UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington,
DC 20549
 FORM
10-K
 
 x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For
the fiscal year ended December 31, 2008
 
  ̈ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For
the transition period from _____________ to _______________.
 
 Commission
File No. 001-33960
 
 Shiner
International, Inc.
 (Exact
Name of Registrant as Specified in Its Charter)
  Nevada
                  
                  98-0507398(State
      or Other Jurisdiction
                    of  Incorporation
      or Organization)
                  
                  (I.R.S.
      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, including zip code)
 
 011-86-898-68581104
 (Registrant’s
Telephone Number, Including Area Code)
 
 Securities registered under Section 12(b) of the Exchange
    Act:Common
      Stock, $0.001 par value
                The
      Nasdaq Stock Market LLC(Title
      of each class)
                (Name
      of each exchange on which
registered)
 
 Securities registered under Section 12(g) of the
      Exchange
Act:  None
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.      
YesoNoþ
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. 
     YesoNoþ
 
 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.      YesþNoo
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (Section 229.405) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. þ
 
 Indicate
by check mark whether the registrant is a large accelerated filer, accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions
of “large accelerated filer," "accelerated filer” and "smaller reporting
company" in Rule 12b-2 of the Exchange Act (check one):
  Large accelerated filer  o
                      
                      
                      Accelerated filer  oNon-accelerated filer  o
                      (Do not check if a smaller reporting company)
                      
                      Smaller reporting company   þ
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).      YesoNoþ
 
 On March
20, 2009, 24,650,000 shares of the registrant’s common stock were
outstanding.
 
 The
aggregate market value of the voting stock held by non-affiliates as of June 30,
2008 was approximately $39,698,864.
 
 Documents Incorporated by
Reference: Portions of the registrant’s proxy statement for its 2009
annual meeting of shareholders, which the registrant expects to file with the
Securities and Exchange Commission ("SEC") within 120 days after December 31,
2008 are incorporated by reference into Part III of this annual
report.
  
 
 TABLE
OF CONTENTS
  PagePART
      IItem
      1.
                                      Business
                                      1Item
      1A.
                                      Risk
      Factors
                                      13Item
      1B.
                                      Unresolved
      Staff Comments.
                                      23Item
      2.
                                      Properties
                                      23Item
      3.
                                      Legal
      Proceedings
                                      23Item
      4.
                                      Submission
      of Matters to a Vote of Security Holders
                                      24PART
      IIItem
      5.
                                      Market
      for Registrant’s Common Equity, Related Shareholder
Mattersand
      Issuer Purchases of Equity Securities
                                      25Item
      6.
                                      Selected
      Financial Data
                                      26Item
      7.
                                      Management’s
      Discussion and Analysis of Financial Condition andResults
      of Operations
                                      26Item
      7A.
                                      Quantitative
      and Qualitative Disclosures About Market Risk
                                      32Item
      8.
                                      Financial
      Statements and Supplementary Data
                                      33Item
      9.
                                      Changes
      in and Disagreements with Accountants on Accounting andFinancial
      Disclosure
                                      33Item
      9A.
                                      Controls
      and Procedures
                                      33Item
      9B.
                                      Other
      Information
                                      34PART
      IIIItem
      10.
                                      Directors
      and Executive Officers of the Registrant
                                      35Item
      11.
                                      Executive
      Compensation
                                      35Item
      12.
                                      Security
      Ownership of Certain Beneficial Owners and Managementand
      Related Shareholder Matters
                                      35Item
      13.
                                      Certain
      Relationships and Related Transactions
                                      35Item
      14.
                                      Principal
      Accountant Fees and Services
                                      35PART
      IVItem
      15.
                                      Exhibits
      and Financial Statement Schedules
                                      36SIGNATURESEXHIBITS
  
 
 The
statements contained in this Annual Report on Form 10-K that are not historical
facts are “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to our financial
condition, results of operations and business, which can be identified by the
use of forward-looking terminology, such as “estimates,” “projects,” “plans,”
“believes,” “expects,” “anticipates,” “intends,” or the negative thereof or
other variations thereon, or by discussions of strategy that involve risks and
uncertainties.  Management wishes to caution the reader of the
forward-looking statements that such statements, which are contained in this
annual report, reflect our current beliefs with respect to future events and
involve known and unknown risks, uncertainties and other factors, including, but
not limited to, economic, competitive, regulatory, technological, key employee,
and general business factors affecting our operations, markets, growth,
services, products, licenses and other factors discussed in our other filings
with the Securities and Exchange Commission ("SEC"), and that these statements
are only estimates or predictions.  No assurances can be given
regarding the achievement of future results, as actual results may differ
materially as a result of risks facing us, and actual events may differ from the
assumptions underlying the statements that have been made regarding anticipated
events.
 
 These
forward-looking statements are subject to numerous assumptions, risks and
uncertainties that may cause our actual results to be materially different from
any future results expressed or implied by us in those statements. Some of these
risks are described in “Risk Factors” in Item 1A of this annual
report.
 
 These
risk factors should be considered in connection with any subsequent written or
oral forward-looking statements that we or persons acting on our behalf may
issue. All written and oral forward looking statements made in connection with
this annual report that are attributable to us or persons acting on our behalf
are expressly qualified in their entirety by these cautionary
statements.  Given these uncertainties, we caution investors not to
unduly rely on our forward-looking statements. We do not undertake any
obligation to review or confirm analysts’ expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this document or to reflect the
occurrence of unanticipated events. Further, the information about our
intentions contained in this document is a statement of our intention as of the
date of this document and is based upon, among other things, the existing
regulatory environment, industry conditions, market conditions and prices, the
economy in general and our assumptions as of such date. We may change our
intentions, at any time and without notice, based upon any changes in such
factors, in our assumptions or otherwise.
 
 PART
I
 
 In this
Annual Report on Form 10-K, we will refer to Shiner International, Inc., a
Nevada corporation, as "Shiner," "our company," "we," "us," and
"our."
 
 Item
1.  Business.
 
 Overview
 
 We are a
Nevada corporation engaged in the packaging and anti-counterfeit plastic
filmbusiness in
the People's Republic of China ("China" or the “PRC”) through our operating
subsidiaries. Our principal executive offices are located at19th Floor, Didu
Building, Pearl River Plaza, No. 2 North Longkun Road, Haikou, Hainan Province,
PRC 570125.Our
telephone number is +86-898-68581104. Our website is http://www.shinerinc.com.
 
 Our
primary business consists of the research and development, manufacture,
marketing, sale and distribution of technology driven advanced packaging film
products.  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 PRC and each of our
subsidiaries was formed under the laws of the PRC. We currently conduct our
business through the following four operating subsidiaries in the PRC
(collectively, the “Shiner Group”):
  ·
              Hainan
      Shiner Industrial Co., Ltd. (“Shiner Industrial”) was incorporated on May
      21, 2003 and is headquartered in Haikou, Hainan
  Province;
 
 ·
              Hainan
      Shiny-day Color Printing Packaging Co., Ltd. (“Shiny-day”) was
      incorporated on March 19, 2004 and is headquartered in Haikou, Hainan
      Province;
  1
 
 ·
              Zhuhai
      Huanuo Packaging Material Co., Ltd. (“Zhuhai”) was incorporated on
      December 25, 2006 and is headquartered in Zhuhai, Guangdong Province;
      and
 
 ·
              Hainan
      Modern Hi-Tech Industrial Co., Ltd. (“Hainan Hi-Tech”) was incorporated on
      October 27, 2006 and is headquartered in  Haikou, Hainan
      Province.
 
 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 year ended December 31,
2008, color printed packaging products made up 19.0% of our revenue, BOPP
tobacco film made up 35.1% of our revenue, coated film accounted for 25.6% of
our revenue and anti-counterfeit film sales equaled approximately 20.3% of our
revenue. Currently, our overall production capacity consists of:
  ·
              Five coated film lines with total
      capacity of 15,000 tons per
year;
 
 ·
              One BOPP tobacco film production
      line with total capacity of 3,500 tons per
    year;
 
 ·
              One BOPP film production line
      with total capacity of 7,000 tons per
  year;
 
 ·
              Three
      color printing lines; and
 
 ·
              Four anti-counterfeit film lines
      with total capacity of 2,500 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.
 
 We were
incorporated as Cartan Holdings Inc. on November 12, 2003 in
Nevada.  Since July 23, 2007, our principal place of business has been
based in China.   As a result of a share exchange transaction, we
changed our name to Shiner International, Inc. on July 24,
2007.
 
 Our
Business Operations
 
 Shiner
Industrial
 
 Shiner
Industrial produces four main types of packaging film: common BOPP film for
package over-wraps,  shrink-wrap and anti-counterfeit
films.
  BOPP
refers to the manufacture of polypropylene 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, 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
polypropylene and random co-polymer polypropylene.
  2
 
 Anti-counterfeit
film is a specialty product derived from BOPP film. Because piracy is a major
concern both within China and internationally, 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 use proprietary technology to develop
specialized anti-counterfeit film products.
 
 Shiner
Industrial currently has one BOPP tobacco film production line with total
capacity of 3,500 tons per year; three anti-counterfeit film lines with an
annual capacity of 1,000 tons; and one 10-color printing line.
 
 Shiny-day
 
 Shiny-day
has primary responsibility for our color printing
operations.  Shiny-day is convenient for customers looking for
one-stop service in fulfilling their packaging and colorprinting
needs.  It is able to fulfill the printing needs of multiple
manufacturers, primarily consumer goods companies, located in the
PRC.  Shiny-day currently has two 8-color printing lines.
 
 Zhuhai
 
 Zhuhai
produces BOPP film, coated film and anti-counterfeit film.  It
currently has one BOPP film production line with an annual capacity of 7,000
tons, two coated film lines with an annual capacity of 9,000 tons and one
anti-counterfeit film line with an annual capacity of 1,500 tons.
 
 Hainan
Hi-Tech
 
 Hainan
Hi-Tech produces coated film products and owns three coated film lines with an
annual capacity of 6,000 tons.
 
 We have
received a number of accolades for our products over the
years.  Shiner Industrial was nominated as the National
Standardization Creator for both coated and anti-counterfeit films by the
Industrial Standards Administration of the PRC in June 2007. This nomination
recognizes that Shiner Industrial’s products are created on the forefront of
technology, are perfected through its strong technological strength in the
functional packaging films industry, and heighten the barriers of entry for new
market entrants.  We received the 2004-2005 Annual Technology
Advancing Certificate by People’s Government of Haikou for our BOPP laser
holographic anti-counterfeit shrinkable film. Additionally, this product was
selected to be listed in the China Reputable Products Database by the China
Enterprises Union. We have further been honored as a National New Product by the
Ministry of Science and Technology of the PRC and Ministry of Commerce of the
PRC for our BOPP laser anti-counterfeit film.
 
 We were
awarded the World Chinese Entrepreneurs Creativity Medal for our
industry-leading flexible packaging materials and two of our research and
development projects were selected as “Key Sci-tech Projects of Hainan Province”
by the Department of Science and Technology of Hainan Province. the
Ministry of Science and Technology of the PRC has certified us as a
Nationally-Focused Advanced High Technology Enterprise under the State Torch
Program, which promotes the development and application of science- and
technology-focused businesses in China.
 
 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.
  3
 
 Industrial
growth is a key driver of demand for coated and laminated film materials. In the
PRC during the past 3 to 5 years, the 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 PRC during the past 5 to 10 years have led
      consumers to demand more convenience (e.g. 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
Film, Tobacco and other BOPP Based Film
 
 The
packaging film industry in the PRC is concentrated among relatively few domestic
companiesand
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 markets. We plan to continue operating in these markets in order to
provide us with the capital necessary to broaden our anti-counterfeit film
business.
 
 Anti-counterfeit
Film
 
 Piracy
and counterfeit products have resulted in both significant economic losses to
manufacturers and health problems to consumers on a global basis. Consequently,
a market for anti-counterfeit film packaging and other related products has
developed. Accordingly, we believe it would be valuable for us to place greater
emphasis on growing our current anti-counterfeit film packaging
business.
 
 Products
 
 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, fruits/vegetables, nuts, pharmaceuticals and tobacco. In addition, we
provide printing services for a variety of consumer products.
 
 Coated
Film, Tobacco and other BOPP Based Film
 
 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 PRC 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.
  4
 
 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, PVDC or
thermoplastic polyvinyl 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 acrylic 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 because of its cost savings and its environmentally-beneficial
advantages as compared to oil-based inks.  To our knowledge, we are
the only producer of acrylic coated film in the PRC.  In terms of its
function as an 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.
 
 Anti-counterfeit
Film
 
 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.
 
 Color
Printing Services
 
 Color
printing services consist of surface printing and reverse printing services used
mainly by consumer goods manufacturers and beverage companies.
 
 Manufacturing
 
 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 PRC qualified to meet international standards.
Shiner Industrial, Shiny-day and Zhuhai use film machines and film lines to
manufacture the packaging and specialty films.
 
 Shiner
International currently has four anti-counterfeit film machines, three coated
film lines, two 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 acrylic.
 
