Qingdao Footwear (PINK:QING)

QINGDAO FOOTWEAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
UNAUDITED
			Three Months Ended						Six Months Ended
			June 30,			June 30,			June 30,			June 30,
			2011			2010			2011			2010
Net revenue			$	8,300,187		$	6,483,625		$	13,748,451		$	11,249,437
Cost of sales				4,695,323			3,422,563			7,732,028			6,079,318
Gross profit				3,604,864			3,061,062			6,016,423			5,170,119
Operating expenses:
	Selling, general and administrative expenses			2,895,688			402,142			3,334,731			1,104,863
	Depreciation and Amortization Expense			73,105			41,312			114,820			59,317
Income from operations				636,071			2,617,608			2,566,872			4,005,939
Other income (expenses)
	Interest income			55			18,498			117			18,587
	Interest expenses			(35,134)			(26,261)			(69,055)			(49,167)
	Other, net			7,417			22,009			44,413			44,007
Income before income taxes				608,409			2,631,854			2,542,347			4,019,366
Income tax				306,619			657,964			783,637			1,115,495
Net income				301,790			1,973,890			1,758,710			2,903,871
Other comprehensive income (loss)				(117,833)			13,915			(155,312)			14,256
Net Comprehensive income			$	183,957		$	1,987,805		$	1,603,398		$	2,918,127
Basic and diluted net income (loss) per share			$	0.03		$	0.20		$	0.16		$	0.29
Weighted average common and common equivalent shares:
	Basic			12,023,679			10,000,000			11,318,679			10,000,000
	Diluted			12,023,679			10,000,000			11,318,679			10,000,000

In the three months ended June 30, 2011, we generated net income of $301,790, a decrease from $1,973,890 in the same period in 2010. The decrease was mainly due to increased operating expenses of sales commission.

"We are very happy with our second quarter results," said Tao Wang, Chief Executive officer of Qinqdao Footwear. He continued, "Many of our newer designs sold well, helping drive substantial revenue growth. Moreover, we increased our number of sales outlets to better accommodate our expanding customer base. Over the past 15 years, China's domestic consumption has increased in line with rapid urbanization and improved disposable income. As China continues to prosper, we are very confident that we will maintain our progress as well. Our brand is gaining a loyal following, and we anticipate that our growing recognition will further translate into improved profits in the future."

Business Outlook

"In order to maintain our price competitiveness and sales volume growth, we will continue to review our pricing strategy regularly and make adjustments based on a variety of factors, including the market response to existing recommended retail prices, level of sales, expected product margin on individual products, prices of our competitors' products, anticipated market trends and expected demand from customers. Moreover, we are working hard on new designs to further diversify our product mix and provide a wider range of footwear styles to shoppers, which is vital to attracting new customers and accordingly, to increasing our revenue. We are determined to develop innovative styles and technologies to incorporate into our shoes to better meet the high standards of our customers. As we head into 2012, we will continue to monitor demand and adjust our products accordingly to maximize sales and profit," said Mr. Wang, the CEO of the company.

On December 7, 2010, Joseph Meuse resigned as the Chief Financial Officer of Qingdao Footwear, Inc. Mr. Meuse’s resignation was not due to a disagreement with the Company on any matter relating the Company’s operations, policies or practices.

On December 7, 2010, the board of directors of the Company appointed Huang Pin to serve as the Chief Financial Officer of the Company

							Three Months Ended	Three Months Ended
		September 30, 2010								September 30, 2009
						% of Net								% of Net
		Amount				Sales				Amount				Sales
Net Sales		$	3,715,217				100	%		$	2,918,275				100	%
Cost of sales			2,001,078				54	%			1,656,918				57	%
Gross profit			1,714,139				46	%			1,261,357				43	%
Operating Expenses			488,505				13	%			210,927				7	%
Operating Income			1,225,634				33	%			1,050,430				36	%
Other income /(interest expense)			(540)				0	%			7,586				0	%
Income Before Income Taxes			1,225,094				33	%			1,058,016				36	%
Income taxes			306,273				8	%			265,704				9	%
Net income		$	918,821				25	%		$	792,312				27	%

Eps was $0.09 vs $0.08

Update from our investor alert we published on:

See note 13, 17, 9. (November 4, 2010 8K)

"The Company did not pay much of its significant value added 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 contract with 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 $12,549,060 and $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 were restated to reflect the Company as the primary obliger of the tax liabilities.

