Shiner International, Inc.: Form 10-Q - Filed by newsfilecorp.com

10-Q 1 form10q.htm FORM 10-Q Shiner International, Inc.: Form 10-Q - Filed by newsfilecorp.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2013

[_] Transition report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______to _______.

001-33960
(Commission file number)

SHINER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

Nevada	98-0507398
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

19/F, Didu Building, Pearl River Plaza,
No. 2 North Longkun Road
Haikou, Hainan Province
China 570125
(Address of principal executive offices)

011-86-898-68581104 (Issuer’s telephone number)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [_]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)

Yes [X] No [_]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [_]	Accelerated filer [_]
Non-accelerated filer [_]	Smaller reporting company [X]
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [_] No [X]

The number of shares outstanding of each of the issuer’s classes of common stock, as of May 16, 2013 is as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.001 par value	27,541,491

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	25

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

SHINER INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

	Page(s)
Financial Statements
Consolidated Balance Sheets	2
Consolidated Statements of Operations and Other Comprehensive Loss	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	7 - 20

SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

		March 31,			December 31,
		2013			2012
		(Unaudited)
ASSETS
CURRENT ASSETS:

Cash & equivalents	$	4,355,391		$	4,233,183
Restricted cash		1,720,653			925,039
Accounts receivable, net of allowance for doubtful accounts of $928,660 and $850,123 at 2013 and 2012		6,403,741			7,807,846
Advances to suppliers		12,824,363			15,141,398
Notes receivable		-			542,802
Inventory, net		12,507,426			10,110,732
Prepaid expenses & other current assets		924,595			711,537

Total current assets		38,736,169			39,472,537

Property and equipment, net		30,019,399			30,689,391
Construction in progress		6,238,035			5,840,483
Advance for purchase of equipment		343,253			426,536
Intangible assets, net		1,070,296			1,069,988


TOTAL ASSETS	$	76,407,152		$	77,498,935

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable	$	7,159,566		$	6,808,524
Other payables		7,971,887			8,213,146
Unearned revenue		1,121,524			1,622,318
Accrued payroll		145,647			147,722
Short-term loans		15,980,132			16,404,115

Total current liabilities		32,378,756			33,195,825

Long-term loans		11,158,000			11,095,000
Total liabilities		43,536,756			44,290,825

Commitments and contingencies

EQUITY:
Shiner stockholders' equity:
Common stock, par value $0.001; 75,000,000 shares authorized, 27,603,336 shares issued and 27,541,491 shares outstanding		27,603			27,603
Additional paid-in capital		14,336,456			14,336,456
Treasury stock (61,845 shares)		(58,036	)		(58,036	)
Other comprehensive income		5,933,295			5,745,728
Statutory reserve		3,414,514			3,414,514
Retained earnings		9,000,008			9,526,528
Total Shiner stockholders' equity		32,653,840			32,992,793

Noncontrolling interest		216,556			215,317
Total equity		32,870,396			33,208,110


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	76,407,152		$	77,498,935

The accompanying notes are an integral part of these consolidated financial statements.

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SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
THREE MONTHS ENDED MARCH 31, 2013 AND 2012
(Unaudited)

		2013			2012
Net revenue	$	13,843,529		$	17,370,024
Cost of goods sold		12,930,090			15,199,083
Gross profit		913,439			2,170,941

Operating expenses:
Selling		665,425			654,531
General and administrative		1,431,093			1,646,477
Total operating expenses		2,096,518			2,301,008

Loss from operations		(1,183,079	)		(130,067	)

Non-operating income (expense):
Other income (expense), net		1,007,440			(101,183	)
Interest income		61,350			8,829
Interest expense		(374,156	)		(288,669	)
Exchange loss		(38,060	)		(5,873	)
Total non-operating income (expense)		656,574			(386,896	)

Loss before income tax		(526,505	)		(516,963	)
Income tax expense		-			78,943

Net loss		(526,505	)		(595,906	)

Net income (loss) attributed to noncontrolling interest		15			(41,386	)
Net loss attributed to Shiner	$	(526,520	)	$	(554,520	)

Comprehensive loss:
Net loss	$	(526,505	)	$	(595,906	)
Foreign currency translation gain		188,791			278,324

Comprehensive loss	$	(337,714	)	$	(317,582	)

Weighted average shares outstanding:
Basic		27,541,491			27,541,491
Diluted		27,541,491			27,541,491

Loss per share attributed to Shiner common stockholders:
Basic	$	(0.02	)	$	(0.02	)
Diluted	$	(0.02	)	$	(0.02	)

The accompanying notes are an integral part of these consolidated financial statements.

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SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2013 AND 2012
(Unaudited)

		2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(526,505	)	$	(595,906	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		840,058			676,373
Amortization		5,761			59,148
Stock compensation expense		-			1,016
Change in working capital components:
Accounts receivable		1,446,735			(73,060	)
Inventory		(2,336,525	)		(3,423,193	)
Advances to suppliers		2,400,183			2,248,321
Other assets		(213,290	)		136,476
Accounts payable and accrued expenses		312,212			2,360,516
Unearned revenue		(509,406	)		(612,876	)
Other payables		(286,238	)		319,373
Accrued payroll		(2,911	)		(33,158	)

Net cash provided by operating activities		1,130,074			1,063,030

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash from the sale of assets		85,604			-
Issuance of notes receivable		545,241			-
Proceeds from note receivable		-			7,925
Payments for property and equipment		3,204			(1,242,044	)
Payments for construction in progress		(363,959	)		-
(Increase) decrease in restricted cash		(789,430	)		58,052

Net cash used in investing activities		(519,340	)		(1,176,067	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term loans		(5,458,476	)		(8,555,000	)
Proceeds from short-term loans		4,941,956			6,774,112
Proceeds from long-term loans		-			1,061,950

Net cash used in financing activities		(516,520	)		(718,938	)

Effect of exchange rate changes on cash and equivalents		27,994			22,196

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS		122,208			(809,779	)

CASH AND EQUIVALENTS, BEGINNING BALANCE		4,233,183			2,831,808

CASH AND EQUIVALENTS, ENDING BALANCE	$	4,355,391		$	2,022,029
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	$	374,156		$	-
Income taxes paid	$	-		$	-

The accompanying notes are an integral part of these consolidated financial statements.

