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





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
Hongguan Shoes Co., Ltd.


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
March 29, 2010, there were 8,099,994 shares of the Registrant’s common stock
outstanding.









DATONE,
INC.




FORM
10-K


For
the Fiscal Year Ended December 31, 2009





PagePART
      IItem
      1.
                            Business
                            
                            
                            4Item
      1A.
                            Risk
      Factors
                            
                            
                            17Item
      2.
                            Properties
                            
                            
                            28Item
      3.
                            Legal
      Proceedings
                            
                            
                            29Item
      4.
                            Submission
      of Matters to a Vote of Security Holders
                            
                            
                            29PART
      IIItem
      5.
                            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                            
                            
                            29Item
      6.
                            Selected
      Financial Data
                            
                            
                            31Item
      7.
                            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                            
                            
                            31Item
      8.
                            Financial
      Statements and Supplementary Financial Data
                            
                            
                            36Item
      9.
                            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                            
                            
                            36Item
      9A(T)
                            Controls
      and Procedures
                            
                            
                            37Item
      9B.
                            Other
      Information
                            
                            
                            38PART
      IIIItem
      10.
                            Directors,
      Executive Officers and Corporate Governance
                            
                            
                            38Item
      11.
                            Executive
      Compensation
                            
                            
                            41Item
      12.
                            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                            
                            
                            42Item
      13.
                            Certain
      Relationships and Related Party Transactions, and Director
      Independence
                            
                            
                            44Item
      14.
                            Principal
      Accountant Fees and Services
                            
                            
                            45PART
      IVItem
      15.
                            Exhibits
      and Financial Statements Schedules
                            
                            
                            45




2




SPECIAL
NOTES REGARDING FORWARD-LOOKING STATEMENTS




This
report contains forward-looking statements. The forward-looking statements are
contained principally in the sections entitled “Business,” “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations.” These statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements to
be materially different from any future results, performances or achievements
expressed or implied by the forward-looking statements. In some cases, you can
identify forward-looking statements by terms such as “anticipates,” “believes,”
“could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,”
“predicts,” “projects,” “should,” “would” and similar expressions intended to
identify forward-looking statements. Forward-looking statements reflect our
current views with respect to future events and are based on assumptions and
subject to risks and uncertainties. Given these uncertainties, you should not
place undue reliance on these forward-looking statements. These forward-looking
statements include, among other things, statements relating to:




·
            Our ability to source products
      from manufacturers at the high quality and competitive pricing as we have
      historically;




·
            the impact that a downturn or
      negative changes in the Chinese retail economy may have on our
      sales;




·
            our ability to obtain additional
      capital in future years to fund our planned
    expansion;




·
            economic, political, regulatory,
      legal and foreign exchange risks associated with our operations;
      or




·
            the loss of key members of our
      senior management and our qualified sales
  personnel.




Also,
forward-looking statements represent our estimates and assumptions only as of
the date of this report. You should read this report and the documents that we
reference and filed as exhibits to the report completely and with the
understanding that our actual future results may be materially different from
what we expect. Except as required by law, we assume no obligation to update any
forward-looking statements publicly, or to update the reasons actual results
could differ materially from those anticipated in any forward-looking
statements, even if new information becomes available in the
future.





USE
OF CERTAIN DEFINED TERMS





Except
where the context otherwise requires and for the purposes of this report
only:




·
            the
      “Company,” “we,” “us” or “our” refer to the combined business of 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 “Qingdao Shoes,” as the case may
be;




·
            “BVI”
      refers to the British Virgin
Islands;




·
            “Exchange
      Act” refers to the Securities Exchange Act of 1934, as
      amended;




·
            “Hong
      Kong” refers to the Hong Kong Special Administrative Region of the
      People’s Republic of China;




·
            “PRC,”
      “China” and “Chinese” refer to the People’s Republic of China (excluding
      Hong Kong and Taiwan);




3




·
            “Renminbi”
      and “RMB” refer to the legal currency of
China;





·
            “Securities
      Act” refers to the Securities Act of 1933, as amended;
  and




·
            “U.S.
      dollars,” “dollars” and “$” refer to the legal currency of the United
      States.




In this
current report we are relying on and we refer to information and statistics
regarding the footwear and retail industry and economy in China and that we have
obtained from various cited government and institute research publications. Much
of this information is publicly available for free and has not been specifically
prepared for us for use or incorporation in this current report on Form 10-K or
otherwise. We have not independently verified such information, and you should
not unduly rely upon it.





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) the design or selection of design for men’s and
women’s leather shoe lines; (2) sourcing and purchase of the contract
manufactured footwear; and (3) retail and sales of said footwear under our
proprietary brand, “Hongguan.” 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





Datone,
Inc. was originally incorporated on August 9, 2000 under the laws of the State
of Delaware. The Company operated as a wholly-owned subsidiary of USIP.COM, Inc.
On August 24, 2006, USIP decided to spin-off its subsidiary companies, one of
which was Datone, Inc. On February 1, 2008, Datone, Inc. filed a Form 10-SB
registration statement. On November 13, 2008, Datone, Inc. went
effective.





Datone,
Inc. was a provider of both privately owned and company owned payphones
(COCOT’s) and stations in New York. The Company receives 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 receives
revenues from the service and repair of privately owned payphones and sales of
payphone units.




4




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 Qingdao Shoes, 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 which
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.





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 a resignation letter 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, which have been mailed out on March 8,
2010. In addition, our board of directors on February 12 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 the
tenth day following the mailing by us of the information statement to our
stockholders. In addition, our executive officers were replaced by the Qingdao
Shoes’ 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 Qingdao Shoes.




Glory
Reach was established in Hong Kong on November 18, 2009 to serve as an
intermediate holding company. Qingdao Shoes was established on May 11, 2003 for
the purpose of engaging in the development and sales of shoe products. On
February 8, 2010, pursuant to the restructuring plan, Glory Reach acquired 100%
of the equity interests in Qingdao Shoes from Mr. Wang Tao, 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 Qingdao Shoes and its transformation
from a PRC domestic company to a wholly-foreign owned enterprise.




Since
there is common control between the Glory Reach and Qingdao Shoes, for
accounting purposes, the acquisitions of Qingdao Shoes has been treated as a
recapitalization with no adjustment to the historical basis of their 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 Conveyance Agreement is
attached as Exhibit 10.5 to this Current Report on Form 8-K as filed with the
Securities and Exchange Commission on February 12, 2010 and is incorporated
herein by reference.





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 14.8 billion pairs of shoes produced worldwide. In 2007, roughly 80% of PRC
production capacity was exported while the remaining 20% were consumed
domestically. Chinese consumption of footwear in 2005 reached 2.1 billion pairs,
representing 16% of global footwear consumption. In 2008, a deterioration in the
global economy resulted in a collapse of the Chinese textile and footwear and
export market and a material percentage 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 strategically avoided the manufacturing sector, we were able to
capitalize on the economic conditions and maintain our profit margin and seize
the opportunity of overcapacity in our sourcing market and growing consumer
demand.




The
PRC Domestic Consumption




GDP
growth in the PRC has been strong and positive over the past ten
years:




6










Along
with growth in the economy as a whole, Chinese domestic consumption has
increased in lockstep 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 45.0% in 2007 and this trend is expected to
continue into the future.




These
trends have driven a boom in retail sales in the PRC, which is expected to grow
to well over two trillion dollars by 2011, representing an annualized growth of
11.8% over the prior ten years.










7




The
PRC Footwear Market




The size
of the domestic footwear market in China is 28.5 billion dollars:









Even
given the tremendous growth in the Chinese economy over the past 20 years,
estimates from market research groups expect the Chinese footwear market to grow
by at least 5% annual through 2013 in terms of value. Furthermore, the average
Chinese consumer still purchases far fewer shoes per year per capita than Korea,
Japan or the west. As income levels continue to increase, it is expected that
shoe consumption will approach levels of other nations with similar cultural
consumption characteristics, so we expect our room to grow with the market will
continue for the foreseeable future.








Source:
*Plastics News and Satra Technology Center




8





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.


2)
            Expand distributor and third
      party operator stores in prime locations to maximize
      profits.


3)
            Bring more self owned stores
      online to increase higher margin
sales.


4)
            Continue to strive for excellence
      in quality, customer service and design in order to attract new and retain
      repeat customers.


5)
            Leverage our growing purchasing
      power with manufacturers to lower
costs.




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 300 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
December 31, 2009, Men’s footwear constituted 60% of revenue and women’s
footwear the remainder. 40% of sales were formal shoes, and the remaining 60%
are attributed to casual footwear.









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.





9




Our
suppliers are selected for their ability to meet our high quality standards,
timely execution of our orders and competitive pricing. As of December 31 2009,
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.




Sales
Channels




The
following diagram details our current distribution channels:










As of
December 31, 2009, we had 11 flagship stores, 11 exclusive third party managed
retail outlets, and 192 outlets managed by distributors.




10




The
following table details the locations of our sales network:





Flagship Stores
                    
                    Distributors
                    
                    3rd Party OperatorsQingdao
                    11
                    
                    26
                    
                    4Shandong
                    0
                    
                    155
                    
                    6Xinjiang
                    0
                    
                    1
                    
                    0Shanxi
                    0
                    
                    3
                    
                    1Tianjiang
                    0
                    
                    1
                    
                    0Heilongjiang
                    0
                    
                    1
                    
                    0Hebei
                    0
                    
                    2
                    
                    0Liaoning
                    0
                    
                    1
                    
                    0Henan
                    0
                    
                    1
                    
                    0





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 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.





Hongguan
Outlets in Jimo:











11











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 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.





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).





12





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— Qingdao Shoes typically
retains the right to end the agreement if a distributor does to meet sales
targets.





Exclusivity— 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. In the event a distributor is unable
to sell their stock, we will attempt to help them relocate it to a nearby
Qingdao Shoes 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.





Employees





The table
below details the various departments and number of employees in
each.





Management
      and Sales
                    
                    
                    9Design
      & Purchasing
                    
                    
                    3Accounting
                    
                    
                    5Warehouse
                    
                    
                    8Administration
                    
                    
                    7Sales
                    
                    
                    30Total
                    
                    
                    62





13





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




Our
Facilities and Property




Our
principal executive offices are in Jimo, China.




Certificate
      No.
            Jin
      Guo Yong (2007) 534User
      of the Land
            Wang
      TaoLocation
            West
      #1 Huashan Road., Jimo City, Shandong ProvinceUsage
            IndustrialArea
      (sqm)
            14,225Form
      of Acquisition
            By
      means of transferExpiration
      Date
            12/28/2052





The
Company leases one of its stores from Mr. Tao Wang under a four-year operating
lease expiring August 2011. For the years ended December 31, 2009 and 2008, rent
expense of $ 17,298 and $17,298, respectively, was included in total rent
expense for the respective years. The Company leases one of its warehouse
buildings to Weidong Liang, brother-in-law of Mr. Tao Wang, for three years
starting May 2008. Per the agreement, the lessee shall pay equal amount of
advertising expense on behalf of the lessor as the lease payment. For the year
ended December 31, 2009, the Company recorded other income of $57,660 from
leasing the aforementioned building and advertising expense.





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. Chinese popular television star Ren Quan is currently the face of
Qingdao Shoes’ advertising campaign. In 2006, we entered into a contract with
Ren Quan and purchased the rights to use his image for our marketing purposes,
and he is often featured in our television commercials and our various
advertisements. We are contractually obligated to maintain confidentiality as to
the terms at which we acquired his rights. In 2010, we 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 also is featured in our
television commercials and our various advertisements.





14




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




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 300
models of footwear per year.




Regulation




Because
our principal operating subsidiary, Qingdao Shoes, is located in the PRC, our
business is regulated by the national and local laws of the PRC. We believe our
conduct of business complies with existing PRC laws, rules and
regulations.




General
Regulation of Businesses




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
Production Safety Law, the PRC Regulation for Insurance for Labor Injury, 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 from time to time, for our operations in
the PRC.




According
to the PRC Labor Contract Law, we are required to enter into labor contracts
with our employees. We are required to pay no less than local minimum wages to
our employees. We are also required to provide employees with labor safety and
sanitation conditions meeting PRC government laws and regulations and carry out
regular health examinations of our employees engaged in hazardous
occupations.





Foreign
Currency Exchange




The
principal regulation governing foreign currency exchange in China is the Foreign
Currency Administration Rules (1996), as amended (2008). Under these Rules, RMB
is freely convertible for current account items, such as trade and
service-related foreign exchange transactions, but not for capital account
items, such as direct investment, loan or investment in securities outside China
unless the prior approval of, and/or registration with, the State Administration
of Foreign Exchange of the People’s Republic of China, or SAFE, or its local
counterparts (as the case may be) is obtained.




15





Pursuant
to the Foreign Currency Administration Rules, foreign invested enterprises, or
FIEs, in China may purchase foreign currency without the approval of SAFE for
trade and service-related foreign exchange transactions by providing commercial
documents evidencing these transactions. They may also retain foreign exchange
(subject to a cap approved by SAFE) to satisfy foreign exchange liabilities or
to pay dividends. In addition, if a foreign company acquires a company in China,
the acquired company will also become an FIE. However, the relevant PRC
government authorities may limit or eliminate the ability of FIEs to purchase
and retain foreign currencies in the future. In addition, foreign exchange
transactions for direct investment, loan and investment in securities outside
China are still subject to limitations and require approvals from, and/or
registration with, SAFE.




