UNITED STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-K/A




x    Annual Report Pursuant To Section 13
or 15(d) of the Securities Exchange Act of 1934


For the
fiscal year ended: December 31, 2009




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


For the
transition period from ______ to_______





Commission
File Number: 000-53075




QINGDAO
FOOTWEAR, INC.


(Formerly
Datone, Inc.)


(Exact
name of registrant as specified in its charter)




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





Qingdao
Footwear, Inc.


269
First Huashan Road


Jimo
City, Qingdao, Shandong, PRC


(Address
of principal executive office and zip code)





86-0532-86595999


(Registrant’s
telephone number, including area code)





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





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





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





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





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





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x





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




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




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




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




As of
November 3, 2010, there were 10,000,000 shares of the Registrant’s common stock
outstanding.





Explanatory
Note





The
purpose of this Annual Report on Form 10-K/A is to amend Items 1, 1A, 5, 10, 11,
13 and 15 of our Annual Report on Form 10-K for the fiscal year ended December
31, 2009, which was filed with the Securities and Exchange Commission (the
“SEC”) on March 30, 2010 and amended on August 3, 2010 (the “2009
10-K”).





Items 1,
1A, 5, 10, 11, 13 and 15 of our 2009 10-K have been amended and
restated in their entirety. In
particular, the financial statements have been restated to reflect an
understatement of tax liabilities for the period, as previously disclosed in a
current report on Form 8-K filed on October 14, 2010.Except as stated
herein, this Form 10−K/A does not reflect events occurring after the filing of
the Form 10-K on March 30, 2009 and no attempt has been made in this Annual
Report on Form 10-K/A to modify or update other disclosures as presented in the
2009 10-K. Accordingly, this Form 10−K/A should be read in conjunction with our
filings with the SEC subsequent to the filing of the Form 10−K.





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


2


QINGDAO
FOOTWEAR, INC.


(Formerly
Datone, Inc.)




FORM
10-K/A


For
the Fiscal Year Ended December 31, 2009





PagePART
      IItem
      1.
                                        Business
                                        
                                        4Item
      1A.
                                        Risk
      Factors
                                        
                                        17PART
      IIItem
      5.
                                        Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                        
                                        17PART
      IIIItem
      10.
                                        Directors,
      Executive Officers and Corporate Governance
                                        
                                        19Item
      11.
                                        Executive
      Compensation
                                        
                                        22Item
      13.
                                        Certain
      Relationships and Related Party Transactions, and Director
      Independence
                                        
                                        23PART
      IVItem
      15.
                                        Exhibits,
      Financial Statement Schedules




3





PART
I


ITEM
      1.
            BUSINESS




Overview
 
 We are a
designer and retailer of branded footwear in Northern China. We were organized
to service what we believe is an unmet and increasing demand for high quality
formal and casual footwear throughout the PRC. As urbanization and individual
purchasing power has increased in China, the demand for leather footwear has
also grown.
 
 Our
principal business includes (1) designing and selecting designs for men’s and
women’s leather shoe lines; (2) sourcing and purchasing contract-manufactured
footwear; and (3) selling these lines of footwear under our proprietary brand,
“Hongguan” (sometimes presented as “HonGung”). We do not manufacture or assemble
any shoes.  We operate a number of flagship stores throughout greater
Qingdao. Our products are also brought to market through our extensive
distribution network of authorized independent distributors as well as through
third party retailers selected to operate exclusive Hongguan brand stores on our
behalf. Our company headquarters and main sales office is located in Shandong
province in northern China, in the city of Jimo, less than 25 miles from the
major urban center of Qingdao.
 
 Corporate
History and Background
 
 Qingdao
Footwear was originally incorporated as Datone, Inc. on August 9, 2000 under the
laws of the State of Delaware. The Company operated as a wholly-owned subsidiary
of USIP.com, Inc., a Utah corporation.  On August 24, 2006, USIP.com,
Inc. spun-off its subsidiary companies, one of which was Datone, Inc. On
February 1, 2008, Datone, Inc. filed a Form 10-SB registration statement that
was declared effective on November 13, 2008.
 
 Datone,
Inc. was a provider of both privately owned and company owned payphones and
stations in New York. The Company generates revenues from the collection of the
payphone coinage, a portion of usage of service from each payphone and a
percentage of long distance calls placed from each payphone from the
telecommunications service providers. In addition, the Company also generated
revenues from the service and repair of privately owned payphones and sales of
payphone units.
 
 On
February 12, 2010, the Company completed a reverse acquisition transaction
through a share exchange with Glory Reach International Limited, a Hong Kong
limited company (“Glory Reach”), the shareholders of Glory Reach (the
“Shareholders”), Greenwich Holdings LLC and QHS, whereby the Company acquired
100% of the issued and outstanding capital stock of Glory Reach in exchange for
10,000 shares of our Series A Convertible Preferred Stock.  These
shares of our Series A Convertible Preferred Stock constituted 97% of our issued
and outstanding capital stock on an as-converted to common stock basis as of and
immediately after the consummation of the reverse acquisition. As a result of
the reverse acquisition, Glory Reach became our wholly-owned subsidiary and the
former shareholders of Glory Reach became our controlling stockholders. The
share exchange transaction with Glory Reach was treated as a reverse
acquisition, with Glory Reach as the acquirer and Datone, Inc. as the acquired
party for accounting and financial reporting purposes.
 
 Immediately
following the closing of the reverse acquisition of Glory Reach, two of the
Shareholders, Joseph Meuse, as the beneficial owner of Belmont Partners, and
William Luckman, transferred 338 of the 1747 shares of Series A Convertible
Preferred Stock issued to them under the share exchange to certain persons who
provided services to Glory Reach’s subsidiaries, pursuant to share allocation
agreements that the Shareholder entered into with such service
providers.  We have accounted for such transfers as compensation
expenses.  The service providers and descriptions of the services they
provided are included in the following table:
 
 Name
              Shares
              Services ProvidedHong
      Yan
              78
              Accounting
      servicesLie
      Shen
              78
              Accounting
      servicesThe
      Crone Law Group
              78
              U.S.
      legal servicesHave
      Success Investments Ltd
              104
              China
      legal services
  4
  Upon the
closing of the reverse acquisition, Craig H. Burton, our president and director,
Joseph J. Passalaqua, our secretary and director, and Joseph Meuse, our
director, submitted resignation letters pursuant to which they resigned from all
offices that they held effective immediately and from their position as our
directors that became effective on the tenth day following the mailing by us of
an information statement to our stockholders that complies with the requirements
of Section 14f-1 of the Exchange Act, was mailed out on March 8, 2010. In
addition, our board of directors on February 12, 2010 appointed Tao Wang
(Chairman), Renwei Ma and Lanhai Sun to fill the vacancies created by such
resignations, which appointments became effective upon the effectiveness of the
resignation of Craig H. Burton, Joseph J. Passalaqua and Joseph Meuse on March
18, 2010, the tenth day following the mailing by us of the information statement
to our stockholders on March 8, 2010. (Subsequent to the resignation of these
individuals, our company retained Mr. Meuse as its Chief Financial Officer on
July 12, 2010.)  In addition, our executive officers were replaced by
QHS’ executive officers upon the closing of the reverse acquisition as indicated
in more detail below.
 
 As a
result of our acquisition of Glory Reach, we now own all of the issued and
outstanding capital stock of Glory Reach, which in turn owns all of the
outstanding capital stock of QHS.
 
 QHS was
established in the PRC on May 11, 2003 for the purpose of engaging in the
development and sales of shoe products. Prior to the acquisition described in
the following paragraph, Mr. Tao Wang owned 80% of the equity interests of
QHS.
 
 Glory
Reach was established in Hong Kong on November 18, 2009 to serve as an
intermediate holding company.  Mr. Tao Wang controls and has the right
to receive sole ownership of Swift Dynamic, the majority owner of Glory Reach,
pursuant to the Incentive Option Agreement and Entrustment Agreement entered
into with Renhuan Shi, a Korean passport holder. See “Risk Factors – Our
business and financial performance may be materially adversely affected if the
PRC regulatory authorities determine that our acquisition of QHS constitutes a
Round-trip Investment without MOFCOM approval.”  As a result of Mr.
Wang’s ownership of QHS and his control of Glory Reach, the entities are
considered to be under common control.
 
 On
February 8, 2010, pursuant to the restructuring plan and upon issuance of the
Enterprise Corporation Business License by the Jinmo City Administration for
Industry and Commerce, Glory Reach acquired 100% of the equity interests in QHS
from Mr. Tao Wang, our Chief Executive Officer, and other minority shareholders,
who are all PRC residents. On February 4, 2010, the local government of the PRC
issued the certificate of approval regarding the change in shareholding of QHS
and its transformation from a PRC domestic company to a wholly-foreign owned
enterprise.
 
 Since
there is common control between the Glory Reach and QHS, for accounting
purposes, the acquisition of QHS has been treated as a recapitalization with no
adjustment to the historical basis of its assets and liabilities. The
restructuring has been accounted for using the “as if” pooling method of
accounting and the operations were consolidated as if the restructuring had
occurred as of the beginning of the earliest period presented in our
consolidated financial statements and the current corporate structure had been
in existence throughout the periods covered by our consolidated financial
statements.
 
 Immediately
following the acquisition of Glory Reach, under an Agreement of Conveyance,
Transfer and Assignment of Assets and Assumption of Obligations (the “Conveyance
Agreement”), we transferred all of our pre-acquisition assets and liabilities to
our wholly-owned subsidiary, DT Communications, Inc.  The spinoff to
DT Communications, Inc. occurred immediately before the
acquisition.  Because the surviving entity for accounting purposes was
the operating company, Glory Reach, the spinoff had no impact on our accounting
for the reverse merger.
 
 On March
1, 2010, Swift Dynamic, being the record holder of 6,495 shares of our Series A
Preferred Stock, constituting 63.0% of the voting power of our issued and
outstanding shares of our Common Stock and Series A Preferred Stock, voting
together as a single class, consented in writing to an amendment to our
certificate of incorporation to change our name to “Qingdao Footwear,
Inc.”
  5
 
 Our
Corporate Structure
 
 All of
our business operations are conducted through our Hong Kong and Chinese
subsidiaries. The chart below presents our corporate structure.
 
 
 
 (1)
                  Allof
      the outstanding shares of Swift Dynamic are held by Mr. Renhuan Shi. Such
      shares are subject to the Incentive Option Agreement and the Entrustment
      Agreement. Because of the rights granted to Mr. Tao Wang under these
      agreements, Mr. Tao Wang is deemed the beneficial owner of such
      shares.
 
 Our
Industry and Principal Market
  China is
the largest producer of footwear in the world, with at least 25,000 enterprises
employing more than 10 million employees who manufacture more than 10 billion
pairs of shoes per annum. China’s annual production accounts for nearly 70% of
the 14.3 billion pairs of shoes produced worldwide. In 2008, roughly 75% of PRC
production capacity was exported while the remaining 25% were consumed
domestically. Chinese consumption of footwear reached 2.5 billion pairs in 2008.
(Global Footwear, 2nd Edition, www.researchandmarkets.com) We anticipate stable
growth in the domestic footwear market for the next several
years.  Beginning with the deterioration in the global economy in 2008
and the collapse of the Chinese textile and footwear export market, a material
number of low margin manufacturers were forced out of business. Domestic
consumption and retail sales within China, however, remained robust throughout
the export downturn and global financial crisis. As we have intentionally
avoided the manufacturing sector, we were able to capitalize on the economic
conditions and maintain our profit margin and by capitalizing on overcapacity in
our sourcing market and growing consumer demand.
  6
 
 PRC
Domestic Consumption
 
 According
to the CIA World Factbook, China’s gross domestic product (“GDP”) growth rate
has exceeded both the United States’ and the world’s GDP growth rate over the
past ten years:
 
 
 
 Along
with growth in the economy as a whole, Chinese domestic consumption has
increased in line with rapid urbanization and increases in disposable income
over the past 15 years. Per capita urban disposable income has increased by an
annualized rate of 12.9% over the 5 years ending in 2008, and is anticipated to
top $2,000 in 2012. The urban population as a percentage of the total population
increased from 40.6% in 2003 to 46.6% at the end of 2009, and this trend is
expected to continue into the future. (National Bureau of Statistics of China,
www.stats.gov.cn) The United Nations estimates that China’s population is likely
to be evenly split between rural and urban areas by 2015. (“Urbanization in the
People’s Republic of China,” www.wikipedia.org)
  7
  These
trends have driven a boom in retail sales in the PRC, which has grown at an
annual rate ranging from 9.7 to 21.6% over the past ten year
period.   It is estimated that retail sales will grow 47% from
2009 to 2014.  (China Retail Report Q1 2010,
www.companiesandmarkets.com)
 
 The
retail sales according to the China Statistical Yearbook are displayed
below:
 
 
 
 The
PRC Footwear Market
 
 China’s
footwear market generated total revenues of approximately $11.7 billion dollars
in 2008.  According to Datamonitor, from 2004 through 2008, revenues
grew at a cumulative annual growth rate of approximately 10.7%. (“Footwear in
China,” www.datamonitor.com)
 
 
  8
 
 China’s
footwear market accounts for approximately 34% of the entire Asia-Pacific
footwear market’s value, and China is expected to continue to grow in future
periods by over 8% per year through 2013, while the most valuable market, Japan,
which holds approximately 35.8% of the footwear market value in the region, is
expected to decrease by approximately 0.8% per year over the same period.
(“Footwear in China,” www.datamonitor.com)
  
 
 While
Chinese per capita footwear consumption is lower than a number of other
countries, China surpassed the United States in 2008 as the country that
purchases the most pairs of footwear in the aggregate.  Because the
average Chinese consumer purchases an average of two pairs of shoes annually,
far fewer than consumption levels in Korea, Japan or the West, shoe consumption
are expected to approach levels of other nations with similar cultural
consumption characteristics if China’s consumer wealth continues to grow.
(“Footwear in China,” www.datamonitor.com)  For this reason, we expect
the market is likely to continue to grow for the foreseeable
future.
 
 Our
Growth Strategy
 
 We
believe that the market for affordable, high quality footwear in China provides
us with attractive and sustainable growth opportunities.  We
intend to pursue the following strategies, which are entirely dependent upon
completion of an equity offering, to achieve our goal:
 
 (1)
              Continue our aggressive
      marketing and advertising campaigns in order to gain brand
      awareness.We currently
      advertise and market our products throughout Shandong province in general
      and the greater Qingdao region in particular, using a combination of
      advertising across a variety of media, sales fairs, and billboard
      displays.  We expect to continue to focus these
      efforts.
  9
  (2)
              Expand distributor and third
      party operator stores in prime locations to maximize
      profits.  We seek to place stores in locations we
      consider attractive from a business perspective. Potential attractive
      locations are typically in areas that are likely to have a sufficient
      population of “window shoppers” in the Registrant’s target demographic
      (generally, consumers seeking business casual and formal leather shoes
      appropriate for an office setting).  We do not currently plan to
      expand our geographic footprint beyond what we view as our core market,
      Shandong province.  In addition, we expect that we will continue
      to strengthen our presence in the Qingdao
  region.
 
