UNITED STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 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, 2009




£  Transition Report Under
Section 13 or 15(d) of the Securities Exchange Act of 1934


For the
transition period from ______ to_______





Commission
File Number: 000-53075




QINGDAO
FOOTWEAR, INC.


(Formerly
Datone, Inc.)


(Exact
name of registrant as specified in its charter)




Delaware
              16-1591157(State or other jurisdiction of incorporation or
                organization)
              (I.R.S. Employer Identification Number)





Qingdao
Footwear, Inc.


269
First Huashan Road


Jimo
City, Qingdao, Shandong, PRC


(Address
of principal executive office and zip code)





86-0532-86595999


(Registrant’s
telephone number, including area code)





Securities
registered pursuant to Section 12(b) of the Act: None.





Securities
registered pursuant to Section 12(g) of the Act: Common Stock, par value
$0.0001





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o      No x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o      No x





Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K 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. x





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




Large
      accelerated filer o
            Accelerated
      filer o
            Non-accelerated
      filer  o
            Smaller
      reporting
              company x




Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).   Yes o No x




As of
June 30, 2009, the aggregate market value of the shares of the Registrant’s
common stock held by non-affiliates (based upon the closing price of such shares
as reported on the Over-the-Counter Bulletin Board) was approximately $65,233.
Shares of the Registrant’s common stock held by each executive officer and
director and by each person who owns 10 percent or more of the outstanding
common stock have been excluded in that such persons may be deemed to be
affiliates of the Registrant. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.




As of
August 2, 2010, there were 10,000,000 shares of the Registrant’s common stock
outstanding.





Explanatory
Note





The
purpose of this Annual Report on Form 10-K/A is to amend Items 1, 5, 10, 11 and
13 of our Annual Report on Form 10-K for the fiscal year ended December 31,
2009, which was filed with the Securities and Exchange Commission (the “SEC”) on
March 30, 2010 (the “2009 10-K”).





Items 1,
5, 10, 11 and 13 of our 2009 10-K have been amended and restated in their
entirety. Except as stated herein, this Form 10−K/A does not reflect events
occurring after the filing of the Form 10-K on March 30, 2009 and no attempt has
been made in this Annual Report on Form 10-K/A to modify or update other
disclosures as presented in the 2009 10-K. Accordingly, this Form 10−K/A should
be read in conjunction with our filings with the SEC subsequent to the filing of
the Form 10−K.





Throughout
this report, the terms “we,” “us,” “our company,” “our” and “Qingdao Footwear”
refer to the combined business of Qingdao Footwear, Inc., formerly Datone, Inc.,
and its wholly owned direct and indirect subsidiaries, (i) Glory Reach
International Limited, or “Glory Reach,” a Hong Kong limited company; and (ii)
Qingdao Hongguan Shoes Co., Ltd., a PRC limited company, or “QHS,” as the case
may be.


2


QINGDAO
FOOTWEAR, INC.


(Formerly
Datone, Inc.)




FORM
10-K/A


For
the Fiscal Year Ended December 31, 2009





PagePART
      IItem
      1.
                    Business
                    
                    4PART
      IIItem
      5.
                    Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                    
                    17PART
      IIIItem
      10.
                    Directors,
      Executive Officers and Corporate Governance
                    
                    19Item
      11.
                    Executive
      Compensation
                    
                    22Item
      13.
                    Certain
      Relationships and Related Party Transactions, and Director
      Independence
                    
                    23




3





PART
I


ITEM
      1.
            BUSINESS




Overview





We are a
designer and retailer of branded footwear in Northern China. We were organized
to service what we believe is an unmet and increasing demand for high quality
formal and casual footwear throughout the PRC. As urbanization and individual
purchasing power has increased in China, the demand for leather footwear has
also grown.




Our
principal business includes (1) designing and selecting designs for men’s and
women’s leather shoe lines; (2) sourcing and purchasing contract-manufactured
footwear; and (3) selling these lines of footwear under our proprietary brand,
“Hongguan” (sometimes presented as “HonGung”). We do not manufacture or assemble
any shoes.  We operate a number of flagship stores throughout greater
Qingdao. Our products are also brought to market through our extensive
distribution network of authorized independent distributors as well as through
third party retailers selected to operate exclusive Hongguan brand stores on our
behalf. Our company headquarters and main sales office is located in Shandong
province in northern China, in the city of Jimo, less than 25 miles from the
major urban center of Qingdao.





Corporate
History and Background





Qingdao
Footwear was originally incorporated as Datone, Inc. on August 9, 2000 under the
laws of the State of Delaware. The Company operated as a wholly-owned subsidiary
of USIP.com, Inc., a Utah corporation.  On August 24, 2006, USIP.com,
Inc. spun-off its subsidiary companies, one of which was Datone, Inc. On
February 1, 2008, Datone, Inc. filed a Form 10-SB registration statement that
was declared effective on November 13, 2008.





Datone,
Inc. was a provider of both privately owned and company owned payphones and
stations in New York. The Company generates revenues from the collection of the
payphone coinage, a portion of usage of service from each payphone and a
percentage of long distance calls placed from each payphone from the
telecommunications service providers. In addition, the Company also generated
revenues from the service and repair of privately owned payphones and sales of
payphone units.




On
February 12, 2010, the Company completed a reverse acquisition transaction
through a share exchange with Glory Reach International Limited, a Hong Kong
limited company (“Glory Reach”), the shareholders of Glory Reach (the
“Shareholders”), Greenwich Holdings LLC and QHS, whereby the Company acquired
100% of the issued and outstanding capital stock of Glory Reach in exchange for
10,000 shares of our Series A Convertible Preferred Stock.  These
shares of our Series A Convertible Preferred Stock constituted 97% of our issued
and outstanding capital stock on an as-converted to common stock basis as of and
immediately after the consummation of the reverse acquisition. As a result of
the reverse acquisition, Glory Reach became our wholly-owned subsidiary and the
former shareholders of Glory Reach became our controlling stockholders. The
share exchange transaction with Glory Reach was treated as a reverse
acquisition, with Glory Reach as the acquirer and Datone, Inc. as the acquired
party for accounting and financial reporting purposes.




Immediately
following the closing of the reverse acquisition of Glory Reach, one of the
Shareholders transferred 337 of the 874 shares of Series A Convertible Preferred
Stock issued to him under the share exchange to certain persons who provided
services to Glory Reach’s subsidiaries, pursuant to share allocation agreements
that the Shareholder entered into with such service providers.  We
have accounted for such transfers as compensation expenses.




4


Upon the
closing of the reverse acquisition, Craig H. Burton, our president and director,
Joseph J. Passalaqua, our secretary and director, and Joseph Meuse, our
director, submitted resignation letters pursuant to which they resigned from all
offices that they held effective immediately and from their position as our
directors that became effective on the tenth day following the mailing by us of
an information statement to our stockholders that complies with the requirements
of Section 14f-1 of the Exchange Act, was mailed out on March 8, 2010. In
addition, our board of directors on February 12, 2010 appointed Tao Wang
(Chairman), Renwei Ma and Lanhai Sun to fill the vacancies created by such
resignations, which appointments became effective upon the effectiveness of the
resignation of Craig H. Burton, Joseph J. Passalaqua and Joseph Meuse on March
18, 2010, the tenth day following the mailing by us of the information statement
to our stockholders on March 8, 2010. (Subsequent to the resignation of these
individuals, our company retained Mr. Meuse as its Chief Financial Officer on
July 12, 2010.)  In addition, our executive officers were replaced by
QHS’ executive officers upon the closing of the reverse acquisition as indicated
in more detail below.