According to PRC tax law, late or deficient tax payment could subject the Company to significant tax penalty.

Subsequent to the issuance of the Company’s 2009 consolidated financial statements, the Company’s management determined that corrections were required to the previously reported financial statements to reflect the Company as the primary obliger of the tax liabilities (including VAT liabilities and income tax liabilities). As a result, the consolidated balance sheets as of December 31, 2009 and 2008, the consolidated statements of cash flows for the years ended December 31, 2009 and 2008, and the consolidated statements of changes in owners’ equity for the year ended December 31, 2009 and 2008 have been restated from the amounts previously reported. The restatement has no effect on operating income, net income or cash flows from operating activities.

As a result of restatement of the consolidated balance sheet as of December 31, 2009:

• Total liabilities increased from $1,208,445 as originally reported, to $13,652,994, an increase of $12,444,549. The increase of total liabilities was derived from an increase of $12,549,060 in taxes payable, and a decrease of $104,511 in due to related parties.
  
• The total stockholders’ equity was restated from $492,089 as originally reported, to ($11,952,460), a decrease of $12,444,549. The decrease of total stockholders’ equity was derived from the increase in retained deficits due to a reclassification of the amount due from shareholder to stockholders’ equity."

GeoTeam® Note:

The outcome of this event hinges on whether the PRC government will enforce stiff penalties. If penalties are waived or materially reduced it would be a big win for the entire ChinaHybrid space.  If penalties are strictly enforced,  investors must remain alert for similar occurrences.  Now we just have to wait and see if auditors will scrutinize year end 2010 financial statements, particularly as they relates to unpaid tax balances. Or will they continue to hide behind boiler plate disclosures:

"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." (November 4, 2010 8K)

MALONEBAILEY, LLP 
Houston, Texas

On an interesting side note, we have observed that Mr. Tao Wang had no problem receiving a cash dividend not too long before QING became a public company, equaling 78.9% of the potential tax liability: 

"During year 2009, the Company distributed $9,904,176 to its shareholders, Mr. Tao Wang and Mr. Renwei Ma, in which $9,786,816 was 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. During year 2008, the Company distributed $7,999,779 to its shareholders Mr. Tao Wang and Mr. Renwei Ma." (November 4, 2010 8K)

Yet now the company needs to raise funds to execute its growth plan!!! 

As of June 30, 2010, we had cash and cash equivalents of $414,350, primarily consisting of cash on hand and demand deposits. This compares with June 30, 2009, when we had cash and cash equivalents of $254,914, primarily consisting of cash on hand and demand deposits. The following table provides detailed information about our net cash flow for all financial statement periods presented in this report. To date, we have financed our operations primarily through cash flows from operations and equity contributions by our shareholders. We do not expect our daily operations to be constrained by cash flow as we are currently able to fund our operations through our existing cash flow from operations. However, our future expansion plans (which include increasing the number of sales points, advertising actively, and increasing inventory) rely entirely on the completion of an offering of our common stock. If an offering is not completed then we will need to rely on organic growth or commercial loans to facilitate our expansion plans and we cannot guarantee that we will be successful at obtaining loans or growing organically at a rate sufficient to support our expansion plans.

On August 2, 2010, the Board of Directors of the Registrant concluded that the unaudited consolidated financial statements included in the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2010, originally filed with the Securities and Exchange Commission on May 10, 2010 (the “Original Filing”), should no longer be relied upon due to an understatement of the Registrant’s general and administrative expenses. Specifically, the Registrant determined that its general and administrative expenses were understated by $442,611 for the three month period ended March 31, 2010 due to the fact that compensation expense related to shares transferred by a shareholder to certain service providers upon the closing of the Registrant’s reverse merger on February 12, 2010 were not recorded in the Original Filing.

On October 12, 2010, the Board of Directors of the Registrant concluded that the Registrant failed to recognize significant tax liabilities (including value added tax and income taxes), which liabilities are expected to have a material impact on the Company's balance sheets, statements of cash flows and statement of shareholders' equity.