 (3)
              Bring more self owned stores
      online to increase higher margin sales.  Although we have
      not established a timeline to increase the number of self owned stores we
      will open in the near future, we expect that we will open more self owned
      stores (and at a faster rate) if we complete an equity offering than
      we will open if we rely only on organic growth to fund such
      openings.  The reason for this is that we have found that
      expanding our distributor network allows us to leverage our resources more
      effectively, even though we earn higher margins on our self owned
      stores.  In the event we complete an equity offering,
      however, we would have free cash available to devote to opening self owned
      stores. In our experience, establishing a new sales point such as a
      company-owned flagship store in Qingdao typically requires approximately
      three months and costs approximately $120,000.  The typical cost
      of establishing a distributor store is approximately $30,000 and the
      typical cost of establishing a third-party store is approximately $60,000.
      We anticipate spending approximately $300,000 on our expansion efforts in
      the next 12 months, such plans being entirely dependent on the completion
      of an equity offering. The following table illustrates the
      number of stores we intend to open if an equity offering is
      completed and the number we intent to open if an equity offering
      is not completed. If an equity offering is completed, openings
      will be funded solely through offering proceeds. If an
      equity offering is not completed, we intend to fund openings through
      cash from operations and commercial loans. If such sources are
      insufficient, we may be unable to open the intended number of
      stores.
 
 Stores to Open in Next 12
                    Monthsif Offering is
                    Completed
                  
                  Stores to Open in Next 12
                    Monthsif Offering is not
                    CompletedCompany Owned
                  
                  10-20
                  
                  3-5Third Party
                  
                  30-50
                  
                  10-15Distributor
                  
                  50-100
                  
                  15-30
 
 (4)
              Continue to strive for
      excellence in quality, customer service and design in order to attract new
      and retain repeat customers.We have an in-house product
      design team, which is responsible for designing our product
      lines.  We have worked with this team and our advertising team
      to develop an image for our Hongguan brand that we believe will continue
      to attract customers in our target demographic of office
      workers.  We recognize employees on a regular basis to encourage
      a concerted effort of high quality customer
  service.
 
 (5)
              Leverage our growing
      purchasing power with manufacturers to lower costs.  At
      present, we have found that Chinese shoe manufacturers have unused
      manufacturing capacity.  To the extent we have demand from
      customers for our branded shoes, we believe we benefit from a favorable
      market in which to purchase from such manufacturers.  If we
      continue to grow, we will be able to use our increased purchasing power
      and the desire of manufacturers to make use of such untapped capacity to
      reduce our costs to purchase
footwear.
 
 Our
Products
 
 Our
products consist of men and women’s footwear. Our designs are on the whole
targeted at consumers seeking business casual and formal leather shoes
appropriate for an office setting. Each year we design or commission designs for
more than 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
June 30, 2010, men’s footwear constituted approximately 60% of revenue and
women’s footwear the remainder. Approximately 40% of sales were formal shoes,
and the remainder is attributed to casual footwear.
  10
  
 
 Sourcing
and Purchase of Products
 
 We are a
retailer and designer of footwear products, and as such we fully outsource
production of our footwear to third party manufacturers. Due to excess capacity
in the footwear manufacturing industry in the PRC, we have historically been
able to source our products at competitive prices that allow us to maintain
strong margins in comparison with our competitors. In this way, we avoid what we
perceive to be the risks and lower margins associated with manufacturing
footwear and are able to focus our energies on our brand building and retail
business.
 
 Our
suppliers are selected for their ability to meet our high quality standards,
timely execution of our orders and competitive pricing. As of June 30, 2010, we
had contractual relationships with 60 footwear manufacturers. None of our
suppliers accounted for more than 10% of the total cost of our goods sold in
2009. Our suppliers are mainly located in Wenzhou, Chongqing and various towns
in Jiangsu.
 
 Our
contracts with suppliers are on an as ordered basis, with payment due at the end
of the month of delivery, and are usually for a term of one year. Prices are
negotiated based on a by design basis by our sourcing team. All of our suppliers
are subject to our strict quality control standards, and we are entitled to
return product without payment if it is not according to the quality set forth
in our agreement.
 
 During
the year ended December 31, 2007, purchases from one vendor accounted for 13.2%
of the total merchandise purchases of the Company. There is no such
concentration for the year ended December 31, 2008 and year ended December 31,
2009.
  11
 
 Sales
Channels
 
 The
following diagram details our current distribution channels:
 
 
 
 As of
June 30, 2010, we had 12 flagship stores, 11 exclusive third party managed
retail outlets, and 192 outlets managed by distributors.
 
 The
majority of our sales come through distributors stores.  The table
below provides a breakdown of sales by sales channel:
 
 Channel
                  
                  2009 Sales
                  
                  
                  %
                  
                  
                  2008 Sales
                  
                  
                  %Self
      Owned Stores
                  
                  $
                  2,792,146
                  
                  
                  
                  16
                  %
                  
                  $
                  2,049,529
                  
                  
                  
                  15
                  %Wholesale
      (Third party Stores and Distributors)
                  
                  $
                  15,071,745
                  
                  
                  
                  84
                  %
                  
                  $
                  11,854,785
                  
                  
                  
                  85
                  %Total
      Revenue
                  
                  $
                  17,863,891
                  
                  
                  
                  100
                  %
                  
                  $
                  13,904,314
                  
                  
                  
                  100
                  %
  12
 
 We have
experienced rapid growth in our retail presence in the past two
years.  The following table details the locations and historical
growth of our sales network:
 
 Flagship Stores
                  
                  
                  Distributors
                  
                  
                  3rd Party Operators
                  
                  
                  Total2008
                  
                  
                  2009
                  
                  
                  
                  2010
      Q2
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  
                  2010
                    Q2
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  
                  2010
      Q2
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  
                  2010
      Q2Shandong(excludingQingdao)
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  42
                  
                  
                  
                  155
                  
                  
                  
                  155
                  
                  
                  
                  0
                  
                  
                  
                  6
                  
                  
                  
                  6
                  
                  
                  
                  42
                  
                  
                  
                  161
                  
                  
                  
                  161Qingdao city(includingJimo)
                  
                  
                  8
                  
                  
                  
                  11
                  
                  
                  
                  12
                  
                  
                  
                  44
                  
                  
                  
                  26
                  
                  
                  
                  26
                  
                  
                  
                  0
                  
                  
                  
                  4
                  
                  
                  
                  4
                  
                  
                  
                  52
                  
                  
                  
                  41
                  
                  
                  
                  42Xinjiang
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  1
                  
                  
                  
                  1
                  
                  
                  
                  3
                  
                  
                  
                  0
                  
                  
                  
                  1
                  
                  
                  
                  1
                  
                  
                  
                  1
                  
                  
                  
                  2
                  
                  
                  
                  4Shanxi
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  2
                  
                  
                  
                  3
                  
                  
                  
                  2
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  2
                  
                  
                  
                  3
                  
                  
                  
                  2Tianjiang
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  1
                  
                  
                  
                  1
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  1
                  
                  
                  
                  1Heilongjiang
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  1
                  
                  
                  
                  1
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  1
                  
                  
                  
                  1Hebei
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  2
                  
                  
                  
                  1
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  2
                  
                  
                  
                  1Liaoning
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  1
                  
                  
                  
                  1
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  1
                  
                  
                  
                  1Henan
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  1
                  
                  
                  
                  1
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  1
                  
                  
                  
                  18
                  
                  
                  
                  11
                  
                  
                  
                  12
                  
                  
                  
                  89
                  
                  
                  
                  191
                  
                  
                  
                  191
                  
                  
                  
                  0
                  
                  
                  
                  11
                  
                  
                  
                  11
                  
                  
                  
                  97
                  
                  
                  
                  213
                  
                  
                  
                  214
 
 Shandong
Province
 
 Shandong
Province is China’s second largest province (after Guangdong), with a population
of approximately 94 million people.  The province is also China’s
second most densely populated province (after Jiangsu), with 587 people per
square kilometer, more than four times the average population density in
China.  Gross domestic product (“GDP”) attributable to Shandong ranks
it second among China’s provinces, accounting for more than ten percent of
China’s GDP in 2008.  (“List of Administrative Divisions by Population
Density,” en.wikipedia.org; “World Bank Supports Skills Development in Two
Chinese Provinces,” go.worldbank.org)
 
 Qingdao
City
 
 Qingdao
is a sub-provincial city in China comprised of seven districts and five
county-level cities.  It is one of China’s twenty largest cities and
one of the two largest cities in Shandong province, with approximately 200,000
more people living in Jinan city than in Qingdao city but more than 1.7 million
more people living in the greater Qingdao administrative area than in Jinan’s
administrative region.  Qingdao has a population of approximately 8
million residents, of whom approximately 3.8 million live in the urban
area.
 
 Qingdao’s
per-capita GDP (approximately $7,616 in 2008) is above average in China
(approximately $3,290 in 2008), in part due to the Chinese government’s decision
in 1984 to designate Qingdao as a special economic and technology development
zone.  For this reason, Qingdao’s local economy features a variety of
foreign investment, with South Korea and Japan investments being particularly
prominent in the area.  (“Qingdao,” en.wikipedia.org)
 
 Flagship
Stores
 
 We
directly own or lease and operate all of our flagship stores. All located in
Jimo or greater Qingdao. Each store has an individual sales team and managers
that report to our central office in Qingdao. All sales staff are compensated on
a commission based pay scale. Locations are selected according to management’s
estimation of market opportunity. Our flagship stores bear the Hongguan brand
name and exclusively retail Hongguan brand footwear.
 
 During
the years ended December 31, 2009 and 2008, the sales generated by the Company’s
flagship stores accounted for 16% and 15% of total sales,
respectively.
  13
 
 Hongguan
Flagship Outlets in Jimo:
 
 
 
 
 
 Stores
Managed by Third Party Operators
 
 In order
to meet consumer demand for our products and efficiently expand of our business,
we also select certain third parties to operate Hongguan (sometimes presented as
“HonGung,” as in the above image) branded outlets. We have literature and rules
regarding the location, size, store layout, interior design and product display
of their Hongguan retail stores. All potential third party operators require
prior approval before opening new stores. We visit potential locations for new
outlets and consider the suitability of such locations before approval.
Furthermore, all third party operators must personally operate their
stores.
 
 These
operators are chosen based on the following criteria:
 
 ·
              Management
      experience in retail operations and our confidence in their ability to
      effectively meet our sales targets and high standards of
      conduct.
 ·
              Good
      credit and sufficient capital.
 ·
              Proposed
      store location, size and condition.
 
 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.
  14
  Our
distribution contracts usually contain the following terms:
 
 Geographic limitation —
Distributors must sell our Hongguan branded footwear within a specific
authorized location(s).
 
 Wholesale price —
Distributors pay a discounted wholesale price for our products.
 
 Payment and credit terms —
Payment and credit terms are on a case by case basis. The credit period is
usually one month, and 25% percent of our distributors prepay for their
stock.
 
 Performance— QHS typically
retains the right to end the agreement if a distributor does to meet sales
turnover levels comparable to other distributors.
 
 Exclusivity— We work with
nearly 200 distributors, so the types and sizes of distributor outlets vary
significantly.  Many of these outlets are independent shoe stores, but
we are open to the prospect of cooperating with department stores and larger
established retailers.  The distributorship agreements allow our
distributors to sell our products under the Hongguan brand on an exclusive
basis. If there are other brands featured at the distributor’s outlet, Hongguan
brand shoes must constitute a certain percentage, generally a majority, of
product on display. Furthermore, the products must be displayed according to our
standards.
 
 Training— Training and
instructional materials are provided to all of our distributers regarding
product display, decoration, and sales techniques.
 
 Renewal and termination — We
can renew contracts at our discretion and can terminate contracts if contractual
conditions including sales targets are not met.
 
 We do not
have a return policy with our distributors, other than a general right to return
defective merchandise. In the event a distributor is unable to sell its stock,
we will attempt—but are not obligated—to help it relocate such stock to a nearby
QHS outlet.
 
 Purchasing
and Sales Prices
 
 We have
historically organized one sales fair per year in which distributors and third
parties operators can view and select upcoming designs. We also maintain several
showrooms in our head office in Jimo with the current and future product lines
which our sales force visits on a regular basis.
 
 We intend
to keep the pricing of our products at reasonable levels in the foreseeable
future in order to stay competitive and maintain product demand. Our wholesale
prices are generally not more than a 50% discount to the sales
price.
 
 Employees
 
 The table
below details the various departments and number of employees in
each.  All of these employees are full-time employees.
 
 Management
      and Sales
                9Design
      & Purchasing
                3Accounting
                5Warehouse
                8Administration
                7Sales
                42Total
                74
  15
 
 We
believe we are in material compliance with all applicable labor and safety laws
and regulations in the PRC, including the PRC Labor Contract Law, the PRC
Unemployment Insurance Law, the PRC Provisional Insurance Measures for Maternity
of Employees, PRC Interim Provisions on Registration of Social Insurance, PRC
Interim Regulation on the Collection and Payment of Social Insurance Premiums
and other related regulations, rules and provisions issued by the relevant
governmental authorities for our operations in the PRC. According to the PRC
Labor Contract Law, we are required to enter into labor contracts with our
employees and to pay them no less than local minimum wage.
 
 Intellectual
Property
 
 Our
products are sold under the Hongguan brand name, which is a registered trademark
in the PRC.
 
 Trademarks (Mandarin)
              
              Trademarks
              
              Certificate #
              
              Valid TermHongguan
              
              3483788
              
              March 14, 2005 to March 13, 2015
 
 Under
current Chinese laws, we may renew our trademark upon expiration for an
unlimited number of successive ten year terms.
 
 Advertising
and Marketing Efforts
 
 Our sales
and marketing department is responsible for the organization of sales fairs,
selection, review, execution and management of contracts with third parties and
distributers, and operation of our own retail outlets. We utilize television,
print media, radio, the internet and outdoor billboard displays to build brand
awareness. Since 2006, Chinese popular television star Ren Quan has been the
face of QHS’ advertising campaign. In 2006, we entered into a contract with Ren
Quan and purchased the rights to use his image for our marketing
purposes.  This contract expired in February 2010.  We are
contractually obligated to maintain confidentiality as to the terms at which we
acquired his rights. More recently, we have entered into a contract with another
Chinese popular television star, Liu Xiaohu and purchased the rights to use his
image for our marketing purposes, and he is featured in our television
commercials and our various advertisements beginning in 2010.  This
contact expires on March 2, 2012.  We expect to focus more heavily on
advertisements featuring Liu Xiaohu in the future.
 
 Competition
 
 The
retail and in particular the footwear retail industry are highly competitive in
the PRC. Our competitors are a number of international and domestic enterprises
with shoe sales operations in our target market, including but not limited to
Jinhou Footwear Company, Liangda Leather Company, Haining Leather Footwear
Company and Fude Leather Shoe Company. We expect the competition to become more
intensified due to the entry of new footwear retailers in the PRC and as a
result we may be subject to competitive pricing pressures in the future.
Quality, cutting edge style, brand awareness, customer service, highly motivated
sales force and affordable footwear prices are vital cornerstones to success in
our industry.
 
 Our
market share is small in comparison with the entire China footwear market, which
is a multibillion-dollar industry.  According to the recent census
taken in 2008, the cities of Jimo and Qingdao have approximately 1.10 million
and 8 million residents, respectively.  While we lack readily
available market research on the footwear market in Qingdao and Jimo, our
management estimates that our products collectively represent a market share of
roughly 20% in Jimo and 6% in Qingdao.  This market share is based on
our target market of business casual and formal leather shoes for office
workers.
 
 Design
Team
 
 Our
design team consists of three full time designers that are engaged in creating
new fashionable designs for upcoming seasons. They are also engaged in the
review, selection and alteration of designs proposed by contract manufacturers.
On average, our design team is responsible for the selection or creation 300
models of footwear per year.
  16


ITEM 1A.
                RISK
      FACTORS
 
 Not
applicable as we are a smaller reporting company.
  PART
II
  ITEM
      5.
              MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
 
 Market
Information
 
 The CUSIP
number for our common stock is 23816A103. Our common stock is quoted under the
symbol “QING” (previously “DATI”) on the Electronic Bulletin Board maintained by
the Financial Industry Regulatory Authority; however, there have only been
limited or sporadic quotations and only a very limited public trading market for
our common stock.  Indeed, our common stock has been traded publicly
on less than 20% of the trading days in 2010. The Electronic Bulletin Board is a
significantly more limited market than established trading markets such as the
New York Stock Exchange or NASDAQ.
 