As a
result of our acquisition of Glory Reach, we now own all of the issued and
outstanding capital stock of Glory Reach, which in turn owns all of the
outstanding capital stock of QHS.




QHS was
established in the PRC on May 11, 2003 for the purpose of engaging in the
development and sales of shoe products. Prior to the acquisition described in
the following paragraph, Mr. Tao Wang owned 80% of the equity interests of
QHS.





Glory
Reach was established in Hong Kong on November 18, 2009 to serve as an
intermediate holding company.  Mr. Tao Wang controls and has the right
to receive sole ownership of Swift Dynamic, the majority owner of Glory Reach,
pursuant to the Incentive Option Agreement and Entrustment Agreement entered
into with Renhuan Shi, a Korean passport holder. See “Risk Factors – Our
business and financial performance may be materially adversely affected if the
PRC regulatory authorities determine that our acquisition of QHS constitutes a
Round-trip Investment without MOFCOM approval.”  As a result of Mr.
Wang’s ownership of QHS and his control of Glory Reach, the entities are
considered to be under common control.





On
February 8, 2010, pursuant to the restructuring plan and upon issuance of the
Enterprise Corporation Business License by the Jinmo City Administration for
Industry and Commerce, Glory Reach acquired 100% of the equity interests in QHS
from Mr. Tao Wang, our Chief Executive Officer, and other minority shareholders,
who are all PRC residents. On February 4, 2010, the local government of the PRC
issued the certificate of approval regarding the change in shareholding of QHS
and its transformation from a PRC domestic company to a wholly-foreign owned
enterprise.




Since
there is common control between the Glory Reach and QHS, for accounting
purposes, the acquisition of QHS has been treated as a recapitalization with no
adjustment to the historical basis of its assets and liabilities. The
restructuring has been accounted for using the “as if” pooling method of
accounting and the operations were consolidated as if the restructuring had
occurred as of the beginning of the earliest period presented in our
consolidated financial statements and the current corporate structure had been
in existence throughout the periods covered by our consolidated financial
statements.




Immediately
following the acquisition of Glory Reach, under an Agreement of Conveyance,
Transfer and Assignment of Assets and Assumption of Obligations (the “Conveyance
Agreement”), we transferred all of our pre-acquisition assets and liabilities to
our wholly-owned subsidiary, DT Communications, Inc.  The spinoff to
DT Communications, Inc. occurred immediately before the
acquisition.  Because the surviving entity for accounting purposes was
the operating company, Glory Reach, the spinoff had no impact on our accounting
for the reverse merger.





On March
1, 2010, Swift Dynamic, being the record holder of 6,495 shares of our Series A
Preferred Stock, constituting 63.0% of the voting power of our issued and
outstanding shares of our Common Stock and Series A Preferred Stock, voting
together as a single class, consented in writing to an amendment to our
certificate of incorporation to change our name to “Qingdao Footwear,
Inc.”


5





Our
Corporate Structure





All of
our business operations are conducted through our Hong Kong and Chinese
subsidiaries. The chart below presents our corporate structure.











Our
Industry and Principal Market




China is
the largest producer of footwear in the world, with at least 25,000 enterprises
employing more than 10 million employees who manufacture more than 10 billion
pairs of shoes per annum. China’s annual production accounts for nearly 70% of
the 14.3 billion pairs of shoes produced worldwide. In 2008, roughly 75% of PRC
production capacity was exported while the remaining 25% were consumed
domestically. Chinese consumption of footwear reached 2.5 billion pairs in 2008.
(Global Footwear, 2nd Edition, www.researchandmarkets.com) We anticipate stable
growth in the domestic footwear market for the next several
years.  Beginning with the deterioration in the global economy in 2008
and the collapse of the Chinese textile and footwear export market, a material
number of low margin manufacturers were forced out of business. Domestic
consumption and retail sales within China, however, remained robust throughout
the export downturn and global financial crisis. As we have intentionally
avoided the manufacturing sector, we were able to capitalize on the economic
conditions and maintain our profit margin and by capitalizing on overcapacity in
our sourcing market and growing consumer demand.




6





PRC
Domestic Consumption




According
to the CIA World Factbook, China’s gross domestic product (“GDP”) growth rate
has exceeded both the United States’ and the world’s GDP growth rate over the
past ten years:











Along
with growth in the economy as a whole, Chinese domestic consumption has
increased in line with rapid urbanization and increases in disposable income
over the past 15 years. Per capita urban disposable income has increased by an
annualized rate of 12.9% over the 5 years ending in 2008, and is anticipated to
top $2,000 in 2012. The urban population as a percentage of the total population
increased from 40.6% in 2003 to 46.6% at the end of 2009, and this trend is
expected to continue into the future. (National Bureau of Statistics of China,
www.stats.gov.cn) The United
Nations estimates that China’s population is likely to be evenly split between
rural and urban areas by 2015. (“Urbanization in the People’s Republic of
China,” www.wikipedia.org)


7





These
trends have driven a boom in retail sales in the PRC, which has grown at an
annual rate ranging from 9.7 to 21.6% over the past ten year
period.   It is estimated that retail sales will grow 47% from
2009 to 2014.  (China Retail Report Q1 2010,
www.companiesandmarkets.com)





The
retail sales according to the China Statistical Yearbook are displayed
below:











The
PRC Footwear Market





China’s
footwear market generated total revenues of approximately $11.7 billion dollars
in 2008.  According to Datamonitor, from 2004 through 2008, revenues
grew at a cumulative annual growth rate of approximately 10.7%. (“Footwear in
China,” www.datamonitor.com)


8











China’s
footwear market accounts for approximately 34% of the entire Asia-Pacific
footwear market’s value, and China is expected to continue to grow in future
periods by over 8% per year through 2013, while the most valuable market, Japan,
which holds approximately 35.8% of the footwear market value in the region, is
expected to decrease by approximately 0.8% per year over the same period.
(“Footwear in China,” www.datamonitor.com)








9





While
Chinese per capita footwear consumption is lower than a number of other
countries, China surpassed the United States in 2008 as the country that
purchases the most pairs of footwear in the aggregate.  Because the
average Chinese consumer purchases an average of two pairs of shoes annually,
far fewer than consumption levels in Korea, Japan or the West, shoe consumption
are expected to approach levels of other nations with similar cultural
consumption characteristics if China’s consumer wealth continues to grow.
(“Footwear in China,” www.datamonitor.com)  For this reason, we expect
the market is likely to continue to grow for the foreseeable
future.





Our
Growth Strategy




We
believe that the market for affordable, high quality footwear in China provides
us with attractive and sustainable growth opportunities.  We
intend to pursue the following strategies to achieve our goal:




(1)
            Continue our aggressive
      marketing and advertising campaigns in order to gain brand
      awareness.We currently
      advertise and market our products throughout Shandong province in general
      and the greater Qingdao region in particular, using a combination of
      advertising across a variety of media, sales fairs, and billboard
      displays.  We expect to continue to focus these
      efforts.


(2)
            Expand distributor and third
      party operator stores in prime locations to maximize
      profits.  We seek to place stores in locations we
      consider attractive from a business perspective. Potential attractive
      locations are typically in areas that are likely to have a sufficient
      population of “window shoppers” in the Registrant’s target demographic
      (generally, consumers seeking business casual and formal leather shoes
      appropriate for an office setting).  We do not currently plan to
      expand our geographic footprint beyond what we view as our core market,
      Shandong province.  In addition, we expect that we will continue
      to strengthen our presence in the Qingdao
  region.