As a result, the Company's previously filed financial statements cannot be relied upon for the years ended December 31, 2008 and 2009 and the periods ended March 31 and June 30, 2010. Specifically, the Registrant determined that its taxes payable were understated by $11,369,569 due to the fact that the Company may have liability for VAT and income taxes from prior years.

Belmont Partners has provided public vehicles for over 25 Chinese companies including China Green Agriculture, Inc. which is now listed on the NYSE and China XD Plastics Co., Ltd. and China Valves Technology, Inc. which are both now listed on the NASDAQ. We have recently expanded our merchant banking capability, with direct investments in 3 recently listed companies (Qingdao Footwear, Buddha Steel and Longhai Steel). In addition, Managing Director Joseph Meuse was named as the CFO for Qingdao as it prepares for a NASDAQ listing.

Because of our note on March 19. 2010, we will move DATI to the GeoSpecial on the Radar list. A GeoSpecial code will depend on DATI ability to log in some significant EPS numbers or on its final split adjusted price.

Chinese shoe company,Qingdao Shoes, goes public via reverse merger:

Company Snap Shot:

• designer and retailer of branded footwear in Northern China
  
• 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 Hongung brand stores on our behalf.

Financial Snap Shot:

"Since 2007, our revenues have increased from $ 8,594,468 in fiscal year 2007 to $ 13,904,314 in fiscal year 2008, representing a growth rate of approximately 62%. Our revenues have increased from $ 9,116,272 in nine months ended of September 30, 2008 to $12,517,751 in the same period during 2009, representing a growth rate of approximately 37%."

• ProForma 2008 EPS:  $0.36
• ProForma 2009 Nine Months EPS:  $0.36
• Trailing Twelve Month EPS:  $0.39

Post Merger Share Calculation:

•    300.000: Pre reverse merger outstanding shares (Adjusted for 1 for 27 reverse split)
• 9,700,000: Newly issued shares of Common Stock via convertible preferred.

GeoTeam® best effort calculation of total post reverse merger outstanding shares assuming full conversions:  10,000,000 (We are not 100% sure this number is totally correct)

		2008				2007
Net sales		$	13,904,314			$	8,594,468
Cost of sales			8,246,592				4,996,377
Gross profit			5,657,722				3,598,091
Operating expenses:
Selling, general and administrative expenses			759,470				517,140
Depreciation and amortization expense			55,360				57,109
Profit from operations			4,842,892				3,023,842
Other income (expenses):
Other income			57,660				-
Interest income			8,949				10,351
Interest expense			(61,905	)			(35,147	)
Income before income taxes			4,847,596				2,999,046
Income taxes			1,211,899				989,685
Net income		$	3,635,697			$	2,009,361
Net income per share - basis and diluted		$	364			$	201
Weighted average shares outstanding			10,000				10,000
Comprehensive income
Net income		$	3,635,697			$	2,009,361
Other comprehensive income
Foreign currency translation			232,047				141,675
Comprehensive income		$	3,867,744			$	2,151,036

__________________________________________________________________________

Given our estimated trailing EPS  calculations and liquidity comments....

"We believe that our cash on hand and cash flow from operations will meet part of our present cash needs and we will require additional cash resources, to meet our expected capital expenditure and working capital for the next 12 months. We may, however, in the future, require additional cash resources due to changed business conditions, implementation of our strategy to ramp up our marketing efforts and increase brand awareness, or acquisitions we may decide to pursue."

we have decided to code DATI as a GeoSpecial. There is still much due diligence to perform, but if our assumptions are correct investors may feel there is little downside risk from the current price of $0.30 if it reflective of the 1 for 27 reverse spit that was supposed to occur post merger. 

There is a big caveat: We are attempting to verify if the price is reflective of the 1 for 27 reverse split. There have been instances where price adjustments have been delayed. If this is the case the current valuation appears more than fair.

We have sleuthed around a bit and have received conflicting information.  A source has informed us that DATI shares have still not yet reflected an expected 1 fro 27 reverse split.  This would likely make DATI shares more than fairly valued. On a split adjusted basis and a P/E of 25 DATI would trade at $9.75  or $0.26 pre split.