 The
closing bid price for our common stock on September 1, 2010 was $2.25 per share,
as reported by www.quotemedia.com.  The common stock has not traded
publicly since that date.
 
 The
following table sets forth, for the periods indicated, the high and low closing
prices of our common stock. These prices reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.  The trading price for all days prior to the completion
of our reverse split and conversion of preferred stock into common stock has
been adjusted to account for such events.
 
 Closing Bid PricesHigh
                  
                  
                  LowYear
      Ended December 31, 2010
                  
                  ($)
                  
                  
                  ($)First
      Quarter
                  
                  
                  16.20
                  
                  
                  
                  2.16Second
      Quarter
                  
                  
                  14.85
                  
                  
                  
                  5.00Third
      Quarter (no trading since August 24, 2010)
                  
                  
                  8.00
                  
                  
                  
                  2.05Year
      Ended December 31, 2009First
      Quarter (from March 30, 2009)
                  
                  
                  0.27
                  
                  
                  
                  0.27Second
      Quarter
                  
                  
                  1.62
                  
                  
                  
                  0.27Third
      Quarter
                  
                  
                  1.35
                  
                  
                  
                  1.35Fourth
      Quarter
                  
                  
                  1.35
                  
                  
                  
                  1.35
 
 Approximate
Number of Holders of Our Common Stock
 
 As of
September 1, 2010, there were approximately 275 stockholders of record of
our common stock. This number does not include shares held by brokerage clearing
houses, depositories or others in unregistered form.
  17
 
 Dividend
Policy
 
 The
holders of shares of our common stock are entitled to dividends out of funds
legally available when and as declared by our board of directors. Our board of
directors does not anticipate declaring a dividend in the foreseeable future.
Should we decide in the future to pay dividends, as a holding company, our
ability to do so and meet other obligations depends upon the receipt of
dividends or other payments from our operating subsidiary and other holdings and
investments. In addition, our operating subsidiary in the PRC, from time to
time, may be subject to restrictions on their ability to make distributions to
us, including as a result of restrictive covenants in loan agreements,
restrictions on the conversion of local currency into U.S. dollars or other hard
currency and other regulatory restrictions. Although none of our current loan
agreements prohibit the payment of dividends, we cannot guarantee that any
future loan agreements will permit such payments.  Payments of
dividends by QHS to our company are subject to the requirement that foreign
invested enterprises may only buy, sell and/or remit foreign currencies at those
banks authorized to conduct foreign exchange business. Further, such remittances
would require QHS to provide an application for remittance that includes,
in addition to the application form, a foreign registration certificate, board
resolution, capital verification report, audit report on profit and stock
bonuses, and a tax certificate. In the event of our liquidation, dissolution or
winding up, holders of our common stock are entitled to receive, ratably, the
net assets available to shareholders after payment of all creditors. Additionally,
QHS is required under PRC laws and regulations to allocate at least 10% of its
annual after-tax profits determined in accordance with PRC GAAP to a statutory
general reserve fund until the amounts in said fund reach 50% of its 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.  See “Risk Factors – Restrictions under PRC
law on our PRC subsidiary’s ability to make dividends and other distributions
could materially and adversely affect our ability to grow, make investments or
acquisitions that could benefit our business, pay dividends to you, and
otherwise fund and conduct our businesses” and “- Under the New EIT Law, we may
be classified as a “resident enterprise” of China. Such classification will
likely result in unfavorable tax consequences to us and our non-PRC
shareholders.”
 
 Securities
Authorized for Issuance Under Equity Compensation Plans
 
 We do not
have in effect any compensation plans under which our equity securities are
authorized for issuance and we do not have any outstanding stock
options.
 
 Recent
Sales of Unregistered Securities; Use of Proceeds from Registered
Securities
 
 During
the year ended December 31, 2009, we did not have any sales of securities that
were not registered under the Securities Act of 1933, as amended.
 
 On
February 10, 2010, we issued 3,136,768 shares of common stock to our landlord to
extinguish approximately $47,052 of debt owed to Callaway Properties, our pre
reverse acquisition landlord. Callaway Properties’ sole shareholder is Mary
Passalaqua, wife of the Company’s former director and former secretary Joseph
Passalaqua.
 
 On
February 12, 2010, we issued 10,000 shares of our Series A Convertible Preferred
stock (“Series A Preferred Stock”) to the shareholders of Glory Reach. The total
consideration for the 10,000 shares of our Series A Convertible Preferred stock
was 10,000 ordinary shares of Glory Reach, which is all the issued and
outstanding capital stock of Glory Reach. The number of our shares issued to the
shareholders of Glory Reach was determined based on an arms-length
negotiation.  The issuance of our shares to these shareholders was
made in reliance on the exemption provided by Section 4(2) of the Securities Act
for the offer and sale of securities not involving a public offering and
Regulation D promulgated thereunder. 722
shares of Series A Convertible Preferred stock was received by Belmont Partners,
as an original shareholder in Glory Reach and 51 shares of Series A Convertible
Preferred stock were received by Joseph Passalaqua in return for allowing
certain debts of the Company to be assumed by DT
communications.
 
 We issued
securities on February 10 and 12, 2010 in reliance upon Rule 506 of Regulation D
of the Securities Act. These shareholders who received the securities in such
instances made representations that (a) the shareholder is acquiring the
securities for his, her or its own account for investment and not for the
account of any other person and not with a view to or for distribution,
assignment or resale in connection with any distribution within the meaning of
the Securities Act, (b) the shareholder agrees not to sell or otherwise
transfer the purchased shares unless they are registered under the Securities
Act and any applicable state securities laws, or an exemption or exemptions from
such registration are available, (c) the shareholder has knowledge and
experience in financial and business matters such that he, she or it is capable
of evaluating the merits and risks of an investment in us, (d) the
shareholder had access to all of our documents, records, and books pertaining to
the investment and was provided the opportunity ask questions and receive
answers regarding the terms and conditions of the offering and to obtain any
additional information which we possessed or were able to acquire without
unreasonable effort and expense, and (e) the shareholder has no need for
the liquidity in its investment in us and could afford the complete loss of such
investment. Management made the determination that the investors in instances
where we relied on Regulation D are accredited investors (as defined in
Regulation D) based upon management’s inquiry into their sophistication and net
worth. In addition, there was no general solicitation or advertising for
securities issued in reliance upon Regulation D.
  18
 
 In
instances described above where we indicate that we relied upon Section 4(2) of
the Securities Act in issuing securities, our reliance was based upon the
following factors: (a) the issuance of the securities was an isolated
private transaction by us which did not involve a public offering;
(b) there were only a limited number of offerees; (c) there were no
subsequent or contemporaneous public offerings of the securities by us;
(d) the securities were not broken down into smaller denominations; and
(e) the negotiations for the sale of the stock took place directly between
the offeree and us.
 
 On June
10, 2010, we effected a 1-for-27 reverse split of our outstanding common stock,
which resulted in 8,100,000 shares of common stock being converted into 300,000
shares of common stock, representing 3% of our currently outstanding common
stock.  After the completion of the reverse split, shares of our
Series A Preferred Stock automatically converted into shares of common stock on
the basis of 1 share of Series A Preferred Stock for 970 shares of common stock.
This resulted in the automatic conversion of the 10,000 outstanding shares of
Series A Preferred Stock into 9,700,000 shares of common stock, constituting 97%
of our currently outstanding common stock. The
reverse split was conducted in reliance upon the exemption from registration
provided by Section 3(a)(9) of the Securities Act.  The shares were
exchanged with existing security holders exclusively, and no commission or other
remuneration was paid or given directly or indirectly for soliciting such
exchange.  After taking effect of the reverse split and the automatic
conversion of the Series A Preferred Stock into common stock, the Company had
275 shareholders immediately after the reverse split.
 
 Purchases
of Our Equity Securities
 
 No
repurchases of our common stock were made during the fourth quarter of our
fiscal year ended December 31, 2009.
 
 PART
III
 
 ITEM
      10.
              DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
 
 Directors
and Executive Officers
 
 Prior to
the consummation of the share exchange with Glory Reach, our board of directors
consisted of three directors, Craig H. Burton, Joseph J. Passalaqua, and Joseph
Meuse (the “Former Directors”). On February 12, 2010, the Former Directors
submitted a letter of resignation and Tao Wang, Renwei Ma, and Lanhai Sun have
been appointed to our board of directors (the “Directors”). The resignation of
the Former Directors and appointment of the Directors both became effective on
March 18, 2010.
 
 Former
Directors and Officers
 
 Craig Burton, Mr. Burton
served as President and director of Datone, Inc. from August 2000 until March
18, 2010. On February 12, 2010 Mr. Burton tendered his resignation as President
of Datone. Mr. Burton attended the University of South Carolina-Coastal and was
a licensed real estate agent in the State of New York. He began working in
marketing for a long distance carrier in 1996 and in 1999, Mr. Burton became
Director of Marketing for Datone Communications, Inc., an owner of payphones and
distributor of prepaid calling cards. Datone was acquired by USIP in January,
2000. Mr. Burton served as President and a director of USIP.Com from January
2000-2006. Additionally, Mr. Burton was secretary and director of NB Telecom,
Inc. from December 2005-2008.
 
 Joseph J. Passalaqua, Mr.
Passalaqua served as our secretary and director from August 2000 until March 18,
2010. On February 12, 2010 Mr. Passalaqua tendered his resignation as Secretary
of Datone. Since 1999, Mr. Passalaqua has worked as a trainer at Sports Karate
and fitness training company located in Cicero, New York. Mr. Passalaqua is a
high school graduate.
  19




Joseph Meuse, Mr. Meuse served
as a director of Datone from January 25, 2010 through March 18. 2010. Mr. Meuse
founded several companies in the financial services and securities industries,
which he continues to operate.  In 2002, Mr. Meuse founded PacWest
Stock Transfer LLC and is a majority partner in Pacific Stock Transfer Company,
an independent stock transfer agent that serves over 1,000 clients, including a
number of publicly traded companies that do business in China.  In
2003, Mr. Meuse founded Belmont Partners, LLC, an international financial
consulting firm that provides public shell companies for use in reverse merger
transactions.  In 2006, Mr. Meuse founded Belmont Financial Services
and Belmont IT Services, two companies that provide accounting and information
technology services to small businesses in the Northern Virginia
area.  Additionally, Mr. Meuse maintains a position as a board member
of the following public companies: Action
Industries, Inc.; All State Properties Holdings, Inc.; Blue Gem Enterprise;
Cinnabar Ventures, Inc.; Blue Fish Clothing, Inc.; Brite-Strike Tactical
Illumination Productions, Inc.; Comprehensive Healthcare Solutions, Inc.;
Contracted Services, Inc.; Firstar Exploration Corp.; Fresca Worldwide Trading
Company; Geopulse Explorations, Inc.; Hudson’s Grill International, Inc.;
IDcentricx, Inc.; Intercontinental Resources, Inc.; Ivecon Corp.; Jamaica Jim,
Inc.; Jasper Ventures, Inc.; King Resources, Inc.; Lions Petroleum, Inc.;
Madrona Ventures, Inc.; Michael Lambert, Inc.; Miller Diversified Corp.; Network
Capital, Inc.; Recycle Tech, Inc.; Rockport Healthcare Group; Shimmer Gold,
Inc.; Smart Holdings, Inc.; SpectraSource, Inc.; 3DShopping.com, Inc.;
Springfield Company, Inc.; Unidigital, Inc.; Volcanic Gold; WES Consulting,
Inc.; XRG, Inc.; Yzapp International, Inc.; Data Storage Consulting Services,
Inc.; Cienega Creek Holdings, Inc.; and Luke Entertainment,
Inc. Mr.
Meuse attended the College of William and Mary.
  Fang Sui.Ms. Sui
joined QHS in March 2003. She served as our chief financial officer until
July 11, 2010. In 2000 she obtained a bachelor’s degree from Jimo
Telecommunication University.  Ms. Sui is a qualified accountant in
the PRC.
  Current
Board of Directors and Officers
  Through
July 11, 2010, Ms. Fang Sui served as our Chief Financial Officer, at which time
she resigned from such role but continues to work with our
company.  From July 12, 2010 through present, Mr. Joseph Meuse has
served as our Chief Financial Officer.  Mr. Meuse has allocated to
spend 15-20 hours per week towards the responsibilities as CFO. In conjunction
with that, Mr. Meuse has recently implemented a schedule of weekly visits to the
Company, one day a week with a minimum of 4 days per month. Our board of
directors and executive officers are currently as listed below.
  NAME
                  
                  AGE
                  
                  POSITION
                  SINCETao
      Wang
                  
                  39
                  
                  Director
      and Chief Executive Officer
                  March
      18, 2010Renwei
      Ma
                  
                  43
                  
                  Director
      and Legal Representative of QHS
                  March
      18,2010Joseph
      Meuse
                  
                  40
                  
                  Chief
      Financial OfficerWenmao
      Shi
                  
                  39
                  
                  Chief
      Operating OfficerLanhai
      Sun
                  
                  39
                  
                  Director
                  March
      18, 2010
 
 Each
director serves for a term of one year expiring at the next annual shareholder
meeting.
 
 Tao Wang.Mr. Wang
founded QHS in 2003 and has served as its chief executive officer since
March 10, 2003.  Mr. Wang served as our Chief Executive Officer
and as Chairman of our Board of Directors since our inception.  Before
founding QHS, Mr. Wang was engaged in variety of capacities involving branding,
strategic marketing and sales of footwear since 1992. Mr. Wang has over 18
years’ experience in China’s footwear industry.  We have selected Mr.
Wang to serve as a director and as Chairman of the Board because he is our
majority shareholder and has a rich background in the footwear
industry.
 
 Renwei Ma.Mr. Ma
has been QHS’ legal representative since the founding of QHS in March 2003, and
was an initial investor in the Company. Prior to becoming QHS’s legal
representative, he was self-employed, and was engaged in various entrepreneurial
endeavors in the footwear industry. In 1991 he obtained an associate’s degree in
marketing from Yantai Trade and Industry University. We have selected Mr. Wang
to serve as a director and as Chairman of the Board because he is our legal
representative and a founding investor in the company.
  Wenmao Shi.Mr. Shi
has been served as our Chief Operating Officer since inception in 2003 and is
responsible for QHS advertising, marketing and sales efforts.  Prior
to joining QHS, Mr. Shi was a director of sales at Qingdao Double Star Group, a
leading PRC footwear manufacturer from July 1992 to February 2003. Mr. Shi has
over 18 years of sales experience, and obtained a bachelors degree in economics
in 1992 from Wuhan Southeast University of Economics and Law.
 
 Lanhai Sun. Mr. Sun has been
working as the Company’s financial consultant since 2005, and he has invested in
and owns several QHS outlets. He served as the general manager at Shandong Huibo
Import & Export Co., Ltd. (2006 through 2008) and Qingdao Xingguang Import
& Export Co., Ltd. (2009 through present) apparel trading companies, as well
as serving as the CEO of SK Investment Group Ltd, a financial consulting firm
(2008 through present).  We have selected Mr. Sun to serve as a
director because of his experience in financial consulting and pivotal role
assisting with our listing in the United States.
 
 Family
Relationships
 
 There is
no family relationship among any of our officers or directors.
 
