%)
|
|
(1
|
%)
|
Effect
of tax holiday
|
|
|
(27
|
%)
|
|
(33
|
%)
|
|
|
|
6
|
%
|
|
0
|
%
|
The
Company operates in a privileged economic zone which entitles them to certain
tax benefits (tax holiday) as follows:
Shiny-Day
- Exempt from provincial tax and 100% exemption from federal tax from January
1,
2005 to December 31, 2006 and 50% exemption from federal tax from January
1,
2007 to December 31, 2009.
Shiner
-
Exempt from provincial tax and 100% exemption from federal tax from January
1,
2004 to December 31, 2005 and 50% exemption from federal tax from January
1,
2006 to December 31, 2008.
If
the
Company had not been exempt from paying income taxes due to operating in
a
privileged economic zone, net income for the year ended December 31, 2006
and
2005 would have been lower by approximately $1,031,000 and $1,025,000,
respectively.
Note
9 - Employee Welfare Plans
The
Company has established its own employee welfare plan in accordance with
Chinese
law and regulations. The Company makes annual contributions of 14% of all
employees’ salaries to the employee welfare plan. The total expense for the
welfare plan was $106,912 and $105,031 for the years ended December 31, 2006
and
2005, respectively. The Company has recorded welfare payable of $15,556 at
December 31, 2006, which is included in accrued expenses in the accompanying
combined balance sheet.
Note
10 - Statutory Common Welfare Fund
As
stipulated by the Company Law of the People’s Republic of China (PRC), net
income after taxation can only be distributed as dividends after appropriation
has been made for the following:
|
i.
|
Making
up cumulative prior years’ losses, if any;
|
Shiner
Group
Notes
to Combined Financial Statements
For
the Years Ended December 31, 2006 and 2005
|
ii.
|
Allocations
to the “Statutory surplus reserve” of at least 10% of income after tax, as
determined under PRC accounting rules and regulations, until the
fund
amounts to 50% of the Company’s registered capital;
|
|
iii.
|
Allocations
of 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
|
|
iv.
|
Allocations
to the discretionary surplus reserve, if approved in the stockholders’
general meeting.
|
Pursuant
to the new Corporate Law effective on January 1, 2006, there is now only
one
"Statutory surplus reserve" requirement. The reserve is 10 percent of income
after tax, not to exceed 50 percent of registered capital.
Pursuant
to the "Circular of the Ministry of Finance ( MOF) on the Issue of Corporate
Financial Management after the Corporate Law Enforced" (No.67 [2006]), effective
on April 1, 2006, issued by the MOF, the companies will transfer the balance
of
SCWF as of December 31, 2005 to Statutory Surplus Reserve. Any deficit in
the
SCWF will be charged in turn to Statutory Surplus Reserve, additional paid-in
capital and undistributed profit of previous years. If a deficit still remains,
it should be transferred to retained earnings and be reduced to zero by a
transfer from after tax profit of following years. At December 31, 2006,
the
Company did not have a deficit in the SCWF. The Company has appropriated
$717,435 and $606,660 as reserve for the statutory surplus reserve and welfare
fund for the years ended December 31, 2006 and 2005, respectively.
Note
11 - Current Vulnerability Due to Certain Concentrations
Two
vendors provided 14% and 11% of the Company’s raw materials for the year ended
December 31, 2006. Two vendors provided 13% and 13% of the Company’s raw
materials for the year ended December 31, 2005.
Two
customers accounted for 37% and 11% of the Company’s sales for the year ended
December 31, 2006. Two customers accounted for 40% and 13% of the Company’s
sales for the year ended December 31, 2005.
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, 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
12 - Contingent Liabilities
At
December 31, 2006, the Company is contingently liable to banks for discounted
and endorsed notes receivable and to vendors for endorsed notes receivable
amounting to $6,308,296. $6,308,296 of the notes were paid by the maker
subsequent to the balance sheet dates, respectively.
Shiner
Group
Notes
to Combined Financial Statements
For
the Years Ended December 31, 2006 and 2005
Note
13 - Segment Information
The
Company’s business segments are packaging film and color printing. The following
tables summarize the segment information for years ended December 31, 2006
and
2005:
|
|
12/31/2006
|
|
12/31/2005
|
|
|
|
|
|
|
|
Revenues
from unrelated entities
|
|
|
|
|
|
Color
Printing
|
|
$
|
14,553,667
|
|
$
|
10,999,018
|
|
Packaging
|
|
|
19,398,298
|
|
|
16,855,906
|
|
|
|
|
33,951,965
|
|
|
27,854,924
|
|
|
|
|
|
|
|
|
|
Intersegment
revenues
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
2,845,322
|
|
|
1,727,339
|
|
Packaging
|
|
|
-
|
|
|
-
|
|
|
|
|
2,845,322
|
|
|
1,727,339
|
|
|
|
|
|
|
|
|
|
Total
Revenues
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
17,398,989
|
|
|
12,726,357
|
|
Packaging
|
|
|
19,398,298
|
|
|
16,855,906
|
|
Less
Intersegment revenues
|
|
|
(2,845,322
|
)
|
|
(1,727,339
|
)
|
|
|
|
33,951,965
|
|
|
27,854,924
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
1,077,142
|
|
|
514,286
|
|
Packaging
|
|
|
2,772,540
|
|
|
2,891,513
|
|
|
|
|
3,849,682
|
|
|
3,405,799
|
|
Shiner
Group
Notes
to Combined Financial Statements
For
the Years Ended December 31, 2006 and 2005
Interest
income
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
1,384
|
|
|
1,510
|
|
Packaging
|
|
|
59
|
|
|
-
|
|
|
|
|
1,443
|
|
|
1,510
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
90,039
|
|
|
86,741
|
|
Packaging
|
|
|
240,491
|
|
|
322,190
|
|
|
|
|
330,530
|
|
|
408,931
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
-
|
|
|
-
|
|
Packaging
|
|
|
214,504
|
|
|
-
|
|
|
|
|
214,504
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
1,083,542
|
|
|
423,354
|
|
Packaging
|
|
|
2,477,793
|
|
|
2,681,914
|
|
|
|
|
3,561,335
|
|
|
3,105,268
|
|
|
|
|
|
|
|
|
|
Provision
for depreciation
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
107,526
|
|
|
100,103
|
|
Packaging
|
|
|
386,690
|
|
|
340,193
|
|
|
|
|
494,216
|
|
|
440,296
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
6,899,087
|
|
|
4,982,671
|
|
Packaging
|
|
|
13,197,917
|
|
|
13,370,629
|
|
|
|
|
20,097,004
|
|
|
18,353,300
|
|
Shiner
Group
Notes
to Combined Financial Statements
For
the Years Ended December 31, 2006 and 2005
Note
14 - Geographical Sales
Geographical
distribution of sales to foreign countries which is based on physical
shipments
to such countries is as follows:
|
|
Years
Ended
|
|
|
|
December
31,
|
|
Geographical
Areas
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Chinese
Main Land
|
|
$
|
27,927,943
|
|
$
|
23,623,978
|
|
Asia
|
|
|
4,106,900
|
|
|
3,658,483
|
|
Africa
|
|
|
268,636
|
|
|
61,073
|
|
Australia
|
|
|
134,792
|
|
|
23,764
|
|
USA
|
|
|
675,866
|
|
|
388,637
|
|
South
America
|
|
|
52,379
|
|
|
49,978
|
|
Europe
|
|
|
785,449
|
|
|
49,011
|
|
|
|
$
|
33,951,965
|
|
$
|
27,854,924
|
|
Notes
15 - Subsequent Event (Unaudited)
At
June
8, 2007, Hua Hai Sheng Hui (HK) Company Limited (“Hua Hai”), Zhuhai’s original
shareholder, transferred its 30% shares in Zhuhai to Sino Palace, which is
the
common shareholder of Shiner and Shiny-day.