Regulation
of Income Taxes




On March
16, 2007, the National People’s Congress of China passed a new Enterprise Income
Tax Law, or the New EIT Law, and its implementing rules, both of which became
effective on January 1, 2008. Before the implementation of the New EIT Law, FIEs
established in the PRC, unless granted preferential tax treatments by the PRC
government, were generally subject to an earned income tax, or EIT, rate of
33.0%, which included a 30.0% state income tax and a 3.0% local income tax. The
New EIT Law and its implementing rules impose a unified EIT rate of 25.0% on all
domestic-invested enterprises and FIEs, unless they qualify under certain
limited exceptions.




In
addition to the changes to the current tax structure, under the New EIT Law, an
enterprise established outside of China with “de facto management bodies” within
China is considered a resident enterprise and will normally be subject to an EIT
of 25% on its global income. The implementing rules define the term “de facto
management bodies” as “an establishment that exercises, in substance, overall
management and control over the production, business, personnel, accounting,
etc., of a Chinese enterprise.” If the PRC tax authorities subsequently
determine that we should be classified as a resident enterprise, then our
organization’s global income will be subject to PRC income tax of 25%. For
detailed discussion of PRC tax issues related to resident enterprise status, see
“Risk Factors – Risks Related to Our Business – 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
stockholders.”




Our
future effective income tax rate depends on various factors, such as tax
legislation, the geographic composition of our pre-tax income and non-tax
deductible expenses incurred. Our management carefully monitors these legal
developments and will timely adjust our effective income tax rate when
necessary.




Dividend
Distribution




Under
applicable PRC regulations, FIEs in China may pay dividends only out of their
accumulated profits, if any, determined in accordance with PRC accounting
standards and regulations. In addition, a FIE in China is required to set aside
at least 10.0% of its after-tax profit based on PRC accounting standards each
year to its general reserves until the accumulative amount of such reserves
reach 50.0% of its registered capital. These reserves are not distributable as
cash dividends. The board of directors of a FIE has the discretion to allocate a
portion of its after-tax profits to staff welfare and bonus funds, which may not
be distributed to equity owners except in the event of liquidation.





The New
EIT Law and its implementing rules generally provide that a 10% withholding tax
applies to China-sourced income derived by non-resident enterprises for PRC
enterprise income tax purposes unless the jurisdiction of incorporation of such
enterprises’ shareholder has a tax treaty with China that provides for a
different withholding arrangement. Qingdao Shoes is considered an FIE and is
directly held by our subsidiary Glory Reach in Hong Kong. According to a 2006
tax treaty between the Mainland and Hong Kong, dividends payable by an FIE in
China to the company in Hong Kong who directly holds at least 25% of the equity
interests in the FIE will be subject to a no more than 5% withholding tax. We
expect that such 5% withholding tax will apply to dividends paid to Glory Reach
by Qingdao Shoes, but this treatment will depend on our status as a non-resident
enterprise.




16




Environmental
Matters




Our
operations are not subject to any environmental regulations.




Insurance




Insurance
companies in China offer limited business insurance products. While business
interruption insurance is available to a limited extent in China, we have
determined that the risks of interruption, cost of such insurance and the
difficulties associated with acquiring such insurance on commercially reasonable
terms make it impractical for us to have such insurance. As a result, we could
face liability from the interruption of our business as summarized under “Risk
Factors – Risks Related to Our Business – We do not carry business interruption
insurance so we could incur unrecoverable losses if our business is
interrupted.”





ITEM
    1A.
            RISK
    FACTORS





An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below, together with all of the other
information included in this report, before making an investment decision. If
any of the following risks actually occurs, our business, financial condition or
results of operations could suffer. In that case, the trading price of our
common stock could decline, and you may lose all or part of your investment. You
should read the section entitled “Special Note Regarding Forward-Looking
Statements” above for a discussion of what types of statements are
forward-looking statements, as well as the significance of such statements in
the context of this report.





RISKS
RELATED TO OUR BUSINESS





We
have a short operating history.




We have
only been in retail business since 2003.  We may not succeed in
implementing our business plan successfully because of competition from domestic
and foreign market entrants, failure of the market to accept our products, or
other reasons. Therefore, you should not place undue reliance on our past
performance as they may not be indicative of our future results.




We
face risks related to general domestic and global economic conditions and to the
current credit crisis.




Our
current operating cash flows provide us with stable funding capacity. However,
the current uncertainty arising out of domestic and global economic conditions,
including the recent disruption in credit markets, poses a risk to the PRC
economy, and may impact our ability to manage normal relationships with our
customers, suppliers and creditors. If the current situation deteriorates
significantly, our business could be materially negatively impacted, as demand
for our products and services may decrease from a slow-down in the general
economy, or supplier or customer disruptions may result from tighter credit
markets.





17




Our
business is subject to the health of the PRC economy and our growth may be
inhibited by the inability of potential customers to fund purchases of our
products and services.




Our
products are dependent on the disposable income of PRC citizens, which could be
adversely affected by an economic downturn.




In
order to grow at the pace expected by management, we will require additional
capital to support our long-term growth strategies. If we are unable to obtain
additional capital in future years, we may be unable to proceed with our plans
and we may be forced to curtail our operations.




We will
require additional working capital to support our long-term growth strategies,
which includes identifying suitable points of market entry for expansion growing
the number of points of sale for our products, so as to enhance our product
offerings and benefit from economies of scale. Our working capital requirements
and the cash flow provided by future operating activities, if any, may vary
greatly from quarter to quarter, depending on the volume of business during the
period. We may not be able to obtain adequate levels of additional financing,
whether through equity financing, debt financing or other sources. Additional
financings could result in significant dilution to our earnings per share or the
issuance of securities with rights superior to our current outstanding
securities. In addition, we may grant registration rights to investors
purchasing our equity or debt securities in the future. If we are unable to
raise additional financing, we may be unable to implement our long-term growth
strategies, develop or enhance our products and services, take advantage of
future opportunities or respond to competitive pressures on a timely
basis.





If
the manufacturers from whom we source some of our products fail to perform their
contractual obligations, our ability to provide products and services to our
customers, as well as our ability to obtain future business, may be
harmed.




As we do
not have any manufacturing capabilities, we are at risk should our suppliers
fail to provide us products at the high quality our customers
expect.




If
we are unable to attract and retain senior management and qualified technical
and sales personnel, our operations, financial condition and prospects will be
materially adversely affected.




Our
future success depends in part on the contributions of our management team and
key technical and sales personnel and our ability to attract and retain
qualified new personnel. In particular, our success depends on the continuing
employment of our Chief Executive Officer, Mr. Tao Wang, our Chief Operating
Officer, Shi Wenmao; and our Chief Financial Officer, Ms. Fang Sui. There is
significant competition in our industry for qualified managerial, technical and
sales personnel and we cannot assure you that we will be able to retain our key
senior managerial, technical and sales personnel or that we will be able to
attract, integrate and retain other such personnel that we may require in the
future. If we are unable to attract and retain key personnel in the future, our
business, operations, financial condition, results of operations and prospects
could be materially adversely affected.




18




We
do not carry business interruption or other insurance, so we have to bear losses
ourselves.




We are
subject to risk inherent to our business, including equipment failure, theft,
natural disasters, industrial accidents, labor disturbances, business
interruptions, property damage, product liability, personal injury and death. We
do not carry any business interruption insurance or third-party liability
insurance or other insurance to cover risks associated with our business. As a
result, if we suffer losses, damages or liabilities, including those caused by
natural disasters or other events beyond our control and we are unable to make a
claim again a third party, we will be required to bear all such losses from our
own funds, which could have a material adverse effect on our business, financial
condition and results of operations.




Our
quarterly operating results are likely to fluctuate, which may affect our stock
price.




Our
quarterly revenues, expenses, operating results and gross profit margins vary
from quarter to quarter. As a result, our operating results may fall below the
expectations of securities analysts and investors in some quarters, which could
result in a decrease in the market price of our common stock. The reasons our
quarterly results may fluctuate include:




·
            variations in profit margins
      attributable to product mix;




·
            changes in the general
      competitive and economic
conditions;




·
            delays in, or uneven timing in
      the delivery of, customer orders;
and




·
            the introduction of new products
      by us or our competitors.




Period to
period comparisons of our results should not be relied on as indications of
future performance.




Our
limited ability to protect our intellectual property, and the possibility that
our technology could inadvertently infringe technology owned by others, may
adversely affect our ability to compete.




We rely
on a combination of trade secret laws and confidentiality procedures to protect
the patents, copyrights and technological know-how that comprise our
intellectual property. We protect our technological know-how pursuant to
non-disclosure and non-competition provisions contained in our employment
agreements, and agreements with them to keep confidential all information
relating to our customers, methods, business and trade secrets during and after
their employment with us. Our employees are also required to acknowledge and
recognize that all inventions, trade secrets, works of authorship, developments
and other processes made by them during their employment are our property. We
have been granted the use of brand name Hongguan.





A
successful challenge to the ownership of our intellectual property could
materially damage our business prospects. Our competitors may assert that our
technologies or products infringe on their patents or proprietary rights. We may
be required to obtain from others licenses that may not be available on
commercially reasonable terms, if at all. Problems with intellectual property
rights could increase the cost of our products or delay or preclude our new
product development and commercialization. If infringement claims against us are
deemed valid, we may not be able to obtain appropriate licenses on acceptable
terms or at all. Litigation could be costly and time-consuming but may be
necessary to protect our technology license positions or to defend against
infringement claims.




Our
business may be subject to seasonal and cyclical fluctuations in
sales.





We may
experience seasonal fluctuations in our revenue in the PRC. Moreover, our
revenues are usually higher in the fourth and first quarters due seasonal
purchases.





19





RISKS
RELATED TO DOING BUSINESS IN CHINA





Changes
in China's political or economic situation could harm us and our operating
results.




Economic
reforms adopted by the Chinese government have had a positive effect on the
economic development of the country, but the government could change these
economic reforms or any of the legal systems at any time. This could either
benefit or damage our operations and profitability. Some of the things that
could have this effect are:




·
            Level of government involvement
      in the economy;




·
            Control of foreign
      exchange;




·
            Methods of allocating
      resources;




·
            Balance of payments
      position;




·
            International trade restrictions;
      and




·
            International
      conflict.




The
Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD, in many ways.
For example, state-owned enterprises still constitute a large portion of the
Chinese economy and weak corporate governance and a lack of flexible currency
exchange policy still prevail in China. As a result of these differences, we may
not develop in the same way or at the same rate as might be expected if the
Chinese economy was similar to those of the OECD member countries.




Uncertainties
with respect to the PRC legal system could limit the legal protections available
to you and us.




We
conduct substantially all of our business through our operating subsidiaries in
the PRC and Hong Kong. Our principal operating subsidiary, Qingdao Shoes, is
subject to laws and regulations applicable to foreign investments in China and,
in particular, laws applicable to foreign-invested enterprises. The PRC legal
system is based on written statutes, and prior court decisions may be cited for
reference but have limited precedential value. Since 1979, a series of new PRC
laws and regulations have significantly enhanced the protections afforded to
various forms of foreign investments in China. However, since the PRC legal
system continues to evolve rapidly, the interpretations of many laws,
regulations and rules are not always uniform and enforcement of these laws,
regulations and rules involve uncertainties, which may limit legal protections
available to you and us. In addition, any litigation in China may be protracted
and result in substantial costs and diversion of resources and management
attention. In addition, all of our executive officers and all of our directors
are residents of China and not of the United States, and substantially all the
assets of these persons are located outside the United States. As a result, it
could be difficult for investors to affect service of process in the United
States or to enforce a judgment obtained in the United States against our
Chinese operations and subsidiaries.




20




You
may have difficulty enforcing judgments against us.





We are a
Delaware holding company, but Glory Reach is a Hong Kong company, and our
principal operating subsidiary, Qingdao Shoes is located in the PRC. Most of our
assets are located outside the United States and most of our current operations
are conducted in the PRC. In addition, most of our directors and officers are
nationals and residents of countries other than the United States. A substantial
portion of the assets of these persons is located outside the United States. As
a result, it may be difficult for you to effect service of process within the
United States upon these persons. It may also be difficult for you to enforce in
U.S. courts judgments predicated on the civil liability provisions of the U.S.
federal securities laws against us and our officers and directors, most of whom
are not residents in the United States and the substantial majority of whose
assets are located outside the United States. In addition, there is uncertainty
as to whether the courts of the PRC would recognize or enforce judgments of U.S.
courts. The recognition and enforcement of foreign judgments are provided for
under the PRC Civil Procedures Law. Courts in China may recognize and enforce
foreign judgments in accordance with the requirements of the PRC Civil
Procedures Law based on treaties between China and the country where the
judgment is made or on reciprocity between jurisdictions. China does not have
any treaties or other arrangements that provide for the reciprocal recognition
and enforcement of foreign judgments with the United States. In addition,
according to the PRC Civil Procedures Law, courts in the PRC will not enforce a
foreign judgment against us or our directors and officers if they decide that
the judgment violates basic principles of PRC law or national sovereignty,
security or the public interest. So it is uncertain whether a PRC court would
enforce a judgment rendered by a court in the United States.