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SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 AND 2012 (Unaudited)

Note 1 - Organization and Basis of Presentation

The unaudited consolidated financial statements were prepared by Shiner International, Inc., a Nevada corporation (the “Company” or “Shiner”), pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) were omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2013. The results for the three months ended March 31, 2013, are not necessarily indicative of the results to be expected for the year ending December 31, 2013.

Organization and Line of Business

Shiner International, Inc. (the “Company” or “Shiner”) was incorporated in the State of Nevada on November 12, 2003. The Company, through its subsidiaries manufactures Biaxially Oriented Polypropylene (“BOPP”) tobacco film, coated films, color printing products, advanced film, and water based coatings selling to customers throughout the People’s Republic of China (“China” or “PRC”), Asia, Australia, Europe, the Middle East and North America. Our products are sold to companies in the following industries: food, tobacco, chemical, agribusiness, medical, pharmaceutical, personal care, electronics, automotive, construction, graphics, music and video publishing and other consumer goods.

Except as otherwise indicated by the context, all references in this report to “Shiner,” “Company,” “we,” “us” or “our” are to Shiner International, Inc. and its direct and indirect subsidiaries: (i) Hainan Shiner Industrial Co., Ltd., or “Hainan Shiner,” (ii) Hainan Shiny-Day Color Printing Packaging Co., Ltd., or “Shiny-Day,” (iii) Hainan Modern Hi-Tech Industrial Co., Ltd., or “Hainan Modern,” (iv) Zhuhai Modern Huanuo Packaging Material Co., Ltd., or “Zhuhai Modern,” (v) Shanghai Juneng Functional Film Company, Ltd., or “Shanghai Juneng,” (vi) Shimmer Sun Ltd., or “Shimmer Sun,” (vii) Hainan Jingyue New Material Co., Ltd., or “Jingyue,” (viii) Hainan Shunhao New Material Co., Ltd., or “Shunhao,” (viii) Hainan Yongxin Environmental Co., Ltd., or “Yongxin,” and (ix) Ningbo Neisuoer Latex Co., Ltd., or “Ningbo”.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Shiner and its subsidiaries as follows:

	Place	Percentage
Subsidiary	Incorporated	Owned	Parent
Shiner International, Inc.	Nevada, USA		None
Hainan Shiner	China	100%	Shiner International, Inc.
Shiny-Day	China	100%	Shiner International, Inc.
Hainan Modern	China	100%	Shiny-Day
Zhuhai Modern	China	100%	Shiny-Day
Shanghai Juneng	China	70%	Shiner International, Inc.
Shimmer Sun	China	100%	Shiner International, Inc.
Jingyue	China	100%	Shimmer Sun
Shunhao	China	100%	Jingyue
Yongxin	China	100%	Shunhao
Ningbo	China	65%	Yongxin

The accompanying consolidated financial statements were prepared in conformity with the accounting principles generally accepted in the United States (“US GAAP”). The Company’s functional currency is the Chinese Yuan Renminbi (“RMB”); however, the accompanying consolidated financial statements were translated and presented in United States Dollars (“$” or “USD”).

Noncontrolling Interest

On September 20, 2010, the Company commenced operations of a majority-owned subsidiary, Shanghai Juneng Functional Film Company, Ltd. (“Shanghai Juneng”), with Shanghai Shifu Film Material, Co., Ltd., (“Shanghai Shifu”). Under the agreement, Shiner owns 70% of Shanghai Juneng, and Shanghai Shifu owns 30%. The general manager of Shanghai Juneng reports directly to Shiner’s Chief Executive Officer. Shanghai Juneng pursues sales among China’s leading food producers in the Yangtze River Delta, one of China’s largest economic centers.

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SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 AND 2012 (Unaudited)

On May 2, 2011, Shiner acquired 100% of the stock of Shimmer Sun Ltd. (“Shimmer Sun”) for $3.2 million. The Company paid $1.3 million in cash and the remaining $1.9 million was paid by September 30, 2011. The acquisition gave Shiner a 65% controlling interest in Shimmer Sun’s subsidiary, Ningbo. The transaction was accounted for under the acquisition method of accounting, with the purchase price allocated based on the fair value (“FV”) of the individual assets acquired and liabilities assumed.

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation,” which governs the accounting for and reporting of non-controlling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. This standard also required changes to certain presentation and disclosure requirements.

The net income (loss) attributed to the NCI is separately designated in the accompanying statements of operations and other comprehensive income (loss). Losses attributable to the NCI in a subsidiary may exceed the NCI’s interests in the subsidiary’s equity. The excess attributable to the NCI is attributed to those interests. The NCI shall continue to attribute its share of losses even if that attribution results in a deficit NCI balance.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Shiner International, Inc. and its subsidiaries. All significant intercompany transactions and balances were eliminated in consolidation.

Foreign Currency Translation

The accounts of the Company’s Chinese subsidiaries are maintained in RMB and the accounts of the US parent company are maintained in USD. The accounts of the Chinese subsidiaries are translated into USD in accordance with ASC Topic 830 “Foreign Currency Matters,” with the RMB as the functional currency. According to Topic 830, all assets and liabilities are translated at the exchange rate on the balance sheet date, stockholders’ equity is translated at historical rates and statement of operations items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statement of operations and other comprehensive income (loss).

Note 2 - Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Equivalents

Cash and equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.

Restricted Cash

Restricted cash consists of monies restricted by the Company’s lender related to its outstanding debt obligations.

Accounts Receivable

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

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SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 AND 2012 (Unaudited)

Advances to Suppliers

To ensure a steady supply of raw materials, the Company is required from time to time to make cash advances when placing its purchase orders. Management determined no reserve was necessary for advances to suppliers. The advances to suppliers are interest free and unsecured.