Shiner
International, Inc. formerly known as Cartan Holdings, Inc.
(hereinafter
referred to as the “Company” or “Shiner”)
was
incorporated in the State of Nevada on November 12, 2003.
On
July
23, 2007, Shiner International, Inc. formerly known as Cartan Holdings, Inc.
entered into a share exchange agreement and plan of reorganization with Sino
Palace Holdings Limited., a corporation formed under the laws of the British
Virgin Islands (“Sino Palace”). Pursuant to the agreement, the Company acquired
from Sino Palace all of the issued and outstanding capital stock of each
of
Hainan Shiner Industrial Co., Ltd. (“Shiner Industrial”) and Hainan Shiny-day
Color Printing Packaging Co., Ltd. (“Shiny-day”) as well as all of the issued
and outstanding capital stock of their subsidiaries, Hainan Modern Hi-Tech
Industrial Co., Ltd. (“Modern”) and Zhuhai Modern Huanuo Packaging Material Co.,
Ltd. (“Zhuhai”) in exchange for the issuance of an aggregate of 16,500,000
shares of the Company’s common stock to the shareholders of Sino Palace. Shiner
Industrial, Shiny-day, Modern and Zhuhai are each Chinese corporations and
are
referred to collectively as the “Shiner Group.”
Shiner
Group
Notes
to Combined Financial Statements
For
the Years Ended December 31, 2006 and 2005
Concurrently
with the closing of the transactions contemplated by the share exchange
agreement and as a condition thereof, the Company entered into an agreement
with
Zubeda Mohamed-Lakhani, the Company’s sole director and chief executive officer,
pursuant to which she returned 4,750,000 shares of the Company’s common stock
for cancellation. Ms. Mohamed-Lakhani was not compensated in any way for
the
cancellation of her shares of the Company’s common stock. Upon completion of the
foregoing transactions, the Company had an aggregate of 21,150,000 shares
of
common stock issued and outstanding.
The
exchange of shares with the Shiner Group was accounted for as a reverse
acquisition under the purchase method of accounting since the Shiner Group
obtained control of the Company. On July 24, 2007, Cartan Holdings, Inc.
changed
its name to Shiner International, Inc. Accordingly, the merger of the Shiner
Group into the Company were recorded as a recapitalization of the Shiner
Group,
the Shiner Group being treated as the continuing entities. The Shiner Group
had
common shareholders and common management. The historical financial statements
presented are the combined financial statements of the Shiner Group. The
share
exchange agreement has been treated as a recapitalization and not as a business
combination; therefore, no pro forma information is disclosed. At the date
of
this transaction, the net liabilities of the legal acquirer were
$34,867.
SHINER
INTERNATIONAL, INC.
CONSOLIDATED
BALANCE SHEET
AS
OF SEPTEMBER 30, 2007
|
|
September
30,
|
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
& cash equivalents
|
|
$
|
929,884
|
|
Accounts
receivable, net of allowance for doubtful accounts $67,888
|
|
|
7,641,693
|
|
Advances
to suppliers
|
|
|
1,145,778
|
|
Other
receivable
|
|
|
388,629
|
|
Note
Receivable
|
|
|
80,077
|
|
Inventory
|
|
|
6,697,746
|
|
Prepaid
expense and other current assets
|
|
|
50,679
|
|
|
|
|
|
|
Total
current assets
|
|
|
16,934,486
|
|
|
|
|
|
|
Property
and Equipment, net
|
|
|
5,483,363
|
|
Deposit
|
|
|
6,808
|
|
Intangible
assets
|
|
|
332,190
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
22,756,847
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
Accounts
payable
|
|
$
|
5,024,231
|
|
Other
payables
|
|
|
2,807,401
|
|
Unearned
revenue
|
|
|
1,210,895
|
|
Accrued
payroll
|
|
|
77,272
|
|
Short
term loans
|
|
|
800,766
|
|
Dividend
Payable
|
|
|
730,692
|
|
Tax
and welfare payable
|
|
|
298,638
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
10,949,895
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
-
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
Common
stock, par value $0.001; 75,000,000 shares authorized,
|
|
|
|
|
21,150,000
shares issued and outstanding
|
|
|
21,150
|
|
Additonal
paid-in capital
|
|
|
1,453,754
|
|
Other
comprehensive income
|
|
|
873,215
|
|
Statutory
reserve
|
|
|
2,176,687
|
|
Retained
earnings
|
|
|
7,282,146
|
|
Total
stockholders' equity
|
|
|
11,806,952
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
22,756,847
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SHINER
INTERNATIONAL, INC.