 Board
of Directors and Board Committees
 
 Our board
of directors currently consists of three (3) directors. There are no family
relationships among any of our executive officers and directors. Our directors
are currently elected each year at the annual shareholder
meeting.
  20
 
 A
director may vote in respect of any contract or transaction in which he is
interested; provided, however that the nature of the interest of any director in
any such contract or transaction shall be disclosed by him at or prior to its
consideration and any vote on that matter. A general notice or disclosure to the
directors or otherwise contained in the minutes of a meeting or a written
resolution of the directors or any committee thereof of the nature of a
director’s interest shall be sufficient disclosure and after such general notice
it shall not be necessary to give special notice relating to any particular
transaction. A director may be counted for a quorum upon a motion in respect of
any contract or arrangement which he shall make with our company, or in which he
is so interested and may vote on such motion.
 
 There are
no membership qualifications for directors. Further, there are no share
ownership qualifications for directors unless so fixed by us in a general
meeting.
 
 The Board
of Directors intends in the future to maintain a majority of independent
directors who are deemed to be independent under the definition of independence
provided by NASDAQ Listing Rule 5605(a)(15).
 
 There are
no other arrangements or understandings pursuant to which our directors are
selected or nominated.
 
 Mr. Tao
Wang currently holds both the positions of Chief Executive Officer and Chair of
the Board. These two positions have not been consolidated into one position;
Mr. Wang simply holds both positions at this time. We do not have a lead
independent director because of the foregoing reason and also because we believe
our independent directors are encouraged to freely voice their opinions on a
relatively small company board. We believe this leadership structure is
appropriate because we are a smaller reporting; as such we deem it appropriate
to be able to benefit from the guidance of Mr. Wang as both our principal
executive officer and Chair of the Board.
 
 Our Board
of Directors plays a key role in our risk oversight. The Board of Directors
makes all relevant Company decisions. As such, it is important for us to have
both our Chief Executive Officer and General Counsel serve on the Board as they
play key roles in the risk oversight or the Company. As a smaller reporting
company with a small board of directors, we believe it is appropriate to have
the involvement and input of all of our directors in risk oversight
matters.
 
 Board
Committees
 
 Currently,
three committees have been established under the board: the audit committee, the
compensation committee and the nominating committee; however, we do not yet have
board members on these committees, as we do not yet have independent directors.
The audit committee is responsible for overseeing the accounting and financial
reporting processes of our company and audits of the financial statements of our
company, including the appointment, compensation and oversight of the work of
our independent auditors. The compensation committee of the board of directors
reviews and makes recommendations to the board regarding our compensation
policies for our officers and all forms of compensation, and also administers
our incentive compensation plans and equity-based plans (but our board retains
the authority to interpret those plans). The nominating committee of the board
of directors is responsible for the assessment of the performance of the board,
considering and making recommendations to the board with respect to the
nominations or elections of directors and other governance issues. The
nominating committee considers diversity of opinion and experience when
nominating directors.
 
 Executive
and Director Compensation Determination
 
 Prior to
our reverse acquisition of Glory Reach, our operating subsidiaries were private
limited companies organized under the laws of the PRC, and in accordance with
PRC regulations, the salary and bonus of our executive officers was determined
by our shareholders.
 
 The
compensation committee of the board of directors annually reviews the
performance and total compensation package for the Company’s executive officers,
including the Chief Executive Officer; considers the modification of existing
compensation, and the adoption of new compensation plans; and recommends
appropriate changes to the board of directors, which votes on such
recommendations.
  21
 
 Section
16(A) Beneficial Ownership Reporting Compliance
 
 Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s directors
and executive officers and persons who own more than ten percent of a registered
class of the Company’s equity securities to file with the SEC initial reports of
ownership and reports of changes in ownership of common stock and other equity
securities of the Company. Officers, directors and greater than ten percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.  To the Company’s knowledge,
none of the required parties are delinquent in their Section 16(a)
filings.
 
 Involvement
in Certain Legal Proceedings
 
 The
Company is not aware of any legal proceedings in which any director, officer, or
any owner of record or beneficial owner of more than five percent of any class
of voting securities of the Company, or any affiliate of any such director,
officer, affiliate of the Company, or security holder, is a party adverse to the
Company or has a material interest adverse to the Company.
  ITEM
      11.
              EXECUTIVE
      COMPENSATION
 
 Summary
Compensation Table
 
 The
following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to the named persons for services
rendered in all capacities during the noted periods. No other executive officer
received total annual salary and bonus compensation in excess of
$100,000.
  Name and Principal Position
                          
                          Year
                          
                          Salary ($)
                          
                          
                          Bonus ($)
                          
                          
                          Total ($)Tao
      Wang, Chief Executive Officer
                          
                          2008
                          
                          
                          8,088
                          
                          
                          
                          3,676
                          
                          
                          
                          11,7642009
                          
                          
                          8,088
                          
                          
                          
                          3,676
                          
                          
                          
                          11,764Craig
      Burton, former President
                          
                          2008
                          
                          
                          40,040
                          
                          
                          
                          0
                          
                          
                          
                          40,0402009
                          
                          
                          40,040
                          
                          
                          
                          0
                          
                          
                          
                          40,040
 
 (1)
              On
      February 12, 2010, we acquired Glory Reach in a reverse acquisition
      transaction that was structured as a share exchange and in connection with
      that transaction, Mr. Tao Wang became our Chief Executive Officer. Prior
      to the effective date of the reverse acquisition, Mr. Craig Burton served
      as President of Datone.
 
 Summary
of Employment Agreements and Material Terms
 
 Prior to
our reverse acquisition of Glory Reach, our operating subsidiaries were private
limited companies organized under the laws of the PRC, and in accordance with
PRC regulations, the salary and bonus of our executives was determined by the
shareholders of QHS.  Upon the formation of QHS, Mr. Wang’s salary was
determined by Mr. Wang (as the majority shareholder) in conjunction with Renwei
Ma, the legal representative of QHS. Business and living expenses as well as
market rates were taken into consideration.  Once we appoint directors
to our compensation committee, our compensation committee will consider
compensation decisions and will determine market-based salaries for officers and
directors commensurate with their positions with our company.
 
 Other
than the salary and necessary social benefits required by the government, we
currently do not provide other benefits to the officers at this time. Our
executive officers are not entitled to severance payments upon the termination
of their employment agreements or following a change in control.
 
 We have
not provided retirement benefits (other than a state pension scheme in which all
of our employees in China participate) or severance or change of control
benefits to our named executive officers.
 
 Employment
Agreement – Craig Burton
 
 We
retained our previous president, Craig Burton, without an employment
agreement.  Mr. Burton served at will in this position until his
resignation from the position on February 12, 2010.  Mr. Burton
received no compensation other than a cash salary of $40,040 in each of 2008 and
2009 and received no payment in 2010.
  22
 
 Employment
Agreement – Tao Wang
 
 Effective
February 12, 2010, we retained Mr. Wang to serve as Chief Executive Officer of
Qingdao Footwear.  Mr. Wang currently serves in this capacity without
a written employment agreement.  Mr. Wang has, however, served as the
chief executive officer of QHS since March 10, 2003.  Mr. Wang’s
employment agreement with QHS provides for an employment period beginning on
March 11, 2003 and terminating on March 10, 2023.  Mr. Wang’s
compensation is set by QHS and is expected to be between RMB 3,000 and RMB
10,000 (approximately $440 to $1,467) per month.  In addition, Mr.
Wang is eligible to receive such performance bonuses as QHS may
determine.  QHS is obligated to pay pension funds and applicable
reserves and social insurance as may be required from time to time under Chinese
law.  Upon termination of employment, Mr. Wang is entitled only to
those benefits as are required to be paid under Chinese law.
 
 Under
Chinese law, we may only terminate employment agreements without cause and
without penalty by providing notice of non-renewal one month prior to the date
on which the employment agreement is scheduled to expire. If we fail to provide
this notice or if we wish to terminate an employment agreement in the absence of
cause, then we are obligated to pay the employee one month’s salary for each
year we have employed the employee. We are, however, permitted to terminate an
employee for cause without penalty to our company, where the employee has
committed a crime or the employee’s actions or inactions have resulted in a
material adverse effect to us.
 
 We
anticipate that we will enter into a written employment agreement with Mr. Wang
to serve as our chief executive officer and that such agreement will include
customary terms, including confidentiality and non-competition language, and
will be for a period of at least three years.
  Employment
Agreement – Joseph Meuse
 
 Effective
July 12, 2010, we retained Mr. Meuse to serve as our Chief Financial Officer.
Pursuant to Mr. Meuse’s employment agreement, his initial term of employment
commenced on July 12, 2010 and will terminate on December 12, 2010. Mr. Meuse is
to be compensated at a rate of $10,000 per month throughout the initial term of
employment plus an additional one time payment of 15,000 shares of our common
stock.
  Outstanding
Equity Awards at Fiscal Year End
 
 For the
year ended December 31, 2009, no director or executive officer has received
equity compensation from us pursuant to any compensatory or benefit plan. There
is no plan or understanding, express or implied, to pay any compensation to any
director or executive officer pursuant to any compensatory or benefit plan,
although we anticipate that we will compensate our officers and directors for
services to us with stock or options to purchase stock, in lieu of
cash.
 
 Compensation
of Directors
 
 No member
of our board of directors received any compensation for his services as a
director during the year ended December 31, 2009 and currently no compensation
arrangements are in place for the compensation of directors.
 
 ITEM
      13.
              CERTAIN
      RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
 
 Transactions
with Related Persons
 
 The
following includes a summary of transactions since the beginning of 2007, or any
currently proposed transaction, in which we were or are to be a participant and
the amount involved exceeded or exceeds the lesser of $120,000 or one percent of
the average of our total assets at year end for the last two completed fiscal
years, and in which any related person had or will have a direct or indirect
material interest (other than compensation described under “Executive
Compensation”). We believe the terms obtained or consideration that we paid or
received, as applicable, in connection with the transactions described below
were comparable to terms available or the amounts that would be paid or
received, as applicable, in arm’s-length transactions.
 
 Related
Parties
 
 Since
2007, we have entered into transactions with the following people who are
considered related persons on the respective bases listed next to their
names:
 
 Related Person Name
                        
                        Related Party BasisTao
      Wang
                        
                        Director,
      executive officer and five percent shareholderRenwei
      Ma
                        
                        Director
      and general counselWeidong
      Liang
                        
                        Brother-in-law
      of Tao WangSiyou
      Wang
                        
                        Brother
      of Tao WangJoseph Passalaqua
                        
                        Former
      Director and SecretaryMary
      Passalaqua
                        
                        Wife
      of former Director and Secretary Joseph
Passalaqua
  23
  Due
to related party
 
 The
Company declared distribution and paid dividends to the shareholders in 2009.
The balance of dividend payable was $117,360 and nil as of December 2009 and
2008, respectively, which represented the dividend payable to Mr. Renwei Ma, the
shareholder of the Company.
 
 Other
related party transactions
  During year 2009, the Company
distributed $9,904,176to its shareholders, Mr. Tao Wang and
Mr. Renwei Ma, in which $9,786,816was distributed in cash, and the remaining
$117,360 was the dividend payable to Mr. Renwei Ma that the Company expects to
pay in the first quarter of 2010.
 We lease
one of our stores from Mr. Tao Wang under a four-year operating lease expiring
August 2011.  For the years ended December 31, 2009 and 2008, related
party rent expense of $17,593 and $17,298, respectively, was included in total
rent expense of the year. For the six months ended June 30, 2010 and
2009, related party rent expense of $8,800 and $8,794, respectively, was
included in total rent expense of the year.
 
 We lease
one of our warehouse buildings to Weidong Liang.  This lease is for a
period of three years starting May 2008. Per the agreement, Mr. Liang shall pay
equal amount of advertising expense on behalf of the lessor as the lease
payment. For the year ended December 31, 2009 and 2008, the Company recorded
other income of $87,966 and $57,660, respectively, from leasing the
aforementioned building and advertising expense of the same amount respectively.
For the six months ended June 30, 2010 and 2009, we recorded other
income of $44,007 and $43,971 respectively, from leasing the aforementioned
building and advertising expense of the same amount respectively.
 
 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,
2009, the assumed amount was $12,549,060, which mainly included VAT tax payable
and income tax payable. However, these tax amounts transferred to
Mr. Tao Wang were never paid to the government. As a result, the historical
financial statements of the Company we restated to reflect the Company as
the primary obligor of the tax liabilities. According to PRC tax law, late
or deficient tax payment could subject to significant tax penalty.
 
 A
long-term loan for $249,390, was issued in December 2009 by JiMo Rural Bank,
with a 2 year repayment period and annual interest rate of 7.02%.  The
loan is guaranteed by Siyou Wang and is collateralized by Mr. Wang's
property.
  On
February 10, 2010, we issued 3,136,768 shares of common stock to our landlord to
extinguish approximately $47,052 of debt owed to Callaway Properties, our pre
reverse acquisition landlord. Callaway Properties’ sole shareholder is Mary
Passalaqua, wife of the Company’s former director and former secretary Joseph
Passalaqua.
  On
February 12, 2010, we issued 10,000 shares of our Series A Convertible Preferred
stock (“Series A Preferred Stock”) to the shareholders of Glory Reach. The total
consideration for the 10,000 shares of our Series A Convertible Preferred stock
was 10,000 ordinary shares of Glory Reach, which is all the issued and
outstanding capital stock of Glory Reach. The number of our shares issued to the
shareholders of Glory Reach was determined based on an arms-length
negotiation.  The issuance of our shares to these shareholders was
made in reliance on the exemption provided by Section 4(2) of the Securities Act
for the offer and sale of securities not involving a public offering and
Regulation D promulgated thereunder.722 shares of Series A
Convertible Preferred stock was received by Belmont Partners, as an original
shareholder in Glory Reach and 51 shares of Convertible Preferred stock were
received by Joseph Passalaqua in return for allowing certain debts of the
Registrant to be assumed by DT Communications.
  Insider
Transactions Policies and Procedures
 
 The
Company does not currently have an insider transaction policy.
  24
 
 Director
Independence
 
 We
currently do not have any independent directors, as the term “independent” is
defined by the rules of the Nasdaq Stock Market.  We intend to add
independent directors in the near future.
 
 Promoters
and Certain Control Persons
 
 We did
not have any promoters at any time during the past five fiscal years.Additionally, we are not
a shell company for which control persons need be disclosed.
  25
 
 SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
 
 DATONE,
      INC.By:
                /s/ Tao WangTao
      WangChief
      Executive OfficerDate: November
      4, 2010
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Company in the capacities
and on the dates indicated.
 
 Signature
              
              Capacity
              
              Date/s/ Tao Wang
              
              Chief
      Executive Officer and Director
              
              November
      4, 2010Tao
      Wang
              
              (Principal
      Executive Officer)/s/ Joseph Meuse
              
              Chief
      Financial Officer (Principal Financial
              
              November
      4, 2010Joseph
      Meuse
              
              Officer
      and Principal Accounting Officer) and authorized representative in the
      United States*
              
              Director
              
              November
      4, 2010Renwei
      Ma*
              
              Director
              
              November
      4, 2010Lanhai
      Sun
 
 *
                  By:
                  /s/
                  Tao WangTao
      Wang, Attorney-in-Fact
  26
  PART IV




ITEM 15. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES


REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
 
 To the Board of Directors and
Shareholders of
 Qingdao Footwear,
Inc.
 Qingdao, PRC
 
 We have audited the accompanying
consolidated balance sheets of Qingdao Footwear, Inc. (the “Company”) as of December 31, 2009 and 2008, and the related
statements of operations, shareholders’equity and cash flows for the years
then ended. These financial statements are the responsibility of the
Company’s management.  Our
responsibility is to express an opinion on these financial statements based on our
audit.
 