Inventory

Inventory is valued at the lower of the inventory’s cost (weighted average basis) or the current market price of the inventory. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower.

Notes Receivable

Notes receivable consist of bank notes received from customers as payment of their accounts receivable. The notes are guaranteed by a bank and bear no interest. The notes are generally due within three months from the date of issuance.

Property and Equipment, net

Property and equipment are stated at cost. Expenditures for maintenance and repairs are expensed as incurred; additions, renewals and improvements are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:

Operating equipment	10 years
Vehicles	8 years
Office equipment	5 years
Buildings and improvements	20 years

The following are the details regarding the Company’s property and equipment at March 31, 2013 and December 31, 2012:

		2013			2012
					(Audited)
Operating equipment	$	26,012,553		$	25,868,886
Vehicles		699,676			695,724
Office equipment		232,561			231,234
Buildings		12,252,673			12,183,492
		39,197,463			38,979,336
Less: accumulated depreciation		(9,178,064	)		(8,289,945	)
	$	30,019,399		$	30,689,391

Construction in Progress and Government Grants

Construction in progress mainly consists of amounts expended to build a manufacturing workshop in Hainan, including a product line for a BOPP tobacco line. The costs incurred and capitalized as construction in progress at March 31, 2013 and December 31, 2012 (audited) were $6.2 million and $5.8 million, respectively, which include the facility and equipment. Once the project is completed, it will be transferred from “Construction in progress” to “Property and equipment.” The total cost of the new Hainan manufacturing workshop and the BOPP tobacco line is expected to be $25.1 million. The first phase of the project was completed during 2010. In October 2009, the Company received a government grant for this project of RMB29.1 million (or $4.3 million based on the exchange rate at December 31, 2009) from the Hainan Province Finance Bureau (“HPFB”). The Company is required to provide detailed expenses of the construction project to the HPFB. At the end of the project, the government will determine if the funds were used in accordance with the grant. At March 31, 2013 and December 31, 2012 (audited), respectively, RMB25.95 million ($4.1 million based on the exchange rate at March 31, 2013) and RMB26.675 million (or $4.2 million based on the exchange rate at December 31, 2012) was recorded in “Other payables” on the accompanying consolidated financial statements (Note 6). The amount of the government grant is being amortized into other income over the useful life of the asset on the same basis used to depreciate the asset. For the three months ended March 31, 2013 and 2012, the Company amortized $115,818 and $0, respectively, into “Other income.”

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SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 AND 2012 (Unaudited)

In December 2011, the Company received a government grant of RMB14.0 million (or $2.2 million based on the exchange rate as of December 31, 2011) from the Haikou Finance Bureau (“HFB”) for the adjustment and expansion of our operations and related capital expenditures for construction and equipment purchases. The Company is required to provide detailed expenses of the construction project to HFB. At the end of the project, the government will determine if the funds were used in accordance with the grant. At March 31, 2013 and December 31, 2012 (audited), respectively, RMB12.5 million ($2.0 million based on the exchange rate at March 31, 2013) and RMB12.8 million (or $2.0 million based on the exchange rate at December 31, 2012) was recorded in “Other payables” on the accompanying consolidated financial statements (Note 6). The amount of the government grant is being amortized into “Other income” over the useful life of the asset on the same basis used to depreciate the asset. For the three months ended March 31, 2013 and 2012, the Company amortized $55,720 and $0, respectively, into “Other income.”

In January 2012, the Company received a government grant of RMB1.8 million (or $0.3 million based on the exchange rate as of March 31, 2013) from the HFB for the adjustment and expansion of our operation and related capital expenditures for construction and equipment purchase. The Company is required to provide detailed expenses of the construction project to the HFB. At the end of the project, the government will determine if the funds were used in accordance with the grant. At March 31, 2013 and December 31, 2012, the grant was recorded in “Other payables” on the accompanying consolidated financial statements (Note 6). If the government determines the funds were used for their intended purpose, the amount of the government grant is then amortized into “Other income” over the useful life of the asset on the same basis being used to depreciate the asset.

Long-Lived Assets

The Company applies ASC Topic 360, “Property, Plant, and Equipment,” which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the FV of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that FVs are reduced to recognize the cost of disposal. Based on its review, the Company believes that as of March 31, 2013 and December 31, 2012 (audited), respectively, there was no significant impairment of its long-lived assets.

Intangible Assets

Intangible assets consist of rights to use three plots of land in Haikou City granted by the Municipal Administration of China for state-owned land. For two of these plots, the Company’s rights run through January 2059 and, for the third, through October 2060. The Company also acquired a patent with the acquisition of Shimmer Sun that is being amortized over 10 years. The Company evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible and other long-lived assets is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss.

Goodwill

Goodwill is the excess of purchase price over the underlying net assets of businesses acquired. Under accounting requirements, goodwill is not amortized but is subject to annual impairment tests, and more frequently if circumstances dictate. The impairment testing is based on the FV of the reporting units, which is estimated based on a discounted cash flow valuation model and the projected future cash flows of the underlying businesses.

Fair Value of Financial Instruments

For certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, advances to suppliers, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their FVs due to their short maturities. In addition, the Company has long-term debt with financial institutions. The carrying amounts of the line of credit and other long-term liabilities approximate their FVs based on current rates of interest for instruments with similar characteristics.

ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the FV of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines FV, and establishes a three-level valuation hierarchy for disclosures of FV measurement that enhances disclosure requirements for FV measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their FVs because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

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SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 AND 2012 (Unaudited)

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology us one or more unobservable inputs which are significant to the FV measurement.

The Company analyzes all financial instruments with features of both liabilities and equity under ASC Topic 480, “Distinguishing Liabilities from Equity,” and ASC Topic 815, “Derivatives and Hedging.”

As of March 31, 2013 and December 31, 2012 (audited), respectively, the Company did not identify any assets and liabilities required to be presented on the balance sheet at FV.