COMBINED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
|
|
Nine
Months September 30,
|
|
|
|
2007
|
|
2006
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
Net
Revenue
|
|
$
|
27,630,207
|
|
$
|
24,146,061
|
|
|
|
|
|
|
|
|
|
Cost
of Revenue
|
|
|
22,996,228
|
|
|
19,171,705
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
4,633,979
|
|
|
4,974,356
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
835,176
|
|
|
1,153,065
|
|
General
and administrative expenses
|
|
|
1,190,893
|
|
|
812,467
|
|
Total
operating expenses
|
|
|
2,026,069
|
|
|
1,965,532
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
2,607,910
|
|
|
3,008,824
|
|
|
|
|
|
|
|
|
|
Non-operating
income (expense):
|
|
|
|
|
|
|
|
Other
income, net
|
|
|
496,692
|
|
|
123,918
|
|
Interest
income
|
|
|
12,961
|
|
|
4,175
|
|
Interest
expense
|
|
|
(62,013
|
)
|
|
(37,160
|
)
|
Exchange
loss
|
|
|
(134,287
|
)
|
|
(9,332
|
)
|
|
|
|
|
|
|
|
|
Total
non-operating income (expense)
|
|
|
313,353
|
|
|
81,601
|
|
|
|
|
|
|
|
|
|
Income
before income tax
|
|
|
2,921,263
|
|
|
3,090,425
|
|
|
|
|
|
|
|
|
|
Income
tax
|
|
|
245,979
|
|
|
157,058
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
2,675,284
|
|
|
2,933,367
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
Foreign
currency translation gain
|
|
|
441,905
|
|
|
188,527
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$
|
3,117,189
|
|
$
|
3,121,894
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding :
|
|
|
|
|
|
|
|
Basic
|
|
|
17,675,275
|
|
|
16,500,000
|
|
Diluted
|
|
|
17,675,275
|
|
|
16,500,000
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.15
|
|
$
|
0.18
|
|
Diluted
|
|
$
|
0.15
|
|
$
|
0.18
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SHINER
INTERNATIONAL, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
|
|
Nine
Months Ended September 30,
|
|
|
|
2007
|
|
2006
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
income
|
|
$
|
2,675,284
|
|
$
|
2,933,367
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
provided
in operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
490,344
|
|
|
367,073
|
|
Amortization
|
|
|
4,645
|
|
|
4,442
|
|
(Increase)
/ decrease in assets:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(436,192
|
)
|
|
(256,457
|
)
|
Other
receivable
|
|
|
68,553
|
|
|
209,218
|
|
Inventory
|
|
|
(1,959,974
|
)
|
|
(631,626
|
)
|
Advances
to suppliers
|
|
|
215,631
|
|
|
(730,159
|
)
|
Other
assets
|
|
|
18,275
|
|
|
(54,525
|
)
|
Increase
/ (decrease) in current liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
616,955
|
|
|
1,350,762
|
|
Unearned
revenue
|
|
|
744,938
|
|
|
(51,053
|
)
|
Other
payables
|
|
|
2,556,195
|
|
|
(703,576
|
)
|
Accrued
payroll
|
|
|
23,522
|
|
|
(43,076
|
)
|
Tax
and welfare payable
|
|
|
156,140
|
|
|
69,608
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
5,174,316
|
|
|
2,463,998
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Collections
on notes receivable
|
|
|
18,186
|
|
|
393,283
|
|
Acquisition
of property and equipment
|
|
|
(223,526
|
)
|
|
(684,610
|
)
|
Cash
acquired with acquisition of Cartan Holdings, Inc.
|
|
|
3,610
|
|
|
-
|
|
Short-term
Investment
|
|
|
-
|
|
|
(12,490
|
)
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(201,730
|
)
|
|
(303,817
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
form short -term loan
|
|
|
-
|
|
|
374,700
|
|
Repayment
of related parties advances
|
|
|
(3,604,422
|
)
|
|
(2,951,189
|
)
|
Dividend
paid
|
|
|
(1,618,945
|
)
|
|
-
|
|
Capital
contribution
|
|
|
204,446
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(5,018,921
|
)
|
|
(2,576,489
|
)
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
37,951
|
|
|
33,429
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH & CASH
EQUIVALENTS
|
|
|
(8,384
|
)
|
|
(382,879
|
)
|
|
|
|
|
|
|
|
|
CASH
& CASH EQUIVALENTS, BEGINNING BALANCE
|
|
|
938,268
|
|
|
1,081,616
|
|
|
|
|
|
|
|
|
|
CASH
& CASH EQUIVALENTS, ENDING BALANCE
|
|
$
|
929,884
|
|
$
|
698,737
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
Loan
interest paid
|
|
$
|
42,786
|
|
$
|
16,657
|
|
Notes
discount interest paid
|
|
$
|
18,804
|
|
$
|
19,963
|
|
Income
taxes paid
|
|
$
|
190,656
|
|
$
|
108,661
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SHINER
INDUSTRIAL, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 AND 2006
(UNAUDITED)
Note
1 - Organization and Basis of Presentation
The
unaudited consolidated financial statements have been prepared by Shiner
International, Inc. (the “Company”), 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 have been 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 Current Report on Form 8-K filed on July 27, 2007. The
results for the nine months ended September 30, 2007 are not necessarily
indicative of the results to be expected for the full year ending December
31,
2007.
Organization
and Line of Business
Shiner
International, Inc. formerly known as Cartan Holdings, Inc. (hereinafter
referred to as the “Company” or “Shiner”) was incorporated in the State of
Nevada on November 12, 2003.
On
July
23, 2007, the Company entered into a share exchange agreement and plan
of
reorganization with Sino Palace Holdings Limited., a corporation formed
under
the laws of the British Virgin Islands (“Sino Palace”). Pursuant to the
agreement, the Company acquired from Sino Palace all of Sino Palace's
equity interest in Hainan Shiner Industrial Co., Ltd. (“Shiner Industrial”)
and Hainan Shiny-day Color Printing Packaging Co., Ltd. (“Shiny-day”) as well as
all of the outstanding equity interest in their subsidiaries, Hainan Modern
Hi-Tech Industrial Co., Ltd. (“Modern”) and Zhuhai Modern Huanuo Packaging
Material Co., Ltd. (“Zhuhai”) in exchange for the issuance of an aggregate of
16,500,000 shares of the Company’s common stock to the shareholders of Sino
Palace. Shiner Industrial, Shiny-day, Modern and Zhuhai are each Chinese
corporations and are referred to collectively as the “Shiner
Group.”
Concurrently
with the closing of the transactions contemplated by the share exchange
agreement and as a condition thereof, the Company entered into an agreement
with
Zubeda Mohamed-Lakhani, the Company’s sole director and chief executive officer,
pursuant to which she returned 4,750,000 shares of the Company’s common stock
for cancellation. Ms. Mohamed-Lakhani was not compensated in any way
for the
cancellation of her shares of the Company’s common stock. Upon completion of the
foregoing transactions, the Company had an aggregate of 21,150,000 shares
of
common stock issued and outstanding.
The
exchange of shares with the Shiner Group was accounted for as a reverse
acquisition under the purchase method of accounting since the Shiner
Group
obtained control of the Company. On July 24, 2007, Cartan Holdings, Inc.
changed
its name to Shiner International, Inc. Accordingly, the merger of the
Shiner
Group into the Company were recorded as a recapitalization of the Shiner
Group,
the Shiner Group being treated as the continuing entities. The Shiner
Group had
common shareholders and common management. The historical financial statements
presented are the combined financial statements of the Shiner Group.