 Sales
and Marketing
 
 Since
2003, we have concentrated on forming an experienced, knowledgeable and
customer-oriented marketing team. Currently, we have 25 employees in our
marketing group, 17 of these employees 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
      film;
 
 ·
              BOPP
      tobacco and anti-counterfeit film;
 
 ·
              Color
      printing; and
 
 ·
              International.
  5
  Coated
Film
 
 We have
established relationships with consumer goods manufacturers who comprise the
majority of the coated film customers in the PRC. 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 serve both our coated film products and color
printing customers in China in order to provide them with the convenience of
“full service” from a single vendor.
 
 BOPP
Tobacco Film
 
 We have
established a well-respected reputation in China's BOPP tobacco films industry
and are generally able to deal directly with our customer base, as opposed to
dealing through intermediaries. Since we have already received the approval of
the Chinese government, quality requirements, 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.  We also host many of the annual tobacco and other large
industry management conventions.
 
 Anti-counterfeit
Film
 
 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 PRC and
has the beneficial characteristics of other BOPP films, such as heat and
temperature resistance, shrink-wrap, flavor and aroma barrier.
 
 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
 
 Our
international marketing unit services both the coated and BOPP film
products.  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 2007
and 2008, we spent over $260,000 and $300,000, respectively, on international
marketing and promotion and we have budgeted $400,000 for such expenses in 2009,
which includes travel, industry advertising, and exhibition
fees.
  6
 
 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 overseas, our products have received international and
      U.S. Food and Drug Administration ("FDA") certification and have proven to
      equal or even exceed the quality of industry
  leaders.
 
 ·
              Price - In the PRC, we
      have a 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 14
      patents, eight patent applications pending and two trademarks issued by
      the PRC.  Our research and development team includes over 20
      engineers, several of whom 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 pay the university estimated fees of $12,850 annually under
      this 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 such orders are placed on an “as-needed” monthly
basis.
 
 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
materials for many of Shiner Industrial’s products are derived from petroleum.
Approximately 60% of the raw materials for Shiner Industrial’s BOPP tobacco film
operation are imported from multi-national chemical companies such as Sumitomo
Chemical Co., Ltd. In contrast, only about 7.1% of the raw materials for our
coated films are imported because the current base BOPP film can be supplied
through qualified domestic suppliers in the PRC.
 
 Shiny-day
purchases all of its raw materials domestically in the PRC. There are numerous
suppliers for these raw materials. 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
supplier.
  7
 
 Zhuhai's
BOPP film line produces sufficient basic BOPP film to satisfy our coated film
production needs.  In 2008, this saved 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 two to three 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 PRC, 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
PRC who are looking for one-stop service to fulfill their printing and packaging
needs by a single vendor.
 
 Coated
Film
 
 We are
the leading producer of coated film in the PRC, with approximately 30% of market
share of the PRC domestic coated film output in 2008. Our domestic competitors
exist only in the form of smaller rivals with an average capacity of several
hundred tons. Approximately 80% of our sales are made directly to customers,
with the remaining 20% being 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, those that constitute less than 2% of
our overall sales, are subject to pre-payment on all orders. Our largest
domestic customer, Dongguan XuFuJi Foods Co., Ltd. (“XuFuJi”), a manufacturer of
snacks and cakes, accounted for approximately 31% of our coated film sales in
the PRC and 8% of our total sales in 2008. 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 bi-annual contracts with XuFuJi based on their six
month forecast production needs and work closely with them throughout the year
to meet their anticipated needs.
 
 Internationally,
during 2008, approximately 10 customers accounted for approximately 50% of our
total coated film sales with an average sale amount of $300,000 per customer.
Approximately 10% of our exported coated film is 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 our
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 items such as dried
fruits, nuts, beverages and dairy products like cheese and yogurt.
 
 BOPP
Tobacco Film
 
 As
tobacco remains one of the state-controlled industries in the PRC, all of our
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
Chinese government. We currently sell our BOPP tobacco film to 28 out of 32
provincial cigarette manufacturers and have verbal contracts to sell over 5,000
tons of film per year to the state owned cigarette company of the
PRC.
  Anti-counterfeit
Film
 
 We
introduced anti-counterfeit film products in 2005 as a superior alternative to
the industry’s hologram printed films. Our largest customer in the 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 2008 to over $10.5
million, of which Vintaba accounted for approximately 36% 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.
  8
 
 Color
Printing
 
 The main
customers of our color printing business are brand-name food and commodity
companies in the PRC that have strict requirements for 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
Chunguang Foodstuff Limited (“Chunguang”), accounted for81.6% and 3.8%,
respectively, of color printing sales in 2008.We have a contract with
LiBai to continue to meet their operating needs through 2010. Chunguang
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
2007 and 2008, we spent approximately $121,618 and $150,310, respectively, on
research and development projects with the majority expended on new product
trials and experimental manufacturing techniques, including fog prevention, high
heat shrinkable and powder wrapping films. In 2009, we plan to spend
approximately $200,000 in the area of new product trials. 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 PRC 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
14 patents on both products and production equipment that have been issued by
the State Intellectual Property Office of the PRC. We have additional products
and production equipment for which eight patent applications are currently
pending and we expect to receive during the 2009.We also have two
trademarks issued by the State Intellectual Property Office of the
PRC.
 
 Employees
  We have a
centralized labor management system for our operating subsidiaries. Labor and
employment affairs of each subsidiary are managed by our central human resources
department.
 
 Currently,
we have 531 full-time employees. Of these employees, 132 employees are
employed by Shiner Industrial, 154 employees are employed by Shiny-day, 128
employees are employed by Zhuhai and 117 employees are employed by Hainan
Hi-Tech. Our employees work in the functional units as indicated in the table
below.
  Department
                                
                                Shiner
      Industrial
                                
                                Shiny-day
                                
                                Zhuhai
                                
                                Hainan Hi-TechManagement
                                
                                7
                                
                                
                                2
                                
                                
                                0
                                
                                
                                0All
      administration
                                
                                18
                                
                                
                                2
                                
                                
                                2
                                
                                
                                0Sales
                                
                                7
                                
                                
                                12
                                
                                
                                0
                                
                                
                                6Production
                                
                                100
                                
                                
                                138
                                
                                
                                126
                                
                                
                                111
  9
 
 Government
and Environmental Regulation
 
 Through
the laws and regulations of the PRC and the provincial government of Haikou
City, our products are subject to regulation by governmental agencies
responsible for food packaging and hygiene.  Additionally, the quality
and hygiene requirements of our customers, especially those located
internationally, exceed government requirements in the PRC. Our PVDC and all
coated films have already met FDA requirements, as well as those required for
food products sold in the European Economic Community ("EEC").
 
 Business
registrations, our production processes, and certain products are certified on a
regular basis and must be in compliance with the laws, rules and regulations of
various governments and industry agencies. Shiner Industrial, Shiny-day and
Zhuhai have been assessed and certified as meeting the requirements of ISO
9001:2000 for designing and manufacturing BOPP films, PVDC coated film, BOPP
laser holographic anti-counterfeit film for packaging by the SGS Group. Hainan
Hi-Tech has applied for certification and is awaiting the results of the
assessment and certification process.
  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 2009,
we incurred expenses of approximately $10,000 to comply with governmental and
environmental regulations in the PRC.
 
 Competition
 
 Coated
Film
 
 We are
the leading producer of coated films in the PRC with domestic competition only
in the form of smaller rivals with an 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 each has a strong
reputation 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 the FDA and EEC, experienced
after-sales service team and product selection in a low-cost setting will
continue to attract multinational buyers and propel sales growth.
 
 BOPP
Tobacco Film
 
 As
tobacco remains a state-owned and operated industry in the PRC, the government
buys only from approved PRC domestic vendors and competition exists only in the
form of other domestic film companies. In addition, each province is required to
maintain two to three 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 the
      PRC;
 
 ·
              Fo Shan Plastics Group Co.,
      Ltd., listed in the Shanghai Stock
  Exchange;
 
 ·
              Zhanjiang
      Packaging Enterprises Ltd., in
  Guangdong;
  10
 
 ·
              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
salesare
guaranteed to us from the government of the PRC. 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 will continue
to focus more of our efforts on expanding our anti-counterfeit and specialty
films as opposed to our international market for BOPP tobacco film.
  Anti-counterfeit
Film
  Because
our anti-counterfeit film is unique, we do not face direct competition for this
product. 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 motherboard 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 microcode which effectively prevents
the duplication of the design.
  Compared
with other chemical or oil ink printing anti-counterfeit technology, our
products are environmentally friendlier since consumers can directly tear the
films and throw them away and compared with code and call center technology,
consumers find it easier to identify the products. The consumers do not
need to call an anti-counterfeit center and also have 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 PRC.  As a result, competition
in the PRC 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.
  11
 
 Large
printers in the PRC include Huanshan Yongxing in Anhui province, whose main
customers include The Proctor & Gamble Company in Guangzhou Langqi, as well
as Haining Changhai Packaging and Printing Co., Ltd. in Zhejiang
province.
  History
 
 From
incorporation to July 24, 2007, the business of our company, then known as
Cartan Holdings Inc., consisted of ownership of 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.  The Cartan mineral claim expired on
December 15, 2007.
 
 On July
23, 2007, we entered into and completed a share exchange transaction with Sino
Palace Holdings Ltd., a British Virgin Islands corporation, pursuant to which we
acquired the Shiner Group in exchange for 16,500,000 shares of common
stock.
  Concurrently
with the closing of the transactions contemplated by the share exchange
agreement and as a condition thereof, we entered into an agreement with Zubeda
Mohamed-Lakhani, our former director and chief executive officer, pursuant to
which she returned 4,750,000 shares of our common stock for cancellation. Ms.
Mohamed-Lakhani was not compensated in any way for the cancellation of her
shares. Upon completion of the foregoing transactions, we had an aggregate of
21,150,000 shares of common stock issued and outstanding.  The shares
of common stock issued to the shareholders of Sino Palace were issued in
reliance upon the exemption from registration provided by Regulation S under the
Securities Act of 1933, as amended.
  12
  Item
1A.  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 and
some risks and uncertainties are inherent in our business. 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 following sets forth factors related to our business, operations,
financial position or future financial performance or cash flows which could
cause an investment in our securities to decline and result in a loss. In
assessing these risks, you should also refer to the other information contained
in this Annual Report on Form 10-K, 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 have met 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-counterfeit technology may not satisfy the changing needs of our
customers.
 
 With any
anti-counterfeit 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 depends 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.
  13
  We
may not be able to keep pace with rapid technological changes in the
anti-counterfeit product industry.
 
 The
anti-counterfeit product authentication industry is a relatively new industry
and market, especially in the PRC and other parts of Asia, and thus continues to
evolve in terms of customer/market needs, applications, and technology. We
believe that we have hired or engaged personnel and outside consultants who have
experience and are recognized within the industry to be experts in the
anti-counterfeit product authentication industry. With respect to technology,
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-counterfeit 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 could
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 the PRC to best penetrate the PRC 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, production and marketing capabilities, 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 that
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 the PRC'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 the PRC'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.
  14
  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.
 
 Fluctuating
energy prices impact our operating results.
 
 In 2008,
energy prices fluctuated dramatically, which has resulted in unstable raw
material costs for our branded products. Petroleum is the prime ingredient in
many plastics that we use to make our products,  including acrylic, PET and
BOPP. International market prices for crude oil have been subject to huge swings
in the last year, and our customers were therefore more cautious in ordering. 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.
 
 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 with
respect to 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 PRC 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 PRC and abroad. We rely on patents, trademarks and licenses
to protect our intellectual property. We also have patent applications pending
in the PRC, and have worked and continue to work closely with PRC 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 the PRC for the protection of intellectual
property rights is still at its early stage of development. Intellectual
property protection became a national effort in the PRC in 1979 when the PRC
adopted its first statute on the protection of trademarks. Since then, the PRC
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. The PRC 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 the PRC became a party to the World Trade Organization
in 2001, the PRC 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 the PRC over the
years to tighten up its regulation and protection of intellectual property
rights, private parties may not enjoy intellectual property rights in the PRC to
the same extent as they would in many Western countries, including the United
States, and enforcement of such laws and regulations in the PRC have not
achieved the levels reached in those countries. Both the administrative agencies
and the court system in the PRC are not well-equipped to deal with
violations or handle the nuances and complexities between compliant
technological innovation and non-compliant infringement.
  15
 
 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-counterfeit film producers in the PRC may increase the
supply of, and decrease the prices of, BOPP and anti-counterfeit 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-counterfeit film in the PRC with research and development capabilities. 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-counterfeit film or otherwise. Accordingly, we may experience increased
competition, and the entry of new BOPP and anti-counterfeit producers will also
lead to an increase in the industry supply of BOPP and anti-counterfeit film
resulting in more competitive pricing. We believe that our major competitors in
the BOPP film manufacturing market in the PRC 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
successfully compete 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, the PRC 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 may 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 could 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 36% of our anti-counterfeit film
sales in 2008 were to one customer. In 2008, approximately 31% of our coated
film sales in the PRC were to one customer and approximately 20% of our overall
coated film sales were to ten international customers. In 2008, approximately
16.3% of our BOPP tobacco film sales were to one customer and approximately
81.6% 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 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 plants would disrupt production of our products and adversely
affect our sales.
 