Revenue Recognition

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

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

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

Sales returns and allowances was $0 for the three months ended March 31, 2013 and 2012. The Company does not provide unconditional right of return, price protection or any other concessions to its dealers or other customers.

Other Income

The Company recognizes other income in the period it has earned the revenue and collectability is reasonably assured. Other income in 2013 and 2012 consists primarily of subsidy income received from Chinese Government Agencies for developing technology and research and development. The Company must manage the funds according to government requirements. The Company recognizes the revenue over the contract period.

Advertising Costs

The Company expenses the cost of advertising as incurred. Advertising costs for 2013 and 2012 were not significant.

Research and Development

The Company expenses its research and development (“R&D”) costs as incurred. R&D costs included in general and administrative expenses for the three months ended March 31, 2013 and 2012 were $650,606 and $649,976, respectively.

Stock-Based Compensation

The Company records stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock Compensation.” ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at FV at the grant date and recognize the expense over the employee’s requisite service period. The Company recognizes in the statement of operations the grant-date FV of stock options and other equity-based compensation issued to employees and non-employees. There were 90,000 options outstanding as of March 31, 2013.

- 9 -

SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 AND 2012 (Unaudited)

Income Taxes

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

Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is more than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

Basic and Diluted Earnings (Loss) Per Share

Earnings (loss) per share is calculated in accordance with ASC Topic 260, “Earnings Per Share.” Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS is based on the assumption that all dilutive convertible shares and stock warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. There were 90,000 options and 0 warrants outstanding as of March 31, 2013 with weighted-average exercise prices of $0.95 and $0, respectively. All options and warrants were excluded from the diluted loss per share for 2013 due to the dilutive effect. The following is a reconciliation of the number of shares (denominator) used in the basic and diluted EPS computations for the three months ended March 31, 2013 and 2012:

	2013				2012
			Per Share				Per Share
	Shares		Amount		Shares		Amount
Basic earnings per share	27,541,491	$	(0.02	)	27,541,491	$	(0.02	)
Effect of dilutive stock options and warrants	-		-		-		-
Diluted earnings per share	27,541,491	$	(0.02	)	27,541,491	$	(0.02	)

Foreign Currency Transactions and Comprehensive Income

US GAAP requires recognized revenue, expenses, gains and losses be included in net income. Certain statements, however, require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. The functional currency of the Company’s Chinese subsidiaries is the RMB. Translation gains of $5,933,295 and $5,745,728 at March 31, 2013 and December 31, 2012 (audited), respectively, are classified as an item of other comprehensive income in the stockholders’ equity section of the consolidated balance sheets.

Statement of Cash Flows

In accordance with ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based on the local currencies using the average translation rates. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.

Segment Reporting

ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company determined it has five reportable segments. See Note 13.

- 10 -

SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 AND 2012 (Unaudited)

Dividends

The Company's Chinese subsidiaries have restrictions on the payment of dividends to the Company. China has currency and capital transfer regulations that may require the Company's Chinese subsidiaries to comply with complex regulations for the movement of capital. These regulations include a public notice issued in October 2005 by the State Administration of Foreign Exchange (“SAFE”) requiring PRC residents, including both legal and natural persons, to register with the competent local SAFE branch before establishing or controlling any company outside of China. Although the Company believes its Chinese subsidiaries are in compliance with these regulations, should these regulations or the interpretation of them by courts or regulatory agencies change, the Company may not be able to pay dividends outside of China.

Recent Accounting Pronouncements

In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” This ASU requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. In January 2013, this guidance was amended by ASU 2013-01, “Clarifying the Scope of Disclosure about Offsetting Assets and Liabilities,” which limits the scope of ASU No. 2011-11 to certain derivatives, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions. This guidance is effective for annual and interim reporting periods beginning on or after January 1, 2013. The adoption of this standard did not have a material impact on our consolidated results of operations, financial condition, or liquidity.

Note 3 – Advances to Suppliers

Advances to suppliers represent prepayment to vendors for the purchases of inventory

Note 4 – Inventory, net

Inventory at March 31, 2013 and December 31, 2012 consisted of the following:

		2013			2012
					(Audited)
Raw material	$	3,659,909		$	4,264,823
Work in process		1,640,138			1,647,956
Finished goods		7,974,617			4,960,861
		13,274,664			10,873,640
Less: obsolescence reserve		(767,238	)		(762,908	)
Inventory, net	$	12,507,426		$	10,110,732

Note 5 - Intangible Assets, net

Intangible assets at March 31, 2013 and December 31, 2012 consisted of the following:

		March 31,			December 31,
		2013			2012
					(Audited)
Right to use land	$	1,168,833		$	1,162,234

Less: accumulated amortization		(98,537	)		(92,246	)
Intangible assets, net	$	1,070,296		$	1,069,988

Pursuant to the regulations, the PRC government owns all land. The Company has recognized the amounts paid for the acquisition of rights to use the land as an intangible asset and amortizes such rights over the period the Company has use of the land, which range from 54 to 57 years.

- 11 -

SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 AND 2012 (Unaudited)

Note 6 – Other Payables

Other payables at March 31, 2013 and December 31, 2012 consisted of the following:

		2013		2012
				(Audited)
Special purpose fund for Shi Zi Ling workshop	$	4,136,032	$	4,227,988
Special purpose fund for structure and equipment		2,271,693		2,317,006
Taxes payable		585,281		652,751
Miscellaneous payables		978,881		1,015,401
	$	7,971,887	$	8,213,146

The $4,136,032 and $2,271,693 payables at March 31, 2013 are liabilities recorded pursuant to the funds received as part of government grants. See “Construction in Progress and Government Grants” in Note 2.