The share
exchange agreement has been treated as a recapitalization and not as
a business
combination; therefore, no pro forma information is disclosed. At the
date of
this transaction, the net liabilities of the legal acquirer were
$34,867.
As
a
result of the reverse merger transactions described above the historical
financial statements presented are those of the Shiner Group, the operating
entities.
SHINER
INDUSTRIAL, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 AND 2006
(UNAUDITED)
The
Company is engaged in research, manufacture, sale, and distribution of
packaging
film and color printing for the packaging industry.
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in
conformity
with accounting principles generally accepted in the United States of
America.
The Company’s functional currency is the Chinese Renminbi; however the
accompanying consolidated financial statements have been translated and
presented in United States Dollars ($).
Foreign
Currency Translation
As
of
September 30, 2007, the accounts of the Company were maintained, and
their
financial statements were expressed in the Chinese Yuan Renminbi (CNY).
Such
financial statements were translated into U.S. Dollars (USD) in accordance
with
Statement of Financial Accounts Standards (“SFAS”) No. 52, “Foreign Currency
Translation,” with the CNY as the functional currency. According to the
Statement, all assets and liabilities were translated at the exchange
rate on
the balance sheet date, stockholder’s equity are translated at the historical
rates and statement of operations items are translated at the weighted
average
exchange rate for the year. The resulting translation adjustments are
reported
under other comprehensive income in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 130, “Reporting Comprehensive Income.” Gains
and losses resulting from the translations of foreign currency transactions
and
balances are reflected in the income statement.
Note
2 - Summary of Significant Accounting Policies
Use
of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles 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 financial statements
and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash
and Cash Equivalents
Cash
and
cash 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.
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. Allowance for doubtful debts amounted to $67,888
at
September 30, 2007.
SHINER
INDUSTRIAL, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 AND 2006
(UNAUDITED)
Advances
to Suppliers
The
Company advances to certain vendors for purchase of its material. The
advances
to suppliers are interest free and unsecured.
Inventories
Inventories
are valued at the lower of cost (determined on a weighted average basis)
or
market. The Management compares the cost of inventories with the market
value
and allowance is made for writing down their inventories to market value,
if
lower.
Notes
Receivable
Notes
receivable consist of several notes that are due from third parties that
accrue
no interest. The notes are generally due within six months from the date
of
issuance.
Property
and equipment are stated at cost. Expenditures for maintenance and repairs
are
charged to earnings as incurred; additions, renewals and betterments
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 of:
Operating
equipment
|
|
|
10
years
|
|
Vehicles
|
|
|
8
years
|
|
Office
equipment
|
|
|
5
years
|
|
Buildings
and improvements
|
|
|
20
years
|
|
At
September 30, 2007, the following are the details of the property and
equipment:
Operating
equipment
|
|
$
|
|
|
Vehicles
|
|
|
68,681
|
|
Office
equipment
|
|
|
316,930
|
|
Buildings
and improvements
|
|
|
1,284,654
|
|
|
|
|
7,484,383
|
|
Less
accumulated depreciation
|
|
|
(2,001,020
|
)
|
|
|
$
|
5,483,363
|
|
Long-Lived
Assets
Effective
January 1, 2002, the Company adopted SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which addresses
financial accounting and reporting for the impairment or disposal of
long-lived
assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and
reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations
for a Disposal of a Segment of a Business.” The Company periodically evaluates
the carrying value of long-lived assets to be held and used in accordance
with
SFAS 144. SFAS 144 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 market value of
the
long-lived assets. Loss on long-lived assets to be disposed of is determined
in
a similar manner, except that fair market values are reduced for the
cost of
disposal. Based on its review, the Company believes that, as of September
30,
2007 there were no significant impairments of its long-lived assets.
SHINER
INDUSTRIAL, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 AND 2006
(UNAUDITED)
Intangible
Assets
Intangible
assets consist of Rights to use land. The Company evaluates intangible
assets
for impairment, at least on an annual basis and whenever events or changes
in
circumstances indicate that the carrying value may not be recoverable
from its
estimated future cash flows. Recoverability of intangible assets, other
long-lived assets and, goodwill 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.
Fair
Value of Financial Instruments
SFAS
No.
107, “Disclosures about fair value of financial instruments,” requires that the
Company disclose estimated fair values of financial instruments. The
carrying
amounts reported in the statements of financial position for current
assets and
current liabilities qualifying as financial instruments are a reasonable
estimate of fair value.
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 collectibility is reasonably assured. Payments received
before
all of the relevant criteria for revenue recognition are satisfied are
recorded
as unearned revenue.
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 nine
months
ended September 30, 2007 and 2006 were not significant.
Stock-Based
Compensation
The
Company accounts for its stock-based compensation in accordance with
SFAS No.
123R, “Share-Based Payment, an Amendment of FASB Statement No. 123.” 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. No options have been granted.
SHINER
INDUSTRIAL, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 AND 2006
(UNAUDITED)
Income
Taxes
The
Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized
for the tax
consequences in future years of differences between the tax bases of
assets and
liabilities and their financial reporting amounts at each period end
based on
enacted tax laws and statutory tax rates applicable to the periods in
which the
differences are expected to affect taxable income. Valuation allowances
are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting
for
Uncertainty in Income Taxes, on January 1, 2007. As a result of the
implementation of FIN 48, the company made a comprehensive review of
its
portfolio of tax positions in accordance with recognition standards established
by FIN 48. As a result of the implementation of Interpretation 48, the
Company
recognized no material adjustments to liabilities or stockholders’ equity. When
tax returns are filed, it is highly certain that some positions taken
would be
sustained upon examination by the taxing authorities, while others are
subject
to uncertainty about the merits of the position taken or the amount of
the
position that would be ultimately sustained. The benefit of a tax position
is
recognized in the financial statements in the period during which, based
on all
available evidence, management believes it is more likely than not that
the
position will be sustained upon examination, including the resolution
of appeals
or litigation processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest
amount of
tax benefit that is more than 50 percent likely of being realized upon
settlement with the applicable taxing authority. The portion of the benefits
associated with tax positions taken that exceeds the amount measured
as
described above is reflected as a liability for unrecognized tax benefits
in the
accompanying balance sheets along with any associated interest and penalties
that would be payable to the taxing authorities upon examination.
Interest
associated with unrecognized tax benefits are classified as interest
expense and
penalties are classified in selling, general and administrative expenses
in the
statements of income. The adoption of FIN 48 did not have a material
impact on
the Company’s financial statements.
Basic
and Diluted Earnings Per Share
Earnings
per share is calculated in accordance with the SFAS No. 128 (SFAS No.
128),
“Earnings Per Share”. SFAS No. 128 superseded Accounting Principles Board
Opinion No.15 (APB 15). Net earnings per share for all periods presented
has
been restated to reflect the adoption of SFAS No. 128. Basic earnings
per share
is based upon the weighted average number of common shares outstanding.