The
PRC government exerts substantial influence over the manner in which we must
conduct our business activities.




The PRC
government has exercised and continues to exercise substantial control over
virtually every sector of the Chinese economy through regulation and state
ownership. Our ability to operate in China may be harmed by changes in its laws
and regulations, including those relating to taxation, import and export
tariffs, environmental regulations, land use rights, property and other matters.
We believe that our operations in China are in material compliance with all
applicable legal and regulatory requirements. However, the central or local
governments of the jurisdictions in which we operate may impose new, stricter
regulations or interpretations of existing regulations that would require
additional expenditures and efforts on our part to ensure our compliance with
such regulations or interpretations.




Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or
particular regions thereof and could require us to divest ourselves of any
interest we then hold in Chinese properties or joint ventures.




Future
inflation in China may inhibit our ability to conduct business in
China.




In recent
years, the Chinese economy has experienced periods of rapid expansion and highly
fluctuating rates of inflation. During the past ten years, the rate of inflation
in China has been as high as 20.7% and as low as -2.2%. These factors have led
to the adoption by the Chinese government, from time to time, of various
corrective measures designed to restrict the availability of credit or regulate
growth and contain inflation. High inflation may in the future cause the Chinese
government to impose controls on credit and/or prices, or to take other action,
which could inhibit economic activity in China, and thereby harm the market for
our products and our company.




21




Restrictions
on currency exchange may limit our ability to receive and use our revenues
effectively.





The
majority of our revenues will be settled in RMB and U.S. dollars, and any future
restrictions on currency exchanges may limit our ability to use revenue
generated in RMB to fund any future business activities outside China or to make
dividend or other payments in U.S. dollars. Although the Chinese government
introduced regulations in 1996 to allow greater convertibility of the RMB for
current account transactions, significant restrictions still remain, including
primarily the restriction that foreign-invested enterprises may only buy, sell
or remit foreign currencies after providing valid commercial documents, at those
banks in China authorized to conduct foreign exchange business. In addition,
conversion of RMB for capital account items, including direct investment and
loans, is subject to governmental approval in China, and companies are required
to open and maintain separate foreign exchange accounts for capital account
items. We cannot be certain that the Chinese regulatory authorities will not
impose more stringent restrictions on the convertibility of the
RMB.




Fluctuations
in exchange rates could adversely affect our business and the value of our
securities.




The value
of our common stock will be indirectly affected by the foreign exchange rate
between U.S. dollars and RMB and between those currencies and other currencies
in which our sales may be denominated. Appreciation or depreciation in the value
of the RMB relative to the U.S. dollar would affect our financial results
reported in U.S. dollar terms without giving effect to any underlying change in
our business or results of operations. Fluctuations in the exchange rate will
also affect the relative value of any dividend we issue that will be exchanged
into U.S. dollars as well as earnings from, and the value of, any U.S.
dollar-denominated investments we make in the future.




Since
July 2005, the RMB is no longer pegged to the U.S. dollar. Although the People’s
Bank of China regularly intervenes in the foreign exchange market to prevent
significant short-term fluctuations in the exchange rate, the RMB may appreciate
or depreciate significantly in value against the U.S. dollar in the medium to
long term. Moreover, it is possible that in the future PRC authorities may lift
restrictions on fluctuations in the RMB exchange rate and lessen intervention in
the foreign exchange market.




Very
limited hedging transactions are available in China to reduce our exposure to
exchange rate fluctuations. To date, we have not entered into any hedging
transactions. While we may enter into hedging transactions in the future, the
availability and effectiveness of these transactions may be limited, and we may
not be able to successfully hedge our exposure at all. In addition, our foreign
currency exchange losses may be magnified by PRC exchange control regulations
that restrict our ability to convert RMB into foreign currencies.




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.




Substantially
all of our revenues are earned by Qingdao Shoes, our PRC subsidiary. PRC
regulations restrict the ability of our PRC subsidiary to make dividends and
other payments to its offshore parent company. PRC legal restrictions permit
payments of dividend by our PRC subsidiary only out of its accumulated after-tax
profits, if any, determined in accordance with PRC accounting standards and
regulations. Our PRC subsidiary is also required under PRC laws and regulations
to allocate at least 10% of our annual after-tax profits determined in
accordance with PRC GAAP to a statutory general reserve fund until the amounts
in said fund reaches 50% of our registered capital. Allocations to these
statutory reserve funds can only be used for specific purposes and are not
transferable to us in the form of loans, advances or cash dividends. Any
limitations on the ability of our PRC subsidiary to transfer funds to us could
materially and adversely limit our ability to grow, make investments or
acquisitions that could be beneficial to our business, pay dividends and
otherwise fund and conduct our business.





22





Failure
to comply with PRC regulations relating to the establishment of offshore special
purpose companies by PRC residents may subject our PRC resident shareholders to
personal liability, limit our ability to acquire PRC companies or to inject
capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to
distribute profits to us or otherwise materially adversely affect
us.




In
October 2005, SAFE, issued the Notice on Relevant Issues in the Foreign Exchange
Control over Financing and Return Investment Through Special Purpose Companies
by Residents Inside China, generally referred to as Circular 75, which required
PRC residents to register with the competent local SAFE branch before
establishing or acquiring control over an offshore special purpose company, or
SPV, for the purpose of engaging in an equity financing outside of China on the
strength of domestic PRC assets originally held by those residents. Internal
implementing guidelines issued by SAFE, which became public in June 2007 (known
as Notice 106), expanded the reach of Circular 75 by (1) purporting to cover the
establishment or acquisition of control by PRC residents of offshore entities
which merely acquire “control” over domestic companies or assets, even in the
absence of legal ownership; (2) adding requirements relating to the source of
the PRC resident’s funds used to establish or acquire the offshore entity;
covering the use of existing offshore entities for offshore financings; (3)
purporting to cover situations in which an offshore SPV establishes a new
subsidiary in China or acquires an unrelated company or unrelated assets in
China; and (4) making the domestic affiliate of the SPV responsible for the
accuracy of certain documents which must be filed in connection with any such
registration, notably, the business plan which describes the overseas financing
and the use of proceeds. Amendments to registrations made under Circular 75 are
required in connection with any increase or decrease of capital, transfer of
shares, mergers and acquisitions, equity investment or creation of any security
interest in any assets located in China to guarantee offshore obligations, and
Notice 106 makes the offshore SPV jointly responsible for these filings. In the
case of an SPV which was established, and which acquired a related domestic
company or assets, before the implementation date of Circular 75, a retroactive
SAFE registration was required to have been completed before March 31, 2006;
this date was subsequently extended indefinitely by Notice 106, which also
required that the registrant establish that all foreign exchange transactions
undertaken by the SPV and its affiliates were in compliance with applicable laws
and regulations. Failure to comply with the requirements of Circular 75, as
applied by SAFE in accordance with Notice 106, may result in fines and other
penalties under PRC laws for evasion of applicable foreign exchange
restrictions. Any such failure could also result in the SPV’s affiliates being
impeded or prevented from distributing their profits and the proceeds from any
reduction in capital, share transfer or liquidation to the SPV, or from engaging
in other transfers of funds into or out of China.




We have
advised our shareholders who are PRC residents, as defined in Circular 75, to
register with the relevant branch of SAFE, as currently required, in connection
with their equity interests in us and our acquisitions of equity interests in
our PRC subsidiaries. However, we cannot provide any assurances that their
existing registrations have fully complied with, and they have made all
necessary amendments to their registration to fully comply with, all applicable
registrations or approvals required by Circular 75. Moreover, because of
uncertainty over how Circular 75 will be interpreted and implemented, and how or
whether SAFE will apply it to us, we cannot predict how it will affect our
business operations or future strategies. For example, our present and
prospective PRC subsidiaries’ ability to conduct foreign exchange activities,
such as the remittance of dividends and foreign currency-denominated borrowings,
may be subject to compliance with Circular 75 by our PRC resident beneficial
holders. In addition, such PRC residents may not always be able to complete the
necessary registration procedures required by Circular 75. We also have little
control over either our present or prospective direct or indirect shareholders
or the outcome of such registration procedures. A failure by our PRC resident
beneficial holders or future PRC resident shareholders to comply with Circular
75, if SAFE requires it, could subject these PRC resident beneficial holders to
fines or legal sanctions, restrict our overseas or cross-border investment
activities, limit our subsidiaries’ ability to make distributions or pay
dividends or affect our ownership structure, which could adversely affect our
business and prospects.





23




Our
business and financial performance may be materially adversely affected if the
PRC regulatory authorities determine that our acquisition of Qingdao Shoes
constitutes a Round-trip Investment without MOFCOM approval.




On August
8, 2006, six PRC regulatory agencies promulgated the Regulation on Mergers and
Acquisitions of Domestic Companies by Foreign Investors, or the 2006 M&A
Rule, which became effective on September 8, 2006. According to the 2006 M&A
Rule, when a PRC business that is owned by PRC individual(s) is sold to a
non-PRC entity that is established or controlled, directly or indirectly, by
those same PRC individual(s) it must be approved by the Ministry of Commerce, or
MOFCOM, and any indirect arrangement or series of arrangements which achieves
the same end result without the approval of MOFCOM is a violation of PRC
law.





The
general manager of Qingdao Shoes, Mr. Wang Tao (“Founder”), as a PRC citizen,
entered into a option agreement (“Incentive Option Agreement”) with 石仁焕, a Korean
passport holder (“Foreign Passport Holder”). To incentivize Mr. Wang Tao in
connection with the continuous development of the Company’s majority
stockholder, Swift Dynamic Limited (“BVICo”)’s, business, Mr. Wang Tao is to
receive shares from BVICo, one of shareholders of Glory Reach, subject to
certain contingencies as set forth in the Option Agreement. Under the Incentive
Option Agreement, the Founder shall serve as CEO and director for BVI Co. not
less than 3 year period of time; and in anticipation of Founder’s continuance
contributions to Qingdao Shoes Group including BVICo, Glory Reach and Qingdao
Shoes , if Qingdao Shoes Group meet certain thresholds of the revenue
conditions, Founder shall have an option to acquire all of the shares of BVICo
during a 3 year vesting period (the “Option”). In addition, Incentive Option
Agreement also provides that the Foreign Passport Holder shall not dispose any
of the shares of BVICo without Founder’s consent.




After
Wang Tao exercises this option, the Founder, will, through his ownership of
BVICo, be our controlling stockholder. His acquisition of our equity interest,
or the Acquisition, is required to be registered with the competent
administration of industry and commerce authorities, or AIC, in Beijing. The
Founder will also be required to make filings with the SAFE to register the
Company and its non-PRC subsidiaries to qualify them as SPVs, pursuant to
Circular 75 and Circular 106.




The PRC
regulatory authorities may take the view that the Acquisition and the Share
Exchange Agreement are part of an overall series of arrangements which
constitute a Round-trip Investment, because at the end of these transactions,
the Founder will become majority owner and effective controlling party of a
foreign entity that acquired ownership of our Chinese subsidiaries. The PRC
regulatory authorities may also take the view that the registration of the
Acquisition with the relevant AIC in Beijing and the filings with the SAFE may
not be evidence that the Acquisition has been properly approved because the
relevant parties did not fully disclose to the AIC, SAFE or MOFCOM the overall
restructuring arrangements, the existence of the Share Exchange Agreement and
its link with the Acquisition. If the PRC regulatory authorities take the view
that the Acquisition constitutes a Round-trip Investment under the 2006 M&A
Rules, we cannot assure you we may be able to obtain the approval required from
MOFCOM.




If the
PRC regulatory authorities take the view that the Acquisition constitutes a
Round-trip Investment without MOFCOM approval, they could invalidate our
acquisition and ownership of our Chinese subsidiaries. Additionally, the PRC
regulatory authorities may take the view that the Acquisition constitutes a
transaction which requires the prior approval of the China Securities Regulatory
Commission, or CSRC, before MOFCOM approval is obtained. We believe that if this
takes place, we may be able to find a way to re-establish control of our Chinese
subsidiaries’ business operations through a series of contractual arrangements
rather than an outright purchase of our Chinese subsidiaries. But we cannot
assure you that such contractual arrangements will be protected by PRC law or
that the registrant can receive as complete or effective economic benefit and
overall control of our Chinese subsidiaries’ business than if the Company had
direct ownership of our Chinese subsidiaries. In addition, we cannot assure you
that such contractual arrangements can be successfully effected under PRC law.
If we cannot obtain MOFCOM or CSRC approval if required by the PRC regulatory
authorities to do so, and if we cannot put in place or enforce relevant
contractual arrangements as an alternative and equivalent means of control of
our Chinese subsidiaries, our business and financial performance will be
materially adversely affected.





24




If
we make equity compensation grants to persons who are PRC citizens, they may be
required to register with the State Administration of Foreign Exchange of the
PRC, or SAFE. We may also face regulatory uncertainties that could restrict our
ability to adopt an equity compensation plan for our directors and employees and
other parties under PRC law.