 We conducted our audits in accordance
with standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the
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
controlover 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, weexpress no such opinion. An audit also
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 consolidated
financial statements of the Company referred to above present fairly, in allmaterial respects, the
financial position of the Company as of December 31, 2009 and 2008 and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
  The Company
restatedits Balance
Sheets,Statements of Cash Flowsand Statementsof Shareholders’Equity to reflect thetax liabilities (including
value added tax and income tax).There were no changes to reported
earnings.The Company determined that additional disclosure was required todisclose its significant
tax liabilities and the related risks in itsconsolidated financial
statements.SeeNotes13 and17.
  /s/ MALONEBAILEY,
LLP
 
 MALONEBAILEY, LLP
 www.malonebailey.com
 Houston, Texas
 
 April 16, 2010(except for Notes13 and17which are datedNovember
3,2010)
  F-1
  QINGDAO FOOTWEAR,
INC.
 CONSOLIDATED BALANCE
SHEETS
 AS OF DECEMBER 31, 2009 AND
2008
 
 2009
                    
                    
                    2008(Restated)
                    
                    
                    (Restated)ASSETSCurrent
    assetsCash
                    
                    $
                    61,131
                    
                    
                    $
                    118,534Accounts
      receivable
                    
                    
                    98,962
                    
                    
                    
                    3,534Inventories
                    
                    
                    344,512
                    
                    
                    
                    189,535Prepaid
      expenses
                    
                    
                    57,311
                    
                    
                    
                    58,490Total current assets
                    
                    
                    561,916
                    
                    
                    
                    370,093Property, plant and equipment,
      net
                    
                    
                    930,451
                    
                    
                    
                    602,831Intangible
      assets
                    
                    
                    208,167
                    
                    
                    
                    213,008Total
Assets
                    
                    $
                    1,700,534
                    
                    
                    $
                    1,185,932LIABILITIES AND SHAREHOLDERS'
      EQUITYCurrent
      liabilitiesShort-term
      loans
                    
                    $
                    718,830
                    
                    
                    $
                    704,160Accounts
      payable
                    
                    
                    15,727
                    
                    
                    
                    546Taxes
    payable
                    
                    
                    12,551,687
                    
                    
                    
                    7,601,709Due to related parties
                    
                    
                    117,360
                    
                    
                    
                    -Total current
      liabilities
                    
                    
                    13,403,604
                    
                    
                    
                    8,306,415Long-term
    debt
                    
                    
                    249,390
                    
                    
                    
                    -Total
      Liabilities
                    
                    $
                    13,652,994
                    
                    
                    $
                    8,306,415Shareholders'
      EquityPreferred stock, .0001 par value,
      10,000,000 shares authorized, none issued and
      outstanding
                    
                    
                    -
                    
                    
                    
                    -Common shares, .0001 par value,
      100,000,000 shares authorized, 9,700,000 shares issued and
      outstanding
                    
                    
                    970
                    
                    
                    
                    970Additional paid-in
      capital
                    
                    
                    319,510
                    
                    
                    
                    319,510Accumulated other comprehensive
      income
                    
                    
                    440,775
                    
                    
                    
                    437,665Retained
      deficits
                    
                    
                    (12,713,715
                    )
                    
                    
                    (7,878,628
                    )Total Shareholders'
      Equity
                    
                    $
                    (11,952,460
                    )
                    
                    $
                    (7,120,483
                    )Total Liabilities and
      Shareholders' Equity
                    
                    $
                    1,700,534
                    
                    
                    $
                    1,185,932
 
 The accompanying notes are an integral
part of these consolidated financial statements.
  F-2
  QINGDAO FOOTWEAR,
INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
 FOR THE YEARS ENDED DECEMBER 31, 2009
AND 2008
 
 2009
                  
                  
                  2008Net sales
                  
                  $
                  17,863,891
                  
                  
                  $
                  13,904,314Cost of goods
      sold
                  
                  
                  10,162,778
                  
                  
                  
                  8,246,592Gross
profit
                  
                  
                  7,701,113
                  
                  
                  
                  5,657,722Operating
      expenses:Selling, general and
      administrative expenses
                  
                  
                  907,807
                  
                  
                  
                  759,470Depreciation and Amortization
      Expense
                  
                  
                  61,838
                  
                  
                  
                  55,360Profit fromoperations
                  
                  
                  6,731,468
                  
                  
                  
                  4,842,892Other income
      (expense)Other
income
                  
                  
                  87,966
                  
                  
                  
                  57,660Interest
    income
                  
                  
                  1,144
                  
                  
                  
                  8,949Interest
      (expense)
                  
                  
                  (61,792
                  )
                  
                  
                  (61,905
                  )Income before income
      taxes
                  
                  
                  6,758,786
                  
                  
                  
                  4,847,596Income
taxes
                  
                  
                  1,689,697
                  
                  
                  
                  1,211,899Net income
                  
                  $
                  5,069,089
                  
                  
                  $
                  3,635,697Net income per share - basic and
      diluted
                  
                  $
                  0.52
                  
                  
                  $
                  0.37Weighted average shares
      outstanding
                  
                  
                  9,700,000
                  
                  
                  
                  9,700,000Net income
                  
                  $
                  5,069,089
                  
                  
                  $
                  3,635,697Other comprehensive
      incomeForeign currency
      translation
                  
                  
                  3,110
                  
                  
                  
                  232,047Comprehensive
      income
                  
                  $
                  5,072,199
                  
                  
                  $
                  3,867,744
 
 The accompanying notes are an integral
part of these consolidated financial statements.
 F-3
  QINGDAO FOOTWEAR,
INC.
 CONSOLIDATED STATEMENTS OF CASH
FLOWS
 FOR THE YEARSENDED DECEMBER 31, 2009 AND
2008
 
 2009
                  
                  
                  2008(Restated)
                  
                  
                  (Restated)CASH FLOWS FROM OPERATING
      ACTIVITIES:Net income
                  
                  $
                  5,069,089
                  
                  
                  $
                  3,635,697Adjustments to reconcile net
      income to net cash  provided by operating activities:Depreciation and
      amortization
                  
                  
                  61,838
                  
                  
                  
                  55,360Changes in operating assets and
      liabilities:Accounts
      receivable
                  
                  
                  (95,428
                  )
                  
                  
                  1,028Inventories
                  
                  
                  (154,977
                  )
                  
                  
                  246,700Prepaid
      expenses
                  
                  
                  1,179
                  
                  
                  
                  10,427Accounts
      payable
                  
                  
                  15,180
                  
                  
                  
                  (2,527
                  )Tax payable
                  
                  
                  4,949,978
                  
                  
                  
                  3,800,000Net cash provided by operating
      activities
                  
                  
                  9,846,859
                  
                  
                  
                  7,746,685CASH FLOWS FROM INVESTING
      ACTIVITIESAdvance to related
      party
                  
                  
                  (323
                  )
                  
                  
                  -Purchase of property and
      equipment
                  
                  
                  (384,332
                  )
                  
                  
                  (37,944
                  )Net cash used in investing
      activities
                  
                  
                  (384,655
                  )
                  
                  
                  (37,944
                  )CASH FLOWS FROM FINANCING
      ACTIVITIESDistribution to
      shareholders
                  
                  
                  (9,786,817
                  )
                  
                  
                  (7,660,033
                  )Proceeds from
      loans
                  
                  
                  1,701,720
                  
                  
                  
                  850,860Repayments on
      loans
                  
                  
                  (1,437,660
                  )
                  
                  
                  (850,860
                  )Net cash used in financing
      activities
                  
                  
                  (9,522,757
                  )
                  
                  
                  (7,660,033
                  )Effect of exchange rate changes on
      cash
                  
                  
                  3,150
                  
                  
                  
                  35,218Net increase (decrease) in
      cash
                  
                  $
                  (57,403
                  )
                  
                  $
                  83,926Cash, beginning of
      year
                  
                  
                  118,534
                  
                  
                  
                  34,608Cash, end of
      year
                  
                  $
                  61,131
                  
                  
                  $
                  118,534SUPPLEMENTARY
      DISCLOSURE:Interest
    paid
                  
                  $
                  61,792
                  
                  
                  $
                  61,905Income tax
    paid
                  
                  $
                  3,763
                  
                  
                  $
                  2,539
 
 The accompanying notes are an integral
part of these consolidated
financial statements.
  F-4
  QINGDAO FOOTWEAR,
INC.
 CONSOLIDATED STATEMENT OF SHAREHOLDERS'
EQUITY
 FOR THE YEARS ENDED DECEMBER 31, 2009
AND 2008
 (RESTATED)
 
 Common Stock
                    
                    
                    Additional Paid-
                      in Capital
                    
                    
                    Accumulated Other
                      Comprehensive
                      Income
                    
                    
                    Retained Earnings
                    
                    
                    Total Shareholders'
                      EquityBalance, December 31,
      2007
                    
                    $
                    970
                    
                    
                    $
                    319,510
                    
                    
                    $
                    205,618
                    
                    
                    $
                    (3,514,546
                    )
                    
                    $
                    (2,988,448)Distribution to
      shareholders
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (7,999,779
                    )
                    
                    
                    (7,999,779
                    )Net income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,635,697
                    
                    
                    
                    3,635,697Foreign currency translation
      gain
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    232,047
                    
                    
                    
                    -
                    
                    
                    
                    232,047Balance, December 31,
      2008
                    
                    $
                    970
                    
                    
                    $
                    319,510
                    
                    
                    $
                    437,665
                    
                    
                    $
                    (7,878,628
                    )
                    
                    $
                    (7,120,483)Distribution to
      shareholders
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (9,904,176
                    )
                    
                    
                    (9,904,176
                    )Net income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,069,089
                    
                    
                    
                    5,069,089Foreign currency translation
      gain
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,110
                    
                    
                    
                    -
                    
                    
                    
                    3,110Balance, December 31,
      2009
                    
                    $
                    970
                    
                    
                    $
                    319,510
                    
                    
                    $
                    440,775
                    
                    
                    $
                    (12,713,715
                    )
                    
                    $
                    (11,952,460
                    )
 
 The accompanying notes are an integral
part of these financial statements
  F-5
  QINGDAO FOOTWEAR,
INC.
 NOTES TO FINANCIAL
STATEMENTS
 
 NOTE 1 - ORGANIZATION AND BUSINESS
OPERATIONS
 
 Qingdao Footwear, Inc. (formerly 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.
 
 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 inexchange 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. Asaresult 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.
After the reverse merger, Datone, Inc changed its name to Qingdao Footwear,
Inc.
 
 Datone spun off all its assets and
liabilities to its priorowners before the reverse
merger.  For Glory Reach, reverse merger is accounted for as a reverse
merger with a shell company and as a recapitalization.
 
 Glory Reach International Limited (the
“Company”) was established in Hong Kong on
November 18, 2009 toserve
as an intermediate holding company.  Mr. Tao Wang, the controlling
interest holder of Qingdao Shoes also controls the Company.  On
February 8, 2010, also pursuant to the restructuring plan, the Company acquired
100% of the equity interests in QingdaoShoes.
 
 Qingdao Shoes was incorporated on March
11, 2003 in Jimo County, Qingdao City, Shandong Province,
People’s Republic of China (the “PRC”) with registered capital of
$320,480.  Prior to December 18, 2009, Mr. Tao Wang owned 80% of
Qingdao Shoes andthe
remaining 20% was owned by Mr. Renwei Ma. Starting from December 18, 2009, Mr.
Tao Wang owned 80% of Qingdao Shoes, Mr. Renwei Ma owned 15% and Mr. Wenyi Chen
owned the remaining 5%.Qingdao Shoes is the owner of the brand
name “Hongguan”and principally engaged in the wholesale and retail
sales of fashion footwear primarily in the northeast region of
China.
 
 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 hadoccurred 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.
 
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
 
 Basis of
Presentation
 
 The financial statements reflect the
financial position, results of operations and cash flows of the Company and all
of its wholly owned and majority owned subsidiaries as of December 31, 2009 and
2008,and for the years
ended December 31, 2009 and 2008. All intercompany items are eliminated during
consolidation.
 
 Use of Estimates
 
 The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
ofAmerica (“US GAAP”) requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the amount of revenues andexpenses during the reporting periods.
Management makes these estimates using the best information available at the
time the estimates are made. However, actual results could differ
materially from those estimates.
 
 Risks and
Uncertainties
 
 The Company issubject to substantial risks from,
among other things, intense competition associated with the industry in general,
other risks associated with financing, liquidity requirements, rapidly changing
customer requirements, limited operating history, foreigncurrency exchange rates and the
volatility of public markets.
 
 Concentration of Credit
Risk
 
 Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of cash and trade receivables. As of December 31, 2009 and 2008, substantially
all of the Company’s cash were held by major financial
institutions located in the PRC, which management believes are of high
credit quality. With respect to trade receivables, the Company generally does
not requirecollateral for trade receivables and has
not experienced any credit losses in collecting the trade
receivables.
  F-6
  The Company operates principally in the
PRC and grants credit to its customers in this geographic region. Although the
PRC is economically stable,
it is always possible that unanticipated events in foreign countries could
disrupt the Company’s operations.
 
 Comprehensive Income
 
 The Company has adopted the provisions
of ASC 220 “Reporting
Comprehensive Income”which
establishes standards for
the reporting and display of comprehensive income, its components and
accumulated balances in a full set of general purpose financial
statements.
 
 ASC 220 defines comprehensive income is
comprised of net income and all changes to the statementsof stockholders' equity, except those
due to investments by stockholders, changes in paid-in capital and distributions
to stockholders, including adjustments to minimum pension liabilities,
accumulated foreign currency translation, and unrealized gains orlosses on marketable securities. The
Company’s other comprehensive income arose from
the effect of foreign currency translation adjustments.
 
 Foreign Currency
Translation
 
 The Company’s functional currency is Chinese
currency Renminbi (“RMB”) and its reporting currency is the U.S. dollar.
Transactions denominated in foreign currencies are translated into U.S. dollar
at exchange rate in effect on the date of the transactions. Exchange gains or
losses on transaction are included in earnings.
 
 The financial statements of the Company are translated
into United States dollars in accordance with the provisions of ASC 830
“Foreign Currency
Matters”, using the
year-end rates of exchange for assets and liabilities, and average rates of
exchange for the period for revenues, costs, and expenses and
historical rates for the equity. Translation adjustments resulting from the
process of translating the local currency financial statements into U.S. dollars
are included in determining comprehensive income. At December 31,
2009 and 2008, the cumulative translation
adjustment of $440,775 and $437,665 were classified as an item of accumulated
other comprehensive income in the shareholders’equity section of the balance sheet
respectively. For the years ended December 31, 2009 and 2008, other comprehensive income was
$3,110 and $232,047, respectively.
 
 Accounts Receivable
 
 Accounts receivable consists of unpaid
balances due from the whole-sale customers. Such balances generally are cleared
in the subsequent month when the whole-sale customers place another order. The
Company uses the aging method to estimate the valuation allowance for
anticipated uncollectible receivable balances. Under the aging method, bad debts
percentages determined by management based on historical experienceas well as current economic climate are
applied to customers’balances categorized by the number of
months the underlying invoices have remained outstanding. The valuation
allowance balance is adjusted to the amount computed as a result of the aging
method. When facts subsequently become
available to indicate that the amount provided as the allowance was incorrect,
an adjustment which classified as a change in estimate is made. The Company did
not experience any bad debt historically and as of December 31,2009 and 2008, there was no allowance
for doubtful accounts recorded based on the aging method.
 
 Inventories
 
 Merchandise inventories are stated at
the lower of cost or market. Cost is determined on a weighted average basis and
includes all expenditures incurred in bringing the goods to the
point of sale and putting them in a salable condition. In assessing the ultimate
realization of inventories, the management makes judgments as to future demand
requirements compared to current or committed inventory levels. Our reserve requirements generally
increase as our projected demand requirements; or decrease due to market
conditions and product life cycle changes. The Company estimates the demand
requirements based on market conditions, forecasts prepared by itscustomers, sales contracts and orders in
hand.
 