Diluted
earnings per share is based on the assumption that all dilutive convertible
shares and stock options were converted or exercised. Dilution is computed
by
applying the treasury stock method. Under this method, options and 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
no
options, warrants or dilutive securities outstanding during the nine
months
ended September 30, 2007 and 2006.
Foreign
Currency Transactions and Comprehensive Income
Accounting
principles generally require that 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 is Chinese
Renminbi. The unit of Renminbi is in Yuan. Translation gains of $873,215
at
September 30, 2007 are classified as an item of other comprehensive income
in
the stockholders’ equity section of the consolidated balance sheet. During the
nine months ended September 30, 2007 and 2006, other comprehensive income
in the
consolidated statements of income and other comprehensive income included
translation gains of $441,905 and $188,527, respectively.
SHINER
INDUSTRIAL, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 AND 2006
(UNAUDITED)
Statement
of Cash Flows
In
accordance with SFAS No. 95, “Statement of Cash Flows,” cash flows from the
Company’s operations are calculated based upon the local currencies. As a
result, amounts related to assets and liabilities reported on the statement
of
cash flows will not necessarily agree with changes in the corresponding
balances
on the balance sheet.
Segment
Reporting
Statement
of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure About
Segments of an Enterprise and Related Information” 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 that it has two reportable segments (See Note 11).
Recent
Pronouncements
Fair
Value Measurements
In
September 2006, the FASB issued SFAS No. 157,
“
Fair
Value Measurements,” which
establishes
a framework for measuring fair value, and expands disclosures about fair
value
measurements required under the accounting pronouncements, but does not
change
existing guidance as to whether or not an instrument is carried at fair
value.
Additionally, it establishes a fair value hierarchy that prioritizes
the
information used to develop those assumptions. SFAS No. 157 is effective
for
financial statements issued for fiscal years beginning after November
15, 2007,
and interim periods within those fiscal years. Earlier application is
encouraged, provided that the reporting entity has not yet issued financial
statements for fiscal year, including financial statements for an interim
period
within the fiscal year. The Company is currently evaluating the impact,
if any,
that SFAS No. 157 will have on its consolidated financial
statements.
Fair
Value Option for Financial Assets and Financial Liabilities
In
February of 2007 the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities —Including an amendment of FASB Statement No.
115.” The statement permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to
improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The statement is effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007. The Company is analyzing
the
potential accounting treatment.
SHINER
INDUSTRIAL, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 AND 2006
(UNAUDITED)
Considering
the Effects of Prior Year Misstatements in Current Year Financial Statements
In
September 2006, the SEC SAB No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements,” (“SAB 108”),which provides interpretive guidance on the
consideration of the effects of prior year misstatements in quantifying
current
year misstatements for the purpose of a materiality assessment. The Company
adopted SAB 108 in the fourth quarter of 2006 with no impact on its consolidated
financial statements.
The
inventory as of September 30, 2007 consisted of the following:
Raw
Material
|
|
$
|
2,874,004
|
|
Work
in process
|
|
|
824,010
|
|
Finished
goods
|
|
|
3,073,461
|
|
|
|
|
6,771,475
|
|
Less
: Obsolescence Reserve
|
|
|
(73,729
|
)
|
Net
Inventory
|
|
$
|
6,697,746
|
|
Note
4 - Intangible Assets
Intangible
assets at September 30, 2007 were as follows:
Rights
to use land
|
|
$
|
356,058
|
|
Less
Accumulated amortization
|
|
|
(23,868
|
)
|
|
|
$
|
332,190
|
|
Per
the
People’s Republic of China’s governmental regulations, the Government owns all
land. The Company has recognized the amounts paid for the acquisition
of rights
to use land as intangible asset and amortizing over the period the Company
has
use of the land which range from 54 to 57 years.
Note
5 - Short-term loans
Short-term
loans at September 30, 2007 consist of the following:
Short-term
bank loan. The term of the loan is from December 15, 2006 to
January 15,
2008 with an interest rate of 6.732%. The loan is collateralized
by
buildings land use rights and machines.
|
|
$
|
800,766
|
|
SHINER
INDUSTRIAL, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 AND 2006
(UNAUDITED)
Local
PRC
Income Tax
Pursuant
to the tax laws of China, general enterprises are subject to income tax
at an
effective rate of 33% (30% federal and 3% provincial).
A
reconciliation of tax at United States federal statutory rate to provision
for
income tax recorded in the financial statements is as
follows:
|
|
For
the Nine Months
|
|
|
|
Ended
September 30,
|
|
|
|
2007
|
|
|
|
Tax
provision at statutory rate
|
|
|
34
|
%
|
|
34
|
%
|
Foreign
tax rate difference
|
|
|
(1
|
%)
|
|
(1
|
%)
|
Effect
of tax holiday
|
|
|
(25
|
%)
|
|
(28
|
%)
|
|
|
|
8
|
%
|
|
5
|
%
|
The
Company operates in a privileged economic zone which entitles them to
certain
tax benefits (tax holiday) as follows:
Shiny-day
- Exempt from provincial tax and 100% exemption from federal tax from
January 1,
2005 to December 31, 2006 and 50% exemption from federal tax from January
1,
2007 to December 31, 2009.
Shiner
International - Exempt from provincial tax and 100% exemption from federal
tax
from January 1, 2004 to December 31, 2005 and 50% exemption from federal
tax
from January 1, 2006 to December 31, 2008.
The
estimated tax savings for the nine months ended September 30, 2007 amounted
to
approximately $747,250.The net effect on earnings per share had the income
tax
been applied would decrease basic and diluted earnings per share from
$0.15 to
$0.11.
Note
7 - Employee Welfare Plans
The
Company has established its own employee welfare plan in accordance with
Chinese
law and regulations. The Company makes annual contributions of 14% of
all
employees’ salaries to the employee welfare plan. The total expense for the
welfare plan was $81,175 and $0 for the nine months ended September 30,
2007 and
2006, respectively. The Company has recorded welfare payable of $24,525
at
September 30, 2007, which is included in accrued expenses in the accompanying
consolidated balance sheet.