On April
6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic
Individuals Participating in the Employee Stock Ownership Plan or Stock Option
Plan of An Overseas Listed Company, also known as “Circular 78.” It is not clear
whether Circular 78 covers all forms of equity compensation plans or only those
which provide for the granting of stock options. For any plans which are so
covered and are adopted by a non-PRC listed company after April 6, 2007,
Circular 78 requires all participants who are PRC citizens to register with and
obtain approvals from SAFE prior to their participation in the plan. In
addition, Circular 78 also requires PRC citizens to register with SAFE and make
the necessary applications and filings if they participated in an overseas
listed company’s covered equity compensation plan prior to April 6, 2007. We
intend to adopt an equity compensation plan in the future and make option grants
to our officers and directors, most of who are PRC citizens. Circular 78 may
require our officers and directors who receive option grants and are PRC
citizens to register with SAFE. We believe that the registration and approval
requirements contemplated in Circular 78 will be burdensome and time consuming.
If it is determined that any of our equity compensation plans are subject to
Circular 78, failure to comply with such provisions may subject us and
participants of our equity incentive plan who are PRC citizens to fines and
legal sanctions and prevent us from being able to grant equity compensation to
our PRC employees. In that case, our ability to compensate our employees and
directors through equity compensation would be hindered and our business
operations may be adversely affected. "




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.




Under the
New EIT Law effective on January 1, 2008, an enterprise established outside
China with “de facto management bodies” within China is considered a “resident
enterprise,” meaning that it can be treated in a manner similar to a Chinese
enterprise for enterprise income tax purposes. The implementing rules of the New
EIT Law define de facto management as “substantial and overall management and
control over the production and operations, personnel, accounting, and
properties” of the enterprise.





On April
22, 2009, the State Administration of Taxation issued the Notice Concerning
Relevant Issues Regarding Cognizance of Chinese Investment Controlled
Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria
of de facto Management Bodies, or the Notice, further interpreting the
application of the New EIT Law and its implementation non-Chinese enterprise or
group controlled offshore entities. Pursuant to the Notice, an enterprise
incorporated in an offshore jurisdiction and controlled by a Chinese enterprise
or group will be classified as a “non-domestically incorporated resident
enterprise” if (i) its senior management in charge of daily operations reside or
perform their duties mainly in China; (ii) its financial or personnel decisions
are made or approved by bodies or persons in China; (iii) its substantial assets
and properties, accounting books, corporate chops, board and shareholder minutes
are kept in China; and (iv) at least half of its directors with voting rights or
senior management often resident in China. A resident enterprise would be
subject to an enterprise income tax rate of 25% on its worldwide income and must
pay a withholding tax at a rate of 10% when paying dividends to its non-PRC
shareholders. However, it remains unclear as to whether the Notice is applicable
to an offshore enterprise incorporated by a Chinese natural person. Nor are
detailed measures on imposition of tax from non-domestically incorporated
resident enterprises are available. Therefore, it is unclear how tax authorities
will determine tax residency based on the facts of each case.





25




We may be
deemed to be a resident enterprise by Chinese tax authorities. If the PRC tax
authorities determine that we are a “resident enterprise” for PRC enterprise
income tax purposes, a number of unfavorable PRC tax consequences could follow.
First, we may be subject to the enterprise income tax at a rate of 25% on our
worldwide taxable income as well as PRC enterprise income tax reporting
obligations. In our case, this would mean that income such as interest on
financing proceeds and non-China source income would be subject to PRC
enterprise income tax at a rate of 25%. Second, although under the New EIT Law
and its implementing rules dividends paid to us from our PRC subsidiaries would
qualify as “tax-exempt income,” we cannot guarantee that such dividends will not
be subject to a 10% withholding tax, as the PRC foreign exchange control
authorities, which enforce the withholding tax, have not yet issued guidance
with respect to the processing of outbound remittances to entities that are
treated as resident enterprises for PRC enterprise income tax purposes. Finally,
it is possible that future guidance issued with respect to the new “resident
enterprise” classification could result in a situation in which a 10%
withholding tax is imposed on dividends we pay to our non-PRC shareholders and
with respect to gains derived by our non-PRC shareholders from transferring our
shares. We are actively monitoring the possibility of “resident enterprise”
treatment for the 2009 tax year.




If we
were treated as a “resident enterprise” by PRC tax authorities, we would be
subject to taxation in both the U.S. and China, and our PRC tax may not be
creditable against our U.S. tax.




We
may be exposed to liabilities under the Foreign Corrupt Practices Act and
Chinese anti-corruption laws, and any determination that we violated these laws
could have a material adverse effect on our business.




We are
subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that
prohibit improper payments or offers of payments to foreign governments and
their officials and political parties by U.S. persons and issuers as defined by
the statute, for the purpose of obtaining or retaining business. We have
operations, agreements with third parties and we make most of our sales in
China. PRC also strictly prohibits bribery of government officials. Our
activities in China create the risk of unauthorized payments or offers of
payments by the employees, consultants, sales agents or distributors of our
Company, even though they may not always be subject to our control. It is our
policy to implement safeguards to discourage these practices by our employees.
However, our existing safeguards and any future improvements may prove to be
less than effective, and the employees, consultants, sales agents or
distributors of our Company may engage in conduct for which we might be held
responsible. Violations of the FCPA or Chinese anti-corruption laws may result
in severe criminal or civil sanctions, and we may be subject to other
liabilities, which could negatively affect our business, operating results and
financial condition. In addition, the U.S. government may seek to hold our
Company liable for successor liability FCPA violations committed by companies in
which we invest or that we acquire.




26




RISKS
RELATED TO THE MARKET FOR OUR STOCK





Our
common stock is quoted on the OTC Bulletin Board, which may have an unfavorable
impact on our stock price and liquidity.





Our
common stock is quoted on the OTC Bulletin Board. The OTC Bulletin Board is a
significantly more limited market than established trading markets such as the
New York Stock Exchange or NASDAQ. The quotation of our shares on the OTC
Bulletin Board may result in a less liquid market available for existing and
potential shareholders to trade shares of our common stock, could depress the
trading price of our common stock and could have a long-term adverse impact on
our ability to raise capital in the future. We plan to list our common stock as
soon as practicable. However, we cannot assure you that we will be able to meet
the initial listing standards of any stock exchange, or that we will be able to
maintain any such listing.




We
may be subject to penny stock regulations and restrictions and you may have
difficulty selling shares of our common stock.




The SEC
has adopted regulations which generally define so-called “penny stocks” to be an
equity security that has a market price less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exemptions. Our common
stock is a “penny stock” and is subject to Rule 15g-9 under the Exchange Act, or
the Penny Stock Rule. This rule imposes additional sales practice requirements
on broker-dealers that sell such securities to persons other than established
customers and “accredited investors” (generally, individuals with a net worth in
excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together
with their spouses). For transactions covered by Rule 15g-9, a broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale. As a
result, this rule may affect the ability of broker-dealers to sell our
securities and may affect the ability of purchasers to sell any of our
securities in the secondary market, thus possibly making it more difficult for
us to raise additional capital.




For any
transaction involving a penny stock, unless exempt, the rules require delivery,
prior to any transaction in penny stock, of a disclosure schedule required by
the SEC relating to the penny stock market. Disclosure is also required to be
made about sales commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in
penny stock.




There can
be no assurance that our common stock will qualify for exemption from the Penny
Stock Rule. In any event, even if our common stock were exempt from the Penny
Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act,
which gives the SEC the authority to restrict any person from participating in a
distribution of penny stock, if the SEC finds that such a restriction would be
in the public interest.




Provisions
in our Certificate of Incorporation and Bylaws or Delaware law might discourage,
delay or prevent a change of control of us or changes in our management and,
therefore depress the trading price of the common stock.




Our
Certificate of Incorporation authorizes our board of directors to issue up to
10,000,000 shares of preferred stock. The preferred stock may be issued in one
or more series, the terms of which may be determined at the time of issuance by
the board of directors without further action by stockholders. These terms may
include preferences as to dividends and liquidation, conversion rights,
redemption rights and sinking fund provisions. The issuance of any preferred
stock could diminish the rights of holders of our common stock, and therefore
could reduce the value of such common stock. In addition, specific rights
granted to future holders of preferred stock could be used to restrict our
ability to merge with, or sell assets to, a third party. The ability of our
board of directors to issue preferred stock could make it more difficult, delay,
discourage, prevent or make it more costly to acquire or effect a
change-in-control, which in turn could prevent our stockholders from recognizing
a gain in the event that a favorable offer is extended and could materially and
negatively affect the market price of our common stock.




27





In
addition, Delaware corporate law and our Certificate of Incorporation and Bylaws
also contain other provisions that could discourage, delay or prevent a change
in control of our Company or changes in its management that our stockholders may
deem advantageous. These provisions:




·
            deny holders of our common stock
      cumulative voting rights in the election of directors, meaning that
      stockholders owning a majority of our outstanding shares of common stock
      will be able to elect all of our
  directors;




·
            require any stockholder wishing
      to properly bring a matter before a meeting of stockholders to comply with
      specified procedural and advance notice requirements;
      and




·
            allow any vacancy on the board of
      directors, however the vacancy occurs, to be filled by the
      directors.




We
do not intend to pay dividends for the foreseeable future.




For the
foreseeable future, we intend to retain any earnings to finance the development
and expansion of our business, and we do not anticipate paying any cash
dividends on our common stock. Accordingly, investors must be prepared to rely
on sales of their common stock after price appreciation to earn an investment
return, which may never occur. Investors seeking cash dividends should not
purchase our common stock. Any determination to pay dividends in the future will
be made at the discretion of our board of directors and will depend on our
results of operations, financial condition, contractual restrictions,
restrictions imposed by applicable law and other factors our board deems
relevant.




Our
controlling stockholder holds a significant percentage of our outstanding voting
securities, which could hinder our ability to engage in significant corporate
transactions without his approval.




Swift
Dynamic Ltd., which is run by Mr. Tao Wang, is the beneficial owner of
approximately 63% of our outstanding voting securities. As a result, Swift
Dynamic Ltd., and Mr. Tao Wang possess significant influence, giving them the
ability, among other things, to elect a majority of our board of directors and
to authorize or prevent proposed significant corporate transactions. Their
ownership and control may also have the effect of delaying or preventing a
future change in control, impeding a merger, consolidation, takeover or other
business combination or discourage a potential acquirer from making a tender
offer.





ITEM
    2.
            PROPERTIES




Our
principal executive offices are in Jimo, China.




Certificate
      No.
            Jin
      Guo Yong (2007) 534User
      of the Land
            Wang
      TaoLocation
            West
      #1 Huashan Road., Jimo City, Shandong ProvinceUsage
            IndustrialArea
      (sqm)
            14,225Form
      of Acquisition
            By
      means of transferExpiration
      Date
            12/28/2052





28





The
Company leases one of its stores from Mr. Tao Wang under a four-year operating
lease expiring August 2011. For the years ended December 31, 2009 and 2008, rent
expense of $ 17,298 and $17,298, respectively, was included in total rent
expense for the respective years. The Company leases one of its warehouse
buildings to Weidong Liang, brother-in-law of Mr. Tao Wang, for three years
starting May 2008. Per the agreement, the lessee shall pay equal amount of
advertising expense on behalf of the lessor as the lease payment. For the year
ended December 31, 2009, the Company recorded other income of $57,660 from
leasing the aforementioned building and advertising expense.





ITEM 3.
            LEGAL
      PROCEEDINGS




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




ITEM 4.
            SUBMISSION OF MATTERS TO A VOTE
      OF SECURITY HOLDERS




No
matters were submitted to a vote of our security holders during the fourth
quarter of 2009.




PART
II




ITEM
    5.
            MARKET FOR REGISTRANT’S COMMON
      EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES




Market
Information




For
fiscal year 2009, the Company's common stock is not trading on any public
trading market or stock exchange.





Approximate
Number of Holders of Our Common Stock




As of
March 30, 2010, there were approximately 256 stockholders of record of our
common stock. This number does not include shares held by brokerage clearing
houses, depositories or others in unregistered form.




Dividend
Policy





We have
not declared or paid any cash dividends on our common stock. Any future
decisions regarding dividends will be made by our board of directors. We
currently intend to retain and use any future earnings for the development and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Our board of directors has complete discretion on whether to
pay dividends. Even if our board of directors decides to pay dividends, the
form, frequency and amount will depend upon our future operations and earnings,
capital requirements and surplus, general financial condition, contractual
restrictions and other factors that the board of directors may deem
relevant.




29




Substantially
all of our revenues are earned by Qingdao Shoes, our PRC subsidiary. PRC
regulations restrict the ability of our PRC subsidiary to make dividends and
other payments to its offshore parent company. PRC legal restrictions permit
payments of dividend by our PRC subsidiary only out of its accumulated after-tax
profits, if any, determined in accordance with PRC accounting standards and
regulations. Our PRC subsidiary is also required under PRC laws and regulations
to allocate at least 10% of our annual after-tax profits determined in
accordance with PRC GAAP to a statutory general reserve fund until the amounts
in said fund reaches 50% of our registered capital. Allocations to these
statutory reserve funds can only be used for specific purposes and are not
transferable to us in the form of loans, advances or cash dividends. Any
limitations on the ability of our PRC subsidiary to transfer funds to us could
materially and adversely limit our ability to grow, make investments or
acquisitions that could be beneficial to our business, pay dividends and
otherwise fund and conduct our business.