Note 7 - Debt

Short-term loans at March 31, 2013 and December 31, 2012 consisted of the following:

		2013		2012
				(Audited)
From March 16, 2012 to February 18, 2013, with interest of 8.53% at December 31, 2012, collateralized by equipment	$	-	$	1,585,000

From June 19, 2012 to June 19, 2013, with interest of 8.20% at March 31, 2013, collateralized by equipment		2,391,000		2,377,500

From June 8, 2012 to June 7, 2013, with interest of 7.26% at March 31, 2013, collateralized by equipment		4,303,800		4,279,500

Various bank acceptance bills payable on various dates through September 21, 2013		3,461,894		3,758,527

From December 21, 2012 to June 21, 2013, with interest of 6.16% at March 31, 2013, collateralized by a building and equipment		797,000		792,500

From December 28, 2012 to June 28, 2013, with interest of 7.28% at March 31, 2013, collateralized by a building and equipment		701,360		697,400

From September 10, 2012 to March 10, 2013, with interest of 6.16% at March 31, 2013, collateralized by a building and equipment		-		792,500

From November 27, 2012 to May 27, 2103, with various interest rates averaging 6.7%, collateralized by a letter of credit		4,325,078		2,121,188

		15,980,132		16,404,115

- 12 -

SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 AND 2012 (Unaudited)

Long-term loans at March 31, 2013 and December 31, 2012 consisted of the following:

		2013		2012
				(Audited)
From January 24, 2011 to January 24, 2018, with interest of 6.60% , collateralized by buildings and land use rights	$	2,550,400	$	2,536,000

From February 10, 2011 to February 10, 2018, with interest of 6.60%, collateralized by buildings and land use rights		2,869,200		2,853,000

From February 16, 2011 to February 16, 2018, with interest of 6.60%, collateralized by buildings and land use rights		2,311,300		2,298,250

From February 17, 2011 to February 17, 2018, with interest of 6.60%, collateralized by buildings and land use rights		1,259,260		1,252,150

From March 25, 2011 to March 25, 2018, with interest of 6.60%, collateralized by buildings and land use rights		430,380		427,950

From November 30, 2011 to November 30, 2018, with interest of 6.60%, collateralized by buildings and land use rights		159,400		158,500

From December 23, 2011 to December 23, 2018, with interest of 6.60%, collateralized by buildings and land use rights		510,080		507,200

From March 19, 2012 to January 18, 2018, with interest of 6.60%, collateralized by buildings and land use rights		1,067,980		1,061,950

	$	11,158,000	$	11,095,000

Aggregate future maturities of long-term loans at March 31, 2013 are as follows:

Year ending December 31,
2013	$	-
2014		-
2015		-
2016		-
2017		-
Thereafter		11,158,000
	$	11,158,000

The weighted average interest rate on long-terms loans is 6.60% .

- 13 -

SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 AND 2012 (Unaudited)

On August 2, 2010, Hainan Shiner entered into a credit facility with the Hainan Branch of the Bank of China. It is a secured revolving credit facility of RMB70 million (or $11.1 million based on the exchange rate on December 31, 2010) for seven years. Under the credit facility, Hainan Shiner may only use the loan proceeds to improve the technology of its BOPP film and to purchase certain equipment necessary for this improvement. Proceeds under the facility not used for these purposes would be subject to a misappropriation penalty interest rate that is 100% of the current interest rate on the loan.

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

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

As of March 31, 2013, the Company drew down the entire RMB70 million credit facility.

Note 8 - Stock Options and Warrants

Stock Options

The following is a summary of the Company’s stock option activity for the three months ended March 31, 2013:

			Weighted
			Average		Aggregate
	Options		Exercise Price		Intrinsic
	Outstanding		Price		Value
Outstanding at December 31, 2012	90,000	$	0.95	$	-
Granted	-
Canceled	-
Exercised	-
Outstanding at March 31, 2013	90,000	$	0.95	$	-
Exercisable at March 31, 2013	90,000	$	0.95	$	-

The number and weighted average exercise prices of all options outstanding as of March 31, 2013, are as follows:

	Options Outstanding
					Weighted
				Weighted	Average
		Number		Average	Remaining
	Range of	Outstanding		Exercise	Contractual Life
	Exercise Price	December 31, 2012		Price	(Years)

$	0.80	60,000	$	0.80	3.69
$	1.25	30,000	$	1.25	1.18
		90,000

The number and weighted average exercise prices of all options exercisable as of March 31, 2013, are as follows:

- 14 -

SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 AND 2012 (Unaudited)

	Options Exercisable
					Weighted
				Weighted	Average
		Number		Average	Remaining
	Range of	Outstanding		Exercise	Contractual Life
	Exercise Price	December 31, 2012		Price	(Years)

$	0.80	60,000	$	0.80	3.69
$	1.25	30,000	$	1.25	1.18
		90,000

Warrants

The following is a summary of the Company’s warrant activity for the three months ended March 31, 2013:

					Weighted
				Weighted	Average
				Average	Remaining
	Warrants			Exercise Price	Contractual Life
	Outstanding			Price	(Years)
Outstanding at December 31, 2012	521,664		$	1.70	0.24
Granted	-
Canceled	-
Exercised	(521,664	)	$	1.70	-
Outstanding at March 31, 2013	-		$	-	-
Exercisable at March 31, 2013	-		$	-	-

Note 9 - Employee Welfare Plans

The expense for employee common welfare was $21,076 and $40,302 for the three months ended March 31, 2013 and 2012, respectively.

Note 10 - Statutory Common Welfare Fund

As stipulated by the Company Law of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following:

	i.	Making up cumulative prior years’ losses, if any;

	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 reserve reaches 50% of the Company’s registered capital;

	iii.	Allocations of 5% to 10% of income after tax, as determined under PRC accounting rules and regulations, to the Company’s “statutory common welfare fund,” which is established for the purpose of providing employee facilities and other collective benefits to the Company’s employees; and

	iv.	Allocations to the discretionary surplus reserve, if approved in the stockholders’ general meeting.

The Company appropriated $0 and $19,434 as reserve for the statutory surplus reserve and statutory common welfare fund for the three months ended March 31, 2013 and 2012, respectively.

