-

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3,397

3,142

8888 Acquisition Corporation
Consolidated Statements of Stockholders’ Equity 
 For the nine months and twelve months ended March 31, 2011 and June 30, 2010
(Stated in US Dollars)

Comprehensive Income

681,590

The Company and Principal Business Activities

Organization and Structure

8888 Acquisition Corporation (“Company”) was originally incorporated on September 20, 1983 in accordance with the Laws of the State of Florida and, on July 18, 2006, changed its state of incorporation from Florida to Nevada by means of a merger with and into 8888 Acquisition Corporation, a Nevada corporation formed on June 26, 2006 solely for the purpose of effecting the reincorporation. The Certificate of Incorporation and Bylaws of the Nevada Corporation are the Certificate of Incorporation and Bylaws of the surviving corporation. Such Certificate of Incorporation kept the surviving entity’s name of 8888 Acquisition Corporation and modified the Company’s capital structure to allow for the issuance of up to 100,000,000 shares of $0.0001 par value common stock and up to 50,000,000 shares of $0.0001 par value preferred stock. On October 20, 2010, in order to more accurately reflect the Company’s business, the board of directors and majority stockholders of the Company approved an amendment and restatement of the Company’s Articles of Incorporation to, among other things, change the name of the Company from 8888 Acquisition Corporation to Sports Power, Inc. The Company is awaiting approval from the U.S. Securities and Exchange Commission to change its name.

October 19, 2010, the Company entered into share exchange transaction with Cheng Chang Shoes Industry Company Limited (“Cheng Chang”) and its shareholders whereby the Company issued 31,059,267 shares of its common stock to such shareholders for all of the issued and outstanding stock of Cheng Chang. Accordingly, Cheng Chang became a wholly owned subsidiary of the Company.

Cheng Chang was incorporated and domiciled under Chapter 32 of the Hong Kong Companies Ordinance on October 14, 1988 under the name Yesway Development Limited. On August 5, 1999, Cheng Chang changed its name to its current name, Cheng Chang Shoes Industry Company Limited. Cheng Chang was incorporated as an investment and general trading company. Cheng Chang conducts its operations through its wholly owned subsidiary, Jinjiang Chengchang Shoes Co., Ltd. (“Jinjiang Chengchang”).

Jinjiang Chengchang was incorporated and domiciled in the People’s Republic of China (“PRC”) on January 2, 1997.

The Company’s headquarters and production facilitates are located in Jinjiang City, Fujian, PRC.

The share exchange transaction has been accounted for as a recapitalization of Cheng Chang where the Company (the legal acquirer) is considered the accounting acquiree and Cheng Chang (the legal acquiree) is considered the accounting acquirer. As a result of this transaction, the Company is deemed to be a continuation of the business of Cheng Chang. Accordingly, the financial data included in the accompanying consolidated financial statements for all periods prior to October 19, 2010 is that of the accounting acquirer, Cheng Chang. The historical stockholders’ equity of the accounting acquirer prior to the share exchange has been retroactively restated as if the share exchange transaction occurred as of the beginning of the first period presented

Products and Operations

Jinjiang Chengchang designs, produces, and sells high quality shoe soles and sole components used to manufacture athletic and leisure shoes.

Jinjiang Chengchang’s current vertically integrated value chain has two links: (1) the production of EVO and (2) the production of shoe soles.

EVO is a patent pending, proprietary, modified variant of the polymer Ethylene-vinyl acetate (“EVA”), which is widely used in the production of athletic shoe soles, stemming from EVA’s shock absorbent property. In comparison to EVA, EVO is both lighter and more wear-resistant. Jinjiang Chengchang is able to sell EVO directly to other shoe sole manufacturers in the industry, or use the EVO for its own shoe sole production.

Jinjiang Chengchang’s shoe sole product line includes shoe soles that are made exclusively from EVO, EVA and rubber, or a combination of EVA and rubber. The Company considers the new EVO based products as superior to the older EVA and rubber based products.

Significant Accounting Policies

Method of accounting

The Company maintains its general ledger and journals with the accrual method of accounting in accordance to PRC generally accepted accounting principles (“GAAP”). For financial statement reporting purposes, the Company has converted its PRC GAAP financial statements to financial statements that are presented in accordance to generally accepted accounting principles in the United States of America. The conversion of the Company’s financial statements from presentation in accordance with PRC GAAP to US GAAP did not result in any reconciling items on the accompanying financial statements.