(3)
            Bring more self owned stores
      online to increase higher margin sales.  Although we have
      not established a timeline to increase the number of self owned stores we
      will open in the near future, we expect that we will open more self owned
      stores (and at a faster rate) if we complete this offering than we will
      open if we rely only on organic growth to fund such
      openings.  The reason for this is that we have found that
      expanding our distributor network allows us to leverage our resources more
      effectively, even though we earn higher margins on our self owned
      stores.  In the event we complete this offering, however, we
      would have free cash available to devote to opening self owned stores. In
      our experience, establishing a new sales point such as a company-owned
      flagship store in Qingdao typically requires approximately three months
      and costs approximately $120,000.


(4)
            Continue to strive for
      excellence in quality, customer service and design in order to attract new
      and retain repeat customers.We have an in-house product
      design team, which is responsible for designing our product
      lines.  We have worked with this team and our advertising team
      to develop an image for our Hongguan brand that we believe will continue
      to attract customers in our target demographic of office
      workers.  We recognize employees on a regular basis to encourage
      a concerted effort of high quality customer
  service.


(5)
            Leverage our growing
      purchasing power with manufacturers to lower costs.  At
      present, we have found that Chinese shoe manufacturers have unused
      manufacturing capacity.  To the extent we have demand from
      customers for our branded shoes, we believe we benefit from a favorable
      market in which to purchase from such manufacturers.  If we
      continue to grow, we will be able to use our increased purchasing power
      and the desire of manufacturers to make use of such untapped capacity to
      reduce our costs to purchase
footwear.




Our
Products




Our
products consist of men and women’s footwear. Our designs are on the whole
targeted at consumers seeking business casual and formal leather shoes
appropriate for an office setting. Each year we design or commission designs for
more than 200 unique styles. We do not manufacture our products, but instead
outsource manufacturing to third parties. Our designs are split roughly evenly
between men’s and women’s products. Designs are made based on collaboration
between our sales department and design department regarding market demand and
assessment of what will designs be fashionable in the upcoming season. As of
March 31, 2010, men’s footwear constituted approximately 60% of revenue and
women’s footwear the remainder. Approximately 40% of sales were formal shoes,
and the remainder is attributed to casual footwear.




10










Sourcing
and Purchase of Products




We are a
retailer and designer of footwear products, and as such we fully outsource
production of our footwear to third party manufacturers. Due to excess capacity
in the footwear manufacturing industry in the PRC, we have historically been
able to source our products at competitive prices that allow us to maintain
strong margins in comparison with our competitors. In this way, we avoid what we
perceive to be the risks and lower margins associated with manufacturing
footwear and are able to focus our energies on our brand building and retail
business.





Our
suppliers are selected for their ability to meet our high quality standards,
timely execution of our orders and competitive pricing. As of March 31, 2010, we
had contractual relationships with 60 footwear manufacturers. None of our
suppliers accounted for more than 10% of the total cost of our goods sold in
2009. Our suppliers are mainly located in Wenzhou, Chongqing and various towns
in Jiangsu.




Our
contracts with suppliers are on an as ordered basis, with payment due at the end
of the month of delivery, and are usually for a term of one year. Prices are
negotiated based on a by design basis by our sourcing team. All of our suppliers
are subject to our strict quality control standards, and we are entitled to
return product without payment if it is not according to the quality set forth
in our agreement.




During
the year ended December 31, 2007, purchases from one vendor accounted for 13.2%
of the total merchandise purchases of the Company. There is no such
concentration for the year ended December 31, 2008 and year ended December 31,
2009.




11





Sales
Channels





The
following diagram details our current distribution channels:











As of
March 31, 2010, we had 12 flagship stores, 11 exclusive third party managed
retail outlets, and 192 outlets managed by distributors.





The
majority of our sales come through distributors stores.  The table
below provides a breakdown of sales by sales channel:





Channel
                
                2009 Sales
                
                
                %
                
                
                2008 Sales
                
                
                %Self
      Owned Stores
                
                $
                2,792,146
                
                
                
                16
                %
                
                $
                2,049,529
                
                
                
                15
                %Wholesale
      (Third party
                  Stores
      and Distributors)
                
                $
                15,071,745
                
                
                
                84
                %
                
                $
                11,854,785
                
                
                
                85
                %Total
      Revenue
                
                $
                17,863,891
                
                
                
                100
                %
                
                $
                13,904,314
                
                
                
                100
                %




12





We have
experienced rapid growth in our retail presence in the past two
years.  The following table details the locations and historical
growth of our sales network:




Flagship Stores
                                                        
                                                        Distributors
                                                        
                                                        3rd Party Operators
                                                        
                                                        Total2008
                                                        
                                                        2009
                                                        
                                                        2010
                                                          Q1
                                                        
                                                        2008
                                                        
                                                        2009
                                                        
                                                        2010
                                                          Q1
                                                        
                                                        2008
                                                        
                                                        2009
                                                        
                                                        2010
                                                          Q1
                                                        
                                                        2008
                                                        
                                                        2009
                                                        
                                                        2010
                                                          Q1Shandong
                                                          (excluding
      Qingdao)
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        0
                                                        
                                                        
                                                        42
                                                        
                                                        
                                                        155
                                                        
                                                        155
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        6
                                                        
                                                        6
                                                        
                                                        
                                                        42
                                                        
                                                        
                                                        161
                                                        
                                                        161Qingdao
      city
                                                          (including
      Jimo)
                                                        
                                                        
                                                        8
                                                        
                                                        
                                                        11
                                                        
                                                        12
                                                        
                                                        
                                                        44
                                                        
                                                        
                                                        26
                                                        
                                                        26
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        4
                                                        
                                                        4
                                                        
                                                        
                                                        52
                                                        
                                                        
                                                        41
                                                        
                                                        42Xinjiang
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        0
                                                        
                                                        
                                                        1
                                                        
                                                        
                                                        1
                                                        
                                                        3
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        1
                                                        
                                                        1
                                                        
                                                        
                                                        1
                                                        
                                                        
                                                        2
                                                        
                                                        4Shanxi
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        0
                                                        
                                                        
                                                        2
                                                        
                                                        
                                                        3
                                                        
                                                        2
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        0
                                                        
                                                        
                                                        2
                                                        
                                                        
                                                        3
                                                        
                                                        2Tianjiang
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        1
                                                        
                                                        1
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        1
                                                        
                                                        1Heilongjiang
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        1
                                                        
                                                        1
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        1
                                                        
                                                        1Hebei
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        2
                                                        
                                                        1
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        2
                                                        
                                                        1Liaoning
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        1
                                                        
                                                        1
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        1
                                                        
                                                        1Henan
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        1
                                                        
                                                        1
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        0
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        1
                                                        
                                                        18
                                                        
                                                        
                                                        11
                                                        
                                                        12
                                                        
                                                        
                                                        89
                                                        
                                                        
                                                        191
                                                        
                                                        191
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        11
                                                        
                                                        11
                                                        
                                                        
                                                        97
                                                        
                                                        
                                                        213
                                                        
                                                        214




Shandong
Province





Shandong
Province is China’s second largest province (after Guangdong), with a population
of approximately 94 million people.  The province is also China’s
second most densely populated province (after Jiangsu), with 587 people per
square kilometer, more than four times the average population density in
China.  Gross domestic product (“GDP”) attributable to Shandong ranks
it second among China’s provinces, accounting for more than ten percent of
China’s GDP in 2008.  (“List of Administrative Divisions by Population
Density,” en.wikipedia.org; “World Bank Supports Skills Development in Two
Chinese Provinces,” go.worldbank.org)





Qingdao
City





Qingdao
is a sub-provincial city in China comprised of seven districts and five
county-level cities.  It is one of China’s twenty largest cities and
one of the two largest cities in Shandong province, with approximately 200,000
more people living in Jinan city than in Qingdao city but more than 1.7 million
more people living in the greater Qingdao administrative area than in Jinan’s
administrative region.  Qingdao has a population of approximately 8
million residents, of whom approximately 3.8 million live in the urban
area.