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 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.




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 director and former secretary Joseph
Passalaqua.




We issued
securities 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.




30





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.




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.





ITEM 6.
            SELECTED FINANCIAL
      DATA




Not
applicable.




ITEM 7.
            MANAGEMENT’S DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




Overview





During
the fiscal year 2009, Datone, Inc. was a provider of both privately owned and
company owned payphones (COCOT’s) and stations in New York. The Company receives
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 receives revenues from the service and repair of privately owned
payphones, sales of payphone units.





Acquisition
of Glory Reach




On
February 12, 2010, we completed a reverse acquisition transaction through a
share exchange with Glory Reach and the shareholders of Glory Reach (the
“Shareholders”), whereby we acquired 100% of the issued and outstanding capital
stock of Glory Reach in exchange for 10,000 shares of our Series A Preferred
Stock, which 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 Shareholders became our beneficially
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.




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 Qingdao Shoes.





Forward
Looking Statements





Some of
the information in this section contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "may," "will," "expect," "anticipate," "believe,"
"estimate" and "continue," or similar words. You should read statements that
contain these words carefully because they:




31




●
            discuss
      our future expectations;





●
            contain
      projections of our future results of operations or of our financial
      condition; and





●
            state
      other "forward-looking"
information.





We
believe it is important to communicate our expectations. However, there may be
events in the future that we are not able to accurately predict or over which we
have no control. Our actual results and the timing of certain events could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under "Risk Factors,"
"Business" and elsewhere in this prospectus. See "Risk Factors."




Organization
and Basis of Presentation





Datone,
Inc. is currently a provider of both privately owned and company owned payphones
(COCOT’s) and stations in New York. The Company receives 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 receives
revenues from the service and repair of privately owned payphones,and sales of
payphone units.





Critical
Accounting Policies





The
preparation of financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States of America
requires management to make judgments, assumptions and estimates that affect the
amounts reported in our consolidated financial statements and accompanying
notes. We base our estimates and judgments on historical experience and on
various other assumptions that we believe are reasonable under the
circumstances. However, future events are subject to change, and the best
estimates and judgments routinely require adjustment. The amounts of assets and
liabilities reported in our consolidated balance sheet, and the amounts of
revenues and expenses reported for each of our fiscal periods, are affected by
estimates and assumptions which are used for, but not limited to, the accounting
for allowance for doubtful accounts, goodwill and intangible asset impairments,
restructurings, inventory and income taxes. Actual results could differ from
these estimates. The following critical accounting policies are significantly
affected by judgments, assumptions and estimates used in the preparation of our
consolidated financial statements.





Revenue
Recognition Policies





During
2009 and 2008, the Company derived its primary revenue from the sources
described below, which includes dial around revenues, coin collections, and
telephone equipment repairs and sales. Other revenues generated by the company
include, and commissions.





Dial
around revenues are generated from calls to gain access to a different long
distance carrier than is already programmed into the phone. Revenues from dial
around calls are recorded based upon estimates until the coin collection
revenues are generated when callers deposit coins into the phones to make calls.
Coin revenues are recorded in an amount equal to the coins collected. Revenues
on commissions, and telephone equipment repairs and sales are realized when the
services are provided.




32




TWELVE
MONTHS ENDED DECEMBER 31, 2009 COMPARED WITH TWELVE MONTHS ENDED DECEMBER 31,
2008





Revenue





Our total
revenue decreased by $4,997 or approximately 4%, from $121,436 in the twelve
months ended December 31, 2008 to $116,439 in the twelve months ended December
31, 2009. This decrease was primarily attributable to a decrease in coin revenue
and payphone service revenue as well as a reduced number of payphones coupled
with increased competition from wireless communication service.





Our
commissions increase by $2,596 or approximately 28%, from $9,416 in the twelve
months ended December 31, 2008 to $12,012 in the twelve months ended December
31, 2009. This increase was primarily attributable to a higher volume of
payphones usage in our network.





Our coin
call revenue decreased by $2,111 or approximately 6%, from $36,901 in the twelve
months ended December 31, 2008 to $34,790 in the twelve months ended December
31, 2009. The decrease in coin call revenue was primarily attributable to a
reduced number of payphones in the network.





Our non-coin call revenue, which
consists primarily of dial-around revenue, increased $3,695 or approximately 7%
from $52,696 in the twelve months ended December 31, 2008 to $49,001 in the
twelve months ended December 31, 2009. This increase was primarily attributed to
a higher volume of toll free calling (ex. 1-800,1-888,1-877,1-866 calls) in this
quarter.





Service
and Repair Sales decreased by $1,787 or approximately 8% to $20,636 for the
twelve months ended December 31, 2009 from $22,423 for the same period in 2008.
This decrease is due to less payphones to repair and service because the number
of payphones have decreased, the number of payphones breaking down and requiring
repair is consequently less. We only receive service revenue for company-owned
payphones and repair revenue for privately-owned payphones. Some privately-owned
payphones represent unprofitable locations that we previously owned but have
since sold to the site owner.





Cost
of Revenue





Our
overall cost of revenue increased by $3,341 or approximately 12%, from $27,346
in the twelve months ended December 31, 2008 to $30,687 in the twelve months
ended December 31, 2009. This increase in our overall cost of revenue is
primarily a decrease in telecommunication costs.





Our
telecommunication costs increased by $3,342 or approximately 13% from $26,692 in
the twelve months ending December 31, 2008 to $30,034 for the twelve months
ending December 31, 2009. Our ongoing strategy is to identify and remove
unprofitable payphones. Once a low revenue payphone is identified, we offer the
site owner an opportunity to purchase the equipment. If the site owner does not
purchase the payphone, we remove it from the site, which is evidenced by our
decreased telecommunication costs as a result of removing phones for the twelve
months ended December 31, 2009 over the same period in 2008. At the same time,
our plan is to continue to look out for ideal locations with high traffic to
install our payphones.




33




Depreciation
expense remained constant at $653 in the twelve months ending December 31, 2009
and 2008. This is due to certain assets being fully depreciated and our ongoing
strategy of identifying unprofitable payphones, and selling them to the site
owners. Once a payphone is sold to the site owner, it is removed from our assets
and depreciation schedules. We own telephone equipment and motor vehicles, which
provide a service for a number of years. The term of service is commonly
referred to as the “useful life” of the asset. Because an asset such as
telephone equipment or motor vehicle is expected to provide service for many
years, it is recorded as an asset, rather than an expense, in the year acquired.
A portion of the cost of the long-lived asset is reported as an expense during
the cost of an asset to expense over its life in a rational and systematic
manner.





Our
commissions expense increased by $4,902 or approximately 920% to $4,369 in the
twelve months ending December 31, 2009 from ($533) in the twelve months ending
December 31, 2008. This increase was due to new location who receives a monthly
commission.





Operating
Expenses





Operating
expenses decreased by $9,634 or approximately 5% to $173,064 for the twelve
months ended December 31, 2009 compared to $182,698 for the same period in 2008.
This was due to the fees we pay our accountants and attorneys for performing
they’re services.





Salaries
and related payroll taxes decreased by $5,654 or approximately 8% to $43,103 for
the twelve months ended December 31, 2009 compared to $48,757 for the same
period in 2008. This decrease is due to the employee taking less payroll in
2009.





Our
insurance expense decreased by $6,246 or approximately 93% to $469 for the
twelve months ended December 31, 2009 compared to $6,715 for the same period in
2008. This decrease was due to a decrease in insurance premiums and cancellation
of a policy.





Professional
fees increased by $835 or approximately 2% to $48,395 for the twelve months
ended December 31, 2009 compared to $47,560 for the same period in 2008. This
decrease is due to a decrease in fees we pay to accountants and attorneys
throughout the year for performing various tasks.





Our
telephone, utilities, office, and vehicle expenses, together account for a
decrease of $4,227 or approximately 17% to $21,297 for the twelve months ended
December 31, 2009 compared to $25,524 for the same period in 2008.





Interest
Expense





Interest
expense, increased $31,740 or approximately 105% to $61,923 for the twelve
months ended December 31, 2009 from $30,183 for the twelve months ended December
31, 2008. This increase was due to more interest-rate debt.




Net
Loss from Operations





We had a
net loss of $144,390 for the twelve months ended December 31, 2009 as compared
to a net loss of $118,791 for the twelve months ended December 31, 2008. The
increase is related to the reasons stated above.




34




Liquidity
and Capital Resources





Our
primary liquidity and capital resource needs are to finance the costs of our
operations and to make capital expenditure.





We had no
cash on hand as of December 31, 2009 and 2008.





We
believe that we will continue to need investing and financing activities to fund
operations.





Net cash
used in operating activities was $37,042 during the twelve month period ended
December 31, 2009, mainly representative of the decrease in accounts payable and
net loss incurred during 2009. This compares to net cash used in operating
activities of $37,527 for the twelve month period ended December 31, 2008 which
resulted from a decrease in accounts payable.





Net cash
provided by investing activities was $200 during twelve month period ended
December 31, 2009, representing a sale of equipment. This compares to net cash
provided by financing activities of $0 for the twelve month period ended
December 31, 2008.





Net cash provided by financing
activities was $36,842 during twelve month period ended December 31, 2009,
mainly representing the proceeds from related party notes. This compares to net
cash provided by financing activities of $37,527 for the twelve month period
ended December 31, 2008 due to proceeds from related party notes.





Our expenses to date are largely due to
rents for the office space, professional fees for financial services performed
and the cost of sales for telephone communication costs.





We believe that our results of
financing activities will provide us with the necessary funds to satisfy our
liquidity needs for the next 6 months. To the extent that such funds are
insufficient, our principal stockholder has agreed to fund our operations for
the next six-month period and beyond in the form of a loan or loans. However,
there is no formal agreement with our principal stockholder, Greenwich Holdings
LLC in writing or otherwise to do so and accordingly may not be enforced against
Greenwich Holdings, Inc. in the event that it decides not to continue to fund
the Company.





Working
Capital





As of December 31, 2009, we had current
assets of $25,046 and current liabilities of $639,575 which result in working
deficit of $614,529 compared to a working deficit of $537,506 as of December 31,
2008.





Critical
Accounting Policies





The
preparation of financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States of America
requires management to make judgments, assumptions and estimates that affect the
amounts reported in our consolidated financial statements and accompanying
notes. We base our estimates and judgments on historical experience and on
various other assumptions that we believe are reasonable under the
circumstances. However, future events are subject to change, and the best
estimates and judgments routinely require adjustment. The amounts of assets and
liabilities reported in our consolidated balance sheet, and the amounts of
revenues and expenses reported for each of our fiscal periods, are affected by
estimates and assumptions which are used for, but not limited to, the accounting
for allowance for doubtful accounts, goodwill and intangible asset impairments,
restructurings, inventory and income taxes. Actual results could differ from
these estimates. The following critical accounting policies are significantly
affected by judgments, assumptions and estimates used in the preparation of our
consolidated financial statements.





35





Revenue
Recognition Policies





For the
fiscal year 2009, the Company derives its primary revenue from the sources
described below, which includes dial around revenues, coin collections, and
telephone equipment repairs and sales. Other revenues generated by the company
include commissions.




Dial
around revenues are generated from calls to gain access to a different long
distance carrier than is already programmed into the phone. Revenues from dial
around calls are recorded based upon estimates until the coin collection
revenues are generated when callers deposit coins into the phones to make calls.
Coin revenues are recorded in an amount equal to the coins collected. Revenues
on commissions and telephone equipment repairs and sales are realized when the
services are provided.





Off
Balance Sheet Arrangements




We do not
have any off balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity or capital
expenditures or capital resources that is material to an investor in our
securities.





Seasonality




Our
operating results and operating cash flows historically have not been subject to
seasonal variations. This pattern may change, however, as a result of new market
opportunities or new product introductions.





Recent
Accounting Pronouncement





In June
2008, the FASB finalized FASB ASC 815-40-15, which outlines a procedure to
determine if an equity-linked financial instrument (or embedded feature) is
indexed to its own common stock. FASB ASC 815-40-15 is effective for fiscal
years beginning after December 15, 2008. The adoption of FASB ASC 815-40-15 did
not have an impact on our financial position, results of operations or cash
flows.





In May
2009, the FSAB issued FASB ASC 855 which is intended to establish general
standards of accounting for and disclosure of events that occur after the
balance sheet date, but before financial statements are issued or are available
to be issued. It requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date–that is, whether that
date represents the date the financial statements were issued or were available
to be issued. This disclosure should alert all users of financial statements
that an entity has not evaluated subsequent events after that date in the set of
financial statements being presented. ASC 855 is effective for financial
statements issued for fiscal years and interim periods ending after June 15,
2009.





In July
2009, the Financial Accounting Standards Board (“FASB”) issued new guidance
relating to the “FASB Accounting Standards Codification” at FASB ASC 105, as the
single source of authoritative nongovernmental U.S. generally accepted
accounting principles (GAAP). The codification is effective for interim periods
ending after September 15, 2009. All existing accounting standards are
superseded as described in FASB ASC 105. All other accounting literature not
included in the Codification is non-authoritative. The adoption of FASB ASC 105
did not impact our results of operations, financial position or cash
flows.