 In addition, the Company estimates net
realizable value based on intended use, current market value and inventory
ageing analysis. The Company writes down inventories for estimated obsolescence
or unmarketable inventory
equal to the difference between the cost of inventories and their estimated
market value based upon assumptions about future demand and market
conditions.
  F-7
 
 Property, Plant and
Equipment
 
 Property, plant and equipment are
recordedat cost. Gains or
losses on disposals are reflected as gain or loss in the year of disposal. Major
renewals and betterments are charged to the property accounts while
replacements, maintenance and repairs, which do not improve or extend the lives
of therespective assets, are expensed in the
current period.
 
 Depreciation for financial reporting
purposes is provided using the straight-line method over the estimated useful
lives of assets as set out below.
 
 Estimated Useful
                  LifePlant and
      building
                
                20yearsOffice furniture and
      equipment
                
                5 yearsTransportation
      equipment
                
                5
  years
 
 Land Use Rights
 
 Land use right is stated at cost less
accumulated amortization.  Amortization is provided using the
straight-line method over the designated terms of thelease of 50 years obtained from the
relevant PRC land authority.
 
 Impairment of Long-Lived
Assets
 
 The Company accounts for impairment of
property and equipment and amortizable intangible assets in accordance with ASC
360, “Accounting for
Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of”, which requires the Company to evaluate
a long-lived asset for recoverability when there is event or circumstance that
indicate the carrying value of the asset may not be recoverable.  An
impairmentloss is recognized when the carrying
amount of a long-lived asset or asset group is not recoverable (when carrying
amount exceeds the gross, undiscounted cash flows from use and disposition) and
is measured as the excess of the carrying amount over the asset’s (or asset group’s) fair value.  There was no
impairment of long-lived assets for the years ended December 31, 2009 and
2008.
 
 Revenue Recognition
  The Company generates revenues from the
retail and wholesale of shoes. Sales revenues are recognized when the following four revenue criteria
are met: persuasive evidence of an arrangement exists, delivery has occurred,
the selling price is fixed or determinable, and collectability is reasonably
assured. Sales are presented net of value added tax (VAT). Noreturn allowance is made as product
returns have been insignificant in all periods.
  Retail sales are recognized at the point
of sale to customers.  Wholesale to its contracted customers are
recognized as revenue at the time the product is shipped and title passes to the customer on an FOB
shipping point basis. Wholesale prices are predetermined and fixed based on
contractual agreements. The Company does not allow any discounts, credits,
rebates or similar privileges.
 
 Cost of Sales
 
 Cost of sales includesthe cost of purchasing merchandise.
Receiving and warehousing costs are included in selling, general and
administrative expenses, and these costs have been insignificant in all
periods.
 
 Advertising Expense
 
 The Company expenses cost of
advertising, including the
cost of TV commercials, outdoor bulletin boards, promotional materials, and
in-store displays as advertising expense, when incurred.  Advertising
expenses included in selling, general and administrative expenses were $87,966
and $57,660 for the years ended December 31, 2009 and 2008,
respectively.
 
 Shipping and
Handling
 
 Shipping and handling costs related to
cost of goods sold are included in selling, general and administrative
expense.
 
 Store Opening Costs
 
 Non-capital expenditures associated
with opening new stores are
expensed as incurred.
 
 Income Taxes
 
 The Company accounts for income taxes in
accordance with ASC 740 “Income Taxes”.  ASC 740 requires an asset
and liability approach for financial accounting and reporting for income taxes
and allows recognition and
measurement of deferred tax assets based upon the likelihood of realization
of tax benefits in future years.  Under the asset and liability
approach, deferred taxes are provided for the net tax effects of temporary
differences betweenthe carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes.  A valuation allowance is provided for deferred tax assets
if it is more likely than not these items will either expire before
theCompany is able to realize their
benefits, or that future deductibility is uncertain.  There was no
deferred tax asset or liability for the years ended December 31, 2009 and
2008.
  F-8
  Value Added Taxes
 
 The Company is subject to value added
tax (“VAT”) for selling
merchandise.  The applicable VAT rate is 17% for products sold in the
PRC.  The amount of VAT liability is determined by applying the
applicable tax rate to the invoiced amount of goods sold (output VAT) less VAT
paid on purchases made with the relevant supporting invoices
(input VAT).  Under the commercial practice of the PRC, the Company
pays VAT based on tax invoices issued.  The tax invoices may be issued
subsequent to the date on which revenue is recognized, and there may be a
considerable delay between the date on
which the revenue is recognized and the date on which the tax invoice is
issued.  In the event that the PRC tax authorities dispute the date on
which revenue is recognized for tax purposes, the PRC tax office has the
right to assess a penalty based on the
amount of the taxes which are determined to be late or deficient, and will be
expensed in the period if and when a determination is made by the tax
authorities that a penalty is due.
 
 VAT on sales and VAT on purchases
amounted to $3,038,726 and
$83,851, respectively, for the year ended December 31, 2009.  VAT on
sales and VAT on purchases amounted to $2,405,548 and $81,464, respectively, for
the year ended December 31, 2008.  Sales and purchases are recorded
net of VATcollected and paid as the Company acts as
an agent for the government.
 
 Fair Value of Financial
Instruments
 
 ASC 820 “Fair Value Measurements and
Disclosures”, adopted
January 1, 2008, defines fair value, establishes a three-level valuation
hierarchy for disclosures
of fair value measurement and enhances disclosure requirements for fair value
measures. The carrying amounts reported in the balance sheets for current
receivables and payables qualify as financial instruments. Management concluded
the carryingvalues are a reasonable estimate of fair
value because of the short period of time between the origination of such
instruments and their expected realization and if applicable, their stated
interest rate approximates current rates available.  The three
levels are defined as
follows:
 
 lLevel 1 - inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets or liabilities
in active markets.
 
 lLevel 2 - inputs to the valuation
methodology include quoted prices for similarassets and liabilities in active
markets, and inputs that are observable for the assets or liability, either
directly or indirectly, for substantially the full term of the financial
instruments.
 
 lLevel 3 - inputs to the valuation
methodology are unobservable and significant to the fair
value.
 
 It is management’s opinion that as of December 31, 2009
and 2008, the estimated fair values of the financial instruments were not
materially different from their carrying values as presented on the balance
sheets. This is attributed
to the short maturities of the instruments (less than two years) and that
interest rates on the borrowings approximately those that would have been
available for loans of similar remaining maturity and risk profile at respective
balance sheet dates. The carrying amounts
of the loans approximately their fair values because the applicable interest
rates approximate current market rates.
 
 Segment Reporting
 
 We operate as a single operating segment
for purposes of presenting financial information and evaluating performance.
As such, the accompanying consolidated financial statements present financial
information in a format that is consistent with the internal financial
information used by management. We do not accumulate operating expenses by wholesale and retail operations
and, therefore, it is impractical to present such
information.
 
 Recent Accounting
Pronouncements
 
 Fair Value
Measurements and Disclosures (Included in ASC 820, previously FSP No. 157-4,
“Determining Whether
a Market is Not Active and a
Transaction Is Not Distressed”).FSP No. 157-4 clarifies when markets are
illiquid or that market pricing may not actually reflect the “real”value of an asset.  If a
market is determined to be inactive and market price is reflectiveof a distressed price then an
alternative method of pricing can be used, such as a present value technique to
estimate fair value.  FSP No. 157-4 identifies factors to be
considered when determining whether or not a market is inactive.  FSP
No. 157-4 would be effective for interim and annual
periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009 and shall be applied prospectively.  The
adoption of this standard had no material effect on the Company's
financial statements.
  F-9
  Interim Disclosures
about Fair Value of Financial Instruments (Included in ASC 825 “Financial
Instruments”, previously FSP
SFAS No. 107-1).This guidance requires that the fair value disclosures
required for all financial
instruments within the scope of SFAS No. 107, “Disclosures about Fair Value of
Financial Instruments”, be
included in interim financial statements.  This guidance also requires
entities to disclose the method and significant assumptions used to
estimatethe fair value of financial instruments
on an interim and annual basis and to highlight any changes from prior
periods.  FSP 107-1 was effective for interim periods ending after
September 15, 2009.  The adoption of FSP 107-1 had no material impact
on theCompany’s financial
statements.
 
 Consolidation of
Variable Interest Entities–Amended (To be
included in ASC 810 “Consolidation”, previously SFAS
167 “Amendments to FASB
Interpretation No. 46(R)”).SFAS 167 amends FASB
Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest
Entities,”to require an
enterprise to perform an analysis to determine the primary beneficiary of a
variable interest entity; to require ongoing reassessments of whether an
enterprise is the primary beneficiary of a variable interest entity and
to eliminate the quantitative approach previously required for determining the
primary beneficiary of a variable interest entity.  SFAS 167 also
requires enhanced disclosures that will provide users of financial
statements with more transparent information
about an enterprise’s involvement in a variable interest
entity.  SFAS 167 is effective for the first annual reporting period
beginning after November 15, 2009 and will be effective for us as of January 1,
2010.  Themanagement is in the process of
evaluating the impact of adopting this standard on the Company’s financial
statements.
 
 FASB Accounting
Standards Codification (Accounting Standards Update “ASU”2009-1).In June 2009, the
Financial Accounting Standard Board (“FASB”) approved its Accounting Standards
Codification (“Codification”) as the single source of authoritative
United States accounting and reporting standards applicable for all
non-governmental entities, with the exception of the SEC and its
staff.  The Codification is effective for interim
or annual financial periods ending after September 15, 2009 and impacts our
financial statements as all future references to authoritative accounting
literature will be referenced in accordance with the Codification.There have been no changes to the
content of our financial statements or disclosures as a result of implementing
the Codification.
 
 In August 2009, the FASB issued
Accounting Standards Update No. 2009-05 (“ASC Update
2009-05”), an update to ASC 820,
FairValue Measurements and
Disclosures.  This update provides amendments to reduce potential
ambiguity in financial reporting when measuring the fair value of
liabilities.  Among other provisions, this update provides
clarification that in circumstances in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to
measure fair value using one or more of the valuation techniques described in
ASC Update 2009-05.  ASC Update 2009-05 will become effective for the Company’s annual financial statements for the
year ended December 31, 2009.  The adoption of this standard had no
material effect on the Company's financial statements.
 
 In October 2009, the FASB issued
Accounting Standards Update, 2009-13, Revenue Recognition (Topic 605)“Multiple Deliverable
Revenue Arrangements - A Consensus of the FASB Emerging Issues Task
Force”.This update provides
application guidance on whether multiple deliverables exist, how the
deliverables should be separated andhow the consideration should be
allocated to one or more units of accounting.  This update establishes
a selling price hierarchy for determining the selling price of a
deliverable.  The selling price used for each deliverable will be
based on vendor-specific objective evidence, if available,
third-party evidence if vendor-specific objective evidence is not available, or
estimated selling price if neither vendor-specific or third-party evidence is
available.  The Company will be required to apply this
guidance prospectively for revenue
arrangements entered into or materially modified after January 1, 2011; however,
earlier application is permitted.  The management is in the process of
evaluating the impact of adopting this standard on the Company’s financialstatements.
 
 In December 2009, FASB issued ASU No.
2009-16, Accounting for Transfers of Financial Assets. This Accounting Standards
Update amends the FASB Accounting Standards Codification for the issuance of
FASB Statement No. 166,Accounting
for Transfers of Financial
Assets—an amendment of FASB
Statement No. 140.The amendments in this Accounting Standards Update improve financial
reporting by eliminating the exceptions for qualifying special-purpose entities
from the consolidation guidance and the exception that permitted sale accounting
for certain mortgage securitizations when a transferor has not surrendered
control over the transferred financial assets.  In addition, the
amendments require enhanced disclosures about the risks that a transferor
continues to be exposed to because of its
continuing involvement in transferred financial assets. Comparability and
consistency in accounting for transferred financial assets will also be improved
through clarifications of the requirements for isolation and limitations on portions of financial
assets that are eligible for sale accounting.  The management is in
the process of evaluating the impact of adopting this standard on the
Company’s financial
statements.
  F-10
  In December, 2009, FASB issued ASUNo. 2009-17, Improvements
to Financial Reporting by Enterprises Involved with Variable Interest Entities.
This Accounting Standards Update amends the FASB Accounting Standards
Codification for the issuance of FASB Statement No. 167,Amendments
to FASB Interpretation No.
46(R).  The amendments in this Accounting Standards Update
replace the quantitative-based risks and rewards calculation for determining
which reporting entity, if any, has a controlling financial interest in a
variable interest entitywith an approach focused on identifying
which reporting entity has the power to direct the activities of a variable
interest entity that most significantly impact the entity’s economic performance and (1) the
obligation to absorb losses of the entity or (2) the right to receive benefits from the
entity.  An approach that is expected to be primarily qualitative will
be more effective for identifying which reporting entity has a controlling
financial interest in a variable interest entity.  The amendments
inthis Update also require additional
disclosures about a reporting entity’s involvement in variable interest
entities, which will enhance the information provided to users of financial
statements.  The management is in the process of evaluating the impactof adopting this standard on the
Company’s financial
statements.
  In January 2010, FASB issuedASU No. 2010-01-
Accounting for Distributions to Shareholders with Components of Stock and
Cash.  The amendments in this Update clarify that the stock
portionof a distribution
to shareholders that allows them to elect to receive cash or stock with a
potential limitation on the total amount of cash that all shareholders can elect
to receive in the aggregate is considered a share issuance that is reflected in
EPS prospectively and is not a stock
dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per
Share).   The management is in the process of evaluating the
impact of adopting this standard on the Company’s financial
statements.
 
 In January 2010, FASB issuedASU No. 2010-02–Accounting and
Reporting for Decreases in Ownership of a Subsidiary–a Scope
Clarification.  The amendments in this Update affect accounting and
reporting by an entity that experiences a decrease in ownership in asubsidiary that is a
business or nonprofit activity.  The amendments also affect accounting
and reporting by an entity that exchanges a group of assets that constitutes a
business or nonprofit activity for an equity interest in another entity. 
The amendments in this update are effective
beginning in the period that an entity adopts SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements–An Amendment of ARB No.
51.”If an
entity has previously adopted SFAS No.160 as of the date theamendments in this update are included
in the Accounting Standards Codification, the amendments in this update are
effective beginning in the first interim or annual reporting period ending on or
after December 15, 2009.  The amendments in this update
should be applied retrospectively to the
first period that an entity adopted SFAS No. 160.  The management does not
expect the adoption of this ASU to have a material impact on the
Company’s financial
statements.
 