Qingdao’s
per-capita GDP (approximately $7,616 in 2008) is above average in China
(approximately $3,290 in 2008), in part due to the Chinese government’s decision
in 1984 to designate Qingdao as a special economic and technology development
zone.  For this reason, Qingdao’s local economy features a variety of
foreign investment, with South Korea and Japan investments being particularly
prominent in the area.  (“Qingdao,” en.wikipedia.org)





Flagship
Stores





We
directly own or lease and operate all of our flagship stores. All located in
Jimo or greater Qingdao. Each store has an individual sales team and managers
that report to our central office in Qingdao. All sales staff are compensated on
a commission based pay scale. Locations are selected according to management’s
estimation of market opportunity. Our flagship stores bear the Hongguan brand
name and exclusively retail Hongguan brand footwear.





During
the years ended December 31, 2009 and 2008, the sales generated by the Company’s
flagship stores accounted for 16% and 15% of total sales,
respectively.




13


Hongguan
Flagship Outlets in Jimo:
 
 
 
 
 
 Stores
Managed by Third Party Operators
 
 In order
to meet consumer demand for our products and efficiently expand of our business,
we also select certain third parties to operate Hongguan (sometimes presented as
“HonGung,” as in the above image) branded outlets. We have literature and rules
regarding the location, size, store layout, interior design and product display
of their Hongguan retail stores. All potential third party operators require
prior approval before opening new stores. We visit potential locations for new
outlets and consider the suitability of such locations before approval.
Furthermore, all third party operators must personally operate their
stores.
 
 These
operators are chosen based on the following criteria:
 
 -
Management experience in retail operations and our confidence in their ability
to effectively meet our sales targets and high standards of
conduct.
 
 - Good
credit and sufficient capital.
 
 -
Proposed store location, size and condition.
  14
 
 After
approval, the third party operators must purchase a fixed amount of footwear
stock at wholesale prices and Hongguan branded decorations for proper interior
and exterior design. Third party operators then continue to pay wholesale prices
for footwear on an on demand basis. Contracts with third party operators are
typically for a period of two years.
 
 Distributors
 
 We
identify suitable distributors and enter into distributorship agreements,
usually for a term of two years. Distributors purchase wholesale priced shoes
and vend them at sales points throughout China. We require our distributors to
implement, monitor compliance with and enforce our retail store guidelines. Our
distributors are independent third parties that do not pay us any fee other than
the purchase price for the purchase of our products, nor do we pay them any
incentives or fees.
 
 Our
distribution contracts usually contain the following terms:
 
 Geographic limitation—
Distributors must sell our Hongguan branded footwear within a specific
authorized location(s).
 
 Wholesale price—
Distributors pay a discounted wholesale price for our products.
 
 Payment and credit terms—
Payment and credit terms are on a case by case basis. The credit period is
usually one month, and 25% percent of our distributors prepay for their
stock.
 
 Performance— QHS typically
retains the right to end the agreement if a distributor does to meet sales
turnover levels comparable to other distributors.
 
 Exclusivity— We work with
nearly 200 distributors, so the types and sizes of distributor outlets vary
significantly.  Many of these outlets are independent shoe stores, but
we are open to the prospect of cooperating with department stores and larger
established retailers.  The distributorship agreements allow our
distributors to sell our products under the Hongguan brand on an exclusive
basis. If there are other brands featured at the distributor’s outlet, Hongguan
brand shoes must constitute a certain percentage, generally a majority, of
product on display. Furthermore, the products must be displayed according to our
standards.
 
 Training— Training and
instructional materials are provided to all of our distributers regarding
product display, decoration, and sales techniques.
 
 Renewal and termination— We
can renew contracts at our discretion and can terminate contracts if contractual
conditions including sales targets are not met.
 
 We do not
have a return policy with our distributors, other than a general right to return
defective merchandise. In the event a distributor is unable to sell its stock,
we will attempt—but are not obligated—to help it relocate such stock to a nearby
QHS outlet.
 
 Purchasing
and Sales Prices
 
 We have
historically organized one sales fair per year in which distributors and third
parties operators can view and select upcoming designs. We also maintain several
showrooms in our head office in Jimo with the current and future product lines
which our sales force visits on a regular basis.
 
 We intend
to keep the pricing of our products at reasonable levels in the foreseeable
future in order to stay competitive and maintain product demand. Our wholesale
prices are generally not more than a 50% discount to the sales
price.
  15
 
 Employees
 
 The table
below details the various departments and number of employees in
each.  All of these employees are full-time employees.
 
 Management
      and Sales
                      
                      
                      9Design
      & Purchasing
                      
                      
                      3Accounting
                      
                      
                      5Warehouse
                      
                      
                      8Administration
                      
                      
                      7Sales
                      
                      
                      30Total
                      
                      
                      62
 
 We
believe we are in material compliance with all applicable labor and safety laws
and regulations in the PRC, including the PRC Labor Contract Law, the PRC
Unemployment Insurance Law, the PRC Provisional Insurance Measures for Maternity
of Employees, PRC Interim Provisions on Registration of Social Insurance, PRC
Interim Regulation on the Collection and Payment of Social Insurance Premiums
and other related regulations, rules and provisions issued by the relevant
governmental authorities for our operations in the PRC. According to the PRC
Labor Contract Law, we are required to enter into labor contracts with our
employees and to pay them no less than local minimum wage.
 
 Intellectual
Property
 
 Our
products are sold under the Hongguan brand name, which is a registered trademark
in the PRC.
 
 Trademarks (Mandarin)
                
                Trademarks
                
                Certificate #
                
                Valid TermHongguan
                
                3483788
                
                March
      14, 2005 to March 13, 2015
 
 Under
current Chinese laws, we may renew our trademark upon expiration for an
unlimited number of successive ten year terms.
 
 Advertising
and Marketing Efforts
 
 Our sales
and marketing department is responsible for the organization of sales fairs,
selection, review, execution and management of contracts with third parties and
distributers, and operation of our own retail outlets. We utilize television,
print media, radio, the internet and outdoor billboard displays to build brand
awareness. Since 2006, Chinese popular television star Ren Quan has been the
face of QHS’ advertising campaign. In 2006, we entered into a contract with Ren
Quan and purchased the rights to use his image for our marketing purposes. We
are contractually obligated to maintain confidentiality as to the terms at which
we acquired his rights. More recently, we have entered into a contract with
another Chinese popular television star, Liu Xiaohu and purchased the rights to
use his image for our marketing purposes, and he is featured in our television
commercials and our various advertisements beginning in 2010.  We
expect to focus more heavily on advertisements featuring Liu Xiaohu in the
future.
 
 Competition
 
 The
retail and in particular the footwear retail industry are highly competitive in
the PRC. Our competitors are a number of international and domestic enterprises
with shoe sales operations in our target market, including but not limited to
Jinhou Footwear Company, Liangda Leather Company, Haining Leather Footwear
Company and Fude Leather Shoe Company. We expect the competition to become more
intensified due to the entry of new footwear retailers in the PRC and as a
result we may be subject to competitive pricing pressures in the future.
Quality, cutting edge style, brand awareness, customer service, highly motivated
sales force and affordable footwear prices are vital cornerstones to success in
our industry.
 