ITEM 8.
            FINANCIAL STATEMENTS AND
      SUPPLEMENTARY FINANCIAL DATA




Consolidated
Financial Statements





The
financial statements required by this item begin on page F-1
hereof.




ITEM 9.
            CHANGES IN AND DISAGREEMENTS WITH
      ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
  DISCLOSURE





None.




36




ITEM 9A(T).
            CONTROLS AND
      PROCEDURES





Evaluation
of Disclosure Controls and Procedures





An
evaluation was conducted under the supervision and with the participation of the
Company’s management, including the Chief Executive Officer (“CEO”), its
principal executive officer, and Chief Financial Officer (“CFO”), its principal
financial officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and
Rule 15d-15(e) of the Exchange Act) as of December 31, 2009. Based on that
evaluation, the CEO and CFO concluded that there had been improvements of the
Company’s disclosure controls and procedures and the manner in which information
that is required to be disclosed in Exchange Act report is reported within the
time period specified in the SEC’s rule and forms. CEO has concluded that our
disclosure controls and procedures were not effective as of December 31,
2009.





Management’s
Annual Report on Internal Control over Financial Reporting





Section
404 of the Sarbanes-Oxley Act of 2002 requires that management document and test
the Company’s internal control over financial reporting and include in this
Annual Report on Form 10-K a report on management’s assessment of the
effectiveness of our internal control over financial reporting.




Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. Internal control over financial reporting
refers to the process designed by, or under the supervision of our Chief
Executive Officer and Chief Financial Officer, and effected by our Board of
Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. GAAP, and
includes those policies and procedures that:




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




(2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with U.S. GAAP, and
that our receipts and expenditures are being made only in accordance with the
authorization of our management and directors; and




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




Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




The
management designed an evaluation process that meets the needs of its company
and that provides reasonable assurance for its assessment based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.





In
connection with their review of our internal controls over financial reporting
for the fiscal year ended December 31, 2009, our management concluded that, as
of December 31, 2009, our internal control over financial reporting was not
effective.




37





This
Annual Report on Form 10-K does not, nor is required to, include an attestation
report of the Company’s independent registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject
to attestation by the Company’s independent registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management’s report in this annual
report.





Changes
in internal control over financial reporting





In order
to further enhance our disclosure and internal controls, the Company has hired
financial consultants to assist management in evaluating complex accounting
issues on an as-needed basis, and the implementation of systems to improve
control and review procedures over all financial statement and account
balances.





ITEM
    9B.
            OTHER
      INFORMATION




There is
no information required to be disclosed in a report on Form 8-K during the
fourth quarter of the year covered by this Form 10-K but not
reported.





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 “Current Directors”). On February 12, 2010, the Current Directors
have submitted a letter of resignation and Tao Wang, Renwei Ma, and Lanhai Sun
have been appointed to our board of directors (the “Incoming Directors”). The
resignation of the Current Directors and appointment of the Incoming Directors
both became effective 10 days after the filing and mailing of the Schedule 14f-1
(the “Effective Date”). On February 12, 2010, the board of directors appointed
the new executive officers as listed below.





NAME
            
            AGE
            
            POSITIONTao
      Wang(1)
            
            39
            
            Director
      and Chief Executive OfficerRenwei
      Ma(1)
            
            43
            
            Director
      and General CounselFang
      Sui
            
            28
            
            Chief
      Financial Officer, ControllerWenmao
      Shi
            
            39
            
            Chief
      Operating OfficerZhengdian
      Xing
            
            33
            
            Vice
      President, SalesXianfu
      Qiao
            
            47
            
            Sourcing
      and Design ManagerLanhai
      Sun(1)
            
            39
            
            DirectorCraig
      H. Burton(2)
            
            46
            
            DirectorJoseph
      J. Passalaqua(2)
            
            36
            
            DirectorJoseph
      Meuse(2)
            
            39
            
            Director





(1)  Will
become a director on the Effective Date.


(2)  Current
director until the Effective Date.





38





Tao WangMr. Wang has
been the company’s CEO and founder since March 10, 2003. Before
founding Hongguan, 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 shoe industry.





Renwei MaMr. Ma is the
company legal representative since the founding of the Hongguan in March 2003.
Prior becoming Hongguan’s legal representative, he was self-employed, as well
worked in the shoe industry. He obtained a bachelor degree in
Marketing.





Fang SuiMs. Sui joined
Hongguan in March 2003. She is responsible for the company’s financial
information. She holds a bachelor’s degree, and she is a registered
accountant.





Wenmao ShiMr. Mao has been
with the Company in the sales department since inception in March 2003. Prior
joining Hongguan, Mr. Mao was a director of sales at Qingdao Double Star Group.
Mr. Mao has over 18 years of sales experience, and obtained a bachelor degree in
1992, majoring in Economics.




Zhengdian XingMr. Xing is a
Sales Manager and has been with the Company since March , 2003. Prior joining
Hongguan, Mr. Mao was previously an entrepreneur in the footwear industry since
1998. Mr. Xing has over 10 years of sales experience, and obtained a bachelor
degree in 1998, majoring in Sales and Marketing.




Xianfu Qiao, Mr. Qiao has been
the Company’s Development Manager since March , 2003. Prior joining Hongguan,
Mr. Mao was self-employed, he has worked in the shoe industry in a variety of
capacities since 1986. Mr. Qiao has over 20 years of industry
experience.





Lanhai Sun, Mr. Sun has been
working as the Company’s financial consultant since 2005, and he has invested
and owns several Hongguan outlets. He also acts as general manager at Shandong
Huibo Import & Export Co.,Ltd and Qingdao Xingguang Import &Export Co.,
Ltd.




Craig Burton, Mr. Burton has
served as President and director of Datone, Inc. since August, 2000. On February
12, 2010 Mr. Burton resigned 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 has served as our secretary and director since August 2000. On
February 12, 2010 Mr. Passalaqua resigned 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.




Joseph Meuse, Mr. Meuse has
served as a director of Datone since January 25, 2010. Mr. Meuse has been
involved with corporate restructuring since 1995. He is the Managing Member of
Belmont Partners, LLC and was previously a Managing Partner of Castle Capital
Partners. Additionally, Mr. Meuse maintains a position as a Board Member of
numerous public companies. Mr. Meuse attended the College of William and
Mary.




39




Family
Relationships





There is
no family relationship among any of our officers or directors.





Board
Composition and Committees





Audit,
Nominating, Compensation Committees and Director Independence





Our board
of directors currently has no independent directors and does not have standing
audit, nominating or compensation committees as of the date hereof and the
entire board is performing the functions normally associated with an audit,
nominating and compensation committee. However, we anticipate the Company will
in the future seek to form audit and other board committees in a manner
consistent with Nasdaq listed companies in the future.





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.





Going
forward, the board of directors will annually review the performance and total
compensation package for the Company’s executive officers, including the Chief
Executive Officer; consider the modification of existing compensation, and the
adoption of new plans.





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, except for the following executive officers who have not
filed a Form 3: Tao Wang, Renwei Ma, Fang Sui, Wenmao Shi, Zhengdian Xing, and
Xianfu Qiao.





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.




40




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 our
shareholders.




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.




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.




41




ITEM
    12.
            SECURITY OWNERSHIP OF CERTAIN
      BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS





The
following table sets forth information regarding beneficial ownership of our
common stock as of February 12, 2010 (i) by each person who is known by us to
beneficially own more than 5% of our common stock; (ii) by each of our officers
and directors; and (iii) by all of our officers and directors as a group. Unless
otherwise specified, the address of each of the persons set forth below is in
care of the Company, 269 First Huashan Road, Jimo City, Qingdao, Shandong,
China. Except as indicated in the footnotes to this table and subject to
applicable community property laws, the persons named in the table to our
knowledge have sole voting and investment power with respect to all shares of
securities shown as beneficially owned by them. The information in this table is
as of February 12, 2010 based upon (i) 8,100,000 shares of common stock
outstanding and (ii) 10,000 shares of Series A convertible Preferred Stock
outstanding.





Name and Address of Beneficial Owner
                                                  
                                                  Office, If
                                                    Any
                                                  
                                                  Title of Class
                                                  
                                                  Amount and
                                                    Nature of
                                                    Beneficial
                                                    Ownership
                                                  
                                                  
                                                  Percent
                                                    Series A
                                                    Preferred
                                                    Stock
                                                  
                                                  
                                                  Percent
                                                    Common
                                                    Stock
                                                  
                                                  
                                                  Percent of
                                                    Combined
                                                    Voting Power
                                                    of Common
                                                    Stock and
                                                    Series A
                                                    Preferred
                                                    Stock
      (1)Officers
      and DirectorsTao
      Wang
                                                  
                                                  Chief
      Executive Officer
                                                  
                                                  Series
      A Convertible Preferred Stock
                                                  
                                                  
                                                  6,495
                                                  (2)
                                                  
                                                  
                                                  65.0
                                                  %
                                                  
                                                  
                                                  -
                                                  %
                                                  
                                                  
                                                  63.0
                                                  %Joseph
      Meuse 360 Main Street PO Box 393 Washington, Virginia
22747
                                                  
                                                  Director
                                                  
                                                  Series
      A Convertible Preferred Stock
                                                  
                                                  
                                                  873
                                                  
                                                  
                                                  
                                                  8.7
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  8.5Craig
      Burton
                                                  
                                                  Director
                                                  
                                                  Common
      Stock
                                                  
                                                  
                                                  115,000
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1.4
                                                  
                                                  
                                                  
                                                  *Joseph
      J. Passalaqua
                                                  
                                                  Director
                                                  
                                                  Common
      Stock
                                                  
                                                  
                                                  120,000
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1.5
                                                  
                                                  
                                                  
                                                  *All
      officers and directors as a group (2 persons named above)
                                                  
                                                  
                                                  
                                                  Series
      A Convertible Preferred Stock
                                                  
                                                  
                                                  7,368
                                                  
                                                  
                                                  
                                                  73.7
                                                  
                                                  
                                                  
                                                  2.9Common
      Stock
                                                  
                                                  
                                                  235,000
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  71.65%
      Security HoldersSwift
      Dynamic Limited P.O. Box 957, Offshore Incorporations Centre, Road Town,
      British Virgin Islands
                                                  
                                                  
                                                  
                                                  Series
      A Convertible Preferred Stock
                                                  
                                                  
                                                  6,495
                                                  (2)
                                                  
                                                  
                                                  65.0
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  63.0Greenwich
      Holdings, LLC (3) 106 Glenwood Drive Liverpool NY 13090
                                                  
                                                  
                                                  
                                                  Common
      Stock
                                                  
                                                  
                                                  6,792,781
                                                  (3)
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  83.9
                                                  
                                                  
                                                  
                                                  2.5William
      Luckman 360 Main Street PO Box 393 Washington, Virginia
    22747
                                                  
                                                  
                                                  
                                                  Series
      A Convertible Preferred Stock
                                                  
                                                  
                                                  874
                                                  
                                                  
                                                  
                                                  8.7
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  8.5





* Less
than 1%




42




(1)
Common Stock shares have one vote per share.  Shares of Series A
Convertible Preferred Stock will automatically convert into shares of common
stock on the basis of one share of Series A Preferred Stock for 970 shares of
common stock upon the effectiveness of a planned 1-for-27 reverse split of our
outstanding common stock, which we expect to become effective in or about March
2010.  Holders of Series A Preferred Stock vote with the holders of
common stock on all matters on an as-converted to common stock based on an
assumed post 1-for-27 reverse split basis.




(2) Based
on 6,495 shares of Series A Convertible Preferred held by Swift Dynamic Limited,
a British Virgin Islands limited company.  Tao Wang serves as Chief
Executive Officer and Director of Swift Dynamic Limited.




(3) Based
on 6,792,781 shares of Common Stock held by Greenwich Holdings,
LLC.  Greenwich Holdings, LLC is a New York limited liability company
that is owned by Joseph C. Passalaqua, a resident of Liverpool, New
York.





Changes
in Control




On
February 12, 2010, the Company and its stockholders entered into the Exchange
Agreement with Glory Reach, Glory Reach Shareholders, Greenwich Holdings LLC,
and Qingdao Shoes.  Pursuant to the Exchange Agreement, the Company
acquired all of the outstanding shares of Glory Reach from the Glory Reach
Shareholders (the “Interests”); and the Glory Reach Shareholders transferred and
contributed all of their Interests to us. In exchange, we issued to the Glory
Reach Shareholders, their designees or assigns, 10,000 shares of our Series A
Convertible stock, which 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 transactions contemplated by the Share Exchange
Agreement.  Therefore, Glory Reach became a wholly-owned subsidiary of
the Company. The Share Exchange resulted in a change in control of the
Company.




43


Further
and in connection with the Share Exchange, on February 12, 2010 Craig H. Burton,
our former President and current Director, Joseph J. Passalaqua, our former
Secretary and current Director, and Joseph Meuse, our Director, submitted a
resignation letter 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 this Schedule 14f-1.
In addition, our board of directors on February 12 appointed Tao Wang
(Chairman), Renwei Ma and Lanhai Sun to fill the vacancies created by such
increase, which appointments became effective upon the effectiveness of the
resignation of Craig H. Burton, Joseph J. Passalaqua, and Joseph Meuse on the
tenth day following the mailing by us of this Schedule 14f-1.


