China Shandong (OTC BB: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

China Shandong Industries, Inc. and Subsidiaries
Audited Consolidated Statements of Income and Comprehensive Income
For the Years ended December 31 2010 and 2009
		For the years ended December 31,
		2010				2009
Revenues
Sales		$	83,934,050			$	69,435,044
Cost of goods sold (exclusive of depreciation and amortization)			59,247,966				49,360,775
Operating expenses
Selling and marketing			964,130				831,245
Research and development expenses			729,195				502,584
General and administrative			2,586,166				1,439,600
Professional and consulting fees			509,891				24,218
Total Operating Expenses			4,789,382				2,797,647
Income from operations			19,896,702				17,276,623
Other income (expenses)
Finance income (expenses)			(938,247	)			(753,093	)
Other income			5,226				202,851
Non-operating income  (expenses)			83,346				(611,339	)
Total other income (expense)			(849,675	)			(1,161,581	)
Income before income taxes			19,047,027				16,115,042
Income taxes - current			4,889,138				3,415,978
Income taxes - deferred			-				677,909
Net income		$	14,157,889			$	12,021,155
Other comprehensive income
Foreign currency translation adjustment			1,904,157				(241,522	)
Comprehensive income		$	16,062,046			$	11,779,634
Earnings per common share
Basic		$	1.65			$	1.47
Fully diluted		$	1.62			$	1.47
Weighted average common shares outstanding
Basic			8,579,393				8,146,250
Fully diluted			8,748,973				8,165,139

GeoTeam Note: Adjusted Fourth Quarter 2010 vs. 2009 EPS:

• Full Year:  $1.67 vs. $1.55
• Fourth Quarter: $0.89 vs. $0.94

On December 22, 2010, pursuant to Section 242 of the General Corporation Law of the State of Delaware, the holder of a majority of the shares of common stock of China Shandong Industries, Inc. approved a reverse split of such shares with a ratio of 1-for-1.5, which will become effective on January 18, 2011, and the filing of the Certificate of Amendment to the Certificate of Incorporation.

We are offering shares of our common stock.  We intend to apply for listing of our common stock on the NASDAQ Capital Market. If the application is not approved, we will not complete this offering

We intend to use the net proceeds from this offering to construct a new production facility. This production facility will include modern equipment and components that we believe will allow us to produce our products more quickly and in greater quantity, without sacrificing quality, which we believe will enable us to satisfy a greater percentage of oversea requests for our products received by us that we are currently unable to fulfill. The total cost of such production facility we believe is approximately $20 million, including but not limited to (i) $5.3 million to build a 40,000 square meter work shop, (ii) $6.7 million to purchase the necessary equipment for the production line, and (iii) $8.0 million to purchase raw materials and other materials used in the manufacturing of products the new production line will produce. We intend to obtain the balance of such funds from our working capital, and/or retained earnings.

Third Quarter 2010

• Revenues for the three and nine months ended September 30, 2010 were $22,746,574 and $62,181,727, respectively, representing an increase of $8,021,462 or 54.5%, and $15,980,610 or 34.6%, compared to revenues of $14,725,112 and $46,201,117 for the comparative periods ended September 30, 2009.

• Net income for three and nine months ended September 30, 2010 was approximately $4,008,460 and $10,286,442, respectively, an increase of approximately $1,715,854 or 74.8%, and by $2,870,117 or 38.7%, compared to net income of approximately $2,292,606 and $7,416,325 for the same periods ended September 30, 2009.

In 2010, we intend to continue to focus on the implementation of our strategic plan to sustain the growth we have experienced since becoming a U.S. public company in November 2009 through the reverse acquisition of Mobile Presence Technologies, Inc., a holding company for our China-based subsidiaries. In early 2011, we expect to construct a new production facility. This production facility will include modern equipment and components that we believe will allow us to produce our products more quickly and in greater quantity, without sacrificing quality, which we believe will enable us to satisfy additional oversea requests for our products received by us that we are currently unable to fulfill. In addition, through our aggressive marketing campaign, we also expect to increase our brand awareness and customer loyalty.

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.

Based upon our perceived and historical growing demand for our wood furniture product and the changing demographics of the wood furniture industry, we believe we have a unique opportunity to substantially increase our revenues, net income and gross margins by not only expanding the manufacturing capacity of our existing wood furniture business but also producing different types of wood furniture products that we believe there is a large and increasing international demand for.

As a result, while we intend to continue manufacturing and sell our straw, wicker and handicraft products, we intend to devote substantial financial and other resources on our wood furniture products by not only producing new products but also increasing our current manufacturing capacity by renovating and upgrading our current production facilities.

China Shandong Industries completed its reverse merger on January 21, 2009.

Company snapshot:

Global marketer of straw-wicker products, wooden crafts and solid wooden furniture.  Its products are sold by well known mass market retailers including Wal-Mart, ABM Group, Argos Limited, IKEA, Zara and others.

Post Merger Share Calculation:

• 1,046,500: Pre reverse merger outstanding shares
• 875,000: Shares cancelled as part of the Share Exchange
• 1,543,500: Newly issued shares of Common Stock

GeoTeam® best effort calculation of total post reverse merger outstanding shares after 15 for 1 forward split and assuming full conversions:  25,725,000

Financial Snapshot: (June Year)

• In 2008, the company achieved sales of $43 million and net income of approximately $6 million. This works out to ProForma EPS of $0.23.
• In 2009, the company achieved sales of $53.7 million and net income of approximately $7.7 million. This works out to ProForma EPS of $0.30.
• In the first six months of fiscal 2010 the company achieved sales of  $29.7 million and net income of $4.6 million. This works out to ProForma EPS of $0.18.
• Still awaiting financial for the back half of 2009.
• Book value per share as of June 2009: $1.13.

 Source: SEC 8K (November 12, 2009)