 Our films
are manufactured solely at our production facilities located in Haikou City and
Zhuhai City in the PRC. While we have not experienced any calamities in the past
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. 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.
  16
 
 While we
maintain insurance policies covering losses with respect to 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
the PRC, 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.
 
 Compliance with
the Sarbanes-Oxley Act of 2002 and related corporate governance and public
disclosure requirements have resulted in significant additional
expense.
 
 Changing
laws, regulations, and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002 and the associated SEC
regulations and Nasdaq rules, have resulted in significant additional expense as
well as a diversion of management time and attention from revenue-generating
activities to compliance activities. If our efforts to comply with new or
changed laws, regulations, and standards differ from the activities intended by
regulatory or governing bodies, we might be subject to lawsuits or sanctions or
investigation by regulatory authorities, such as the SEC or Nasdaq, and our
reputation may be harmed.
 
 While
we believe our internal control over financial reporting is now effective, we
can provide no assurance that our internal control over our financial reporting
will continue to  be effective.
 
 We
evaluated our internal control systems in order to allow management to report on
our internal control over financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act of 2002. While we believe that our internal control
procedures are adequate, we may not be able to continue complying with the
requirements relating to internal control over financial reporting or other
aspects of Section 404 in a timely fashion. If we are not able to comply with
the requirements of Section 404 in a timely manner in the future, we may be
subject to lawsuits or sanctions or investigation by regulatory authorities. Any
such action could adversely affect our financial results and the market price of
our common stock.
 
 The year
ending December 31, 2009, is expected to be the first year for which we will be
required to include in our annual report an attestation report by our
independent registered public accounting firm on our internal control over
financial reporting. Our independent registered public accounting firm may
determine that our internal control over financial reporting includes one or
more unidentified material weaknesses, which would result in us receiving an
adverse attestation report. This could also result in significant additional
expenditures to respond to the Section 404 internal control review, heightened
regulatory scrutiny and potentially an adverse effect to the price of our common
stock.
  We
are subject to many environmental and safety regulations that may result in
unanticipated costs or liabilities, that 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,
that could reduce our profitability.
  17
 
 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 PRC
 
 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 PRC. Doing business
outside the United States, particularly in the PRC, 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. Therefore, we may be unable to
alter our business practice in time to avoid the possibility of reduced
revenues.
 
 The
PRC’s economic policies could affect our business.
 
 Generally,
all of our assets are located in the PRC and a substantial amount of our revenue
is derived from our operations in the PRC. Accordingly, our results of
operations and prospects are subject, to a significant extent, to the economic,
political and legal developments in the PRC.
 
 While the
PRC’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 PRC's 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 PRC, 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 PRC has been changing from a planned economy to
a more market-oriented economy. In recent years, the PRC government has
implemented measures emphasizing the utilization of market forces for economic
reform, 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 PRC are still owned by our
government. In addition, the PRC government continues to play a significant role
in regulating industry development by imposing industrial policies. It also
exercises significant control over the PRC’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 PRC.
 
 The PRC
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 PRC. 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.
  18
  Our
bank accounts are not insured or protected against loss.
 
 We
maintain our cash with various banks and trust companies located in the PRC. 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 PRC, any loss which we suffer
may not be insured or may be insured to only a limited extent.
 
 The
insurance industry in the PRC is still in an early state of development and
insurance companies located in the PRC 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 PRC are subject to substantial revision, some of
which may adversely affect our profitability.
 
 The PRC
tax system is in a state of flux, and it is anticipated that the PRC'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 PRC are scheduled to expire over
the next several years.
 
 Since 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. Zhuhai has a 100% exemption
from federal taxes in the PRC from January 1, 2008 through December 31, 2009,
and will have a 50% exemption from federal tax during January 1, 2010 through
December 31, 2012. 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.  Shiner Industrial had a 50% exemption from federal tax
from January 1, 2006 to December 31, 2008.
 
 We
may face judicial corruption in the PRC.
 
 Another
obstacle to foreign investment in the PRC 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 PRC’s poorly developed and sometimes corrupt judicial systems.
 
 If
relations between the United States and the PRC 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 PRC 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 PRC, whether or not directly
related to our business, could reduce the price of our common
stock.
 
 The
government of the PRC could change its 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 PRC. Over the
past several years, the government of the PRC has pursued economic reform
policies including the encouragement of private economic activity and greater
economic decentralization. The government of the PRC 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.
  19
 
 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 all 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 PRC create an uncertain environment
for business operations and they could have a negative effect on
us.
 
 The legal
system in the PRC is a civil law system. Unlike the common law system, the civil
law system is based on written statutes and decided legal cases have little
value as precedents. In 1979, the PRC 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 PRC 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. Since 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 PRC, 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 PRC’s
Renminbi. The value of the Renminbi fluctuates and is subject to changes in the
PRC’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 activities, 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 the PRC into the country or when paying vendors for services
performed outside of the PRC.
 
 We
may not be able to obtain regulatory approvals for our products.
 
 The
manufacture and sale of our products in the PRC are regulated by the PRC and the
local provincial governments. Although our licenses and regulatory filings are
current, the uncertain legal environment in the PRC 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 PRC.
 
 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 PRC, 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 PRC 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 PRC.
 
 Foreign
companies conducting operations in the PRC face significant political, economic
and legal risks. The Communist regime in the PRC, including a cumbersome
bureaucracy, may hinder Western investment.
  20
  Risks
Related to our Securities
 
 Our
common stock price is subject to significant volatility, which could result in
substantial losses for investors.
 
 During
the six month period from August 15, 2007 through February 11, 2008, the high
and low bid prices of our common stock on the Over-The-Counter Bulletin Board
(“OTCBB”) were $8.74 per share and $2.00 per share, respectively.  Prior to
that date, our common stock was traded sporadically on the "pink
sheets."  Since our commencement of trading on the Nasdaq Stock Market
on February 12, 2008 through March 20, 2009, the high and low sales prices of
our common stock were $7.51 and $0.698. Prices for our shares are
determined in the marketplace and may accordingly be influenced by many factors,
including, but not limited to:
 
 ·
              the
      depth and liquidity of the market for the
  shares;
 
 ·
              quarter-to-quarter
      variations in our operating
results;
 
 ·
              announcements
      about our performance as well as the announcements of our competitors
      about the performance of their
businesses;
 
 ·
              investors’
      evaluations of our future prospects and the food industry
      generally;
 
 ·
              changes
      in earnings estimates by, or failure to meet the expectations of,
      securities analysts;
 
 ·
              our
      dividend policy; and
 
 ·
              general
      economic and market conditions.
 
 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.
 
 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 become 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:
 
 ·
              may
      significantly reduce the equity interest of investors in this offering;
      and
 
 ·
              may
      adversely affect prevailing market prices for our common
      stock.
 
 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.
  21
 
 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 SEC 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 transactions 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
SEC, which contains the following:
 
 ·
              a
      description of the nature and level of risk in the market for penny stocks
      in both public offerings and secondary
trading;
 
 ·
              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;
 
 ·
              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;
 
 ·
              a
      toll-free telephone number for inquiries on disciplinary
      actions;
 
 ·
              definitions
      of significant terms in the disclosure document or in the conduct of
      trading in penny stocks; and
 
 ·
              such
      other information and is in such form (including language, type, size and
      format), as the SEC shall require by rule or
  regulation.
 
 Prior to
effecting any transaction in penny stock, the broker-dealer also must provide
the customer with the following:
 
 ·
              the
      bid and offer quotations for the penny
stock;
 
 ·
              the
      compensation of the broker-dealer and our salesperson in the
      transaction;
 
 ·
              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
 
 ·
              monthly
      account statements showing the market value of each penny stock held in
      the customer’s account.
 
 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.  The broker-dealer must 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 PRC may hamper our ability to declare and pay dividends
to our shareholders.
  22
 
 The PRC
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, we may not be able to pay dividends to our shareholders outside of
the PRC if these regulations or the interpretations of them by courts or
regulatory agencies change. In addition, under current PRC 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.
 
 Item
1B.  Unresolved Staff Comments.
 
 None.
 
 Item
2.  Properties.
 
 Our
properties are located primarily in Haikou City in Hainan Province and
Zhuhai City in 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 PRC 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 anti-counterfeit film production lines, one BOPP
tobacco film line, one 10-color printing line and all production equipment and
research facilities at the site.
 
 Shiny-day
 
 We do not
own any land, but rather lease a factory from Hainan Rixin Co., Ltd. for current
operations. These leases extend through December 31, 2009 for which we pay
annual rent of approximately $14,000. We also own two 8-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 for this space is approximately $387,000. We own one
BOPP basic film production line, two coated film production lines and one
anti-counterfeit film production line in Zhuhai.
 
 Hainan
Hi-Tech
 
 Hainan
Hi-Tech currently uses space in Shiner International's factory in Haikou for its
operations.  Shiner International does not charge Hainan Hi-Tech for
the use of this space. Hainan Hi-Tech will move to Shiziling Feidi Industrial
Park in July 2009. Hainan Hi-Tech owns three coated film production lines that
it acquired in 2008 from Shiner Industrial.
  Item
3.  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 effect on our business, financial condition or
operating results.
  23


Item
4.  Submission of Matters to a Vote of Security Holders.





There
were no matters submitted to the vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year ended December 31, 2008.


24


PART
II





Item 5.
            Market
      for Common Equity, Related Stockholder Matters and Issuer Repurchases of
      Equity Securities.




Market
Information





Through
February 11, 2008, our common stock was quoted on the OTCBB under the symbol
“SHNL.OB.”  Our common stock is currently traded on the Nasdaq Global
Market under the symbol BEST.  The following table sets forth, for the
periods indicated, the quarterly high and low selling prices for our common
stock as reported by Nasdaq.





For
      the Year Ended December 31,2008
                  
                  
                  2007High
                  
                  
                  Low
                  
                  
                  High
                  
                  
                  LowFirst
      Quarter
                  
                  $
                  8.74
                  
                  
                  $
                  3.00
                  
                  
                  
                  n/a
                  
                  
                  
                  n/aSecond
      Quarter
                  
                  
                  4.06
                  
                  
                  
                  3.00
                  
                  
                  
                  n/a
                  
                  
                  
                  n/aThird
      Quarter
                  
                  
                  3.30
                  
                  
                  
                  1.53
                  
                  
                  $
                  5.75
                  
                  
                  $
                  2.00Fourth
      Quarter
                  
                  
                  2.10
                  
                  
                  
                  0.88
                  
                  
                  
                  9.90
                  
                  
                  
                  5.00





On March
20, 2009, the closing price of our common stock as reported on Nasdaq was
$0.698.





Holders





As of
March 20, 2009, there were 24,650,000 shares of our common stock
outstanding held by approximately 79 shareholders of record.  The
number of our shareholders of record excludes any estimate by us of the number
of beneficial owners of shares held in street name, the accuracy of which cannot
be guaranteed.





Dividend
Policy





We have
not paid any cash dividends on our common stock to date, and we have no
intention of paying cash dividends in the foreseeable future. Whether we will
declare and pay dividends in the future will be determined by our board of
directors at their discretion, subject to certain limitations imposed under
Nevada corporate law. In addition, our ability to pay dividends may be affected
by the foreign exchange controls in the PRC. The timing, amount and form of
dividends, if any, will depend on, among other things, our results of
operations, financial condition, cash requirements and other factors deemed
relevant by our board of directors.


25


Securities
Authorized for Issuance under Equity Compensation Plans





The
following table provides information as of December 31, 2008 about our
common stock that may be issued upon the exercise of options and rights granted
to employees or members of our Board of Directors:




Plan Category
                        
                        (a)
                          Number of
                          Securities to
                          be Issued
                          Upon
                          Exercise of
                          Outstanding
                          Options
                        
                        
                        (b)
                          Weighted-
                          Average
                          Exercise
                          Price of
                          Outstanding
                          Options
                        
                        
                        (c)
                          Number of
                          Securities
                          Remaining
                          Available for
                          Future Issuance
                          Under Equity
                          Compensation
                          Plans (excluding
                          securities
                          reflected in
                          column (a))Equity
      compensation plans approved by security holders
                        
                        
                        0
                        
                        
                        $
                        -
                        
                        
                        
                        0Equity
      compensation plans not approved by security holders
                        
                        
                        90,000
                        
                        
                        $
                        7.00
                        
                        
                        
                        0Total
                        
                        
                        90,000
                        
                        
                        $
                        7.00
                        
                        
                        
                        0





(1)
            Includes
      options to purchase 90,000 shares of our common stock, at an exercise
      price of $7.00 per share, granted to our independent directors in
      2008 outside any plan.





Repurchases
of Equity Securities





None.