ITEM 13.
            CERTAIN RELATIONSHIPS AND RELATED
      PARTY TRANSACTIONS




Transactions
with Related Persons




The
following includes a summary of transactions since the beginning of the 2007
year, 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.




Mr. Tao
Wang entered into the contract with the Company to assume fiscal
responsibilities for all 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.




The
Company leases one of its stores from Mr. Tao Wang under a four-year operating
lease expiring August 2011. For the years ended December 31, 2008 and 2007,
related party rent expense of $17,298 and $15,800, respectively, was included in
total rent expense of the year.




The
Company leases one of its warehouse buildings to Weidong, Liang, brother-in-law
of Mr. Tao Wang, for three years starting May 2008. Per the agreement, the
lessee shall pay equal amount of advertising expense on behalf of the lessor as
the lease payment. For the year ended December 31, 2008, the Company recorded
other income of $57,660 from leasing the aforementioned building and advertising
expense of $57,660.




Prior to
the acquisitions of Datone the Company loaned Mr. Tao Wang amounts of $222,108
and $4,373,588 at September 30, 2009 and December 31, 2008, respectively. As of
the date of this filing, all balances loaned by the Company to Mr. Tao Wang have
been repaid and no loans to Mr. Tao Wang are outstanding.




Insider
Transactions Policies and Procedures




The
Company does not currently have an insider transaction policy.




44





Director
Independence




We
currently do not have any independent directors, as the term “independent” is
defined by the rules of the Nasdaq Stock Market.




ITEM 14.
            PRINCIPAL ACCOUNTANT FEES AND
      SERVICES




Fees
Paid to Independent Public Accountants





MaloneBailey,
LLP served as our independent registered public accountants for the fiscal years
ended December 31, 2009 and 2008.





During
the fiscal years ended December 31, 2009 and December 31, 2008, fees for
services provided by MaloneBailey, LLP, respectively were as
follows:




Years
      Ended December 31,2009
                        
                        
                        2008Audit
      Fees
                        
                        $
                        20,000
                        
                        
                        $
                        18,500Audit-Related
      Fees
                        
                        
                        -
                        
                        
                        
                        -Tax
      Fees
                        
                        
                        -
                        
                        
                        
                        -Other
      Fees
                        
                        
                        -
                        
                        
                        
                        -Total
                        
                        $
                        20,000
                        
                        
                        $
                        18,500




Pre-Approval
Policies and Procedures





Under the
Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our
auditors must be approved in advance by our Board to assure that such services
do not impair the auditors’ independence from us. In accordance with its
policies and procedures, our Board pre-approved the audit service performed by
Yu and Associates CPA Corporation for our consolidated financial statements as
of and for the year ended December 31, 2008.





PART
IV




ITEM
    15.
            EXHIBITS, FINANCIAL STATEMENTS
      SCHEDULES




Exhibits
(including those incorporated by reference).




Exhibit
                          No.
                        
                        Description
                        Footnote
      Reference2.1
                        
                        Share
      Exchange Agreement, dated February 12, 2010, among the Datone, Glory Reach
      International Limited, Qingdao Shoes, the shareholders of Glory Reach
      International Limited, and Greenwich Holdings LLC.
                        (2)3.1
                        
                        Amended
      and Restated Certificate of Incorporation.
                        (1)3.2
                        
                        Bylaws
                        (1)3.3
                        
                        Certificate
      of Designation of Series A Voting Convertible Preferred Stock, as filed
      with the Delaware Secretary of State on February 11, 2010.
                        (2)


45
  10.1
                          
                          Form
      of Distributer Contract (translated)
                          (2)10.2
                          
                          Form
      of Purchase Contract (translated)
                          (2)10.3
                          
                          Asset
      Transfer Agreement between Qingdao Shoes and Tao Wang
      (translated)
                          (2)10.4
                          
                          Form
      of Director Indemnification Agreement
                          (2)10.5
                          
                          Agreement
      of Conveyance, Transfer and Assignment of Assets and Assumption of
      Obligations
                          (2)21.1
                          
                          Subsidiaries
      of the Company
                          *31.1
                          
                          Certification
      of Principal Executive Officer filed pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
                          *31.2
                          
                          Certification
      of Principal Financial Officer filed pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
                          *32.1
                          
                          Certifications
      of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002
                          *32.2
                          
                          Certifications
      of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002
                          *


*      Filed
herewith


(1)
            Filed
      as an exhibit to the Company’s registration statement on Form 10-SB, as
      filed with the Securities and Exchange Commission on February 1, 2008, and
      incorporated herein by this
reference.


(2)
            Filed
      as an exhibit to the Company’s current report on Form 8-K, as filed with
      the Securities and Exchange Commission on February 12, 2010, and
      incorporated herein by this
reference.




46




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:
      March 30, 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.




Each
person whose signature appears below hereby authorizes Tao Wang as
attorneys-in-fact to sign on his behalf, individually, and in each capacity
stated below, and to file all amendments and/or supplements to this annual
report on Form 10-K.




Signature
                          
                          Capacity
                          
                          Date/s/
      Tao Wang
                          
                          Chief
      Executive Officer and Director
                          
                          March
      30, 2010Tao
      Wang
                          
                          (Principal
      Executive Officer)/s/
      Fang Sui
                          
                          Chief
      Financial Officer (Principal Financial
                          
                          March
      30, 2010Fang
      Sui
                          
                          Officer
      and Principal Accounting Officer)/s/
      Renwei Ma
                          
                          Director
                          
                          March
      30, 2010Renwei
      Ma/s/
      Lanhai Sun
                          
                          Director
                          
                          March
      30, 2010Lanhai
      Sun




47


INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS


PageReport
      of Independent Registered Public Accounting Firm
                
                
                F-1Consolidated
      Balance Sheets December 31, 2009 and December 31, 2008
                
                
                F-2Consolidated
      Statements of Operations For the Years Ended December 31, 2009 and
      2008
                
                
                F-3Consolidated
      Statements of Stockholders’ Deficit For the Years Ended December 31, 2009
      and 2008
                
                
                F-4Consolidated
      Statements of Cash Flows For the Years Ended December 31, 2009 and
      2008
                
                
                F-5Notes
      to Consolidated Financial Statements
                
                
                F-6




48





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders of


Datone,
Inc.


Liverpool,
NY




We have
audited the accompanying consolidated balance sheets of Datone, Inc. and
Subsidiary (the “Company”) as of December 31, 2009 and 2008, and the related
consolidated statements of operations, stockholders’ deficit, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2009
and 2008 and the results of its operations and cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.




The
accompanying financial statements have been prepared assuming that Datone, Inc.
will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company has a working capital deficit and has incurred
losses since inception, which raises substantial doubt about its ability to
continue as a going concern. Management’s plans regarding those matters also are
described in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.




/s/  MaloneBailey,
LLP


www.malonebailey.com


Houston,
Texas




March 30,
2010





F-1





DATONE,
INC. AND SUBSIDIARY


CONSOLIDATED
BALANCE SHEETS





December
      31,2009
                            
                            
                            2008ASSETSCurrent
      AssetsCommissions
      and sales receivable, net
                            
                            $
                            25,046
                            
                            
                            $
                            29,151Total
      Current Assets
                            
                            
                            25,046
                            
                            
                            
                            29,151Vehicles,
      net of accumulated depreciation of $66,259 and
                            
                            
                            -
                            
                            
                            
                            -$65,606,
      respectively
                            
                            
                            5,016
                            
                            
                            
                            5,669TOTAL
      ASSETS
                            
                            $
                            30,062
                            
                            
                            $
                            34,820LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      LiabilitiesAccounts
      payable
                            
                            $
                            118,252
                            
                            
                            $
                            148,447Accounts
      payable - related parties
                            
                            
                            2,095
                            
                            
                            
                            -Bank
      overdraft
                            
                            
                            8,402
                            
                            
                            
                            8,313Accrued
      liabilities
                            
                            
                            76,102
                            
                            
                            
                            64,572Short-term
      debt
                            
                            
                            -
                            
                            
                            
                            7,091Short-term
      debt - related parties, net of unamortizeddiscounts
      of $12,159 and $0, respectively
                            
                            
                            434,724
                            
                            
                            
                            338,234Total
      Current Liabilities
                            
                            
                            639,575
                            
                            
                            
                            566,657STOCKHOLDERS'
      DEFICITCommon
      Stock, .0001 par value 100,000,000 sharesauthorized,
      4,963,226 shares issued and outstanding
                            
                            
                            496
                            
                            
                            
                            496Additional
      paid-in capital
                            
                            
                            1,754,585
                            
                            
                            
                            1,687,871Accumulated
      deficit
                            
                            
                            (2,364,594
                            )
                            
                            
                            (2,220,204
                            )Total
      Stockholders' Deficit
                            
                            
                            (609,513
                            )
                            
                            
                            (531,837
                            )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                            
                            $
                            30,062
                            
                            
                            $
                            34,820





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





F-2





DATONE,
INC.AND SUBSIDIARY


CONSOLIADTED
STATEMENTS OF OPERATIONS





Years
      EndedDecember
      31,2009
                    
                    
                    2008REVENUE
                    
                    $
                    116,439
                    
                    
                    $
                    121,436COST
      OF REVENUEDepreciation
                    
                    
                    653
                    
                    
                    
                    654Cost
      of revenue
                    
                    
                    30,034
                    
                    
                    
                    26,692Total
      cost of revenue
                    
                    
                    30,687
                    
                    
                    
                    27,346Gross
      profit
                    
                    
                    85,752
                    
                    
                    
                    94,090OPERATING
      EXPENSES:General
      and administrative
                    
                    
                    173,264
                    
                    
                    
                    182,698Gain
      on sale of equipment
                    
                    
                    (200
                    )
                    
                    
                    -Total
      operating expenses
                    
                    
                    173,064
                    
                    
                    
                    182,698Loss
      from operations
                    
                    
                    (87,312
                    )
                    
                    
                    (88,608
                    )OTHER
      INCOME (EXPENSES)Forgiveness
      of debt
                    
                    
                    4,845
                    
                    
                    
                    -Interest
      expense
                    
                    
                    (61,923
                    )
                    
                    
                    (30,183
                    )Total
      other income (expenses)
                    
                    
                    (57,078
                    )
                    
                    
                    (30,183
                    )NET
      LOSS
                    
                    $
                    (144,390
                    )
                    
                    $
                    (118,791
                    )Net
      Loss Per Share - Basic and Diluted
                    
                    $
                    (0.03
                    )
                    
                    $
                    (0.02
                    )Weighted
      Common Shares Outstanding -Basic
      and Diluted
                    
                    
                    4,963,226
                    
                    
                    
                    4,963,226





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





F-3





DATONE,
INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT





Additional
                  
                  
                  
                  
                  
                  TotalCommon Stock
                  
                  
                  Paid-in
                  
                  
                  Retained
                  
                  
                  Stockholders'Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Deficit
                  
                  
                  DeficitBalances
      at December 31, 2007
                  
                  
                  4,963,226
                  
                  
                  $
                  496
                  
                  
                  $
                  1,600,571
                  
                  
                  $
                  (2,101,413
                  )
                  
                  $
                  (500,346
                  )Imputed
      interest
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  21,300
                  
                  
                  
                  -
                  
                  
                  
                  21,300Extinguishment
      of related party debt
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  66,000
                  
                  
                  
                  -
                  
                  
                  
                  66,000Net
      Loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (118,791
                  )
                  
                  
                  (118,791
                  )Balances
      at December 31, 2008
                  
                  
                  4,963,226
                  
                  
                  
                  496
                  
                  
                  
                  1,687,871
                  
                  
                  
                  (2,220,204
                  )
                  
                  
                  (531,837
                  )Imputed
      interest
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  32,714
                  
                  
                  
                  -
                  
                  
                  
                  32,714Debt
      discount from beneficial conversion feature
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  34,000
                  
                  
                  
                  -
                  
                  
                  
                  34,000Net
      Loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (144,390
                  )
                  
                  
                  (144,390
                  )Balances
      at December 31, 2009
                  
                  
                  4,963,226
                  
                  
                  $
                  496
                  
                  
                  $
                  1,754,585
                  
                  
                  $
                  (2,364,594
                  )
                  
                  $
                  (609,513
                  )





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





F-4





DATONE,
INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF CASH FLOWS





Years EndedDecember 31,2009
                  
                  
                  2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Loss
                  
                  $
                  (144,390
                  )
                  
                  $
                  (118,791
                  )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Depreciation
      expense
                  
                  
                  653
                  
                  
                  
                  653Amortization
      of debt discount
                  
                  
                  21,841
                  
                  
                  
                  -Imputed
      interest
                  
                  
                  32,714
                  
                  
                  
                  21,300Forgiveness
      of debt
                  
                  
                  (4,845
                  )
                  
                  
                  -Related
      party debt issued for rent expense
                  
                  
                  60,000
                  
                  
                  
                  60,000Related
      party debt issued for interest expense
                  
                  
                  9,650
                  
                  
                  
