China Shandong (PINK:CSNH)

We believe that substantially all of our capital expenditures going forward will be related to our furniture business as we diversify our product base, build component manufacturing facilities and renovate our existing manufacturing facilities.

We believe that our existing cash, cash equivalents and cash flows from operations and our credit lines will be sufficient to meet our anticipated cash needs over the next 12 months, including, but not limited to, building our 1st new production line to manufacture wooden furniture that we believe would enable us to fulfill a great percentage of our overseas demands. We will, however, require substantial additional cash resources to implement the balance of our growth strategy discussed elsewhere, including any acquisitions we may decide to pursue.

We intend to use a part of the net proceeds of any financing that we may in the future be able to raise, if any, to construct a new production facility, which we expect will produce higher grade furniture. We estimate the total cost of such production to be approximately $20 million, including but not limited to (i) $5.3 million would be used to construct a 40,000 square meter production line, (ii) $6.7 million would be used to purchase new equipment to be used in the production line, and (iii) $8.0 million would be used to purchase raw materials and other materials used in the manufacturing of products the new production line will produce.

In addition, we also plan to (i) build another new production line to produce high end furniture, which we currently estimate will cost an additional approximately $15 million, (ii) build an R&D center, which we currently estimate will cost approximately $1.4 million, (iii) upgrade our existing facilities and establish new compatible facilities for a complete furniture production line, such as carton, paint and hardware workhouse, which we currently estimate will cost approximately $36.6 million, and (iv) set up overseas sales stores. The timing of the construction of these items will depend upon our ability to raise the required additional capital, for which we do not currently have plans

Based upon our present plans, we believe that our cash on hand, cash flow from operations and funds available to us through our proposed financing activities will be sufficient to fund our capital needs for at least the next 12 months. We expect that our primary sources of funding for our operations for the next 12 months will result from cash flow from operations, in addition to our proposed financing activity.

We believe that substantially all of our capital expenditures going forward will be related to our furniture business as we diversify our product base, build component manufacturing facilities and renovate our existing manufacturing facilities.

We believe that our existing cash, cash equivalents, and cash flows from operations, and our proposed financing activities will be sufficient to meet our anticipated cash needs over the next 12 months. We will, however, require substantial additional cash resources to implement the balance of our growth strategy discussed elsewhere, including any acquisitions we may decide to pursue.

We intend to expand our operations as quickly as reasonably practicable to capitalize on our perceived demand for our wood furniture products. Our expansion plans will be implemented in phases based upon the availability of funds. Such expansion plans include establishing 2 new production lines to manufacture new products as well as increasing our existing production capacity by upgrading and renovating our existing facilities.
 
We regularly review our cash funding requirements and attempt to meet those requirements through a combination of cash on hand, cash provided by operations and private financing.