 16
  Our
market share is small in comparison with the entire China footwear market, which
is a multibillion-dollar industry.  According to the recent census
taken in 2008, the cities of Jimo and Qingdao have approximately 1.10 million
and 8 million residents, respectively.  While we lack readily
available market research on the footwear market in Qingdao and Jimo, our
management estimates that our products collectively represent a market share of
roughly 20% in Jimo and 6% in Qingdao.  This market share is based on
our target market of business casual and formal leather shoes for office
workers.
 
 Design
Team
 
 Our
design team consists of three full time designers that are engaged in creating
new fashionable designs for upcoming seasons. They are also engaged in the
review, selection and alteration of designs proposed by contract manufacturers.
On average, our design team is responsible for the selection or creation 200
models of footwear per year.
 
 PART
II
  ITEM
      5.
              MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
 
 Market
Information
 
 The CUSIP
number for our common stock is 23816A103. Our common stock is quoted under the
symbol “QING” (previously “DATI”) on the Electronic Bulletin Board maintained by
the Financial Industry Regulatory Authority; however, there have only been
limited or sporadic quotations and only a very limited public trading market for
our common stock.  Indeed, our common stock has been traded publicly
on less than 20% of the trading days in 2010. The Electronic Bulletin Board is a
significantly more limited market than established trading markets such as the
New York Stock Exchange or NASDAQ.
 
 The
closing bid price for our common stock on June 22, 2010 was $5.00 per share, as
reported by www.quotemedia.com.  The common stock has not traded
publicly since that date.
 
 The
following table sets forth, for the periods indicated, the high and low closing
prices of our common stock. These prices reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.  The trading price for all days prior to the completion
of our reverse split and conversion of preferred stock into common stock has
been adjusted to account for such events.
 
 Closing Bid PricesHigh
                  
                  
                  LowYear
      Ended December 31, 2010
                  
                  ($)
                  
                  
                  ($)First
      Quarter
                  
                  
                  16.20
                  
                  
                  
                  2.16Second
      Quarter
                  
                  
                  14.85
                  
                  
                  
                  5.00Third
      Quarter (no trading since June 22, 2010)
                  
                  
                  N/A
                  
                  
                  
                  N/AYear
      Ended December 31, 2009First
      Quarter (from March 30, 2009)
                  
                  
                  0.27
                  
                  
                  
                  0.27Second
      Quarter
                  
                  
                  1.62
                  
                  
                  
                  0.27Third
      Quarter
                  
                  
                  1.35
                  
                  
                  
                  1.35Fourth
      Quarter
                  
                  
                  1.35
                  
                  
                  
                  1.35
 
 Approximate
Number of Holders of Our Common Stock
 
 As of
July 26, 2010, there were approximately 275 stockholders of record of our
common stock. This number does not include shares held by brokerage clearing
houses, depositories or others in unregistered form.
  17
 
 Dividend
Policy
 
 The
holders of shares of our common stock are entitled to dividends out of funds
legally available when and as declared by our board of directors. Our board of
directors does not anticipate declaring a dividend in the foreseeable future.
Should we decide in the future to pay dividends, as a holding company, our
ability to do so and meet other obligations depends upon the receipt of
dividends or other payments from our operating subsidiary and other holdings and
investments. In addition, our operating subsidiary in the PRC, from time to
time, may be subject to restrictions on their ability to make distributions to
us, including as a result of restrictive covenants in loan agreements,
restrictions on the conversion of local currency into U.S. dollars or other hard
currency and other regulatory restrictions. Although none of our current loan
agreements prohibit the payment of dividends, we cannot guarantee that any
future loan agreements will permit such payments.  Payments of
dividends by WFOE to our company are subject to the requirement that foreign
invested enterprises may only buy, sell and/or remit foreign currencies at those
banks authorized to conduct foreign exchange business. Further, such remittances
would require WFOE to provide an application for remittance that includes, in
addition to the application form, a foreign registration certificate, board
resolution, capital verification report, audit report on profit and stock
bonuses, and a tax certificate. In the event of our liquidation, dissolution or
winding up, holders of our common stock are entitled to receive, ratably, the
net assets available to shareholders after payment of all
creditors.   See “Risk Factors – Restrictions under PRC law on
our PRC subsidiary’s ability to make dividends and other distributions could
materially and adversely affect our ability to grow, make investments or
acquisitions that could benefit our business, pay dividends to you, and
otherwise fund and conduct our businesses” and “- Under the New EIT Law, we may
be classified as a “resident enterprise” of China. Such classification will
likely result in unfavorable tax consequences to us and our non-PRC
shareholders.”
 
 Securities
Authorized for Issuance Under Equity Compensation Plans
 
 We do not
have in effect any compensation plans under which our equity securities are
authorized for issuance and we do not have any outstanding stock
options.
 
 Recent
Sales of Unregistered Securities; Use of Proceeds from Registered
Securities
 
 During
the year ended December 31, 2009, we did not have any sales of securities that
were not registered under the Securities Act of 1933, as amended.
 
 On
February 10, 2010, we issued 3,136,768 shares of common stock to our landlord to
extinguish approximately $47,052 of debt owed to Callaway Properties, our pre
reverse acquisition landlord. Callaway Properties’ sole shareholder is Mary
Passalaqua, wife of the Company’s former director and former secretary Joseph
Passalaqua.
 
 On
February 12, 2010, we issued 10,000 shares of our Series A Convertible Preferred
stock (“Series A Preferred Stock”) to the shareholders of Glory Reach. The total
consideration for the 10,000 shares of our Series A Convertible Preferred stock
was 10,000 ordinary shares of Glory Reach, which is all the issued and
outstanding capital stock of Glory Reach. The number of our shares issued to the
shareholders of Glory Reach was determined based on an arms-length
negotiation.  The issuance of our shares to these shareholders was
made in reliance on the exemption provided by Section 4(2) of the Securities Act
for the offer and sale of securities not involving a public offering and
Regulation D promulgated thereunder.
 
 We issued
securities on February 10 and 12, 2010 in reliance upon Rule 506 of Regulation D
of the Securities Act. These shareholders who received the securities in such
instances made representations that (a) the shareholder is acquiring the
securities for his, her or its own account for investment and not for the
account of any other person and not with a view to or for distribution,
assignment or resale in connection with any distribution within the meaning of
the Securities Act, (b) the shareholder agrees not to sell or otherwise
transfer the purchased shares unless they are registered under the Securities
Act and any applicable state securities laws, or an exemption or exemptions from
such registration are available, (c) the shareholder has knowledge and
experience in financial and business matters such that he, she or it is capable
of evaluating the merits and risks of an investment in us, (d) the
shareholder had access to all of our documents, records, and books pertaining to
the investment and was provided the opportunity ask questions and receive
answers regarding the terms and conditions of the offering and to obtain any
additional information which we possessed or were able to acquire without
unreasonable effort and expense, and (e) the shareholder has no need for
the liquidity in its investment in us and could afford the complete loss of such
investment. Management made the determination that the investors in instances
where we relied on Regulation D are accredited investors (as defined in
Regulation D) based upon management’s inquiry into their sophistication and net
worth. In addition, there was no general solicitation or advertising for
securities issued in reliance upon Regulation D.
  18
 
 In
instances described above where we indicate that we relied upon Section 4(2) of
the Securities Act in issuing securities, our reliance was based upon the
following factors: (a) the issuance of the securities was an isolated
private transaction by us which did not involve a public offering;
(b) there were only a limited number of offerees; (c) there were no
subsequent or contemporaneous public offerings of the securities by us;
(d) the securities were not broken down into smaller denominations; and
(e) the negotiations for the sale of the stock took place directly between
the offeree and us.
 