The financial statements and accompanying notes are representations of management.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company balances such as due to/due from, investment in subsidiaries, and subsidiaries’ capitalization have been eliminated.

Use of estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions are used for, but not limited to: (1) allowance for trade receivables, (2) economic lives of property, plant and equipment, (3) asset impairments, and (4) contingency reserves. 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.

Cash and cash equivalents

The Company classifies the following instruments as cash and cash equivalents: cash on hand, unrestricted bank deposits, and all highly liquid investments purchased with original maturities of three months or less.

Accounts receivable

Accounts receivable are disclosed at gross invoice amounts less management’s estimate for doubtful accounts. Management regularly reviews outstanding accounts and provides an allowance for doubtful accounts. Management’s allowance for doubtful accounts was 0.5% of gross accounts receivables.

We classify our customers into four tiers: (A) well-known companies in the international or domestic sportswear market, which also have had established business relationships with the Company for a long time; (B) median sized companies with good reputations; (C) small sized companies in the local market; and (D) occasional customers with limited transactions. We grant them credit terms of 120 days, 90 days, 60 days and 30 days, respectively. Currently, the Company seldom trades with tier (D) customers. We understand and expect our days sales outstanding to vary from period to period within a given range. Based on the credit terms we grant to our four tiers of customers respectively, we expect our days sales outstanding not to exceed 120 days by any large margin.

In regards to the Company’s allowance for doubtful accounts, we keep one general reserve, the amount of which equals 0.5% of gross account receivables. We have no specific reserve, as we believe adequate provisions for doubtful accounts have been provided through our general reserve. When estimating the allowance for doubtful accounts, we take into consideration: 1) our track record of payment collection, which shows zero experience of any material delinquent accounts that were uncollectible and that we have not written off material balance; 2) the enhanced measures we currently take to minimize failure of collection, which include having internal staff call for payment, filing legal pledge, collecting agent to collect the outstanding balance, etc. Since our collection period of receivables has never exceeded one year, based on past experience, we believe collection becomes improbable once they exceed the threshold of one year. Thus we will write off receivables against allowance for doubtful accounts once they are older than one year.

Inventories

Inventories consisting of finished goods, work in progress, and raw materials are stated at the lower of cost or market value. Finished goods are comprised of direct materials, direct labor, and an appropriate proportion of overhead. Periodic evaluation is made by management to identify if inventories needed to be written down because of damage or spoilage. 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 saleable condition.

Plant and equipment

Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:-

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.

Intangible assets

The Company individually tracks and accounts for each intangible asset. Each intangible asset is carried at its original acquisition cost less accumulated amortization. The Company provides amortization for each intangible asset using the straight line method over its estimated useful life.

Accounting for impairment of long lived Assets

The Company has adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), ASC 360-10-35. The Company evaluates its long lived assets for impairment when indicators of impairment are present or annually, whichever occurs sooner. In the event that there are indications of impairment, the Company will record a loss to statements of income equal to the difference between the carrying value and the fair value of the long lived asset. The Company typically, but not exclusively uses the expected future discounted flows method to determine fair value of long lived asset subject to impairment. The fair value of long lived assets that held for disposition will include the cost of disposal.

The Company’s long-lived assets are grouped by their presentation on the consolidated balance sheets, and further segregated by their operating and asset type. Long-lived assets subject to impairment include buildings, equipment, vehicles, software licenses, and land-use-rights. The Company makes its determinations based on various factors that impact those assets.

At March 31, 2011 and June 30, 2010, the Company assessed its buildings, equipment, vehicles, software licenses, and land-use-rights for production and has concluded its long-lived assets have not experienced any impairment losses because the Company’s long lived assets have enabled the Company to experience significant profit growth during the nine months and twelve months ended March 31, 2011 and June 30, 2010.

Shipping and handling

All shipping and handling costs are charged to selling expenses as incurred. All the outward freight costs are paid by the Company, and inward freight charges are paid by the vendors and suppliers. Sales revenue does not include any shipping or handling fees.

Advertising expenses

The Company expenses advertising costs as incurred.

Income taxes

The Company uses the accrual method of accounting to determine income taxes for the year. The Company has implemented FASB ASC 740 Accounting for Income Taxes. Income tax liabilities computed according to the United States, People’s Republic of China (PRC), and Hong Kong tax laws provide for the tax effects of transactions reported in the financial statements and consists of taxes currently due, plus deferred taxes, related primarily to differences arising from the recognition of expenses related to the depreciation of plant and equipment, amortization of intangible assets, and provisions for doubtful accounts between financial and tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will be either taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset future income taxes.