Note 11 - Current Vulnerability Due to Certain Concentrations

There were no customers that exceeded 10% of the Company’s sales for the three months ended March 31, 2013 or 2012. One vendor provided 13% of the Company’s raw materials for the three months ended March 31, 2013, as compared to one vendor that provided 17% of the Company’s raw material purchases for the three months ended March 31, 2012. At March 31, 2013 and December 31, 2012, the Company owed these vendors $1,438,585 and $1,143,862, respectively.

- 15 -

SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 AND 2012 (Unaudited)

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC and by the general state of the PRC’s economy. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Note 12 – Commitments and Contingencies

At March 31, 2013, the Company was contingently liable to banks for discounted notes receivable and to vendors for endorsed notes receivable of $844,288 (RMB5,296,667).

Note 13 – Segment Information

The Company has five segments: BOPP tobacco films, water-based latex, coated film, color printed packaging, and advanced film. The water-based latex is one of the raw materials used in coated film to make the packaging more environmental friendly and the barrier property better. Approximately 60% of the water-base latex products manufactured by Ningbo are sold to Hainan Shiner, Shiny-Day and Zhuhai Modern.

The following tables summarize the Company’s segment information for the three months ended March 31, 2013 and 2012:

		2013			2012
Revenues from unrelated entities
Tobacco film	$	7,388,058		$	10,038,041
Water-based latex		199,184			13,811
Coated film		3,518,889			4,117,416
Color printing		951,483			1,030,806
Advanced film		1,785,915			2,169,950
	$	13,843,529		$	17,370,024

Intersegment revenues
Tobacco film	$	1,013,187		$	5,251,085
Water-based latex		42,457			169,069
Coated film		482,575			2,153,897
Color printing		130,485			539,234
Advanced film		244,918			1,135,141
	$	1,913,622		$	9,248,426

Total revenues
Tobacco film	$	8,401,245		$	15,289,126
Water-based latex		241,641			182,880
Coated film		4,001,464			6,271,313
Color printing		1,081,968			1,570,040
Advanced film		2,030,833			3,305,091
Less Intersegment revenues		(1,913,622	)		(9,248,426	)
	$	13,843,529		$	17,370,024

Income (loss) from operations
Tobacco film	$	(669,092	)	$	500,214
Water-based latex		52,507			683
Coated film		(346,197	)		(385,004	)
Color printing		(77,865	)		(123,384	)
Advanced film		(107,626	)		(57,418	)
Holding Company		(34,806	)		(65,158	)
	$	(1,183,079	)	$	(130,067	)

- 16 -

SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 AND 2012 (Unaudited)

Interest income
Tobacco film	$	32,740		$	5,102
Water-based latex		883			7
Coated film		15,595			2,093
Color printing		4,217			524
Advanced film		7,915			1,103
Holding Company		-			-
	$	61,350		$	8,829

Interest expense
Tobacco film	$	225,689		$	156,240
Water-based latex		2,348			215
Coated film		89,521			75,270
Color printing		18,113			19,356
Advanced film		37,896			36,912
Holding Company		589			676
	$	374,156		$	288,669

Income tax expense (benefit)
Tobacco film	$	-		$	74,042
Water-based latex		-			-
Coated film		-			4,901
Color printing		-			-
Advanced film		-			-
Holding Company		-			-
	$	-		$	78,943

Net income (loss)
Tobacco film	$	(352,205	)	$	244,949
Water-based latex		51,043			475
Coated film		(115,290	)		(511,796	)
Color printing		(91,761	)		(142,216	)
Advanced film		17,103			(121,484	)
Holding Company		(35,395	)		(65,834	)
	$	(526,505	)	$	(595,906	)

Provision for depreciation
Tobacco film	$	504,455		$	361,392
Water-based latex		10,320			10,730
Coated film		200,095			174,102
Color printing		40,485			44,770
Advanced film		84,703			85,379
Holding Company		-			-
	$	840,058		$	676,373

- 17 -

SHINER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013 AND 2012 (Unaudited)

		As of		As of
		March 31,		December 31,
		2013		2012
Total assets				(Audited)
Tobacco film	$	39,152,654	$	34,457,224
Water-based latex		562,281		961,826
Coated film		15,530,092		16,599,954
Color printing		3,142,190		4,268,660
Advanced film		6,574,115		8,140,512
Holding Company		11,445,820		13,070,759
	$	76,407,152	$	77,498,935

Note 14 - Geographical Sales

The geographical distribution of Shiner’s revenue for the three months ended March 31, 2013 and 2012 is as follows:

		2013		2012
Geographical Areas
Chinese Mainland	$	10,685,026	$	14,377,941
Asia (outside Mainland China)		1,518,646		1,172,563
Australia		1,043,564		923,223
North America		311,250		257,939
Middle East		107,660		319,837
Europe		110,791		260,334
Africa		-		33,841
South America		66,592		24,346
	$	13,843,529	$	17,370,024

- 18 -

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

Overview

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

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

The table below shows the percentage of revenue by each of our business segments for the three months ended March 31, 2013, and 2012:

	2013	2012

BOPP tobacco film	53.4%	57.8%
Water-based latex	1.4%	0.1%
Coated film	25.4%	23.7%
Color printing	6.9%	5.9%
Advanced film	12.9%	12.5%
	100.0%	100.0%

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

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

Principal Factors Affecting Our Financial Performance

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

Global Economic Fragility – The ongoing turmoil in the global economy may have an impact on our business and our financial condition, and we may face challenges if economic conditions do not improve. These economic conditions impact levels of consumer spending, which have deteriorated and may remain depressed for the foreseeable future. If demand for our products fluctuates as a result of these economic conditions or otherwise, our revenue and gross margin could be harmed.
Fuel Prices – Significant fluctuations in fuel prices could have both a positive and negative effect on our business and operations. Significant fluctuations in world fuel prices could significantly increase the price of shipping or transporting our products which we may not be able to pass on to our customers.

Results of Operations

The following summary of our results of operations should be read in conjunction with our financial statements and the notes thereto for the three-month periods ended March 31, 2013 and 2012 included herein. The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of sales revenue and key components of our revenue for the periods indicated in dollars and percentages.