 On June
10, 2010, we effected a 1-for-27 reverse split of our outstanding common stock,
which resulted in 8,100,000 shares of common stock being converted into 300,000
shares of common stock, representing 3% of our currently outstanding common
stock.  After the completion of the reverse split, shares of our
Series A Preferred Stock automatically converted into shares of common stock on
the basis of 1 share of Series A Preferred Stock for 970 shares of common stock.
This resulted in the automatic conversion of the 10,000 outstanding shares of
Series A Preferred Stock into 9,700,000 shares of common stock, constituting 97%
of our currently outstanding common stock.
 
 Purchases
of Our Equity Securities
 
 No
repurchases of our common stock were made during the fourth quarter of our
fiscal year ended December 31, 2009.
 
 PART
III
 
 ITEM
      10.
              DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
 
 Directors
and Executive Officers
 
 Prior to
the consummation of the share exchange with Glory Reach, our board of directors
consisted of three directors, Craig H. Burton, Joseph J. Passalaqua, and Joseph
Meuse (the “Former Directors”). On February 12, 2010, the Former Directors
submitted a letter of resignation and Tao Wang, Renwei Ma, and Lanhai Sun have
been appointed to our board of directors (the “Directors”). The resignation of
the Former Directors and appointment of the Directors both became effective on
March 18, 2010.
 
 Former
Directors
 
 Craig Burton, Mr. Burton
served as President and director of Datone, Inc. from August 2000 until March
18, 2010. On February 12, 2010 Mr. Burton tendered his resignation as President
of Datone. Mr. Burton attended the University of South Carolina-Coastal and was
a licensed real estate agent in the State of New York. He began working in
marketing for a long distance carrier in 1996 and in 1999, Mr. Burton became
Director of Marketing for Datone Communications, Inc., an owner of payphones and
distributor of prepaid calling cards. Datone was acquired by USIP in January,
2000. Mr. Burton served as President and a director of USIP.Com from January
2000-2006. Additionally, Mr. Burton was secretary and director of NB Telecom,
Inc. from December 2005-2008.
 
 Joseph J. Passalaqua, Mr.
Passalaqua served as our secretary and director from August 2000 until March 18,
2010. On February 12, 2010 Mr. Passalaqua tendered his resignation as Secretary
of Datone. Since 1999, Mr. Passalaqua has worked as a trainer at Sports Karate
and fitness training company located in Cicero, New York. Mr. Passalaqua is a
high school graduate.
  19
 
 Joseph Meuse, Mr. Meuse served
as a director of Datone from January 25, 2010 through March 18. 2010. Mr. Meuse
founded several companies in the financial services and securities industries,
which he continues to operate.  In 2002, Mr. Meuse founded PacWest
Stock Transfer LLC and is a majority partner in Pacific Stock Transfer Company,
an independent stock transfer agent that serves over 1,000 clients, including a
number of publicly traded companies that do business in China.  In
2003, Mr. Meuse founded Belmont Partners, LLC, an international financial
consulting firm that provides public shell companies for use in reverse merger
transactions.  In 2006, Mr. Meuse founded Belmont Financial Services
and Belmont IT Services, two companies that provide accounting and information
technology services to small businesses in the Northern Virginia
area.  Additionally, Mr. Meuse maintains a position as a board member
of the following public companies: Action
Industries, Inc.; All State Properties Holdings, Inc.; Blue Gem Enterprise;
Cinnabar Ventures, Inc.; Blue Fish Clothing, Inc.; Brite-Strike Tactical
Illumination Productions, Inc.; Comprehensive Healthcare Solutions, Inc.;
Contracted Services, Inc.; Firstar Exploration Corp.; Fresca Worldwide Trading
Company; Geopulse Explorations, Inc.; Hudson’s Grill International, Inc.;
IDcentricx, Inc.; Intercontinental Resources, Inc.; Ivecon Corp.; Jamaica Jim,
Inc.; Jasper Ventures, Inc.; King Resources, Inc.; Lions Petroleum, Inc.;
Madrona Ventures, Inc.; Michael Lambert, Inc.; Miller Diversified Corp.; Network
Capital, Inc.; Recycle Tech, Inc.; Rockport Healthcare Group; Shimmer Gold,
Inc.; Smart Holdings, Inc.; SpectraSource, Inc.; 3DShopping.com, Inc.;
Springfield Company, Inc.; Unidigital, Inc.; Volcanic Gold; WES Consulting,
Inc.; XRG, Inc.; Yzapp International, Inc.; Data Storage Consulting Services,
Inc.; Cienega Creek Holdings, Inc.; and Luke Entertainment,
Inc. Mr.
Meuse attended the College of William and Mary.
 
 Current
Board of Directors and Officers
 
 Through
July 11, 2010, Ms. Fang Sui served as our Chief Financial Officer, at which time
she resigned from such role but continues to work with our
company.  From July 12, 2010 through present, Mr. Joseph Meuse has
served as our Chief Financial Officer.  Our board of directors and
executive officers are currently as listed below.
  NAME
                AGE
                POSITIONTao
      Wang
                39
                Director
      and Chief Executive OfficerRenwei
      Ma
                43
                Director
      and General CounselJoseph
      Meuse
                40
                Chief
      Financial OfficerWenmao
      Shi
                39
                Chief
      Operating OfficerLanhai
      Sun
                39
                Director
 
 Tao Wang.Mr. Wang
founded QHS in 2003 and has served as its chief executive officer since
March 10, 2003.  Mr. Wang served as our Chief Executive Officer
and as Chairman of our Board of Directors since our inception.  Before
founding QHS, Mr. Wang was engaged in variety of capacities involving branding,
strategic marketing and sales of footwear since 1992. Mr. Wang has over 18
years’ experience in China’s footwear industry.  We have selected Mr.
Wang to serve as a director and as Chairman of the Board because he is our
majority shareholder and has a rich background in the footwear
industry.
 
 Renwei Ma.Mr. Ma
has been QHS’ legal representative since the founding of QHS in March 2003, and
was an initial investor in the Company. Prior to becoming QHS’s legal
representative, he was self-employed, and was engaged in various entrepreneurial
endeavors in the footwear industry. In 1991 he obtained an associate’s degree in
marketing from Yantai Trade and Industry University. We have selected Mr. Wang
to serve as a director and as Chairman of the Board because he is our legal
representative and a founding investor in the company.
  Wenmao Shi.Mr. Shi
has been served as our Chief Operating Officer since inception in 2003 and is
responsible for QHS advertising, marketing and sales efforts.  Prior
to joining QHS, Mr. Shi was a director of sales at Qingdao Double Star Group, a
leading PRC footwear manufacturer. Mr. Shi has over 18 years of sales
experience, and obtained a bachelors degree in economics in 1992 from Wuhan
Southeast University of Economics and Law.
 
 Lanhai Sun. Mr. Sun has been
working as the Company’s financial consultant since 2005, and he has invested in
and owns several QHS outlets. He served as the general manager at Shandong Huibo
Import & Export Co., Ltd. (2006 through 2008) and Qingdao Xingguang Import
& Export Co., Ltd. (2009 through present) apparel trading companies, as well
as serving as the CEO of SK Investment Group Ltd, a financial consulting firm
(2008 through present).  We have selected Mr. Sun to serve as a
director because of his experience in financial consulting and pivotal role
assisting with our listing in the United States.
 