 In January 2010, FASB issuedASU No. 2010-06–Improving
Disclosures about Fair Value Measurements.This update provides amendments to
Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in
and out of Levels 1 and 2.  A reporting entity should disclose
separately the amounts of significant transfers in and out of Level 1
and Level 2 fair value measurements and describe the reasons for the
transfers.  2)  Activity in Level 3 fair value
measurements.  In the reconciliation for fair value measurements using
significant unobservable inputs (Level 3), a reporting entity should
present separately information about purchases, sales, issuances, and
settlements (that is, on a gross basis rather than as one net
number).  This update provides amendments to Subtopic 820-10 that
clarifies existingdisclosures as follows: 1) Level
of disaggregation.  A reporting entity should provide fair value
measurement disclosures for each class of assets and liabilities. A class is
often a subset of assets or liabilities within a line item in the statement offinancial position.  A
reporting entity needs to use judgment in determining the appropriate classes of
assets and liabilities. 2) Disclosures about inputs and valuation
techniques.  A reporting entity should provide disclosures about the
valuation techniques and inputs used to measure fair value
for both recurring and nonrecurring fair value measurements. Those disclosures
are required for fair value measurements that fall in either Level 2 or
Level 3.  The new disclosures and clarifications of existing
disclosures are effective for interim and
annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements.  These
disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. The management does not expect the adoption of this ASU to have a
material impact on the Company’s financial
statements.
  F-11
  NOTE 3–INVENTORY
 
 As of December 31, 2009 and 2008,
inventory consists of the following:
 
 December 31,
                    2009
                  
                  
                  December 31,
                    2008Finished
    goods
                  
                  $
                  344,512
                  
                  
                  $
                  189,535Total
    inventory
                  
                  $
                  344,512
                  
                  
                  $
                  189,535
 
 NOTE 4 - PREPAID
EXPENSES
 
 As of December 31, 2009 and 2008, the
prepaid expenses consisted of the following:
  December 31,
                    2009
                  
                  
                  December 31,
                    2008Retail store rental
      prepayment
                  
                  $
                  18,778
                  
                  
                  $
                  18,778Prepaid to suppliers
                  
                  
                  38,533
                  
                  
                  
                  39,712Total prepaid
      expenses
                  
                  $
                  57,311
                  
                  
                  $
                  58,490
  NOTE 5 - PROPERTY, PLANT AND
EQUIPMENT
 
 As of December 31, 2009 and 2008,
property, plant and equipment consisted of the following:
  December 31,
                    2009
                  
                  
                  December 31,
                    2008Plant and
      building
                  
                  $
                  1,096,639
                  
                  
                  $
                  731,918Office furniture and
      equipment
                  
                  
                  24,789
                  
                  
                  
                  12,304Transportation
      equipment
                  
                  
                  155,763
                  
                  
                  
                  148,314Total at
    cost
                  
                  
                  1,277,191
                  
                  
                  
                  892,536Less: Accumulated
      depreciation
                  
                  
                  (346,740
                  )
                  
                  
                  (289,705
                  )Total property, plant and
      equipment, net
                  
                  $
                  930,451
                  
                  
                  $
                  602,831
  Depreciation for the years ended
December 31, 2009 and 2008 was $57,000 and $50,603 respectively.
 
 NOTE 6 - INTANGIBLE
ASSETS
 
 The Company obtained the right from the
relevant PRC land authority for fifty years to use the land on which the office
premises and warehouse of the Company are situated.  As of December
31, 2009 and 2008, intangible assets consisted of the
following:
  December 31,
                    2009
                  
                  
                  December 31,
                    2008Cost of land use
      rights
                  
                  $
                  242,055
                  
                  
                  $
                  242,055Less: Accumulated
      amortization
                  
                  
                  (33,888
                  )
                  
                  
                  (29,047
                  )Total intangible assets, net
                  
                  $
                  208,167
                  
                  
                  $
                  213,008
  F-12
  Amortization expense for the years ended
December 31, 2009 and 2008 was $4,838 and $4,757
respectively.
 
 NOTE 7 - SHORT TERM
LOANS
 
 Short-term loans are due to two
financial institutions which are normally due within one year.  As of
December 31, 2009 and December 31, 2008, the Company’s short term loans consisted of the
following:
 
 December 31,
                      2009
                    
                    
                    December 31,
                      2008Jimo Rural Cooperative Bank of
      Qingdao (JMRB), two 12-month bank loans both due in November
      2009, bear interest at 10.85% average, secured by third parties and repaid
      in November 2009.
                    
                    $
                    -
                    
                    
                    $
                    293,400Bank of Qingdao Jimo Branch (BOQ),
      12-month bank loan due in September 2009, bears interestat 8.25% average, pledged by
      Company's building and land use right and repaid in August
      2009.
                    
                    
                    -
                    
                    
                    
                    410,760JMRB, two 12-month bank loans both
      due in November 2010, bears annual interest at 7.965% average, secured by
      third parties
                    
                    
                    293,400
                    
                    
                    
                    -BOQ, 12-month bank loan due in
      September 2010, bears annual interest at 6.372% average, pledged by
      Company's building and land use right
                    
                    
                    425,430
                    
                    
                    
                    -Total short-term
      debt
                    
                    $
                    718,830
                    
                    
                    $
                    704,160
 
 The above indebtedness to JMRB at
December 31, 2009 and 2008 has been guaranteed by two unrelated
companies.
 
 NOTE 8–LONG TERM LOANS
 
 On December 16, 2009, the Company
entered into a 2-year loan agreement with JMRB. The Company borrowed $249,390 with an annual interest
rate equal to 7.02% and is due in December 2011. The loan is guaranteed by the
relatives of Mr. Tao Wang, the CEO and major shareholder of the Company and is
collateralized by the property of his relatives.
 
 NOTE 9 - RELATED PARTY BALANCES AND
TRANSACTIONS
  Due to related
party
  F-13
  The Company declared distribution and
paid dividends to the shareholders in 2009. The balance of dividend payable was
$117,360 and Nil as of December 31, 2009 and 2008 respectively, which represented the dividend payable
to Mr. Renwei Ma, the shareholder of the Company.
 
 Related party
transactions
 
 During year 2009, the Company
distributed $9,904,176to its shareholders, Mr. Tao Wang and
Mr. Renwei Ma, in which $9,786,816was distributed in cash, and the remaining
$117,360 was the dividend payable to Mr. Renwei Ma that the Company expects to
pay in the first quarter of 2010.
   
 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, related party rent expense of $17,593 and $17,298,
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, 2009 and 2008, the Company recorded other income of
$87,966 and $57,660, respectively, from
leasing the aforementioned building and advertising expense of the same amount
respectively.
 
 NOTE 10–OPERATING LEASES
 
 The Company leases store spaces under
noncancelable operating leases expiring at various dates through 2013. Rent expense was $90,165 and
$88,652 for the years ended December 31, 2009 and 2008,
respectively.
 
 Future minimum lease payments at
December 31, 2009 are as follows:
 
 Year:2010
                  
                  
                  86,6472011
                  
                  
                  50,7272012
                  
                  
                  8,7972013
                  
                  
                  4,398$
                  150,569
 
 NOTE 11 - INCOME TAX
 
 The Company is governed by the Income
Tax Law of the PRC concerning the private-run enterprises, which are generally
subject to tax at a statutory rate of 25% on income reported in the statutory
financial statements after
appropriated tax adjustments in 2009 and 2008 respectively.
 
 2009
                  
                  
                  2008Income before income
      taxes
                  
                  $
                  6,758,786
                  
                  
                  $
                  4,847,596Income
taxes
                  
                  $
                  1,689,697
                  
                  
                  $
                  1,211,899
  F-14
  There is no significant temporary
difference between book and tax income.
 
 The Company has no United States
corporate income tax liabilities as of December 31, 2009 and
2008.
 
 The following table reconciles the U.S.
statutory corporate income rates to the Company’s effective tax rate for the years ended
December 31, 2009 and 2008:
 
 2009
                  
                  
                  2008US statutory
      rates
                  
                  
                  34.0
                  %
                  
                  
                  34.0
                  %Tax rate
      difference
                  
                  
                  (9.0
                  )%
                  
                  
                  (9.0
                  )%Tax per financial
      statements
                  
                  
                  25.0
                  %
                  
                  
                  25.0
                  %
 
 NOTE 12–SHAREHOLDERS’EQUITY
 
 During year 2009 and 2008, the Company
distributed $9,904,176 and $7,999,779, respectively, to its two owners, Mr.
Tao Wang and Mr. Renwei Ma.
 
 NOTE 13–COMMITMENTS AND CONTINGENCIES
 
 Social insurance for
employees
 
 According to the prevailing laws and
regulations of the PRC, the Company is required to cover its employees with
medical, retirement and unemployment insurance programs.  Management
believes that due to thetransient nature of its employees, the
Company does not need to provide all employees with such social insurances, and
has paid the social insurances for the Company’s employees who have completed three
months’continuous employment with the
Company.
 
 In the event that any current or former
employee files a complaint with the PRC government, the Company may be subject
to making up the social insurances as well as administrative fines.  As the
Company believes that these fines would not be material, no provision has been made in this
regard.
 
 Guarantees
  As of December 31, 2009 and 2008, the
Company provided corporate guarantees for bank loans borrowed by two unrelated
companies incorporated in the PRC (“Company A and B”).  Associated with the corporate
guarantee, Company A and B
also provided cross guarantees for the JMRB bank loans of $293,400 borrowed by
the Company (Note 7). If Company A and B default on the repayment of their bank
loans when they fall due, the Company is required to repay the
outstandingbalance.  As of December 31, 2009,
the guarantee provided for the bank loans borrowed by Company A and B were
approximately RMB 1,000,000 ($293,400) and RMB 1,000,000 ($146,700),
respectively. As of December 31, 2008, the guarantee provided for the bankloans borrowed by Company A and B were
approximately RMB 500,000 ($73,350) and RMB 1,200,000 ($176,040),
respectively.
  The guarantee period is
from January 2008 to December 2009. The Company’s management considered the risk of
default by Company A and B is remote and therefore no liability for
the guarantor’s obligation under the guarantee was
recognized as of December 31, 2009. No fee was paid to Company A and B for their
guarantee.
  Tax liabilities
 
 The Company did not pay much of its
significant valueadded tax
liabilities and income tax liabilities .
 
 The tax authority of the PRC Government
conducts periodic and ad hoc tax filing reviews on business enterprises
operating in the PRC after those enterprises had completed their relevant tax
filings, hence the
Company’s tax filings may not be finalized.
 It is therefore uncertain as to whether the PRC tax authority may take
different views about the Company’s tax filings which may lead
to additional tax liabilities.
 
 Mr. Tao Wang entered into the contractwith the Company to assume
fiscal responsibilities for all tax liabilities recorded and potential penalties
relating to all the tax liabilities before December 31, 2009.  As of
December 31, 2009 and 2008, the assumed amount was$12,549,060and $7,599,595,respectively, which mainly included VAT
tax payable and income tax payable.However, these tax amounts transferred
to Mr. Tao Wang were never paid to the government. As a result, the historical
financial statements of the Company wererestated to reflect the Company as the primary obligor of the
tax liabilities. Please refer to the restatement footnote17.According to PRC tax law, late or
deficient tax payment could subjectthe Companytosignificanttax
penalty.
  F-15
  NOTE 14 - OPERATING
RISKS
 
 (a)  Country
risk
 
 The Company has significant investments
in the PRC. The operating results of the Company may be adversely affected by
changes in the political and social conditions in the PRC and by changes in
Chinese government policies with respectto laws and regulations,
anti-inflationary measures, currency conversion and remittance abroad, and rates
and methods of taxation, among other things. The Company can give
no assurance that those changes in political and other conditions will not
result ina material adverse effect upon the
Company’s business and financial
condition.
 
 (b)  Exchange
risk
 
 The Company cannot guarantee the
Renminbi, US dollar exchange rate will remain steady, therefore the Company
could post the same profit for two comparableperiods and post higher or lower profit
depending on exchange rate of Renminbi and US dollars.  The exchange
rate could fluctuate depending on changes in the political and economic
environments without notice.
 
 (c)  Interest
risk
 
 The Company is exposed tointerest rate risk arising from
short-term variable rate borrowings from time to time. The Company’s future interest expense will fluctuate
in line with any change in borrowing rates.  The Company does not have
any derivative financial instruments as ofDecember 31, 2009 and 2008 and believes
its exposure to interest rate risk is not material.
 
 NOTE 15–CONCENTRATION
 
 During the years ended December 31, 2009
and 2008, the sales generated by the Company’s owned stores accounted for 15.6% and
15% of total sales,
respectively.
 
 NOTE 16 - SUBSEQUENT
EVENTS
 
 On February 12, 2010, the Company
entered into and closed a Share Purchase and Exchange Agreement (the
“Exchange
Agreement”) with Datone,
Inc., a Delaware public shell company. Pursuant to the Exchange Agreement, Datone, Inc. acquired all of the
outstanding shares of the Company. In exchange, Datone, Inc. issued to
the Company shareholders, their designees or assigns, 10,000 shares of its
Series A Preferred stock, which constituted 97% of its 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 Exchange Agreement Therefore, the
Company became a wholly-owned subsidiary of Datone, Inc. The share
exchange resulted in a change in control of
Datone, Inc. The transaction is deemed as a reverse merger and the Company
is deemed as the accounting acquirer.
 
 The Company obtained an eleven-month
loan from JMRB in January 2010, with principal amount of $440,100 bearing monthly interest of 0.66375% and
matures in December 2010.
 
 Series A Convertible Preferred
Stock
 
 The Company issued 10,000 shares of our
Series A Preferred Stock in February 2010 related to the reverse
merger.
 
 Shares of Series A Preferred Stock
hadautomatically convert
into shares of common stock on the basis of one share of Series A Preferred
Stock for 970 shares of common stock immediately subsequent to the effectiveness
of a planned 1-for-27 reverse split of the Company’s outstanding common stock, which had become effective on June
10, 2010.  Upon the reverse split the 10,000 outstanding shares of
Series A Preferred Stock had automatically convert into 9,700,000 shares of
common stock, which constitutes 97% of the outstanding common stock of
theCompany subsequent to the reverse stock
split.
 
 Holders of Series A Preferred Stock vote
with the holders of common stock on all matters on an as-converted to common
stock basis, based on an assumed post 1-for-27 reverse split (to retroactively
take into account the
reverse stock split).
 
 Following the effectiveness of the
Reverse Stock Split and conversion of Series A Preferred Stock into common
stock, there are approximately 10,000,000 shares of our common stock issued and
outstanding and no shares of preferred stock issued and
outstanding.
 
 For accounting purposes, we treated the
series A convertible preferred stock as being converted fully to common stock on
a post reverse stock split basis.
 
 The 1-for-27 Reverse Stock
Split
 
 The Company’s board of directors unanimously approved, subject to
stockholder approval, the 1-for-27 Reverse Split of our issued and outstanding
common stock. The reverse split will reduce the number of issued and outstanding
shares of the Company’s common stock outstanding prior
tothe split. The reverse split increases
the total number of issued and outstanding shares of the Company’s common stock subsequent to the split
by triggering the automatic conversion of the Company’s Series A Preferred Stock into
9,700,000 shares of commonstock. The reverse split had become
effective on June 10, 2010, the date when the Company filed with the
Secretary of State of the State of Delaware following the expiration of the
20 day period mandated by Rule 14c of the Exchange Act. On June 10, 2010,27 shares of Common Stock had
automatically been combined and changed into one share of common
stock.
  Foraccounting purposes, we treated the
reverse stock split as being effective and all shares are retroactively restated
to reflect the reverse stock split.
 
 F-16
 
 NOTE 17–RESTATEMENTS
 
 Subsequent to the issuance of the
Company’s 2009consolidatedfinancial statements, the
Company’s management determined that corrections
were required to the previously reported financial statements toreflect the Company as the primary obligor of the tax
liabilities (including VAT liabilities and income tax liabilities). As a result, theconsolidatedbalance sheetsas of December 31, 2009 and 2008, theconsolidatedstatementsof cash flows for the yearsended December31, 2009 a

nd 2008, and theconsolidatedstatementsof changes in owners’equity for the year ended December 31,
2009 and 2008have been restated from the amounts
previously reported. The restatement has no effect on operating income, net
income or cash flows from
operating activities.
 