Note
8 - Statutory Common Welfare Fund
As
stipulated by the Company Law of the People’s Republic of China (PRC), net
income after taxation can only be distributed as dividends after appropriation
has been made for the following:
i.
|
Making
up cumulative prior years’ losses, if any;
|
SHINER
INDUSTRIAL, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 AND 2006
(UNAUDITED)
ii.
|
Allocations
to the “Statutory surplus reserve” of at least 10% of income after tax, as
determined under PRC accounting rules and regulations, until
the fund
amounts to 50% of the Company’s registered capital;
|
iii.
|
Allocations
of 5-10% of income after tax, as determined under PRC accounting
rules and
regulations, to the Company’s “Statutory common welfare fund” (“SCWF”),
which is established for the purpose of providing employee
facilities and
other collective benefits to the Company’s employees; and
|
iv.
|
Allocations
to the discretionary surplus reserve, if approved in the stockholders’
general meeting.
|
Pursuant
to the new Corporate Law effective on January 1, 2006, there is now only
one
“Statutory surplus reserve” requirement. The reserve is 10 percent of income
after tax, not to exceed 50 percent of registered capital.
The
Company has appropriated $300,748 and $589,995 as reserve for the statutory
surplus reserve and welfare fund for the nine months ended September
30, 2007
and 2006, respectively.
Note
9 - Current Vulnerability Due to Certain Concentrations
One
vendor provided 11% of the Company’s raw materials for the nine months ended
September 30, 2007. There vendors provided 14% ,12%and 10% of the Company’s raw
materials for the nine months ended September 30, 2006.
One
customer accounted for 33% of the Company’s sales for the nine months ended
September 30, 2007. One customer accounted for38% and of the Company’s sales for
the nine months ended September 30, 2006.
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, 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
10 - Contingent Liabilities
At
September 30, 2007, the Company is contingently liable to banks for discounted
and endorsed notes receivable and to vendors for endorsed notes receivable
amounting to $4,451,677.(RMB33,355,642)
SHINER
INDUSTRIAL, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 AND 2006
(UNAUDITED)
Note
11 - Segment Information
The
Company’s business segments are in packaging film and color printing The
following tables summarize segment information:
|
|
9/30/2007
|
|
9/30/2006
|
|
|
|
|
|
|
|
Revenues
from unrelated entities
|
|
|
|
Color
Printing
|
|
$
|
9,129,877
|
|
$
|
10,636,393
|
|
Packaging
|
|
|
18,500,330
|
|
|
13,509,668
|
|
|
|
|
27,630,207
|
|
|
24,146,061
|
|
|
|
|
|
|
|
|
|
Intersegment
revenues
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
992,244
|
|
|
2,036,506
|
|
Packaging
|
|
|
-
|
|
|
-
|
|
|
|
|
992,244
|
|
|
2,036,506
|
|
|
|
|
|
|
|
|
|
Total
Revenues
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
10,122,121
|
|
|
12,672,899
|
|
Packaging
|
|
|
18,500,330
|
|
|
13,509,668
|
|
Less
Intersegment revenues
|
|
|
(992,244
|
)
|
|
(2,036,506
|
)
|
|
|
|
27,630,207
|
|
|
24,146,061
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
505,096
|
|
|
976,227
|
|
Packaging
|
|
|
2,078,741
|
|
|
2,032,597
|
|
Holding
Company
|
|
|
24,073
|
|
|
-
|
|
|
|
|
2,607,910
|
|
|
3,008,824
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
1,117
|
|
|
1,021
|
|
Packaging
|
|
|
11,844
|
|
|
3,154
|
|
Holding
Company
|
|
|
-
|
|
|
-
|
|
|
|
|
12,961
|
|
|
4,175
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
3,158
|
|
|
3,829
|
|
Packaging
|
|
|
58,855
|
|
|
33,331
|
|
Holding
Company
|
|
|
-
|
|
|
-
|
|
|
|
|
62,013
|
|
|
37,160
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
43,594
|
|
|
-
|
|
Packaging
|
|
|
202,385
|
|
|
157,058
|
|
Holding
Company
|
|
|
-
|
|
|
-
|
|
|
|
|
245,979
|
|
|
157,058
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
537,652
|
|
|
996,323
|
|
Packaging
|
|
|
2,113,564
|
|
|
1,937,044
|
|
Holding
Company
|
|
|
24,068
|
|
|
-
|
|
|
|
|
2,675,284
|
|
|
2,933,367
|
|
|
|
|
|
|
|
|
|
Provision
for depreciation
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
114,137
|
|
|
106,610
|
|
Packaging
|
|
|
376,207
|
|
|
260,463
|
|
Holding
Company
|
|
|
-
|
|
|
-
|
|
|
|
|
490,344
|
|
|
367,073
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
|
|
|
|
Color
Printing
|
|
|
6,085,917
|
|
|
|
|
Packaging
|
|
|
16,667,755
|
|
|
|
|
Holding
Company
|
|
|
3,175
|
|
|
|
|
|
|
|
22,756,847
|
|
|
|
|
SHINER
INDUSTRIAL, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 AND 2006
(UNAUDITED)
Note
12 - Geographical Sales
Geographical
distribution of sales to foreign countries which is based on physical
shipments to such countries is as follows:
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
Geographical
Areas
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Chinese
Main Land
|
|
$
|
21,064,720
|
|
$
|
19,705,378
|
|
Asia
(outside Main Land China)
|
|
|
3,448,411
|
|
|
2,762,190
|
|
Africa
|
|
|
437,107
|
|
|
217,320
|
|
Australia
|
|
|
911,124
|
|
|
49,382
|
|
USA
|
|
|
670,348
|
|
|
819,789
|
|
South
America
|
|
|
301,535
|
|
|
-
|
|
Europe
|
|
|
796,962
|
|
|
592,002
|
|
|
|
$
|
27,630,207
|
|
$
|
24,146,061
|
|
SHINER
INDUSTRIAL, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 AND 2006
(UNAUDITED)
Notes
13 - Subsequent Event
On
October 22, 2007, the Company completed a final closing of a private
placement
offering of units pursuant to which we sold an aggregate of 3,500,000
units at
an offering price of $3.00 per unit for aggregate gross proceeds
of $10,500,000.
Each unit consisted of one share of the Company’s common stock and a three year
warrant to purchase 15% of one share of the Company’s common stock at an
exercise price of $6.00 per share.
The
warrants are exercisable by the holder anytime from the date of issuance
to the
expiration date with is three years from the date of issuance. The
warrants also
contain a cashless exercise provision.
Accordingly, the Company
issued an aggregate of 3,500,000 shares of common stock and warrants
to purchase
525,000 shares of the Company’s common stock to the 76 accredited investors who
participated in this offering. In addition, the Company compensated
four finders
that assisted us in the sale of securities in this private placement
offering by
(i) paying them cash equal to 8% of the gross proceeds from the sales
of units
placed and (ii) issuing them warrants to purchase that number of
shares of our
common stock equal to 15% of the units
placed
as follows:
Selected
Finder
|
|
Cash
|
|
Warrants
|
|
Maxim
Group LLC
|
|
$
|
178,400
|
|
|
111,500
|
|
Four
Tong Investments Ltd.
|
|
$
|
153,600
|
|
|
96,000
|
|
Global
Hunter Securities, LLC
|
|
$
|
300,880
|
|
|
188,050
|
|
Basic
Investors, Inc.
|
|
$
|
79,200
|
|
|
49,500
|
|
The
warrants granted to these finders have the same terms and conditions
as the
warrants granted in the offering. The Company anticipates that the net
proceeds
of this private placement offering will be used for market development,
product
research, working capital, the potential acquisition of a BOPP Production
Line
in Zhuhai, the potential acquisition of an anti-counterfeit technology
company
and equipment purchases for coated film.