 Family
Relationships
 
 There is
no family relationship among any of our officers or directors.
 
 Board
of Directors and Board Committees
 
 Our board
of directors currently consists of three (3) directors. There are no family
relationships among any of our executive officers and directors. Our directors
are currently elected each year at the annual shareholder
meeting.
  20
 
 A
director may vote in respect of any contract or transaction in which he is
interested; provided, however that the nature of the interest of any director in
any such contract or transaction shall be disclosed by him at or prior to its
consideration and any vote on that matter. A general notice or disclosure to the
directors or otherwise contained in the minutes of a meeting or a written
resolution of the directors or any committee thereof of the nature of a
director’s interest shall be sufficient disclosure and after such general notice
it shall not be necessary to give special notice relating to any particular
transaction. A director may be counted for a quorum upon a motion in respect of
any contract or arrangement which he shall make with our company, or in which he
is so interested and may vote on such motion.
 
 There are
no membership qualifications for directors. Further, there are no share
ownership qualifications for directors unless so fixed by us in a general
meeting.
 
 The Board
of Directors intends in the future to maintain a majority of independent
directors who are deemed to be independent under the definition of independence
provided by NASDAQ Listing Rule 5605(a)(15).
 
 There are
no other arrangements or understandings pursuant to which our directors are
selected or nominated.
 
 Mr. Tao
Wang currently holds both the positions of Chief Executive Officer and Chair of
the Board. These two positions have not been consolidated into one position;
Mr. Wang simply holds both positions at this time. We do not have a lead
independent director because of the foregoing reason and also because we believe
our independent directors are encouraged to freely voice their opinions on a
relatively small company board. We believe this leadership structure is
appropriate because we are a smaller reporting; as such we deem it appropriate
to be able to benefit from the guidance of Mr. Wang as both our principal
executive officer and Chair of the Board.
 
 Our Board
of Directors plays a key role in our risk oversight. The Board of Directors
makes all relevant Company decisions. As such, it is important for us to have
both our Chief Executive Officer and General Counsel serve on the Board as they
play key roles in the risk oversight or the Company. As a smaller reporting
company with a small board of directors, we believe it is appropriate to have
the involvement and input of all of our directors in risk oversight
matters.
 
 Board
Committees
 
 Currently,
three committees have been established under the board: the audit committee, the
compensation committee and the nominating committee; however, we do not yet have
board members on these committees, as we do not yet have independent directors.
The audit committee is responsible for overseeing the accounting and financial
reporting processes of our company and audits of the financial statements of our
company, including the appointment, compensation and oversight of the work of
our independent auditors. The compensation committee of the board of directors
reviews and makes recommendations to the board regarding our compensation
policies for our officers and all forms of compensation, and also administers
our incentive compensation plans and equity-based plans (but our board retains
the authority to interpret those plans). The nominating committee of the board
of directors is responsible for the assessment of the performance of the board,
considering and making recommendations to the board with respect to the
nominations or elections of directors and other governance issues. The
nominating committee considers diversity of opinion and experience when
nominating directors.
 
 Executive
and Director Compensation Determination
 
 Prior to
our reverse acquisition of Glory Reach, our operating subsidiaries were private
limited companies organized under the laws of the PRC, and in accordance with
PRC regulations, the salary and bonus of our executive officers was determined
by our shareholders.
 
 The
compensation committee of the board of directors annually reviews the
performance and total compensation package for the Company’s executive officers,
including the Chief Executive Officer; considers the modification of existing
compensation, and the adoption of new compensation plans; and recommends
appropriate changes to the board of directors, which votes on such
recommendations.
  21
 
 Section
16(A) Beneficial Ownership Reporting Compliance
 
 Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s directors
and executive officers and persons who own more than ten percent of a registered
class of the Company’s equity securities to file with the SEC initial reports of
ownership and reports of changes in ownership of common stock and other equity
securities of the Company. Officers, directors and greater than ten percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.  To the Company’s knowledge,
none of the required parties are delinquent in their Section 16(a)
filings.
 
 Involvement
in Certain Legal Proceedings
 
 The
Company is not aware of any legal proceedings in which any director, officer, or
any owner of record or beneficial owner of more than five percent of any class
of voting securities of the Company, or any affiliate of any such director,
officer, affiliate of the Company, or security holder, is a party adverse to the
Company or has a material interest adverse to the Company.
  ITEM
      11.
              EXECUTIVE
      COMPENSATION
 
 Summary
Compensation Table
 
 The
following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to the named persons for services
rendered in all capacities during the noted periods. No other executive officer
received total annual salary and bonus compensation in excess of
$100,000.
  Name and Principal Position
                          
                          Year
                          
                          Salary ($)
                          
                          
                          Bonus ($)
                          
                          
                          Total ($)Tao
      Wang, Chief Executive Officer
                          
                          2008
                          
                          
                          8,088
                          
                          
                          
                          3,676
                          
                          
                          
                          11,7642009
                          
                          
                          8,088
                          
                          
                          
                          3,676
                          
                          
                          
                          11,764Craig
      Burton, former President
                          
                          2008
                          
                          
                          40,040
                          
                          
                          
                          0
                          
                          
                          
                          40,0402009
                          
                          
                          40,040
                          
                          
                          
                          0
                          
                          
                          
                          40,040
 
 (1)
              On
      February 12, 2010, we acquired Glory Reach in a reverse acquisition
      transaction that was structured as a share exchange and in connection with
      that transaction, Mr. Tao Wang became our Chief Executive Officer. Prior
      to the effective date of the reverse acquisition, Mr. Craig Burton served
      as President of Datone.
 
 Summary
of Employment Agreements and Material Terms
 
 Prior to
our reverse acquisition of Glory Reach, our operating subsidiaries were private
limited companies organized under the laws of the PRC, and in accordance with
PRC regulations, the salary and bonus of our executives was determined by the
shareholders of QHS.  Upon the formation of QHS, Mr. Wang’s salary was
determined by Mr. Wang (as the majority shareholder) in conjunction with Renwei
Ma, the legal representative of QHS. Business and living expenses as well as
market rates were taken into consideration.  Once we appoint directors
to our compensation committee, our compensation committee will consider
compensation decisions and will determine market-based salaries for officers and
directors commensurate with their positions with our company.
 
 Other
than the salary and necessary social benefits required by the government, we
currently do not provide other benefits to the officers at this time. Our
executive officers are not entitled to severance payments upon the termination
of their employment agreements or following a change in control.
 
 We have
not provided retirement benefits (other than a state pension scheme in which all
of our employees in China participate) or severance or change of control
benefits to our named executive officers.
 
 Employment
Agreement – Craig Burton
 
 We
retained our previous present, Craig Burton, without an employment
agreement.  Mr. Burton served at will in this position until his
resignation from the position on February 12, 2010.  Mr. Burton
received no compensation other than a cash salary of $40,040 in each of 2008 and
2009 and received no payment in 2010.
  22
 
 Employment
Agreement – Tao Wang
 
 Effective
February 12, 2010, we retained Mr. Wang to serve as Chief Executive Officer of
Qingdao Footwear.  Mr. Wang currently serves in this capacity without
a written employment agreement.  Mr. Wang has, however, served as the
chief executive officer of QHS since March 10, 2003.  Mr. Wang’s
employment agreement with QHS provides for an employment period beginning on
March 11, 2003 and terminating on March 10, 2023.  Mr. Wang’s
compensation is set by QHS and is expected to be between RMB 3,000 and RMB
10,000 (approximately $440 to $1,467) per month.  In addition, Mr.
Wang is eligible to receive such performance bonuses as QHS may
determine.  QHS is obligated to pay pension funds and applicable
reserves and social insurance as may be required from time to time under Chinese
law.  Upon termination of employment, Mr. Wang is entitled only to
those benefits as are required to be paid under Chinese law.
 