 The effects of the restatements are
shown in the following tables.
  QINGDAO
      FOOTWEAR, INC.CONSOLIDATED
      BALANCE
SHEETS
  2009
                                                                
                                                                
                                                                Adjustment
                                                                
                                                                
                                                                2009(Original)
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                (Restated)ASSETSCurrent
      assetsCash
                                                                
                                                                $
                                                                61,131
                                                                
                                                                $
                                                                
                                                                
                                                                
                                                                $
                                                                61,131Accounts
      receivable
                                                                
                                                                
                                                                98,962
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                98,962Inventories
                                                                
                                                                
                                                                344,512
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                344,512Prepaid
      expenses
                                                                
                                                                
                                                                57,311
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                57,311Total
      current assets
                                                                
                                                                
                                                                561,916
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                561,916Property,
      plant and equipment, net
                                                                
                                                                
                                                                930,451
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                930,451Intangible
      assets
                                                                
                                                                
                                                                208,167
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                208,167Total
      Assets
                                                                
                                                                $
                                                                1,700,534
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                $
                                                                1,700,534LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilitiesShort-term
      loans
                                                                
                                                                $
                                                                718,830
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                $
                                                                718,830Accounts
      payable
                                                                
                                                                
                                                                15,727
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                15,727Taxes
      payable
                                                                
                                                                
                                                                2,627
                                                                
                                                                
                                                                
                                                                12,549,060
                                                                
                                                                
                                                                
                                                                12,551,687Due
      to related parties
                                                                
                                                                
                                                                221,871
                                                                
                                                                
                                                                
                                                                (104,511
                                                                )
                                                                
                                                                
                                                                117,360Total
      current liabilities
                                                                
                                                                
                                                                959,055
                                                                
                                                                
                                                                
                                                                12,444,549
                                                                
                                                                
                                                                
                                                                13,403,604Long-term
      debt
                                                                
                                                                
                                                                249,390
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                249,390Total
      Liabilities
                                                                
                                                                $
                                                                1,208,445
                                                                
                                                                
                                                                
                                                                12,444,549
                                                                
                                                                
                                                                $
                                                                13,652,994Shareholders'
      EquityPreferred
      stock, .0001 par value, 10,000,000 shares authorized, none issued and
      outstanding
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                -Common
      shares, .0001 par value, 100,000,000 shares authorized, 9,700,000 shares
      issued and outstanding
                                                                
                                                                
                                                                970
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                970Additional
      paid-in capital
                                                                
                                                                
                                                                319,510
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                319,510Accumulated
      other comprehensive income
                                                                
                                                                
                                                                440,775
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                440,775Retained
      deficits
                                                                
                                                                
                                                                (269,166
                                                                )
                                                                
                                                                
                                                                (12,444,549
                                                                )
                                                                
                                                                
                                                                (12,713,715
                                                                )Total
      Shareholders' Equity
                                                                
                                                                $
                                                                492,089
                                                                
                                                                
                                                                
                                                                (12,444,549
                                                                )
                                                                
                                                                $
                                                                (11,952,460
                                                                )Total
      Liabilities and Shareholders' Equity
                                                                
                                                                $
                                                                1,700,534
                                                                
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                1,700,534
   F-17
 
 As a result of restatement of the
consolidated balance sheet
as of December 31, 2009,
total liabilities increased from $1,208,445as originally reported, to
$13,652,994, an increase of $12,444,549. The increase of total liabilities was
derived from an increase of $12,549,060intaxespayable, and adecrease of $104,511indue to related
parties.
 
 The total stockholders’equity was restated from $492,089as originally reported, to($11,952,460), adecrease of $12,444,549. The decrease of total stockholders’equity was derived fromthe increaseinretained deficits due toa reclassification oftheamount due fromshareholder tostockholders’equity.
  QINGDAO
      FOOTWEAR, INC.CONSOLIDATED
      BALANCE
SHEETS
 2008
                                                
                                                
                                                Adjustment
                                                
                                                
                                                2008(Original)
                                                
                                                
                                                
                                                
                                                
                                                (Restated)ASSETSCurrent
      assetsCash
                                                
                                                $
                                                118,534
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                118,534Accounts
      receivable
                                                
                                                
                                                3,534
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                3,534Inventories
                                                
                                                
                                                189,535
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                189,535Prepaid
      expenses
                                                
                                                
                                                58,490
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                58,490Due
      from related parties
                                                
                                                
                                                4,373,588
                                                
                                                
                                                
                                                (4,373,588
                                                )
                                                
                                                
                                                -Total
      current assets
                                                
                                                
                                                4,743,681
                                                
                                                
                                                
                                                (4,373,588
                                                )
                                                
                                                
                                                370,093Property,
      plant and equipment, net
                                                
                                                
                                                602,831
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                602,831Intangible
      assets
                                                
                                                
                                                213,008
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                213,008Total
      Assets
                                                
                                                $
                                                5,559,520
                                                
                                                
                                                $
                                                (4,373,588
                                                )
                                                
                                                $
                                                1,185,932LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilitiesShort-term
      loans
                                                
                                                $
                                                704,160
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                704,160Accounts
      payable
                                                
                                                
                                                546
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                546Taxes
      payable
                                                
                                                
                                                2,114
                                                
                                                
                                                
                                                7,599,595
                                                
                                                
                                                
                                                7,601,709Total
      current liabilities
                                                
                                                
                                                706,820
                                                
                                                
                                                
                                                7,599,595
                                                
                                                
                                                
                                                8,306,415Total
      Liabilities
                                                
                                                $
                                                706,820
                                                
                                                
                                                $
                                                7,599,595
                                                
                                                
                                                $
                                                8,306,415Shareholders'
      EquityPreferred
      stock, .0001 par value, 10,000,000 shares authorized, none issued and
      outstanding
                                                
                                                
                                                -
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                -Common
      shares, .0001 par value, 100,000,000 shares authorized, 9,700,000 shares
      issued and outstanding
                                                
                                                
                                                970
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                970Additional
      paid-in capital
                                                
                                                
                                                319,510
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                319,510Accumulated
      other comprehensive income
                                                
                                                
                                                437,665
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                437,665Retained
      earnings (deficits)
                                                
                                                
                                                4,094,555
                                                
                                                
                                                
                                                (11,973,183
                                                )
                                                
                                                
                                                (7,878,628
                                                )Total
      Shareholders' Equity
                                                
                                                $
                                                4,852,700
                                                
                                                
                                                $
                                                (11,973,183
                                                )
                                                
                                                $
                                                (7,120,483
                                                )Total
      Liabilities and Shareholders' Equity
                                                
                                                $
                                                5,559,520
                                                
                                                
                                                $
                                                (4,373,588
                                                )
                                                
                                                $
                                                1,185,932
  F-18
 
 As a result of restatement of the
consolidated balance sheet
as of December 31, 2008,total assets decreased from $5,559,520as originally reported, to
$1,185,932, a
decrease of $4,373,588. The decrease of total assets was derived fromthedecrease ofdue from related parties from $4,373,588
as originally reported to $Nil.
 
 Total liabilities increased from
$706,820as originally reported, to
$8,306,415, an increase of $7,599,595. The increase of total liabilities was derived fromtheincrease intaxespayablefrom $2,114 as originally reported to
$7,601,709.
 
 The total stockholders’equity was restated from $4,852,700as originally reported, to($7,120,483), adecrease of $11,973,183. The decrease oftotal stockholders’equity was derived fromthe increaseinretained deficits due toa reclassification oftheamount due fromshareholder tostockholders’equity.
 
 The total liabilities and
stockholders’equity was restated from $5,559,520as originallyreported, to $1,185,932, adecrease of $4,373,588.
  QINGDAO
      FOOTWEAR, INC.CONSOLIDATED
      STATEMENTS OF CASH
FLOWS
  2009
                                                      
                                                      
                                                      Adjustment
                                                      
                                                      
                                                      2009(Original)
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (Restated)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                                                      
                                                      $
                                                      5,069,089
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      5,069,089Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                                                      
                                                      
                                                      61,838
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      61,838Changes
      in operating assets and liabilities:Accounts
      receivable
                                                      
                                                      
                                                      (95,428
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (95,428
                                                      )Inventories
                                                      
                                                      
                                                      (154,977
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (154,977
                                                      )Prepaid
      expenses
                                                      
                                                      
                                                      1,179
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      1,179Accounts
      payable
                                                      
                                                      
                                                      15,180
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      15,180Tax
      payable
                                                      
                                                      
                                                      4,949,978
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      4,949,978Net
      cash provided by operating activities
                                                      
                                                      
                                                      9,846,859
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      9,846,859CASH
      FLOWS FROM INVESTING ACTIVITIESAdvance
      to related party
                                                      
                                                      
                                                      (5,723,550
                                                      )
                                                      
                                                      
                                                      5,723,227
                                                      
                                                      
                                                      
                                                      (323
                                                      )Purchase
      of property and equipment
                                                      
                                                      
                                                      (384,332
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (384,332
                                                      )Net
      cash used in investing activities
                                                      
                                                      
                                                      (6,107,882
                                                      )
                                                      
                                                      
                                                      5,723,227
                                                      
                                                      
                                                      
                                                      (384,655
                                                      )CASH
      FLOWS FROM FINANCING ACTIVITIESDistribution
      to shareholders
                                                      
                                                      
                                                      (4,063,590
                                                      )
                                                      
                                                      
                                                      (5,723,227
                                                      )
                                                      
                                                      
                                                      (9,786,817
                                                      )Proceeds
      from loans
                                                      
                                                      
                                                      1,701,720
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      1,701,720Repayments
      on loans
                                                      
                                                      
                                                      (1,437,660
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (1,437,660
                                                      )Net
      cash used in financing activities
                                                      
                                                      
                                                      (3,799,530
                                                      )
                                                      
                                                      
                                                      (5,723,227
                                                      )
                                                      
                                                      
                                                      (9,522,757
                                                      )Effect
      of exchange rate changes on cash
                                                      
                                                      
                                                      3,150
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      3,150Net
      decrease in cash
                                                      
                                                      $
                                                      (57,403
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      (57,403
                                                      )Cash,
      beginning of year
                                                      
                                                      
                                                      118,534
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      118,534Cash,
      end of year
                                                      
                                                      $
                                                      61,131
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      61,131SUPPLEMENTARY
      DISCLOSURE:Interest
      paid
                                                      
                                                      $
                                                      61,792
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      61,792Income
      tax paid
                                                      
                                                      $
                                                      3,763
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      3,763NON-CASH
      INVESTING AND FINANCING ACTIVITIESTransfer
      of taxes payable to due from related party
                                                      
                                                      $
                                                      4,949,466
                                                      
                                                      
                                                      $
                                                      (4,949,466
                                                      )
                                                      
                                                      $
                                                      -Transfer
      of shareholder distribution to due from related party
                                                      
                                                      $
                                                      5,251,860
                                                      
                                                      
                                                      $
                                                      (5,251,860
                                                      )
                                                      
                                                      $
                                                      -
  F-19
 
 As a result of the restatement, the net
cashused in investing
activities decreased by
$5,723,227from $6,107,882as originally reported, to
$384,655;the net cashusedin financing activities increased by $5,723,227from $3,799,530as originally reported, to
$9,522,757; Transfer of
taxes payable to due from related party decreased from $4,949,466as originally reportedto $Nil; Transfer of shareholder
distribution to due from related party decreased from $5,251,860 as originally
reported to $Nil.
  QINGDAO
      FOOTWEAR, INC.CONSOLIDATED
      STATEMENTS OF CASH
FLOWS
 2008
                                                                                                                              
                                                                                                                              
                                                                                                                              Adjustment
                                                                                                                              
                                                                                                                              
                                                                                                                              2008(Original)
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              (Restated)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                                                                                                                              
                                                                                                                              $
                                                                                                                              3,635,697
                                                                                                                              
                                                                                                                              
                                                                                                                              $
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              $
                                                                                                                              3,635,697Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                                                                                                                              
                                                                                                                              
                                                                                                                              55,360
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              55,360Changes
      in operating assets and liabilities:Accounts
      receivable
                                                                                                                              
                                                                                                                              
                                                                                                                              1,028
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              1,028Inventories
                                                                                                                              
                                                                                                                              
                                                                                                                              246,700
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              246,700Prepaid
      expenses
                                                                                                                              
                                                                                                                              
                                                                                                                              10,427
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              10,427Accounts
      payable
                                                                                                                              
                                                                                                                              
                                                                                                                              (2,527
                                                                                                                              )
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              (2,527
                                                                                                                              )Tax
      payable
                                                                                                                              
                                                                                                                              
                                                                                                                              3,800,000
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              3,800,000Net
      cash provided by operating activities
                                                                                                                              
                                                                                                                              
                                                                                                                              7,746,685
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              7,746,685CASH
      FLOWS FROM INVESTING ACTIVITIESAdvance
      to related party
                                                                                                                              
                                                                                                                              
                                                                                                                              (5,785,433
                                                                                                                              )
                                                                                                                              
                                                                                                                              
                                                                                                                              5,785,433
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              -Purchase
      of property and equipment
                                                                                                                              
                                                                                                                              
                                                                                                                              (37,944
                                                                                                                              )
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              (37,944
                                                                                                                              )Net
      cash used in investing activities
                                                                                                                              
                                                                                                                              
                                                                                                                              (5,823,377
                                                                                                                              )
                                                                                                                              
                                                                                                                              
                                                                                                                              5,785,433
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              (37,944
                                                                                                                              )CASH
      FLOWS FROM FINANCING ACTIVITIESDistribution
      to shareholders
                                                                                                                              
                                                                                                                              
                                                                                                                              (1,874,600
                                                                                                                              )
                                                                                                                              
                                                                                                                              
                                                                                                                              (5,785,433
                                                                                                                              )
                                                                                                                              
                                                                                                                              
                                                                                                                              (7,660,033
                                                                                                                              )Proceeds
      from loans
                                                                                                                              
                                                                                                                              
                                                                                                                              850,860
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              850,860Repayments
      on loans
                                                                                                                              
                                                                                                                              
                                                                                                                              (850,860
                                                                                                                              )
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              (850,860
                                                                                                                              )Net
      cash used in financing activities
                                                                                                                              
                                                                                                                              
                                                                                                                              (1,874,600
                                                                                                                              )
                                                                                                                              
                                                                                                                              
                                                                                                                              (5,785,433
                                                                                                                              )
                                                                                                                              
                                                                                                                              
                                                                                                                              (7,660,033
                                                                                                                              )Effect
      of exchange rate changes on cash
                                                                                                                              
                                                                                                                              
                                                                                                                              35,218
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              35,218Net
      increase in cash
                                                                                                                              
                                                                                                                              $
                                                                                                                              83,926
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              $
                                                                                                                              83,926Cash,
      beginning of year
                                                                                                                              
                                                                                                                              
                                                                                                                              34,608
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              34,608Cash,
      end of year
                                                                                                                              
                                                                                                                              $
                                                                                                                              118,534
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              $
                                                                                                                              118,534SUPPLEMENTARY
      DISCLOSURE:Interest
      paid
                                                                                                                              
                                                                                                                              $
                                                                                                                              61,905
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              $
                                                                                                                              61,905Income
      tax paid
                                                                                                                              
                                                                                                                              $
                                                                                                                              2,539
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              $
                                                                                                                              2,539NON-CASH
      INVESTING AND FINANCING ACTIVITIESTransfer
      of taxes payable to due from related party
                                                                                                                              
                                                                                                                              $
                                                                                                                              3,799,872
                                                                                                                              
                                                                                                                              
                                                                                                                              $
                                                                                                                              (3,799,872
                                                                                                                              )
                                                                                                                              
                                                                                                                              $
                                                                                                                              -
  As a result of the restatement, the net
cashused in investing
activities decreased by
$5,785,433from $5,823,377as originally reported, to
$37,944; the net cashused in financing activities
increased by $5,785,433from $1,874,600as originally reported, to
$7,660,033; Transfer of
taxes payable to due from related party decreased from $3,799,872 as originally reported to
$Nil.
  F-20