No
dealer, salesman or any other person has been authorized to give any information
or to make any representations other than those contained in this prospectus
in
connection with the offer made by this prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by Shiner International, Inc. This prospectus does not constitute an offer
to
sell or solicitation of an offer to buy any securities in any jurisdiction
in
which such offer or solicitation is not authorized, or in which the person
making such offer or solicitation is not qualified to do so, or to any person
to
whom it is unlawful to make such offer or solicitation. Neither the delivery
of
this prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of Shiner
International, Inc. or that information contained herein is correct as of any
time subsequent to the date hereof.
Until __________,
2008 (90 days after the date of this prospectus), all dealers that effect
transactions in the shares of our common stock registered in this registration
statement, whether or not participating in this offering, may be required to
deliver a prospectus. This is an addition to the dealers’ obligation to deliver
a prospectus when acting as underwriters.
SHINER
INTERNATIONAL
,
INC.
4,470,050
SHARES OF COMMON STOCK
PROSPECTUS
______________,
2008
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
24.
Indemnification
of Directors and Officers.
The
expenses of officers and directors incurred in defending a civil
or criminal action, suit or proceeding shall be paid by the corporation as
they are incurred and in advance of the final disposition of the action,
suit or proceeding, but only after receipt by the corporation of an undertaking
by or on behalf of the officer or director on terms set by the Board of
Directors, to repay the expenses advanced if it is ultimately determined by
a court of competent jurisdiction that he is not entitled to be indemnified
by the corporation.
The
indemnification permitted herein is intended to be to the fullest extent
permissible under the laws of the State of Nevada, and any
amendments thereto.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933,
as
amended, may permit for directors, executive officers or persons controlling
us
pursuant to the foregoing provisions or otherwise, we have been advised that
in
the opinion of the Securities and Exchange Commission, such indemnification
is
against public policy as expressed in the Securities Act of 1933, and is,
therefore, unenforceable.
ITEM
25.
Other
Expenses of Issuance and Distribution.
The
following table sets forth the estimated costs and expenses of the Registrant
in
connection with the offering described in the registration
statement.
SEC
Registration Fee
|
|
$
|
1,068.09
|
|
Printing
Expenses
|
|
$
|
2,000.00
|
|
Accounting
Fees and Expenses
|
|
$
|
20,000.00
|
|
Legal
Fees and Expenses
|
|
$
|
50,000.00
|
|
Miscellaneous
|
|
$
|
1,931.91
|
|
|
|
|
|
|
Total
|
|
$
|
75,000.00
|
|
ITEM
26.
Recent
Sales of Unregistered Securities.
On
November 19, 2007, we granted options to purchase an aggregate of 30,000
shares
of our common stock to each of Messrs. Cunat, Rizzello and Staloff, our
directors, in connection with their appointment to our board of directors.
Such
options are 5-year options that vest equally over three years and have an
exercise price of $7.00 per share. Such issuances were made in reliance upon
the
exemption from registration pursuant to Section 4(2) of the Securities Act
on
the basis that the issuances did not involve a public offering.
On
October 22, 2007, we completed a final closing of a private placement offering
of units pursuant to which we sold an aggregate of 3,500,000 units to 76
accredited investors at an offering price of $3.00 per unit for aggregate
gross
proceeds of $10,500,000. Each unit consisted of one share of our common stock
and a warrant to purchase 15% of one share of our common stock at an exercise
price of $6.00 per share. Accordingly, we issued an aggregate of 3,500,000
shares of our common stock and warrants to purchase 525,000 shares of our
common
stock to the 76 accredited investors who participated in this offering. In
addition, we compensated four registered broker-dealers that assisted us
in the
sale of securities in this private placement offering by (i) paying them
cash
equal to 8% of the gross proceeds from the sale of units placed and (ii)
issuing
them warrants to purchase that number of shares of our common stock equal
to 15%
of the units placed, as follows:
Selected
Finder
|
|
Cash
|
|
Warrants
|
|
Maxim
Group LLC
|
|
$
|
178,400
|
|
|
111,500
|
|
Four
Tong Investments Ltd.
|
|
$
|
153,600
|
|
|
96,000
|
|
Global
Hunter Securities, LLC
|
|
$
|
300,880
|
|
|
188,050
|
|
Basic
Investors, Inc.
|
|
$
|
79,200
|
|
|
49,500
|
|
The
warrants granted to these broker-dealers have the same terms and conditions
as
the warrants granted in the offering. The net proceeds of this private placement
offering will be used
for
market development, product research, working capital, the potential acquisition
of a BOPP Production Line in Zhuhai, the potential acquisition of an
anti-counterfeit technology company and equipment purchases for coated
film
.
This
private placement offering was exempt from the registration under the Securities
Act pursuant to Rule 506 of Regulation D promulgated thereunder. No advertising
or general solicitation was employed in the offer or sale of securities.
The
offer and sale of securities was made to a limited number of persons, all
of
whom were accredited investors and transfer of the securities was restricted
in
accordance with the requirements of Regulation D.
In
July
2007, pursuant to the Share Exchange Agreement, we issued an aggregate of
16,500,000 shares of common stock to eight non-U.S. persons (as contemplated
by
Rule 902 under the Securities Act of 1933). These issuances were exempt from
registration requirements under Regulation S under the Securities Act of 1933,
as amended. The shares issued pursuant to Regulation S were issued in an
“offshore transaction” as defined in, and pursuant to, Rule 902 under the
Securities Act of 1933, on the basis that the purchaser was not offered the
shares in the United States and did not execute or deliver any agreement in
the
United States.
ITEM
27. Exhibits
.