 Under
Chinese law, we may only terminate employment agreements without cause and
without penalty by providing notice of non-renewal one month prior to the date
on which the employment agreement is scheduled to expire. If we fail to provide
this notice or if we wish to terminate an employment agreement in the absence of
cause, then we are obligated to pay the employee one month’s salary for each
year we have employed the employee. We are, however, permitted to terminate an
employee for cause without penalty to our company, where the employee has
committed a crime or the employee’s actions or inactions have resulted in a
material adverse effect to us.
 
 We
anticipate that we will enter into a written employment agreement with Mr. Wang
to serve as our chief executive officer prior to completion of this offering and
that such agreement will include customary terms, including confidentiality and
non-competition language, and will be for a period of at least three
years.
 
 Outstanding
Equity Awards at Fiscal Year End
 
 For the
year ended December 31, 2009, no director or executive officer has received
equity compensation from us pursuant to any compensatory or benefit plan. There
is no plan or understanding, express or implied, to pay any compensation to any
director or executive officer pursuant to any compensatory or benefit plan,
although we anticipate that we will compensate our officers and directors for
services to us with stock or options to purchase stock, in lieu of
cash.
 
 Compensation
of Directors
 
 No member
of our board of directors received any compensation for his services as a
director during the year ended December 31, 2009 and currently no compensation
arrangements are in place for the compensation of directors.
 
 ITEM
      13.
              CERTAIN
      RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
 
 Transactions
with Related Persons
 
 The
following includes a summary of transactions since the beginning of 2007, or any
currently proposed transaction, in which we were or are to be a participant and
the amount involved exceeded or exceeds the lesser of $120,000 or one percent of
the average of our total assets at year end for the last two completed fiscal
years, and in which any related person had or will have a direct or indirect
material interest (other than compensation described under “Executive
Compensation”). We believe the terms obtained or consideration that we paid or
received, as applicable, in connection with the transactions described below
were comparable to terms available or the amounts that would be paid or
received, as applicable, in arm’s-length transactions.
 
 Related
Parties
 
 Since
2007, we have entered into transactions with the following people who are
considered related persons on the respective bases listed next to their
names:
 
 Related Person Name
                    
                    Related Party BasisTao
      Wang
                    
                    Director,
      executive officer and five percent shareholderRenwei
      Ma
                    
                    Director
      and general counselWeidong
      Liang
                    
                    Brother-in-law
      of Tao WangSiyou
      Wang
                    
                    Brother
      of Tao Wang
  23
 
 Due
from related party
 
 Due from
related party at December 31, 2008 consisted of receivables from Mr. Tao Wang in
the amount of $4,373,588. These borrowings bear no interest and were repaid in
2009. As of December 31, 2009, the recorded balance of due from related parties
was $0. Since
January 2007, the maximum amount of the loan was
approximately$7,531,618.
 
 Due
to related party
 
 We
borrowed money from Mr. Tao Wang, which borrowings bear no interest and contain
no repayment terms but are due on demand. As of December 31, 2009 and December
31, 2008, the balances of such loans are $104,511 and $0 respectively. These
borrowings were paid off in the first quarter of 2010. Since
January 2007, the maximum amount of the debt was approximately
$104,511.
 
 We
declared a distribution and paid dividends to the shareholders in
2009.
 
 During
2009, we advanced to Mr. Tao Wang a total amount of $5,723,550.
 
 During
2009, we distributed $9,432,810 to our shareholders, Mr. Tao Wang and Mr. Renwei
Ma, in which $4,063,590 was distributed in cash, $5,251,860 was used to offset
advances to Mr. Tao Wang and the remaining $117,360 was the dividend payable to
Mr. Renwei Ma. This amount was paid off in the first quarter of
2010.
 
 Other
related party transactions
 
 We lease
one of our stores from Mr. Tao Wang under a four-year operating lease expiring
August 2011.  For the years ended December 31, 2009 and 2008, related
party rent expense of $17,593 and $17,298, respectively, was included in total
rent expense of the year. For the three months ended March 31, 2010 and 2009,
related party rent expense of $4,400 and $4,395, respectively, was included in
total rent expense of the year.
 
 We lease
one of our warehouse buildings to Weidong Liang.  This lease is for a
period of three years starting May 2008. Per the agreement, Mr. Liang shall pay
equal amount of advertising expense on behalf of the lessor as the lease
payment. For the year ended December 31, 2009 and 2008, the Company recorded
other income of $87,966 and $57,660, respectively, from leasing the
aforementioned building and advertising expense of the same amount respectively.
For the three months ended March 31, 2010 and 2009, we recorded other income of
$21,998 and $21,977 respectively, from leasing the aforementioned building and
advertising expense of the same amount respectively.
 
 Mr. Tao
Wang entered into the contract with our company to assume fiscal
responsibilities for all unpaid tax liabilities recorded and potential penalties
relating to all tax liabilities before December 31, 2009. As of December 31,
2008 and 2007, the assumed amount was $3,799,872 and $2,620,236, respectively,
which mainly included VAT tax payable and income tax payable. As of September
30, 2009 the assumed amount was $3,464,650. According to PRC tax law, late or
deficient tax payment could subject to significant tax penalty. On December 25,
2009, the local tax authority in Jimo City issued a “Tax Review Report”, stating
that the tax authority reviewed the Company’s income tax, VAT tax, stamp tax and
invoices for the period between June 2006 and November 2009 and noted that the
Company had paid off all its tax liability by December 21, 2009.
 
 A
long-term loan for $249,390, was issued in December 2009 by JiMo Rural Bank,
with a 2 year repayment period and annual interest rate of 7.02%.  The
loan is guaranteed by Siyou Wang and is collateralized by Mr. Wang's
property.
 
 Insider
Transactions Policies and Procedures
 
 The
Company does not currently have an insider transaction policy.
  24
 
 Director
Independence
 
 We
currently do not have any independent directors, as the term “independent” is
defined by the rules of the Nasdaq Stock Market.  We intend to add
independent directors in the near future.
 
 Promoters
and Certain Control Persons
 
 We did
not have any promoters at any time during the past five fiscal years.Additionally, we are not
a shell company for which control persons need be disclosed.
  25
 
 SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
 
 DATONE,
      INC.By:
                /s/ Tao WangTao
      WangChief
      Executive OfficerDate: August
      2, 2010
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Company in the capacities
and on the dates indicated.
 
 Signature
              
              Capacity
              
              Date/s/ Tao Wang
              
              Chief
      Executive Officer and Director
              
              August 2,
      2010Tao
      Wang
              
              (Principal
      Executive Officer)/s/ Joseph Meuse
              
              Chief
      Financial Officer (Principal Financial
              
              August
      2, 2010Joseph
      Meuse
              
              Officer
      and Principal Accounting Officer) and authorized representative in the
      United States*
              
              Director
              
              August
      2, 2010Renwei
      Ma*
              
              Director
              
              August
      2, 2010Lanhai
      Sun
 
 *
                  By:
                  /s/
                  Tao WangTao
      Wang, Attorney-in-Fact
  26