Recent
Sales of Unregistered Securities; Use of Proceeds from Registered
Securities





None





Item
6.  Selected Financial Data.





Not
required.




Item
7.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations.




Overview





We
develop, manufacture and distribute packaging film and color printed packaging
through our operating subsidiaries. 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 PRC and each
of our subsidiaries was formed under the laws of the PRC.





We
currently conduct our business through the following four operating subsidiaries
in the PRC:





·
            Shiner
      Industrial located in Haikou, Hainan
Province;





·
            Shiny-day
      also located in Haikou, Hainan
Province;





·
            Zhuhai
      located in Zhuhai, Guangdong Province;
and





·
            Hainan
      Hi-Tech located in Haikou, Hainan
Province.


26


We
operate in several markets within the packaging film segment: BOPP based film,
coated film, anti-counterfeit film and color printed packaging. For the year
ended December 31, 2008, color printed packaging products made up 19.0% of our
revenue, BOPP tobacco film made up 35.1% of our revenue, coated film accounted
for 25.6% of our revenue and anti-counterfeit film sales equaled 20.3% of our
revenue.





Our
current production capacity consists of:





·
            Five
      coated film lines with total capacity of 15,000 tons a
    year;





·
            One
      BOPP tobacco film production line with total capacity of 3,500 tons a
      year;





·
            One
      BOPP film production line with total capacity of 7,000 tons a
      year;





·
            Three
      color printing lines; and





·
            Four
      anti-counterfeit film lines with total capacity of 2,500 tons a
      year.





We are
targeting growth through four main channels: (i) the continuation of our efforts
to gain international market share in coated film through better pricing and
excellent after-sale service; (ii) the expansion of our sales in
anti-counterfeit film, especially to high-end brand spirits and cigarette
manufacturers; (iii) the development of “next generation” films, and (iv) the
possible acquisition of an anti-counterfeit technology company.





Results of
Operations





Year EndedDecember 31, 2008Compared to the Year Ended December
31, 2007





Year Ended
                        December 31, 2008
                      
                      
                      Year
                        Ended
                        December
                        31, 2007
                      
                      
                      $ Change
                      
                      
                      % ChangeRevenues
                      
                      $
                      51,594,842
                      
                      
                      $
                      42,762,615
                      
                      
                      $
                      8,832,227
                      
                      
                      
                      20.7
                      %Cost
      of Goods Sold
                      
                      
                      42,026,145
                      
                      
                      
                      34,225,643
                      
                      
                      
                      7,800,502
                      
                      
                      
                      22.8
                      %Gross
      Profits
                      
                      
                      9,568,697
                      
                      
                      
                      8,536,972
                      
                      
                      
                      1,031,725
                      
                      
                      
                      12.1
                      %Selling,
      General and Administrative Expenses
                      
                      
                      4,424,688
                      
                      
                      
                      3,375,492
                      
                      
                      
                      1,049,196
                      
                      
                      
                      31.1
                      %Interest
      Expense (net)
                      
                      
                      (86,982
                      )
                      
                      
                      (31,251
                      )
                      
                      
                      55,731
                      
                      
                      
                      178.3
                      %Other
      Income (Expense), net
                      
                      
                      (43,336
                      )
                      
                      
                      72,713
                      
                      
                      
                      (116,049
                      )
                      
                      
                      (159.6
                      ) %Subsidy
      Income
                      
                      
                      469,234
                      
                      
                      
                      
                      
                      
                      
                      469,234
                      
                      
                      
                      -Income
      Tax Expense
                      
                      
                      546,723
                      
                      
                      
                      409,294
                      
                      
                      
                      137,429
                      
                      
                      
                      33.6
                      %Net
      Income
                      
                      
                      4,879,306
                      
                      
                      
                      4,540,129
                      
                      
                      
                      339,177
                      
                      
                      
                      7.5
                      %





Revenues





Our
revenues for the year ended December 31, 2008 increased by 20.7% or $8,832,227
compared to the same period last year.  Higher revenues resulted from
a 55% increase in tobacco BOPP sales and 195% increase in the sales of
anti-counterfeit film. The increase in revenues was due to higher sales volumes
and increases in the average unit prices. For BOPP products, $4,993,917 was due
to an increase in sales volume and $1,435,994 was due to an increase in unit
sale prices.  Anti-counterfeit film sales grew by $7,517,812 due to
higher sales volumes.





International
sales for the year ended December 31, 2008 totaled $10,972,931 accounting
for approximately 21.3%of total revenues in comparison to $9,161,159or 21.4% for
the year ended December 31 of 2007. A 19.8% or $1,811,772 increase in
international sales was primarily due to a 530.3% increase in the
anti-counterfeit film sales.


27


Cost
of Goods Sold





Our cost
of goods sold during the year ended December 31, 2008 were 81.5% of revenues as
compared to 80.0% of revenues during the year ended December 31, 2007 as a
result of slightly higher costs of raw materials.





Gross
Profit





Our gross
profit during the year ended December 31, 2008 was $9,568,697, representing a
gross margin of 18.5%, a decrease of 1.9% from a gross margin of 20.0% that we
experienced during the year ended December 31, 2007. The decrease in gross
margin is due to higher raw material costs.





Selling,
General and Administrative Expenses





Our
selling, general and administrative expenses increased by 31.1% or $1,049,196 to
$4,424,688 for the year ended December 31, 2008 compared to $3,375,492 for the
year ended December 31, 2007.  Selling expenses for the year ended
December 31, 2008 increased by 38.1% to $1,839,846 in comparison to the same
period in 2007 due to increased transportation costs.  General and
administrative expenses for the year ended December 31, 2008 increased by 26.5%
to $2,584,842 in comparison to the same period in 2007. The increase in general
and administrative expense is due in part to an increase in regulatory filings
and professional fees.





Interest
Expense





Our
interest expense in the year ended December 31, 2008 increased 178.3% from the
same period in 2007. This increase is mainly attributable to an increase in the
average note payable balance.





Other
Income (Expense)





The
decrease in other income (expense) was due in large part to a decrease in waste
materials that can be sold.





Subsidy
Income





In 2008,
we received a $469,234 subsidy from the Chinese government.  We did
not receive any subsidies in 2007.





Income
Tax Expense





Our
effective tax rate for the year ended December 31, 2008 was 10.1% as opposed to
8.3% for the year ended December 31, 2007. Since we operate in a privileged
economic zone, we will continue to enjoy certain tax privileges as a result of a
reduced rate.





Net
Income





The
increase in our net income for the year ended December 31, 2008 as compared to
the same period for 2007 was the result of higher sales and higher subsidy
income offset by a slightly lower gross margin percentage and higher operating
expenses.


28


Year
Ended December 31, 2007 Compared to Year Ended December 31, 2006





2007
                  
                  
                  2006
                  
                  
                  $
      Change
                  
                  
                  %
      ChangeRevenues
                  
                  $
                  42,762,615
                  
                  
                  $
                  33,951,965
                  
                  
                  $
                  8,810,650
                  
                  
                  
                  26.0Cost
      of goods sold
                  
                  
                  34,225,643
                  
                  
                  
                  27,328,787
                  
                  
                  
                  6,896,856
                  
                  
                  
                  25.2Gross
      profit
                  
                  
                  8,536,972
                  
                  
                  
                  6,623,178
                  
                  
                  
                  1,913,794
                  
                  
                  
                  28.9Selling,
      general and administrative expenses
                  
                  
                  3,375,492
                  
                  
                  
                  2,773,496
                  
                  
                  
                  601,996
                  
                  
                  
                  21.7Interest
      expense, net
                  
                  
                  64,984
                  
                  
                  
                  1,443
                  
                  
                  
                  63,541
                  
                  
                  
                  4,403.4Other
      income (expense)
                  
                  
                  72,713
                  
                  
                  
                  278,545
                  
                  
                  
                  (205,832
                  )
                  
                  
                  (73.9
                  )Income
      tax expense
                  
                  
                  409,294
                  
                  
                  
                  214,504
                  
                  
                  
                  194,790
                  
                  
                  
                  90.8Net
      income
                  
                  $
                  4,540,129
                  
                  
                  $
                  3,561,335
                  
                  
                  $
                  978,794
                  
                  
                  
                  27.5





Revenues





The
increase in revenues during the year ended December 31, 2007 compared to the
same period last year was due to a 37.4% increase in the sales of coated film, a
48.8% increase in tobacco BOPP sales and a 86.4% increase in the sales of
anti-counterfeit film. 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 approximately $825,000 from an increase in average unit price across the
entire market compared to the same period last year, and $3,040,000 from an
increase in sales volume. Coated film sales grew by $1,275,000 due to higher
unit prices and $2,314,000 due to higher sales
volumes.  Anti-counterfeit film unit prices were equal to last year
but sales still grew by $1,627,000 due to higher sales volumes.





International
sales for the year ended December 31, 2007 totaled $9,161,159 accounting for
approximately 21.4% of total revenues in comparison to $6,024,022 or 17.7% for
the year ended December 31, 2006.  The increase in international sales
of 52.1% or $3,137,137 was primarily due to a 103.0% increase in coated films
sales and a 24.5% increase in BOPP sales.





Cost
of Goods Sold





Cost of
goods sold during the years ended December 31, 2007 and 2006 were 80.0% and
80.5%, respectively.





Gross
Profit





Our gross
profit and gross margin during the year ended December 31, 2007 was $8,536,972
and 20.0%, respectively, compared to the gross profit and gross margin during
the year ended December 31, 2006 of $6,623,178 and 19.5%,
respectively.





Selling,
General and Administrative Expenses





Our
selling, general and administrative expenses increased by 21.7% or $601,996 to
$3,375,492 for the year ended December 31, 2007 compared to $2,773,496 for the
year ended December 31, 2006. General and administrative expenses include rent,
management and staff salaries, general insurance, marketing, accounting and
legal expenses. Selling expenses for the year ended December 31, 2007 decreased
by 15.6% to $1,331,904 in comparison to the same period in 2006 due to continued
implementation of better cost controls and management.




General
and administrative expenses for the year ended December 31, 2007 increased by
$848,677 or 71.0% to $2,043,588 in comparison to the same period in 2006. The
increase in general and administrative expense is due to the legal and audit
expenses associated with being a publicly traded United States reporting company
that we did not incur during the same period last year, offset by continued
implementation of better cost controls and management.


29


Interest
Expense





The
decrease in interest expense during the year ended December 31, 2007 was due to
the pay down of approximately $3.6 million of related party debt during
2007.





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, 2007 was equivalent to 8.3%
as opposed to 5.7% for the year ended December 31, 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
increase in our net income for the year ended December 31, 2007 as compared to
the same period for 2006 resulted from higher sales for the period, offset by an
increase in operating expenses of $601,996.





Off-Balance
Sheet Arrangements





There
were no off-balance sheet arrangements during the year ended December 31, 2008
that have, or are reasonably likely to have, a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to our interests.





Liquidity
and Capital Resources





Cash
Flows





At
December 31, 2008, we had $4,500,666 in cash and cash equivalents on hand. Our
principal demands for liquidity are increasing capacity, purchasing raw
materials, sales distribution and the possible acquisition of new subsidiaries
in our industry as opportunities present themselves, as well as general
corporate purposes.





As of
December 31, 2008, we had seven short-term loans outstanding for a total of
$3,884,197, with interest rates between 7.5% and 8.2%. The loans are due between
March 3, 2009 and May 30, 2009 and are collateralized by a one year time deposit
or by buildings land use rights and machinery. As of December 31, 2008, we had
working capital of $16,086,561, an increase of $1,407,614 from our working
capital at December 31, 2007. We anticipate that we will have adequate working
capital to fund our operations and growth in the foreseeable
future.





On
October 22, 2007, we completed a private placement offering 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 common stock at an exercise price of $6.00 per share.
Accordingly, we issued an aggregate of 3,500,000 shares of 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
finders that assisted 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:


30





Selected
      Finder
                    
                    Cash
                    
                    
                    WarrantsMaxim
      Group LLC
                    
                    $
                    178,400
                    
                    
                    
                    111,500Four
      Tong Investments Ltd.
                    
                    
                    153,600
                    
                    
                    
                    96,000Global
      Hunter Securities, LLC
                    
                    
                    300,880
                    
                    
                    
                    188,050Basic
      Investors, Inc.
                    
                    
                    79,200
                    
                    
                    
                    49,500$
                    712,080
                    
                    
                    
                    445,050





The
warrants granted to these finders have the same terms and conditions as the
warrants granted in the offering.





Net cash
flows provided by operating activities for the year ended December 31, 2008 was
$2,473,319 compared to $2,938,196 for the year ended December 31, 2007. This
change in cash flows from operating activities was mainly due to a change in
current assets and liabilities..




We used
$6,383,767 in investing activities during the year ended December 31, 2008 for
the acquisition of property and equipment and payments on notes
receivable.





Cash
provided from financing activities in the year ended December 31, 2008 was
$2,846,484, and included the proceeds from a short term loan of $3,774,309,
offset by the payment of both a short-term payable of $822,528 and dividends of
$6,297.





