Qingdao Footwear Inc (OTC:QING)

WEB NEWS

Tuesday, August 16, 2011

Comments & Business Outlook

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.


Sunday, May 15, 2011

Comments & Business Outlook
QINGDAO FOOTWEAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
   
2010
   
2009
 
             
Net revenue
  $ 21,272,234     $ 17,863,891  
Cost of sales
    11,601,302       10,162,778  
                 
Gross profit
    9,670,932       7,701,113  
Operating expenses:
               
Selling, general and administrative expenses
    3,593,753       907,807  
Depreciation and Amortization Expense
    148,894       61,838  
                 
Income from operations
    5,928,285       6,731,468  
                 
Other income (expenses)
               
Interest income
    22,516       1,144  
Interest expenses
    (107,463 )     (61,792 )
Other, net
    82,023       87,966  
                 
Income/(loss) before income taxes
    5,925,361       6,758,786  
                 
Income tax
    1,914,614       1,689,697  
                 
Net income/(loss)
  $ 4,010,747     $ 5,069,089  
                 
Other comprehensive income (loss)
    (368,735 )     3,110  
                 
Net Comprehensive income
  $ 3,642,012     $ 5,072,199  
                 
Basic and diluted net income (loss) per share
  $ 0.40     $ 0.52  
                 
Weighted average common and common equivalent shares:
               
Basic
    10,613,679       9,700,000  
Diluted
    10,613,679       9,700,000  

Wednesday, December 15, 2010

CFO Trail

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


Friday, November 19, 2010

Comments & Business Outlook
 
  
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


Wednesday, November 10, 2010

Research

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!!! 


Friday, November 5, 2010

Liquidity Requirements
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.

Friday, October 15, 2010

Investor Alert

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.


Tuesday, July 27, 2010

Comments & Business Outlook
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.

Wednesday, April 21, 2010

GeoSpecial Notes
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.

Friday, March 19, 2010

Reverse Merger Activity

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.
The following table details the locations of our sales network:

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

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)


Financials
   
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

__________________________________________________________________________


   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2009
   
2008
 
             
Net sales
  $ 12,517,751     $ 9,116,272  
Cost of sales
    7,102,669       5,432,591  
                 
Gross profit
    5,415,082       3,683,681  
                 
Operating expenses:
               
Selling, general and administrative expenses
    642,681       515,586  
Depreciation and amortization expense
    43,964       42,207  
                 
Profit from operations
    4,728,437       3,125,888  
                 
Other income (expenses):
               
Other income
    65,966       35,843  
Interest expense
    (41,087 )     (37,500 )
                 
Income before income taxes
    4,753,316       3,124,231  
                 
Income taxes
    1,188,329       781,058  
                 
Net income
  $ 3,564,987     $ 2,343,173  
                 
Net income per share - basis and diluted
  $ 356     $ 234  
                 
Weighted average shares outstanding
    10,000       10,000  
                 
Comprehensive income
               
Net income
  $ 3,564,987     $ 2,343,173  
Other comprehensive income
               
Foreign currency translation
    (2,473 )     212,476  
                 
Comprehensive income
  $ 3,562,514     $ 2,555,649  

Special Situations

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.


GeoSpecial Notes
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.