Exhibit
Number
|
|
Description
of Exhibit
|
|
|
|
2.1
|
|
Share
Exchange Agreement by and between Sino Palace Holdings Limited and
Cartan
Holdings Inc. dated as of July 23, 2007, is incorporated herein
by
reference to Exhibit 2.1 to the Corporation’s Form 8-K dated July 23,
2007.
|
|
|
|
2.2
|
|
Return
to Treasury Agreement between Cartan Holdings, Inc. and Zubeda
Mohamed-Lakhani, dated as of July 23, 2007, is incorporated hereby
by
reference to Exhibit 2.2 to the Corporation’s Form 8-K dated July 23,
2007.
|
|
|
|
3.1
|
|
Amended
and Restated Bylaws, is incorporated herein by reference to Exhibit
3.2 to
the Corporation’s Form 8-K dated July 23, 2007.
|
|
|
|
3.2
|
|
Amended
and Restated Articles of Incorporation, is incorporated herein
by
reference to Exhibit 3.3 to the Corporation’s Form 8-K dated July 23,
2007.
|
|
|
|
4.1**
|
|
Code
of Conduct.
|
|
|
|
4.2
|
|
Specimen
Stock Certificate, is incorporated herein by reference to Exhibit
4.1 to
the Corporation’s Form 8-K dated July 23, 2007.
|
|
|
|
5.1***
|
|
Opinion
of Pryor Cashman LLP.
|
|
|
|
10.1**
|
|
Form
of Registration Rights Agreement.
|
|
|
|
10.2**
|
|
Form
of Subscription Agreement.
|
|
|
|
10.3**
|
|
Form
of Common Stock Purchase Warrant.
|
|
|
|
21.1*
|
|
List
of Subsidiaries.
|
|
|
|
23.1*
|
|
Consent
of Goldman Parks Kurland Mohidin LLP.
|
|
|
|
23.2***
|
|
Consent
of Pryor Cashman LLP (included in their opinion filed as Exhibit
5.1).
|
|
|
|
24.1**
|
|
Powers
of Attorney of the directors of Shiner International, Inc. (included
in
the signature page to the registration
statement).
|
**
|
Previously
filed.
|
*
**
|
To
be filed by amendment.
|
ITEM
28. Undertakings
(a)
The undersigned Registrant hereby undertakes as follows:
(1)
To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i)
Include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii)
Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume
of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end
of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) promulgated under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth
in
the “Calculation of Registration Fee” table in the effective registration
statement; and
(iii)
Include any additional or changed material information on the plan of
distribution.
(2)
For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona
fide offering.
(3)
File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4)
For determining liability of the undersigned registrant under the
Securities Act to any purchaser in the initial distribution of the securities,
the undersigned registrant undertakes that in a primary offering of securities
of the undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by means
of
any of the following communications, the undersigned registrant will be a seller
to the purchaser and will be considered to offer or sell such securities to
such
purchaser:
(i)
Any preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule 424 promulgated
under the Securities Act;
(ii)
Any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the undersigned
registrant;
(iii)
The portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
(iv)
Any other communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
(b)
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the “Act”) may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions,
or
otherwise, the small business issuer has been advised that in the opinion of
the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In
the
event that a claim for indemnification against such liabilities (other than
the
payment by the registrant of expenses incurred or paid by a director, officer
or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(c)
The undersigned registrant hereby undertakes that:
(1)
For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(2)
For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
(d)
For the purpose of determining liability under the Securities Act to any
purchaser, the registrant is subject to Rule 430(c) and must include the
following:
Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule
430B
or other than prospectuses filed in reliance on Rule 430A, shall be deemed
to be
part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into
the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first
use,
supersede or modify any statement that was made in the registration statement
or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on this Registration Statement on Form SB-2 and
authorized this Registration Statement on Form SB-2 to be signed on its behalf
by the undersigned, in Haikou, Hainan Province, China on the 30th day
of January 2008.
|
|
|
|
Shiner
International, Inc.
|
|
|
|
|
By:
|
/s/ Jian Fu
|
|
Jian
Fu
|
|
Chief
Executive Officer
|
*
*
*
In
accordance with the requirements of the Securities Act of 1933, this
Registration Statement and Power of Attorney was signed by the following
persons
in the capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
*
|
|
Chief
Executive Officer and Vice Director
|
|
January 30,
2008
|
Jian
Fu
|
|
|
|
|
|
|
|
|
|
*
|
|
Chief
Financial Officer and Chief Accounting Officer
|
|
|
XueZhu
Xu
|
|
|
|
|
|
|
|
|
|
*
|
|
Chairman
of the Board of Directors
|
|
|
Yuet
Ying
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
Brian
G.Cunat
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
Joseph
S.Rizzello
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
Arnold
Staloff
|
|
|
|
|
|
|
|
|
|
* By: /s/ Jain
Fu
|
|
|
|
January 30,
2008
|
Jian
Fu
|
|
|
|
|
Attorney-in-fact
|
|
|
|
|
Exhibit
Number
|
|
Description
of Exhibit
|
|
|
|
2.1
|
|
Share
Exchange Agreement by and between Sino Palace Holdings Limited
and Cartan
Holdings Inc. dated as of July 23, 2007, is incorporated herein
by
reference to Exhibit 2.1 to the Corporation’s Form 8-K dated July 23,
2007.
|
|
|
|
2.2
|
|
Return
to Treasury Agreement between Cartan Holdings, Inc. and Zubeda
Mohamed-Lakhani, dated as of July 23, 2007, is incorporated hereby
by
reference to Exhibit 2.2 to the Corporation’s Form 8-K dated July 23,
2007.
|
|
|
|
3.1
|
|
Amended
and Restated Bylaws, is incorporated herein by reference to Exhibit
3.2 to
the Corporation’s Form 8-K dated July 23, 2007.
|
|
|
|
3.2
|
|
Amended
and Restated Articles of Incorporation, is incorporated herein
by
reference to Exhibit 3.3 to the Corporation’s Form 8-K dated July 23,
2007.
|
|
|
|
4.1**
|
|
Code
of Conduct.
|
|
|
|
4.2
|
|
Specimen
Stock Certificate, is incorporated herein by reference to Exhibit
4.1 to
the Corporation’s Form 8-K dated July 23, 2007.
|
|
|
|
5.1***
|
|
Opinion
of Pryor Cashman LLP.
|
|
|
|
10.1**
|
|
Form
of Registration Rights Agreement.
|
|
|
|
10.2**
|
|
Form
of Subscription Agreement.
|
|
|
|
10.3**
|
|
Form
of Common Stock Purchase Warrant.
|
|
|
|
21.1*
|
|
List
of Subsidiaries.
|
|
|
|
23.1*
|
|
Consent
of Goldman Parks Kurland Mohidin LLP.
|
|
|
|
23.2***
|
|
Consent
of Pryor Cashman LLP (included in their opinion filed as Exhibit
5.1).
|
|
|
|
24.1**
|
|
Powers
of Attorney of the directors of Shiner International, Inc. (included
in
the signature page to the registration
statement).
|
*
|
Filed
herewith.
|
*
*
|
Previously
filed.
|
*
**
|
To
be filed by amendment.
|
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