Assets





As of
December 31, 2008, our accounts receivable decreased by $1,393,841 compared with
the balance as of December 31, 2007. The decrease in accounts receivable on year
ended December 31, 2008 was due primarily to increased sales offset by better
collections.  We intend to continue our efforts to maintain accounts
receivable at reasonable levels in relation to our sales. Notes receivables
increased by $3,748 in the same period. Advances to suppliers increased by
$1,163,209 and inventory increased by $668,123 during year ended December 31,
2008.





Liabilities





Our
accounts payable decreased by $746,839 during the year ended December 31, 2008
and other payables decreased by $1,250,726 for the same period. Unearned
revenues (payments received before all the relevant criteria for revenue
recognition are satisfied) decreased by $358,540 and tax and welfare payable
decreased by $924,137 over the same period.





Short-term
loans increased by $3,061,669 due to the receipt of proceeds from a new loans
entered into during the year ended December 31, 2008.





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 funds raised through
private placement offerings of our securities.





The
majority of our revenues and expenses were denominated primarily in RMB, the
currency of the PRC. There is no assurance that exchange rates between the RMB
and the USD will remain stable. We do not engage in currency hedging. Inflation
has not had a material impact on our business.





Recent
Accounting Pronouncements





In
February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities." SFAS 159 permits entities to choose to
measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. We are currently assessing the impact of SFAS
159 on our financial position and results of operations.


31


In June
2007, FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
Nonrefundable Advance Payments for Goods or Services Received for Use in Future
Research and Development Activities” which addresses whether nonrefundable
advance payments for goods or services used or rendered for research and
development activities should be expensed when the advance payment is made or
when the research and development activity has been
performed.  Management is currently evaluating the effect of this
pronouncement on our financial statements.





In
December 2007, FASB issued SFAS No. 141 (Revised 2007), “Business
Combinations.” SFAS  141R changes how a reporting enterprise accounts for
the acquisition of a business. SFAS 141R requires an acquiring entity to
recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value, with limited exceptions, and applies to a wider
range of transactions or events. SFAS 141R is effective for fiscal years
beginning on or after December 15, 2008. Early adoption and retrospective
application is prohibited.





In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements,” which is an amendment of ARB No.
51.  SFAS 160 clarifies that a noncontrolling interest in a subsidiary
is an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements.  SFAS 160 changes the
way the consolidated income statement is presented, thus requiring consolidated
net income to be reported at amounts that include the amounts attributable to
both parent and the noncontrolling interest.  SFAS 160 is effective
for the fiscal years, and interim periods within those fiscal years, beginning
on or after December 15, 2008.  Based on current conditions, we do not
expect the adoption of SFAS 160 to have a significant impact on our results of
operations or financial position.





In March
2008, FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133.”  SFAS 161
changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash
flows.  Based on current conditions, we do not expect the adoption of
SFAS 161 to have a significant impact on our results of operations or financial
position.





In May
2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
Principles.”  SFAS 162 identifies the sources of accounting principles
and the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with GAAP in the United States.  SFAS 162 will not have an
impact on our financial statements.





In May
2008, FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance
Contracts, an interpretation of FASB Statement No. 60.”  The scope of
SFAS 163 is limited to financial guarantee insurance (and reinsurance)
contracts, as described in this Statement, issued by enterprises included within
the scope of Statement 60. Accordingly, SFAS 163 does not apply to financial
guarantee contracts issued by enterprises excluded from the scope of Statement
60 or to some insurance contracts that seem similar to financial guarantee
insurance contracts issued by insurance enterprises (such as mortgage guaranty
insurance or credit insurance on trade receivables). SFAS 163 also does not
apply to financial guarantee insurance contracts that are derivative instruments
included within the scope of FASB Statement No. 133, “Accounting for Derivative
Instruments and Hedging Activities.” SFAS 163 will not have an impact on our
financial statements.





Item
7A.  Quantitative and Qualitative Disclosures About Market
Risk.





We are
exposed to market risks related to changes in interest rates and foreign
currency exchange rates, however, we believe those risks to be not material in
relation to our operations. We do not have any derivative financial
instruments.





Interest
Rate Risk





As of
December 31, 2008, we held no money market securities or short term
available for sale marketable securities. Due to the short term duration of our
investment portfolio, an immediate 10% change in interest rates would not have a
material effect on the fair market value of our portfolio. Therefore, we would
not expect our operating results or cash flows to be affected to any significant
degree by the effect of a sudden change in market interest rates on our
securities portfolio.


32


Foreign
Currency Exchange Risk





All of
our revenues are denominated in RMB and, as a result, we have certain exposure
to foreign currency exchange risk with respect to current revenues. A majority
of our expenses are payable in foreign currency. We do not use forward exchange
contracts to hedge exposures denominated in foreign currencies or any other
derivative financial instruments for trading or speculative purposes. The effect
of an immediate 10% change in exchange rates would not have a material impact on
our future operating results or cash flows





Item
8.  Financial Statements and Supplementary Data.





PageReport
      of Independent Registered Public Accounting Firm
                                    F-1Financial
      Statements:Consolidated
      Balance Sheet as of December 31, 2008
                                    F-2Consolidated
      Statements of Income and Other Comprehensive Income for the years endedDecember
      31, 2008 and 2007
                                    F-3Consolidated
      Statement of Stockholders’ Equity for the years ended December 31, 2008
      and 2007
                                    F-4Combined
      Statements of Cash Flows for the years ended December 31, 2008 and
      2007
                                    F-5Notes
      to Combined Financial Statements
                                    F-6 to F-18




Item
9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.




None





Item
9A.  Controls and Procedures.





Disclosure
Controls and Procedures





Our
management, with the participation of our chief executive officer and chief
financial officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of
December 31, 2008. We maintain disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our reports
filed pursuant to the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules, regulations and
related forms, and that such information is accumulated and communicated to our
principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required disclosure.





Our
management is also responsible for establishing and maintaining adequate
internal control over financial reporting. Our internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Our
internal control over financial reporting includes policies and procedures
that:





1)
            Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of our
      assets;





2)
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that our receipts and expenditures are being
      made only in accordance with authorizations of our management and
      directors; and





3)
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material effect on the financial
statements.


33


Management’s
Annual Report on Internal Control over Financial Reporting.





Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we have begun to
implement a system of internal control over our financial
reporting.  However, in light of the fact that our operating business
only recently became a public company as a result of a reverse acquisition on
July 23, 2007, the SEC has agreed to extend the time in which we are
required to be compliant with Section 404 of the Sarbanes-Oxley Act of 2002
pursuant to Release No. 33-8760, issued on December 15, 2006 by the SEC (the
“Adopting Release”).  The Adopting Release adopted amendments to the
Securities Exchange Act of 1934 to provide a transition period for newly public
companies to comply with the internal control over financial reporting
requirements of Section 404 of the Sarbanes-Oxley Act of 2002.





Based on
this evaluation, our management concluded that our internal control over
financial reporting was effective and that there was no material weakness or
significant deficiency discovered as of December 31, 2008.





Inherent
Limitations Over Internal Controls





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect all errors or misstatements and all fraud. Therefore, even
those systems determined to be effective can provide only reasonable, not
absolute, assurance that the objectives of the policies and procedures are met.
Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.





This
annual report does not include an attestation report of the company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the company's registered
public accounting firm pursuant to temporary rules of the SEC that permit the
company to provide only management's report in this annual report.





Changes
in Internal Control Over Financial Reporting





There
have not been any changes in our internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the fourth quarter of 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





Item
9B.  Other Information.





None.


34


PART
III





Item
10.  Directors, Executive Officers and Corporate
Governance.





The
information required by this Item is incorporated by reference to the
information contained in our Proxy Statement for our 2009 Annual Meeting of
Shareholders, which we will file with the SEC within 120 days after the end of
2008.





Item
11.  Executive Compensation.





The
information required by this Item is incorporated by reference to the
information contained in our Proxy Statement for our 2009 Annual Meeting of
Shareholders, which we will file with the SEC within 120 days after the end of
2008.





Item 12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.





The
information required by this Item is incorporated by reference to the
information contained in our Proxy Statement for our 2009 Annual Meeting of
Shareholders, which we will file with the SEC within 120 days after the end of
2008.





Item
13.  Certain Relationships and Related Transactions, and Director
Independence.





The
information required by this Item is incorporated by reference to the
information contained in our Proxy Statement for our 2009 Annual Meeting of
Shareholders, which we will file with the SEC within 120 days after the end of
2008.





Item
14.  Principal Accounting Fees and Services.





The
information required by this Item is incorporated by reference to the
information contained in our Proxy Statement for our 2009 Annual Meeting of
Shareholders, which we will file with the SEC within 120 days after the end of
2008.


35


PART
IV





Item
15.  Exhibits, Financial Statement Schedules.





(a)(1)
Financial Statements




See Item 8, "Financial Statements and
Supplementary Data."




(a)(2)
Financial Statement Schedules




All financial statement schedules for
Shiner and its subsidiaries have been included in the consolidated financial
statements or the related notes or they are either inapplicable or not
required.




(a)(3)
Exhibits




The exhibits required by this item are
set forth on the Exhibit Index attached hereto.




36


SHINER
INTERNATIONAL, INC.


Consolidated
Financial Statements


For
The Years Ended December 31, 2008 and 2007





Contents





PageReport of Independent
      Registered Public Accounting Firm
                                  F-1Financial
      Statements:Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                                  F-2Consolidated
      Statements of Income and Other Comprehensive Income for the years ended
      December 31, 2008 and 2007
                                  F-3Consolidated
      Statement of Stockholders' Equity for the years endedDecember
      31, 2008 and 2007
                                  F-4Consolidated
      Statements of Cash Flows for the years endedDecember
      31, 2008 and 2007
                                  F-5Notes
      to Consolidated Financial Statements
                                  F-6 to F-18





Report
of Independent Registered Public Accounting Firm





Board of
Directors and Stockholders of


Shiner
International, Inc.





We have
audited the accompanying consolidated balance sheets of Shiner International,
Inc. as of December 31, 2008 and 2007, and the related consolidated statements
of income and other comprehensive income, stockholders' equity, and cash flows
for the years ended December 31, 2008 and 2007. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these 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
consolidated financial statements are free of material misstatement.
..  The Company is not required to have, nor were we engaged to
perform, an audit of internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion.  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 consolidated financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Shiner
International, Inc. as of December 31, 2008  and 2007, and the
consolidated results of their operations and their consolidated cash flows for
the years ended December 31, 2008 and 2007, in conformity with U.S. generally
accepted accounting principles.





Goldman
Parks Kurland Mohidin LLP


Encino,
California


March 16,
2009, except for Note 14, for which the date is March 22, 2009.


F-1




SHINER
INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEET





2008
                                  
                                  
                                  2007ASSETSCURRENT
      ASSETS:Cash
      & cash equivalents
                                  
                                  $
                                  3,816,454
                                  
                                  
                                  $
                                  4,607,434Restricted
      cash
                                  
                                  
                                  684,212
                                  
                                  
                                  
                                  -Accounts
      receivable, net of allowance for doubtful accounts of $223,973 and
      $84,964
                                  
                                  
                                  7,594,718
                                  
                                  
                                  
                                  8,988,559Advances
      to suppliers
                                  
                                  
                                  3,677,890
                                  
                                  
                                  
                                  2,514,681Note
      receivable
                                  
                                  
                                  43,503
                                  
                                  
                                  
                                  39,755Inventories
                                  
                                  
                                  7,079,390
                                  
                                  
                                  
                                  6,411,267Prepaid
      expense & other current assets
                                  
                                  
                                  1,283,650
                                  
                                  
                                  
                                  432,211Total
      current assets
                                  
                                  
                                  24,179,817
                                  
                                  
                                  
                                  22,993,907Property
      and equipment, net
                                  
                                  
                                  12,412,689
                                  
                                  
                                  
                                  5,457,961Construction
      in progress
                                  
                                  
                                  32,265
                                  
                                  
                                  
                                  -Advance
      for purchase of equipment
                                  
                                  
                                  1,531,590
                                  
                                  
                                  
                                  3,409,721Intangible
      assets
                                  
                                  
                                  356,447
                                  
                                  
                                  
                                  339,593TOTAL
      ASSETS
                                  
                                  $
                                  38,512,808
                                  
                                  
                                  $
                                  32,201,182LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIES:Accounts
      payable
                                  
                                  $
                                  3,798,790
                                  
                                  
                                  $
                                  4,545,629Other
      payables
                                  
                                  
                                  145,507
                                  
                                  
                                  
                                  1,396,233Unearned
      revenue
                                  
                                  
                                  161,516
                                  
                                  
                                  
                                  520,056Accrued
      payroll
                                  
                                  
                                  39,979
                                  
                                  
                                  
                                  41,267Short
      term loan
                                  
                                  
                                  3,884,197
                                  
                                  
                                  
                                  822,528Dividend
      payable
                                  
                                  
                                  63,267
                                  
                                  
                                  