- 19 -

Comparison of Three Months Ended March 31, 2013 and 2012

The following table summarizes the results of our operations during the three-month periods ended March 31, 2013 and 2012 and provides information regarding the dollar and percentage increase or (decrease) in such periods:

								$		%
		2013			2012			Change		Change
Revenues	$	13,843,529		$	17,370,024		$	(3,526,495	)	(20.3	)%
Cost of goods sold		12,930,090			15,199,083			(2,268,993	)	(14.9	)%
Gross profit		913,439			2,170,941			(1,257,502	)	(57.9	)%
Selling, general and administrative expenses		2,096,518			2,301,008			(204,490	)	(8.9	)%
Interest expense, net of interest income		312,806			279,840			32,966		11.8	%
Other income (expense), net		1,007,440			(101,183	)		1,108,623		(1095.7	)%
Exchange loss		(38,060	)		(5,873	)		(32,187	)	548.1	%
Income tax expense		-			78,943			(78,943	)	(100.0	)%
Net income (loss) attributed to noncontrolling
interest		15			(41,386	)		(41,401	)	(100.0	)%
Net loss attributed to Shiner	$	(526,520	)	$	(554,520	)	$	28,000		(5.0	)%

Revenues

Revenues for the three months ended March 31, 2013 decreased $3.5 million (or 20.3%), to $13.8 million, compared to $17.4 million in the 2012 period. The decrease was primarily attributable to decreased revenues generated from the sale of BOPP tobacco, coated film, color printing and advanced film, which, was partially offset by an increase in revenues generated from the sale of water-based latex. In the 2013 first quarter, there was a $2.6 million (or a 26.4%) decrease in sales from tobacco film, a 14.5% decrease in coated film, a 7.7% decrease in color printing and a 17.7% decrease in advanced film, which was partially offset by an increase in sales from water-based latex (1,342.2%), as compared to the 2012 period. In the 2013 first quarter, revenue from advanced film decreased $0.4 million (or 17.7%) to $1.8 million, down from $2.2 million; revenue from BOPP tobacco decreased $2.6 million (or 26.4%) to $7.4 million, down from $10.0 million; and revenue from water-based latex increased $0.2 million (or 1,342.2%) to $0.2 million, from $0.01 million, as compared to the 2012 period. In the 2013 first quarter, revenue from coated film decreased $0.6 million (or 14.5%) to $3.5 million, from $4.1 million, and revenue from color printing decreased $0.08 million (or 7.7%) to $1.0 million, from $1.0 million in the 2012 period. In the 2013 first quarter, the division between our domestic and international sales remained stable as compared to 2012. In first quarter of 2013 and 2012, sales generated domestically accounted for 77.2% and 82.8%, respectively, of our total revenues, and sales generated internationally from selling our advanced film, coated film, and color printing accounted for 22.8% and 17.2%, respectively.

Cost of Goods Sold

For the three months ended March 31, 2013, cost of goods sold (“COGS”) decreased $2.3 million (or 14.9%), from $15.2 million in the 2012 period, to $12.9 million. COGS for the 2013 and 2012 first quarters was 93.4% and 87.5% of our revenues, respectively. The increase in COGS as a percentage of revenues was primarily caused by an increase in raw material costs due to petroleum price fluctuations, cost of labor, and the amortization of the added depreciation of Phase I of the Hainan manufacturing facility.

Gross Profit

Our gross profit for the three months ended March 31, 2013 was $.9 million, with a profit margin of 6.6%, a 5.9% decrease from 12.5% in the 2012 first quarter. The decrease in profit margin was primarily a consequence of an increase in our COGS as a result of increase in raw material costs, labor costs and depreciation of the new property.

Selling, General and Administrative (“SG&A”) Expenses

For the three months ended March 31, 2013, our SG&A expenses decreased by $0.2 million (or 8.9%) to $2.1 million, compared to $2.3 million in the 2012 period. SG&A expenses include rent, management and staff salaries, insurance, marketing, accounting, legal, and research and development (“R&D”) expenses. The increase in SG&A expenses was mainly due to an decrease of $0.2 million in R&D expenses .

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Interest Expense, net

For the three months ended March 31, 2013, interest expense increased by $85,487 (or 29.6%) to $374,556 compared to $288,669 in the 2012 period, primarily due to additional short-term and long-term loans, which increased by $6.9 million in the 2013 period.

Other Income, net

For the three months ended March 31, 2013, other income increased by $1.1 million (or 1,095.7%) to $1.0 million, compared to an expense of $0.1 million in the 2012 period. In the 2013 first quarter, we recognized $0.8million in subsidy income from PRC governmental agencies for developing technology and R&D projects compared to $0.3 million in the 2012 period.

Income Tax Expense

For the three months ended March 31, 2013, we recorded a tax provision of $0, compared to $78,943 in the 2012 period. Our effective tax rates for the 2013 and 2012 first quarters were 0% and 28.9%, respectively. The change in the effective tax rate is due to losses incurred by certain subsidiaries where the loss was not able to offset income generated by other subsidiaries. This resulted in us providing a provision for income taxes in the 2012 first quarter, even though we incurred an overall net loss.

Net Loss

For the three months ended March 31, 2013, we suffered a net loss of $0.5 million, representing a decrease of $0.07 million or 11.6% from a net loss of $0.6 million during the 2012 period. The decrease in our net loss in the 2013 first quarter was mainly due to a decrease in revenue and increases in COGS and SG&A expenses, the impairment of intangible assets and the loss on the sale and write-off of assets, which was partially offset by an increase in other income, as explained above.

Liquidity and Capital Resources

At March 31, 2013, we had $4.4 million in cash and equivalents on hand, compared to $4.2 million at December 31, 2012. We had working capital of $6.4 million at March 31, 2013, compared to $6.3 million at December 31, 2012. The increase in working capital is not material. Our principal demands for liquidity are: increasing capacity, purchasing raw materials, sales distribution and the possible acquisition of new subsidiaries in our industry, as well as other general corporate purposes.