                  2,731Gain
      on sale of equipment
                  
                  
                  (200
                  )
                  
                  
                  -Changes
      in operating assets and liabilities:Receivables
                  
                  
                  4,105
                  
                  
                  
                  6,832Prepaid
      expenses
                  
                  
                  -
                  
                  
                  
                  35Accounts
      payable
                  
                  
                  (30,195
                  )
                  
                  
                  (23,839
                  )Accrued
      expenses
                  
                  
                  11,530
                  
                  
                  
                  13,552Accounts
      payable - related party
                  
                  
                  2,095
                  
                  
                  
                  -Net
      Cash Used in Operating Activities
                  
                  
                  (37,042
                  )
                  
                  
                  (37,527
                  )CASH
      FLOWS FROM INVESTING ACTIVITIESProceeds
      from sale of equipment
                  
                  
                  200
                  
                  
                  
                  -Net
      Cash Provided by Investing Activities
                  
                  
                  200
                  
                  
                  
                  -CASH
      FLOWS FROM FINANCING ACTIVITIESBank
      Overdraft
                  
                  
                  89
                  
                  
                  
                  4,773Proceeds
      from related party debt
                  
                  
                  39,000
                  
                  
                  
                  36,000Payments
      made on debt
                  
                  
                  (2,247
                  )
                  
                  
                  (3,246
                  )Net
      Cash Provided by Financing Activities
                  
                  
                  36,842
                  
                  
                  
                  37,527Net
      Change in Cash
                  
                  
                  -
                  
                  
                  
                  -Cash
      at Beginning of Period
                  
                  
                  -
                  
                  
                  
                  -Cash
      at End of Period
                  
                  $
                  -
                  
                  
                  $
                  -SUPPLEMENTAL
      DISCLOSURES:Cash
      paid for interest
                  
                  $
                  94
                  
                  
                  $
                  5,585NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Debt
      discount from beneficial conversion feature
                  
                  $
                  34,000
                  
                  
                  $
                  -Forgiveness
      of related party debt
                  
                  
                  -
                  
                  
                  
                  66,000





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




F-5




DATONE,
INC. AND SUBSIDIARY


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE
1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES





Nature
of Business





Datone,
Inc. was originally incorporated on August 9, 2000 under the laws of the State
of Delaware. Datone operated as a wholly-owned subsidiary of USIP. On August 24,
2006 USIP spun-off its subsidiary companies, one of which was Datone Inc. On
February 1, 2008, Datone filed a Form 10-SB registration statement. On November
13, 2008, Datone went effective. Datone has 100,000,000 shares of stock
authorized and a wholly owned Subsidiary Datone Tel., Inc.





Datone,
Inc. and subsidiary (“Datone”) is currently a provider of both privately owned
and company owned payphones (COCOT’s) and stations in New York. Datone receives
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, Datone
also receives revenues from the service and repair of privately owned payphones,
sales of payphone units and the sales of prepaid phone cards.





Summary
of Significant Accounting Policies





Use
of Estimates





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





Concentrations
of Credit Risk





Datone’s
payphones are located primarily in New York and usage of those phones may be
affected by economic conditions in those areas.





Cash
and Cash Equivalents





Datone
considers all highly liquid instruments with a maturity of three months or less
when purchased to be cash equivalents for purposes of classification in the
balance sheets and statement of cash flows. Cash and Cash equivalents consists
of cash in bank (checking) accounts.





Property
and Equipment





Property
and equipment is stated at cost. Depreciation is calculated on a straight-line
basis over the useful lives of the related assets, which range from five to
seven years. Depreciation expense for the years ended December 31, 2009 and 2008
was $653 and $654, respectively.





Income
Taxes





Income
taxes are accounted for in accordance with FASB ASC 740, under which deferred
income taxes are recognized using the asset and liability method by applying tax
rates to cumulative temporary differences based on when and how they are
expected to affect the tax return. Deferred tax assets and liabilities are
adjusted for income tax rate changes.





Revenue
Recognition





Datone
derives its primary revenue from the sources described below, which includes
dial around revenues, coin collections, and telephone equipment repairs and
service. Other revenues generated by Datone include phone card sales, and
commissions.





Dial
around revenues are generated from calls to gain access to a different long
distance carrier than is already programmed into the phone. Datone records a
monthly accrual and adjusts the revenue to actual earned on a quarterly basis.
The revenue is estimated monthly, based on prior quarter’s actual receipts.
Datone uses prior quarter receipts as estimates because there has not been a
significant change to total payphones in the previous few quarters. Also,
historical figures have shown the revenue earned is not far different than
estimates made. Revenues on commissions, phone card sales, and telephone
equipment repairs and service are recognized when the services are
provided.





F-6





The
proceeds from the sales of pay telephones and other equipment are excluded from
revenues and reported as other operating income.





Basic
and Diluted Net Loss per Share





Basic and
diluted loss per share is calculated by dividing net loss by the
weighted-average number of shares of common stock outstanding during the
year.





Recently
Issued Accounting Pronouncements





In June
2008, the FASB finalized FASB ASC 815-40-15, which outlines a procedure to
determine if an equity-linked financial instrument (or embedded feature) is
indexed to its own common stock. FASB ASC 815-40-15 is effective for fiscal
years beginning after December 15, 2008. The adoption of FASB ASC 815-40-15 did
not have an impact on Datone’s financial position, results of operations or cash
flows.





In May
2009, the FSAB issued FASB ASC 855 which is intended to establish general
standards of accounting for and disclosure of events that occur after the
balance sheet date, but before financial statements are issued or are available
to be issued. It requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date–that is, whether that
date represents the date the financial statements were issued or were available
to be issued. This disclosure should alert all users of financial statements
that an entity has not evaluated subsequent events after that date in the set of
financial statements being presented. ASC 855 is effective for financial
statements issued for fiscal years and interim periods ending after June 15,
2009.





In July
2009, the Financial Accounting Standards Board (“FASB”) issued new guidance
relating to the “FASB Accounting Standards Codification” at FASB ASC 105, as the
single source of authoritative nongovernmental U.S. generally accepted
accounting principles (GAAP). The codification is effective for interim periods
ending after September 15, 2009. All existing accounting standards are
superseded as described in FASB ASC 105. All other accounting literature not
included in the Codification is non-authoritative. The adoption of FASB ASC 105
did not impact Datone’s results of operations, financial position or cash
flows.





NOTE
2 – GOING CONCERN





The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States, which
contemplates Datone as a going concern. However, Datone has sustained
substantial operating losses in recent years and has a working capital deficit
of $614,529 and an accumulated deficit of $2,364,594 as of December 31, 2009.
These conditions raise substantial doubt as to Datone’s ability to continue as a
going concern. Datone’s ability to continue as a going concern is dependent upon
obtaining the additional capital as well as additional revenue to be successful
in its planned activity. Datone is actively pursuing alternative financing and
has had discussions with various third parties, although no firm commitments
have been obtained. In the interim, shareholders of Datone have committed to
meeting its minimal operating expenses. Management believes that actions
presently being taken to revise Datone’s operating and financial requirements
provide them with the opportunity to continue as a going concern.





These
financial statements do not reflect adjustments that would be necessary if
Datone were unable to continue as a going concern. While management believes
that the actions already taken or planned, will mitigate the adverse conditions
and events which raise doubt about the validity of the going concern assumption
used in preparing these financial statements, there can be no assurance that
these actions will be successful.





If Datone
were unable to continue as a going concern, substantial adjustments would be
necessary to the carrying values of assets, the reported amounts of its
liabilities, the reported revenues and expenses, and the balance sheet
classifications used.





NOTE
3 – RELATED PARTY TRANSACTIONS





Datone
has six notes payable to Joseph Passalaqua, a Director and shareholder of
Datone. The notes are due on demand, unsecured and carry interest ranging from
10% to 18% per annum which is compounded on the unpaid principal and interest.
The outstanding principal and interest on the notes was $52,359 and $38,730 as
of December 31, 2009 and 2008, respectively.





Datone
also has six convertible notes payable to Joseph Passalaqua. The notes were
issued between April 30, 2009 and November 25, 2009. They are unsecured and bear
interest at 8% per annum which is compounded on the unpaid principal and
interest. The notes are convertible into common shares of Datone at a rate of
$0.001 per share and mature between November 1, 2009 and May 26, 2010. The
outstanding principal and interest on the notes was $35,021 as of December 30,
2009.





F-7





Datone
leases office space from the wife of Joseph Passalaqua (Callaway Properties) at
a monthly rate of $5,000. The rent expense is accrued as a related party note
payable that is unsecured, due on demand and does not bear interest. Datone
imputed interest on the note payable at a rate of 10% per annum. Imputed
interest expense was $32,714 and $21,300 for the years ended December 31, 2009
and 2008, respectively. The unpaid balance on the loan was $359,503 and $299,503
as of December 31, 2009 and 2008, respectively.





NOTE
4 - DEBT





A summary
of the debt outstanding at December 31, 2009 and December 31, 2008 is as
follows:





December 31,2009
                        
                        
                        2008Unrelated Parties:Note
      payable to bank, monthly installments of $261, interest of 4.5% per annum,
      maturing August 2009.
                        
                        $
                        -
                        
                        
                        $
                        2,246Note
      payable to Key Bank, interest of 9.25% per annum, due on
      demand.
                        
                        
                        -
                        
                        
                        
                        4,845Related Parties:Note
      payable to Callaway Properties, no interest, due on demand
                        
                        
                        359,503
                        
                        
                        
                        299,503Notes
      payable to Joseph Passalaqua, interest of 10% to 18% per annum, due on
      demand
                        
                        
                        52,359
                        
                        
                        
                        38,730Convertible
      notes payable to Joseph Passalaqua, interest of 8% per annum, maturing
      November 1, 2009 – February 17, 2010, convertible at $0.001 per
      share
                        
                        
                        35,021
                        
                        
                        
                        -446,883
                        
                        
                        
                        345,325Less:  Unamortized
      discount from beneficial conversion feature
                        
                        
                        (12,159
                        )
                        
                        
                        -Total
      debt
                        
                        $
                        434,724
                        
                        
                        $
                        345,325





Datone
evaluated the Joseph Passalaqua convertible notes for derivative accounting
consideration under FASB ASC 815-15 and FASB ASC 815-40. Datone determined the
embedded conversion option in the convertible notes met the criteria for
classification in stockholders’ equity under FASB ASC 815-15 and FASB ASC
815-40. Therefore, derivative accounting was not applicable for these
convertible notes.





Datone
then evaluated the conversion options under FASB ASC 470-20 and determined there
was a beneficial conversion feature associated with the conversion options.
Datone calculated the intrinsic value of the conversion options and recorded an
aggregate discount on the loans of $34,000. The discount is being amortized over
the life of the loans using the effective interest rate method. Amortization
expense for the year ended December 31, 2009 was $21,841.





NOTE
5 – MAJOR CUSTOMERS





Datone
received approximately 95% of total dial around and commissions revenue from two
customers.





NOTE
6 – INCOME TAXES





Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax basis. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates.





Net
deferred tax assets consisted of the following as of December 31, 2009 and
2008:





F-8





December 31,2009
                  
                  
                  2008Deferred
      tax assets
                  
                  $
                  (922,192
                  )
                  
                  $
                  (865,880
                  )Valuation
      allowance
                  
                  
                  922,192
                  
                  
                  
                  865,880Net
      deferred tax assets
                  
                  $
                  -
                  
                  
                  $
                  -





At
December 31, 2009 and 2008, Datone had net operating loss carry forwards of
approximately $2,364,594 and $2,220,204, respectively that may be offset against
future taxable income through 2028.





NOTE
7 – SUBSEQUENT EVENTS





On
January 26, 2010, Datone formed a new entity, DT Communications, Inc.,
incorporated under the laws of the State of Delaware. DT Communications is a
wholly owned subsidiary of Datone. Datone plans to spin-off all of its assets
and liabilities to DT Communications.





On
February 10, 2010, Datone issued 3,136,768 common shares to Calloway Properties
to repay $43,500 of debt.





On
February 12, 2010, Datone entered into and closed a Share Purchase and Exchange
Agreement with Glory Reach International Limited, a Hong Kong limited company,
its shareholders, Greenwich Holdings LLC, and Glory Reach’s wholly owned
subsidiary Hongguan Shoes Co., Ltd., a People’s Republic of China limited
company.  Pursuant to the Exchange Agreement, Datone acquired all of
the outstanding shares of Glory Reach from the Glory Reach Shareholders; and the
Glory Reach Shareholders transferred and contributed all of their Interests to
us. In exchange, Datone issued to the Glory Reach Shareholders 10,000 shares of
Series A Preferred stock, which constituted 97% of Datone’s issued and
outstanding capital stock on an as-converted to common stock basis as of and
immediately after the consummation of the transactions contemplated by the Share
Exchange Agreement.  Therefore, Glory Reach became a wholly-owned
subsidiary of Datone. The Share Exchange resulted in a change in control of the
Company.





On
February 12, 2010, Datone borrowed $15,000 from Joseph Passalaqua, a Director
and shareholder of Datone. The note is unsecured, due on demand and bears
interest at 18% per annum.




F-9