                                  65,110Tax
      and welfare payable
                                  
                                  
                                  -
                                  
                                  
                                  
                                  924,137Total
      current liabilities
                                  
                                  
                                  8,093,256
                                  
                                  
                                  
                                  8,314,960Commitments
      and contingencies
                                  
                                  
                                  
                                  
                                  
                                  
                                  -STOCKHOLDERS'
      EQUITY:Common
      stock, par value $0.001; 75,000,000 shares authorized, 24,650,000 and
      24,650,000 shares issued and outstanding
                                  
                                  
                                  24,650
                                  
                                  
                                  
                                  24,650Additonal
      paid-in capital
                                  
                                  
                                  11,214,071
                                  
                                  
                                  
                                  11,153,503Other
      comprehensive income
                                  
                                  
                                  2,977,847
                                  
                                  
                                  
                                  1,384,391Statutory
      reserve
                                  
                                  
                                  2,854,686
                                  
                                  
                                  
                                  2,374,069Retained
      earnings
                                  
                                  
                                  13,348,298
                                  
                                  
                                  
                                  8,949,609Total
      stockholders' equity
                                  
                                  
                                  30,419,552
                                  
                                  
                                  
                                  23,886,222TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                  
                                  $
                                  38,512,808
                                  
                                  
                                  $
                                  32,201,182




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




F-2





SHINER
INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME





2008
                            
                            
                            2007Net
      Revenue
                            
                            $
                            51,594,842
                            
                            
                            $
                            42,762,615Cost
      of Revenue
                            
                            
                            42,026,145
                            
                            
                            
                            34,225,643Gross
      profit
                            
                            
                            9,568,697
                            
                            
                            
                            8,536,972Operating
      expensesSelling
      expenses
                            
                            
                            1,839,846
                            
                            
                            
                            1,331,904General
      and administrative expenses
                            
                            
                            2,584,842
                            
                            
                            
                            2,043,588Total
      operating expenses
                            
                            
                            4,424,688
                            
                            
                            
                            3,375,492Income
      from operations
                            
                            
                            5,144,009
                            
                            
                            
                            5,161,480Non-operating
      income (expense):Other
      income (expense), net
                            
                            
                            (43,336
                            )
                            
                            
                            72,713Subsidy
      income
                            
                            
                            469,234
                            
                            
                            
                            -Interest
      income
                            
                            
                            26,504
                            
                            
                            
                            64,984Interest
      expense
                            
                            
                            (113,486
                            )
                            
                            
                            (96,235
                            )Exchange
      gain (loss)
                            
                            
                            (56,896
                            )
                            
                            
                            (253,519
                            )Total
      non-operating income (expense)
                            
                            
                            282,020
                            
                            
                            
                            (212,057
                            )Income
      before income tax
                            
                            
                            5,426,029
                            
                            
                            
                            4,949,423Income
      tax
                            
                            
                            546,723
                            
                            
                            
                            409,294Net
      income
                            
                            
                            4,879,306
                            
                            
                            
                            4,540,129Other
      comprehensive incomeForeign
      currency translation gain
                            
                            
                            1,593,456
                            
                            
                            
                            953,081Comprehensive
      Income
                            
                            $
                            6,472,762
                            
                            
                            $
                            5,493,210Weighted
      average shares outstanding :Basic
                            
                            
                            24,650,000
                            
                            
                            
                            19,222,329Diluted
                            
                            
                            24,650,000
                            
                            
                            
                            19,229,798Earnings
      per share:Basic
                            
                            $
                            0.20
                            
                            
                            $
                            0.24Diluted
                            
                            $
                            0.20
                            
                            
                            $
                            0.24




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




F-3


SHINER
INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY





Additional
                        
                        
                        Other
                        
                        
                        
                        
                        
                        
                        
                        
                        TotalCommon
      Stock
                        
                        
                        Paid
      in
                        
                        
                        Comprehensive
                        
                        
                        Statutory
                        
                        
                        Retained
                        
                        
                        Stockholders'Shares
                        
                        
                        Amount
                        
                        
                        Capital
                        
                        
                        Income
                        
                        
                        Reserve
                        
                        
                        Earnings
                        
                        
                        EquityBalance
      December 31, 2005
                        
                        
                        16,500,000
                        
                        
                        $
                        16,500
                        
                        
                        $
                        1,288,825
                        
                        
                        $
                        148,617
                        
                        
                        $
                        1,158,504
                        
                        
                        $
                        4,634,733
                        
                        
                        $
                        7,247,179Change
      in foreign currency translation gain
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        282,693
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        282,693Dividends
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (1,917,943
                        )
                        
                        
                        (1,917,943
                        )Net
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        3,561,335
                        
                        
                        
                        3,561,335Transfer
      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
                        
                        
                        
                        9,173,264Capital
      contribution
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        204,446
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        204,446Recapitalization
      on reverse acquisiton
                        
                        
                        4,650,000
                        
                        
                        
                        4,650
                        
                        
                        
                        (39,517
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (34,867
                        )Dividends
      declared
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (653,080
                        )
                        
                        
                        (653,080
                        )Common
      stock sold for cash
                        
                        
                        3,500,000
                        
                        
                        
                        3,500
                        
                        
                        
                        9,680,689
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        9,684,189Stock
      compensation expense for options issued to directors
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        19,060
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        19,060Foreign
      currency translation gain
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        953,081
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        953,081Net
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        4,540,129
                        
                        
                        
                        4,540,129Transfer
      to statutory reserve
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        498,130
                        
                        
                        
                        (498,130
                        )
                        
                        
                        -Balance
      December 31, 2007
                        
                        
                        24,650,000
                        
                        
                        
                        24,650
                        
                        
                        
                        11,153,503
                        
                        
                        
                        1,384,391
                        
                        
                        
                        2,374,069
                        
                        
                        
                        8,949,609
                        
                        
                        
                        23,886,222Stock
      compensation expense for options issued to directors
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        159,568
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        159,568Payment
      of stock offering costs
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (99,000
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (99,000
                        )Foreign
      currency translation gain
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        1,593,456
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,593,456Net
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        4,879,306
                        
                        
                        
                        4,879,306Transfer
      to statutory reserve
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        480,617
                        
                        
                        
                        (480,617
                        )
                        
                        
                        -Balance
      December 31, 2008
                        
                        
                        24,650,000
                        
                        
                        $
                        24,650
                        
                        
                        $
                        11,214,071
                        
                        
                        $
                        2,977,847
                        
                        
                        $
                        2,854,686
                        
                        
                        $
                        13,348,298
                        
                        
                        $
                        30,419,552
  The
accompanying notes are an integral part of these consolidated financial
statements.


F-4


SHINER
INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS





2008
                          
                          
                          2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                          
                          $
                          4,879,306
                          
                          
                          $
                          4,540,129Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
                          
                          
                          1,301,403
                          
                          
                          
                          656,170Loss
      on disposal of property and equipment
                          
                          
                          -
                          
                          
                          
                          8,347Amortization
                          
                          
                          6,835
                          
                          
                          
                          6,245Stock
      compensation expense for options issued to directors
                          
                          
                          159,568
                          
                          
                          
                          19,060(Increase)
      / decrease in assets:Accounts
      receivable
                          
                          
                          1,988,896
                          
                          
                          
                          (1,846,491
                          )Inventories
                          
                          
                          (214,794
                          )
                          
                          
                          (1,526,188
                          )Advances
      to suppliers
                          
                          
                          (970,766
                          )
                          
                          
                          (1,068,576
                          )Other
      assets
                          
                          
                          (810,886
                          )
                          
                          
                          120,099Increase
      / (decrease) in current liabilities:Accounts
      payable
                          
                          
                          (970,141
                          )
                          
                          
                          57,102Unearned
      revenue
                          
                          
                          (388,138
                          )
                          
                          
                          55,822Other
      payables
                          
                          
                          (1,532,111
                          )
                          
                          
                          1,178,796Accrued
      payroll
                          
                          
                          (4,110
                          )
                          
                          
                          (12,890
                          )Tax
      and welfare payable
                          
                          
                          (971,743
                          )
                          
                          
                          750,571Net
      cash provided by operating activities
                          
                          
                          2,473,319
                          
                          
                          
                          2,938,196CASH
      FLOWS FROM INVESTING ACTIVITIESPayments
      on (issuance of) notes receivable
                          
                          
                          (943
                          )
                          
                          
                          59,166Acquisition
      of property and equipment
                          
                          
                          (5,678,801
                          )
                          
                          
                          (241,627
                          )Advance
      payment for equipment
                          
                          
                          -
                          
                          
                          
                          (3,275,783
                          )Cash
      acquired with acquisition of Cartan Holdings, Inc.
                          
                          
                          -
                          
                          
                          
                          3,610Payments
      for construction in progress
                          
                          
                          (31,704
                          )
                          
                          
                          -Increase
      in restricted cash
                          
                          
                          (672,319
                          )
                          
                          
                          -Net
      cash used in investing activities
                          
                          
                          (6,383,767
                          )
                          
                          
                          (3,454,634
                          )CASH
      FLOWS FROM FINANCING ACTIVITIES:Short
      -term loan payable
                          
                          
                          3,774,309
                          
                          
                          
                          -Repayment
      of advances
                          
                          
                          (822,528
                          )
                          
                          
                          (3,634,418
                          )Dividends
      paid
                          
                          
                          (6,297
                          )
                          
                          
                          (2,237,086
                          )Issuance
      of shares for cash
                          
                          
                          -
                          
                          
                          
                          10,500,000Payments
      of offering costs
                          
                          
                          (99,000
                          )
                          
                          
                          (815,811
                          )Capital
      contribution
                          
                          
                          -
                          
                          
                          
                          204,446Net
      cash provided by financing activities
                          
                          
                          2,846,484
                          
                          
                          
                          4,017,131Effect
      of exchange rate changes on cash and cash equivalents
                          
                          
                          272,984
                          
                          
                          
                          168,473NET
      INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
                          
                          
                          (790,980
                          )
                          
                          
                          3,669,166CASH
      & CASH EQUIVALENTS, BEGINNING BALANCE
                          
                          
                          4,607,434
                          
                          
                          
                          938,268CASH
      & CASH EQUIVALENTS, ENDING BALANCE
                          
                          $
                          3,816,454
                          
                          
                          $
                          4,607,434SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Interest
      paid
                          
                          $
                          114,100
                          
                          
                          $
                          90,878Income
      taxes paid
                          
                          $
                          544,135
                          
                          
                          $
                          297,142Transfer
      from construction-in-process to property and equipment
                          
                          $
                          227,510
                          
                          
                          $
                          4,586




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




F-5


Shiner
International, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Years Ended December 31, 2008 and 2007




Note
1 - Organization and Basis of Presentation





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 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.”





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 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 was 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.





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





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
Accounting 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.





F-6


Shiner
International, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Years Ended December 31, 2008 and 2007


Note
2 - Summary of Significant Accounting Policies





Use of
Estimates





The
preparation of financial statements in conformity with United States generally
accepted accounting principles (USGAAP) 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.





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





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
      yearsVehicles
                  8
      yearsOffice
      equipment
                  5
      yearsBuildings
      and improvements
                  20
      years




F-7




Shiner
International, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Years Ended December 31, 2008 and 2007
  The
following are the details of the property and equipment:





December 31,
                    
                    
                    December 31,2008
                    
                    
                    2007Operating
      equipment
                    
                    $
                    12,139,325
                    
                    
                    $
                    5,984,512Vehicles
                    
                    
                    99,013
                    
                    
                    
                    67,765Office
      equipment
                    
                    
                    262,107
                    
                    
                    
                    319,979Buildings
                    
                    
                    1,303,767
                    
                    
                    
                    1,084,730Building
      and equipment improvements
                    
                    
                    1,184,907
                    
                    
                    
                    215,78314,989,119
                    
                    
                    
                    7,672,769Less
      accumulated depreciation
                    
                    
                    (2,576,430
                    )
                    
                    
                    (2,214,808
                    )$
                    12,412,689
                    
                    
                    $
                    5,457,961





Depreciation
expense was $1,301,403 and $656,170 for the years ended December 31, 2008 and
2007, respectively.





Advance for Purchase of
Equipment





The
Company had advanced $ 1,531,590 and $3,409,721 for the purchase of equipment at
December 31, 2008 and 2007, respectively.





Long-Lived
Assets




The
Company applies the provisions of 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 December 31,
2008 and 2007 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.





Fair Value of Financial
Instruments





On
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements.”
SFAS 157 defines fair value, establishes a three-level valuation hierarchy for
disclosures of fair value measurement and enhances disclosures requirements for
fair value measures. The carrying amounts reported in the balance sheets for
receivables and current liabilities each qualify as financial instruments and
are a reasonable estimate of fair value 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 are defined
as follow:





F-8
 
  Shiner
International, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Years Ended December 31, 2008 and 2007


Level 1:
inputs to the valuation methodology are quoted prices (unadjusted) 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, 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 are unobservable and significant to the fair
value measurement.