Below is a tabular summary of our cash flows for the three months ended March 31, 2013, and 2012:

		2013			2012
Net cash provided by operating activities	$	1,130,074		$	1,063,030
Net cash used in investing activities		(519,340	)		(1,176,067	)
Net cash used in financing activities		(516,520	)		(718,938	)
Effect of exchange rate changes on cash and equivalents		27,994			22,196
Net (decrease) increase in cash and equivalents		122,208			(809,779	)
Cash and equivalents at beginning of the period		4,233,183			2,831,808
Cash and equivalents at end of the period	$	4,355,391		$	2,022,029

Operating Activities

Net cash flows provided by operating activities during the three months ended March 31, 2013 was $1,130,074, an increase of $67,044, compared to $1,063,030 in the 2012 period. The increase in cash provided by operating activities during the 2013 first quarter was primarily attributable to a decrease in working capital components. The changes in working capital components that primarily contributed to the increase in cash flow used in operating activities for the 2013 first quarter was a decrease in accounts receivable of $1.5 million, and inventory of $1.1 million, offset by a decrease accounts payable of $2.0 million and other payables of $0.6 million.

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Investing Activities

Net cash flows used in investing activities during the three months ended March 31, 2013 was $0.5 million, a decrease of $0.7 million, compared to $1.2 million in the 2012 period. During the 2012 period, we used $1.2 million for the acquisition of property and equipment. The property and equipment were purchased for the construction of a new BOPP film production line and a fully automated plant equipped with state-of-the-art production machinery, which commenced in 2010. In the 2013 period there was cash provided by the issuance of notes receivable of $0.5 million, offset by cash used in construction in progress of $0.4 million and an increase in restricted cash of $0.8 million.

Financing Activities

Net cash used in financing activities for the three months ended March 31, 2013 was $0.5 million, a decrease of $0.2 million compared to the 2012 period. During the 2013 period, we decreased our net cash provided by financing activities by repaying $5.5 million of short-term loans, a decrease of $3.1 million from $8.6 million in the 2012 period, and decreasing our proceeds from our long-term loans from $1.1 million during the 2012 period to $0, a decrease of $1.1 million. The foregoing decrease in net cash provided by financing activities was partially offset by our decrease in proceeds from short-term loans to $4.9 million, a decrease of $1.8 million from $6.8 million in the 2012 period.

Assets

Our total assets as of March 31, 2013 were $76.4 million, a decrease of $1.1 million, compared to $77.5 million as of December 31, 2012. The decrease was primarily due to the decrease of advances to suppliers of $2.7 million and accounts receivable of $1.4 million, offset by an increase in inventory of $2.4 million. We intend to continue our efforts to maintain accounts receivable at reasonable levels in relation to our sales.

Liabilities

Our current liabilities decreased by $0.8 million as of March 31, 2013, compared to December 31, 2012, principally due to a decrease in unearned revenue of $0.5 million, and short-term loan maturities decreasing by $0.4 million.

Loan Commitments

On August 2, 2010, Hainan Shiner, our wholly owned subsidiary, entered into a credit facility with the Hainan Branch of the Bank of China. The credit facility is comprised of a seven-year RMB 70 million, or $11.1 million, secured revolving credit facility. On each of January 24, February 10, February 16, February 17, March 25, November 30, December 23, 2011 and March 19, 2012, Hainan Shiner made withdrawals on the credit facility of $2.5 million, $2.6 million, $2.2 million, $1.2 million, $0.4 million, $0.2 million, $0.5 million and $1.1 million, respectively. Hainan Shiner may only use the loan proceeds to improve the technology of its BOPP film and to purchase certain equipment necessary for these improvements. Proceeds under the facility not used for these purposes may be subject to a misappropriation penalty interest rate of 100% of the current interest rate (6.6% at March 31, 2013) on the loan.

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

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

During the three months ended March 31, 2013, we paid $5.5 million of our short-term loans and borrowed an additional $4.9 million in short-term loans. The current outstanding short-term loans are due through June 2013. We intend to meet our liquidity requirements, including capital expenditures related to the purchase of equipment, purchase of raw materials, and the expansion of our business, through cash flow provided by operations, and our current credit facilities.

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Obligations under Material Contracts

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

Critical Accounting Policies

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

Accounts Receivable

Inventory

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

Revenue Recognition

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

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

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

Stock-Based Compensation

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

Income Taxes

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

Basic and Diluted Earnings Per Share

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

Recent Accounting Pronouncements

Seasonality of Our Sales

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

Inflation

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

Off-Balance Sheet Arrangements

As of March 31, 2013, we did not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(e), our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, Mr. Qingtao Xing and our Interim Chief Financial Officer, Xuezhu Xu, of the effectiveness of the design and operation of our disclosure controls and procedures, as of March 31, 2013. Based upon, and as of the date of this evaluation, Mr. Xing and Mr. Xu, determined that, as of March 31, 2013, and as of the date of this report, our disclosure controls and procedures were effective.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal controls over financial reporting during the first quarter of fiscal 2013 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

ITEM 1A. RISK FACTORS.

There are no material changes from the risk factors previously disclosed in Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2012.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

We have no information to disclose that was required to be in a report on Form 8-K during the period covered by this report, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6. EXHIBITS

Exhibit	Description of Exhibit

31.1	Certification of our Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended, filed herewith

31.2	Certification of our Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended, filed herewith

32.1	Certification of our Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith

32.2	Certification of our Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith

101*	Interactive data files pursuant to Rule 405 of Regulation S-T

_______________
* Filed with this Form 10-Q for Shiner International, Inc. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or for purposes of Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SHINER INTERNATIONAL, INC.

May 20, 2013	By: /s/ Qingtao Xing
	Name: Qingtao Xing
	Title: President and Chief Executive Officer
	(Principal Executive Officer)

May 20, 2013	By: /s/ Xuezhu Xu
	Name: Xuezhu Xu
	Title: Interim Chief Financial Officer
	(Principal Financial and Accounting Officer)

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