As of
December 31, 2008 and 2007, the Company did not identify any assets and
liabilities that are required to be presented on the balance sheet at fair
value.





Revenue
Recognition





The
Company’s revenue recognition policies are in compliance with Securities
Exchange Commission (“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 years ended
December 31, 2008 and 2007 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.





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.





F-9
 
 Shiner
International, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Years Ended December 31, 2008 and 2007


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, “Earnings Per
Share”.  Net earnings per share for all periods presented has been
restated to reflect the adoption of SFAS 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 90,000 options and 970,050 warrants
outstanding as of December 31, 2008 and 2007.  For the year ended
December 31, 2008 the Company’s average stock price was less than all exercise
prices; therefore, all options and warrants were determined to be anti-dilutive
and excluded from the earnings per share calculation.





The
following is a reconciliation of the number of shares (denominator) used in the
basic and diluted earnings per share computations:





Years Ended December 31,2008
                    
                    
                    2007Shares
                    
                    
                    Per Share
                      Amount
                    
                    
                    Shares
                    
                    
                    Per Share
                      AmountBasic
      earnings per share
                    
                    
                    24,650,000
                    
                    
                    $
                    0.20
                    
                    
                    
                    19,222,329
                    
                    
                    $
                    0.24Effect
      of dilutive stock options and warrants
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    7,649
                    
                    
                    
                    -Diluted
      earnings per share
                    
                    
                    24,650,000
                    
                    
                    $
                    0.20
                    
                    
                    
                    19,229,798
                    
                    
                    $
                    0.24





Foreign Currency
Transactions and Comprehensive Income





USGAAP
generally requires 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 $2,977,847 and
$1,384,391 at December 31, 2008 and 2007, respectively are classified as an item
of other comprehensive income in the stockholders’ equity section of the
consolidated balance sheet. During the years ended December 31, 2008 and 2007,
other comprehensive income in the consolidated statements of income and other
comprehensive income included translation gains of $1,593,456 and $953,081,
respectively.





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.




F-10


Shiner
International, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Years Ended December 31, 2008 and 2007


Segment
Reporting





SFAS No.
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 it has two reportable segments (See Note
12).





Recent
Pronouncements





In
February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities”. SFAS 159 permits entities to choose to
measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. The adoption of SFAS 59 did not have a
material impact on the Company’s financial statements.





In June
2007, FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
Nonrefundable Advance Payments for Goods or Services Received for use in Future
Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
nonrefundable advance payments for goods or services that used or rendered for
research and development activities should be expensed when the advance payment
is made or when the research and development activity has been
performed.  Management does not anticipate that the adoption of EITF
07-03 will have a material impact on the Company’s financial
statements.





In
December 2007, FASB issued SFAS No. 141 (Revised 2007), “Business
Combinations.” SFAS No. 141R changes how a reporting enterprise accounts
for the acquisition of a business. SFAS 141R  requires an
acquiring entity to recognize all the assets acquired and liabilities assumed in
a transaction at the acquisition-date fair value, with limited exceptions, and
applies to a wider range of transactions or events. SFAS 141R is effective
for fiscal years beginning on or after December 15, 2008 and early adoption
and retrospective application is prohibited.  This pronouncement will
likely have a material impact on business acquisitions made after January 1,
2009.





In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, which is an amendment of Accounting Research
Bulletin (“ARB”) No. 51.  SFAS 160 clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial
statements.  SFAS 160 changes the way the consolidated income
statement is presented, thus requiring consolidated net income to be reported at
amounts that include the amounts attributable to both parent and the
noncontrolling interest.  SFAS 160 is effective for the fiscal years,
and interim periods within those fiscal years, beginning on or after December
15, 2008.  Based on current conditions, the Company does not expect
the adoption of SFAS 160 to have a significant impact on its results of
operations or financial position.





In March
2008, FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133.”  SFAS 161
changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under SFAS 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash
flows.  Based on current conditions, the Company does not expect the
adoption of SFAS 161 to have a significant impact on its results of operations
or financial position.





In May
2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
Principles.”  SFAS 162 identifies the sources of accounting principles
and the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles (GAAP) in the United
States (the GAAP hierarchy).  SFAS 162 will not have an impact on the
Company’s financial statements.





F-11
 
 Shiner
International, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Years Ended December 31, 2008 and 2007


In May
2008, FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance
Contracts, an interpretation of FASB Statement No. 60.”  The scope of
SFAS 163 is limited to financial guarantee insurance (and reinsurance)
contracts, as described in this Statement, issued by enterprises included within
the scope of Statement 60. Accordingly, SFAS 163 does not apply to financial
guarantee contracts issued by enterprises excluded from the scope of Statement
60 or to some insurance contracts that seem similar to financial guarantee
insurance contracts issued by insurance enterprises (such as mortgage guaranty
insurance or credit insurance on trade receivables). SFAS 163 also does not
apply to financial guarantee insurance contracts that are derivative instruments
included within the scope of FASB Statement No. 133, “Accounting for Derivative
Instruments and Hedging Activities.” SFAS 163 will not have an impact on the
Company’s financial statements.





Note
3 - Inventories





Inventories
as of December 31, 2008 and 2007 consisted of the following:





2008
                    
                    
                    2007Raw
      Material
                    
                    $
                    3,578,816
                    
                    
                    $
                    3,569,017Work
      in process
                    
                    
                    1,039,346
                    
                    
                    
                    676,476Finished
      goods
                    
                    
                    2,461,228
                    
                    
                    
                    2,241,5077,079,390
                    
                    
                    
                    6,487,000Less:
      Obsolescence Reserve
                    
                    
                    -
                    
                    
                    
                    (75,733
                    )Net
      Inventory
                    
                    $
                    7,079,390
                    
                    
                    $
                    6,411,267





Note
4 - Intangible Assets





Intangible
assets at December 31, 2008 and 2007 are as follows:





December 31, 2008
                  
                  
                  December 31, 2007Land
      rights
                  
                  $
                  391,378
                  
                  
                  $
                  365,735Accumulated
      amortizaton
                  
                  
                  (34,931
                  )
                  
                  
                  (26,142
                  )Intangible
      Assets, net
                  
                  $
                  356,447
                  
                  
                  $
                  339,593





Per the
People’s Republic of China’s (“PRC”) governmental regulations, the PRC
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 50 to 52
years.





Amortization
expense for the Company’s intangible assets for the years ended December 31,
2008 and 2007 amounted to $6,835 and $6,245, respectively.





F-12


Shiner
International, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Years Ended December 31, 2008 and 2007


Note
5 - Short-term loans





Short-term
loans at December 31, 2008 and 2007 consisted of the following:


December 31,
                                    
                                    
                                    December 31,2008
                                    
                                    
                                    2007The
      term of the loan is from August 15, 2007 to February 15, 2008 with an
      interest rate of 7.227%. The loan is collateralized by buildings land use
      rights and machines. This loan was repaid in February
2008.
                                    
                                    $
                                    
                                    
                                    
                                    $
                                    822,528The
      term of the loan is from March 3, 2008 to March 3, 2009 with an interest
      rate at the standard rate times 1.1 8.09% at December 31, 2008. The loan
      is collateralized by a one-year time deposit.
                                    
                                    
                                    400,195
                                    
                                    
                                    
                                    -The
      term of the loan is from April 24, 2008 to April 24, 2009 with an interest
      rate of 8.21% at December 31, 2008. The loan is collateralized by a
      one-year time deposit.
                                    
                                    
                                    256,602The
      term of the loan is from May 30, 2008 to May 30, 2009 with an interest
      rate of 7.512% at December 31, 2008. The loan is collateralized by
      buildings land use rights and machines.
                                    
                                    
                                    1,467,000The
      term of the loan is from July 10, 2008 to May 30, 2009 with an interest
      rate of 7.512% at December 31, 2008. The loan is collateralized by
      buildings, land use rights and machines.
                                    
                                    
                                    733,500The
      term of the loan is from August 15, 2008 to May 30, 2009 with an interest
      rate of 7.512% at December 31, 2008. The loan is collateralized by
      buildings, land use rights and machines.
                                    
                                    
                                    440,100
                                    
                                    
                                    
                                    -The
      term of the loan is from October 10, 2008 to May 30, 2009 with an interest
      rate of 7.512% at December 31, 2008. The loan is collateralized by
      buildings, land use rights and machines.
                                    
                                    
                                    586,800$
                                    3,884,197
                                    
                                    
                                    $
                                    822,528




Note
6 – Stockholders’ Equity





On
October 22, 2007, the Company completed a final closing of a private placement
offering of units pursuant to which they 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 common stock at an
exercise price of $6.00 per share. Accordingly, the Company issued an aggregate
of 3,500,000 shares of 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, the Company compensated four finders that assisted 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
                        
                        
                        WarrantsMaxim
      Group LLC
                        
                        $
                        178,400
                        
                        
                        
                        111,500Four
      Tong Investments, LTD
                        
                        
                        153,600
                        
                        
                        
                        96,000Global
      Hunter Securities, LLC
                        
                        
                        300,880
                        
                        
                        
                        188,050Basic
      Investors, Inc.
                        
                        
                        79,200
                        
                        
                        
                        49,500$
                        712,080
                        
                        
                        
                        445,050





F-13


Shiner
International, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Years Ended December 31, 2008 and 2007


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.





Stock
Options





WeightedWeighted
                
                
                AverageAverage
                
                
                Remaining
                
                
                AgrgregateOptions
                
                
                Exercise
                
                
                Contractual
                
                
                IntrinsicOutstanding
                
                
                Price
                
                
                Life (years)
                
                
                ValueOutstanding,
      December 31, 2006
                
                
                -
                
                
                
                -Granted
                
                
                90,000
                
                
                $
                7.00Forfeited
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -Outstanding,
      December 31, 2007
                
                
                90,000
                
                
                
                7.00
                
                
                
                4.89
                
                
                
                -Granted
                
                
                -
                
                
                
                -Forfeited
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -Outstanding,
      December 31, 2008
                
                
                90,000
                
                
                $
                7.00
                
                
                
                3.89
                
                
                $
                -Exercisable,
      December 31, 2008
                
                
                -





The
assumption used in calculating the fair value of options granted during the year
ended December 31, 2007 using the Black-Scholes option-pricing model are as
follows:





Risk-free
      interest rate
                    
                    
                    3.50
                    %Expected
      life of the options
                    
                    4
      yearsExpected
      volatility
                    
                    
                    122
                    %Expected
      dividend yield
                    
                    
                    0





Warrants





On
October 22, 2007, the Company completed a private placement offering whereby it
sold an aggregate of 3,500,000 shares of common stock and issued a three year
warrant to purchase 15% of one share of common stock (525,000 warrants) at an
exercise price of $6.00 per share.  In addition, the Company issued to
four finders 445,050 warrants with the same terms and conditions as those
granted in the private placement.





The
following is a summary of the warrant activity:





WeightedWeighted
                    
                    
                    AverageAverage
                    
                    
                    RemainingWarrants
                    
                    
                    Exercise
                    
                    
                    ContractualOutstanding
                    
                    Price
                    
                    
                    Life (years)Outstanding,
      December 31, 2006
                    
                    
                    -
                    
                    
                    
                    -Granted
                    
                    
                    970,050
                    
                    
                    $
                    6.00Forfeited
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -Balance,
      December 31, 2007
                    
                    
                    970,050
                    
                    
                    $
                    6.00
                    
                    
                    
                    2.81Granted
                    
                    
                    -
                    
                    
                    
                    -Forfeited
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -Balance,
      December 31, 2008
                    
                    
                    970,050
                    
                    
                    $
                    6.00
                    
                    
                    
                    1.81





F-14


Shiner
International, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Years Ended December 31, 2008 and 2007


Note
7 - Income Taxes





Local PRC
Income Tax





Pursuant
to the tax laws of the PRC, general enterprises are subject to income tax at an
effective rate of 25%.  The Company currently has a 15% tax rate
because of its location in a privileged economic zone. In addition, it also
enjoys a 50% reduction (50% of 15%) for the dates specified below.





A
reconciliation of tax at United States federal statutory rate to provision for
income tax recorded in the financial statements is as follows:





December 31,
                  
                  
                  December 31,2008
                  
                  
                  2007Tax
      provision at statutory rate
                  
                  
                  34
                  %
                  
                  
                  34
                  %Foreign
      tax rate difference
                  
                  
                  -1
                  %
                  
                  
                  -1
                  %Effect
      of tax holiday
                  
                  
                  -23
                  %
                  
                  
                  -25
                  %Percentage
      of Income tax
                  
                  
                  10
                  %
                  
                  
                  8
                  %





The
Company operates in a privileged economic zone which entitles it to certain tax
benefits (tax holiday) as follows:





·
            Shiny-day
      - Exempt from federal tax from January 1, 2007 to December 31,
      2009.





·
            Shiner
      Industrial – 50% exemption from federal tax from January 1, 2006 to
      December 31, 2008.





According
to the new PRC income tax law, for those enterprises to which the 15% tax rate
was applicable previously, the applicable rates shall be as follows over the
next four years:





Year
                    
                    Tax
      rate
                    
                    
                    Income
      tax rate-
                      Shiny-day
                    
                    
                    Income
      tax rate-
                      Shiner
      Industrial2009
                    
                    
                    20
                    %
                    
                    
                    10
                    %
                    
                    
                    20
                    %2010
                    
                    
                    22
                    %
                    
                    
                    22
                    %
                    
                    
                    22
                    %2011
                    
                    
                    24
                    %
                    
                    
                    24
                    %
                    
                    
                    24
                    %2012
                    
                    
                    25
                    %
                    
                    
                    25
                    %
                    
                    
                    25
                    %





If the
Company had not been exempt from paying income taxes due to operating in a
privileged economic zone, net income for 2008 and 2007 would have been lower by
approximately $1,300,051 and $1,273,510, respectively. The net effect on
earnings per share had income tax been applied would have decreased basic and
diluted earnings per share from $0.20 to $0.15 and from $0.24 to $0.17 for 2008
and 2007, respectively.




Note
8 - Employee Common Plans





The total
expense for the employee common welfare was $52,047, $81,175 for the years ended
December 31, 2008, 2007, respectively.  The Company has recorded
welfare payable of $0 and $24,525 at December 31, 2008 and 2007, which is
included in tax and welfare payable in the accompanying consolidated balance
sheet.   The Chinese government abolished the 14% welfare plan
policy at the beginning of 2007.  The Company is
not  required to establish welfare and common welfare
reserves.





Note
9 - Statutory Common Welfare Fund





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





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




F-15


Shiner
International, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Years Ended December 31, 2008 and 2007


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” 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 appropriated $480,617 and $498,130 as reserve for the Statutory surplus
reserve and Statutory common welfare fund for the years ended December 31, 2008
and 2007, respectively.





Note
10 - Current Vulnerability Due to Certain Concentrations





Three
vendors provided 5.3%, 3.82% and 2.97% of the Company’s raw materials for the
year ended December 31, 2008.  Three vendors provided 9%, 9%, and 8%
of the Company’s raw material for the year ended December 31,
2007.  One vendor provided 11% of the Company’s raw materials for the
year ended December 31, 2007.





Two
customers accounted for 16.75% and 7.86% of the Company’s sales for the year
ended December 31, 2008.  One customer accounted for 31% of the
Company’s sales for the year ended December 31, 2007.





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
11 - Contingent Liabilities





At
December 31, 2008 and 2007, the Company is contingently liable to banks for
discounted and endorsed notes receivable and to vendors for endorsed notes
receivable amounting to $3,504,092 (RMB 23,886,111)
and  $2,200,951(RMB16,055,025), respectively.





Note
12 – Segment Information





The
Company’s business segments are in packaging film and color
printing.  The following tables summarize segment
information:





Years Ended December 31,2008
                    
                    
                    2007Revenues
      from unrelated entitiesColor
      Printing
                    
                    $
                    9,793,831
                    
                    
                    $
                    14,282,551Packaging
                    
                    
                    41,801,011
                    
                    
                    
                    28,480,064$
                    51,594,842
                    
                    
                    $
                    42,762,615Intersegment
      revenuesColor
      Printing
                    
                    $
                    778,306
                    
                    
                    $
                    217,469Packaging
                    
                    
                    14,440,173
                    
                    
                    
                    4,562,692$
                    15,218,479
                    
                    
                    $
                    4,780,161




F-16




Shiner
International, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Years Ended December 31, 2008 and 2007


Years
      Ended December 31,2008
                              
                              
                              2007Total
      RevenuesColor
      Printing
                              
                              $
                              10,572,137
                              
                              
                              $
                              14,500,020Packaging
                              
                              
                              56,241,184
                              
                              
                              
                              33,042,756Less
      Intersegment revenues
                              
                              
                              (15,218,479
                              )
                              
                              
                              (4,780,161
                              )$
                              51,594,842
                              
                              
                              $
                              42,762,615Income
      from operationsColor
      Printing
                              
                              $
                              (582,295
                              )
                              
                              $
                              949,473Packaging
                              
                              
                              6,328,025
                              
                              
                              
                              4,364,810Holding
      Company
                              
                              
                              (601,721
                              )
                              
                              
                              (152,803
                              )$
                              5,144,009
                              
                              
                              $
                              5,161,480Interest
      incomeColor
      Printing
                              
                              $
                              3,140
                              
                              
                              $
                              1,178Packaging
                              
                              
                              20,316
                              
                              
                              
                              9,605Holding
      Company
                              
                              
                              3,048
                              
                              
                              
                              54,201$
                              26,504
                              
                              
                              $
                              64,984Interest
      ExpenseColor
      Printing
                              
                              $
                              -
                              
                              
                              $
                              3,184Packaging
                              
                              
                              113,486
                              
                              
                              
                              93,046Holding
      Company
                              
                              
                              -
                              
                              
                              
                              5$
                              113,486
                              
                              
                              $
                              96,235Income
      tax expense (benefit)Color
      Printing
                              
                              $
                              14,473
                              
                              
                              $
                              73,163Packaging
                              
                              
                              532,250
                              
                              
                              
                              336,131Holding
      Company
                              
                              
                              -
                              
                              
                              
                              -$
                              546,723
                              
                              
                              $
                              409,294Net
      IncomeColor
      Printing
                              
                              $
                              (566,521
                              )
                              
                              $
                              852,030Packaging
                              
                              
                              6,044,500
                              
                              
                              
                              3,786,706Holding
      Company
                              
                              
                              (598,673
                              )
                              
                              
                              (98,607
                              )$
                              4,879,306
                              
                              
                              $
                              4,540,129Provision
      for depreciationColor
      Printing
                              
                              $
                              1,128,319
                              
                              
                              $
                              162,834Packaging
                              
                              
                              31,472
                              
                              
                              
                              493,336Holding
      Company
                              
                              
                              -
                              
                              
                              
                              -$
                              1,159,791
                              
                              
                              $
                              656,170Total
      AssetsColor
      Printing
                              
                              $
                              6,429,317
                              
                              
                              $
                              8,962,727Packaging
                              
                              
                              30,317,410
                              
                              
                              
                              21,074,650Holding
      Company
                              
                              
                              1,766,081
                              
                              
                              
                              2,163,805$
                              38,512,808
                              
                              
                              $
                              32,201,182


F-17




Shiner
International, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Years Ended December 31, 2008 and 2007


Note
13 - Geographical Sales





Geographical
distribution of sales is as follows:





Year
      EndedDecember
      31,Geographical
      Areas
                        
                        2008
                        
                        
                        2007Chinese
      Main Land
                        
                        $
                        40,621,912
                        
                        
                        $
                        33,601,456Asia
      (outside Main Land China)
                        
                        
                        4,415,492
                        
                        
                        
                        4,591,483Africa
                        
                        
                        538,699
                        
                        
                        
                        811,886Australia
                        
                        
                        1,913,039
                        
                        
                        
                        1,471,102USA
                        
                        
                        1,016,479
                        
                        
                        
                        801,440South
      America
                        
                        
                        757,473
                        
                        
                        
                        304,045Europe
                        
                        
                        2,331,748
                        
                        
                        
                        1,181,203$
                        51,594,842
                        
                        
                        
                        42,762,615




Notes
14 - Subsequent Event





On March
22, 2009, the Company has instituted a stock buyback program of up to 4
million shares of its common stock over the next 12 months.  The share
repurchases will occur through open market purchases, privately negotiated
transactions and/or transactions structured through investment banking
institutions as permitted by securities laws and other legal requirements. The
program allows the Company to repurchase its shares at its discretion. Market
conditions will influence the timing of the buyback and the actual number of
shares repurchased.  The repurchases will be funded with the Company's
existing cash and future cash flows from operations, and the Company currently
intends to hold the repurchased shares as treasury stock.


F-18


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 on the 24th day of March
2009.





Shiner
      International, Inc.By:
      /s/ Jian FuName:
      Jian FuTitle:
      Chief Executive
Officer





In
accordance with the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated. Each of the undersigned hereby appoints Jian Fu and
Qingtao Xing his true and lawful attorney-in-fact and agent, for him and
in his name and place, to sign the name of the undersigned in the capacity
or capacities indicated below to the Annual Report of Shiner International,
Inc. on Form 10-K for the year ended December 31, 2008 and any and all
amendments to such Form 10-K and to file the same, with all exhibits
thereto and other documents in connection therewith, with all necessary or
appropriate governmental or other entities, including, but not limited to,
the Securities and Exchange Commission and the NASDAQ Stock Market LLC,
granting to such attorney-in-fact and agent full power and authority to
perform each act necessary to be done as fully to all intents and purposes
as he might do in person, hereby ratifying and confirming all that such
attorney-in-fact and agent may lawfully do or cause to be done by virtue
hereof.





Signature
                                              
                                              Title
                                              
                                              Date/s/
      Jian Fu
                                              
                                              Chief
      Executive Officer and Vice Director
                                              
                                              March  24,
      2009Jian
      Fu/s/
      XueZhu Xu
                                              
                                              Chief
      Financial Officer and Chief
                                                Accounting
      Officer
                                              
                                              March  24,
      2009XueZhu
      Xu/s/
      Yuet Ying
                                              
                                              Chairman
      of the Board of Directors
                                              
                                              March  24,
      2009Yuet
      Ying/s/
      Brian G. Cunat
                                              
                                              Director
                                              
                                              March  24,
      2009Brian
      G.Cunat/s/
      Joseph S. Rizzello
                                              
                                              Director
                                              
                                              March  24,
      2009Joseph
      S.Rizzello/s/
      Arnold Staloff
                                              
                                              Director
                                              
                                              March  24,
      2009Arnold
      Staloff





INDEX
TO EXHIBITS





Exhibit
                
                Description of Exhibit2.1
                
                Share
      Exchange Agreement by and between Sino Palace Holdings Limited and Cartan
      Holdings Inc. dated as of July 23, 2007 (incorporated by reference to
      Exhibit 2.1 of Shiner's Current Report on Form 8-K (Commission File No.
      000-52743) filed with the SEC on July 27, 2007).2.2
                
                Return
      to Treasury Agreement between Cartan Holdings, Inc. and Zubeda
      Mohamed-Lakhani, dated as of July 23, 2007 (incorporated by reference to
      Exhibit 2.2 of Shiner's Current Report on Form 8-K (Commission File No.
      000-52743) filed with the SEC on July 27, 2007).3.1
                
                Amended
      and Restated Articles of Incorporation  (incorporated by
      reference to Exhibit 3.1 of Shiner's Current Report on Form 8-K
      (Commission File No. 000-52743) filed with the SEC on July 27,
      2007)3.2
                
                Amended
      and Restated Bylaws (incorporated by reference to Exhibit 3.2 of Shiner's
      Current Report on Form 8-K (Commission File No. 000-52743) filed with the
      SEC on July 27, 2007).4.1
                
                Specimen
      Stock Certificate (incorporated by reference to Exhibit 4.1 of Shiner's
      Current Report on Form 8-K (Commission File No. 000-52743) filed with the
      SEC on July 27, 2007)10.1
                
                Registration
      Rights Agreement, dated as of September 30, 2007, between Shiner and the
      investors signatory thereto (incorporated by reference to Exhibit 10.1 of
      Shiner's Registration Statement on Form SB-2 (Commission File No.
      333-148304), filed with the SEC on December 21, 2007)10.2
                
                Form
      of Common Stock Purchase Warrant (incorporated by reference to Exhibit
      10.2 of Shiner's Registration Statement on Form SB-2 (Commission File No.
      333-148304), filed with the SEC on December 21, 2007).10.3
                
                Form
      of Stock Option Agreement (incorporated by reference to Exhibit 10.3 of
      Shiner's Registration Statement on Form SB-2 (Commission File No.
      333-148304), filed with the SEC on December 21, 2007)10.4
                
                Employment
      Agreement, dated January 1, 2008, by and between Shiner and Jian Fu
      (incorporated by reference to Exhibit 10.4 of Shiner's Annual Report on
      Form 10-K (Commission File No. 000-52743) filed with the SEC on March 28,
      2008).10.5
                
                Employment
      Agreement, dated January 1, 2008, by and between Shiner and Xuezhu Xu
      (incorporated by reference to Exhibit 10.5 of Shiner's Annual Report on
      Form 10-K (Commission File No. 000-52743) filed with the SEC on March 28,
      2008).10.6
                
                Employment
      Agreement, dated January 1, 2008, by and between Shiner and Mingbiao Li
      (incorporated by reference to Exhibit 10.6 of Shiner's Annual Report on
      Form 10-K (Commission File No. 000-52743) filed with the SEC on March 28,
      2008).12
                
                List
      of Subsidiaries.31.1
                
                Certification
      of our Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 under
      the Securities Exchange Act of 1934, as amended31.2
                
                Certification
      of our Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 under
      the Securities Exchange Act of 1934, as amended32.1
                
                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
      200232.2
                
                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