A valuation allowance is recognized for deferred tax assets if it is more likely than not, that the deferred tax assets will either expire before the Company is able to realize that tax benefit, or that future realization is uncertain.

Statutory reserves

Statutory reserves are referring to the amount appropriated from the net income in accordance with laws or regulations, which can be used to recover losses and increase capital, as approved, and are to be used to expand production or operations.

Foreign currency translation

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US Dollar at the rates used in translation.

Revenue recognition

In accordance to FASB ASC 605-10, the Company recognizes revenue upon issuance of invoices to customers. The issuance of invoices is concurrent with the shipment of goods to customers, which generally coincides with the transfer of risks and rewards of ownership, and the title has passed.

Cost of revenue

The Company’s cost of revenue is comprised of raw materials, factory workers’ salaries and related benefits, maintenance supplies, and allocated overhead such as depreciation and utilities.

Earnings per share

The Company computes earnings per share (“EPS”) in accordance with FASB ASC 260 “Earnings per share”. SFAS No. 128 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., contingent shares, convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

Comprehensive income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company presents components of comprehensive income with equal prominence to other financial statements. The Company’s current component of other comprehensive income is the foreign currency translation adjustment.

Commitments and contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

Subsequent events

The Company evaluates subsequent events that have occurred after the consolidated balance sheet date but before the consolidated financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date. The Company has evaluated subsequent events, and based on this evaluation, the Company identified a non-recognized subsequent event that would require disclosure to the consolidated financial statements.

Recent accounting pronouncements

No New Pronouncement issued since FASB issued in October 2009 ASU No. 2009-13 “Revenue Recognition (Topic 605) that management adopted on January 1, 2011.

Restricted cash represents interest bearing deposits placed with banks to secure and settle notes payable upon maturity.

Accounts receivable at March 31, 2011 and June 30, 2010 consisted of the following: -

Guaranteed by the former shareholders of Jinjiang Chengchang, Mr. Zhuang Guoqing and Ms. Ding Quanying, and Jinjiang Chendai Ailibao Shoe and Apparel Co., Ltd.

Guaranteed by the former shareholders of Jinjiang Chengchang, Mr. Zhuang Guoqing and Ms. Ding Quanying. The bank also securitizes the loans with the Company’s land use rights.

Guaranteed by the former shareholders of Jinjiang Chengchang, Mr. Zhuang Guoqing and Ms. Ding Quanying, and Fujian Yifeng Shoe and Apparel Co., Ltd.

The bank securitizes the loans with the Company’s land used rights.

Guaranteed by Fujian Yifeng Shoe and Apparel Co., Ltd.

There were no restrictive covenants such as minimum bank balance, net income target, or level of working capital requirement applied on the company’s bank loan.

Risks

Credit risk

Since the Company’s inception, the age of account receivables have been less than one year indicating that the Company is subject to minimal risk borne from credit extended to customers.

Interest risk

The company subject to the interest rate risk when their short term loans become due and require refinancing.

Concentration of demand risk

The Company’s top ten customers accounted for 79.04% and 74.59% of its revenue for the nine months ended March 31, 2011 and 2010, respectively. During those same periods, 2 and 2 individual customers each accounted for greater than 10% of the Company’s revenues, respectively.

Concentration of supply risk

The Company’s top ten vendors accounted for 66.12% and 72.56% of its cost for the nine months ended March 31, 2011 and 2010, respectively. During those same periods, 1 and 3 individual vendor each accounted for greater than 10% of the Company’s cost, respectively.

Economic and political risks

The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by changes in the political, economic, and legal environments in the PRC.

The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

Environmental risks

The Company has procured environmental licenses required by the PRC government. The Company has both a water treatment facility for water used in its production process and secure transportation to remove waste off site. In the event of an accident, the Company has purchased insurance to cover potential damage to employees, equipment, and local environment.

Inflation Risk

Management monitors changes in prices levels. Historically inflation has not materially impacted the company’s financial statements; however, significant increases in the price of raw materials and labor that cannot be passed on the Company’s customers could adversely impact the Company’s results of operations.

Financial Instruments

Commitments

Operating lease commitment from related party

The Company leases a facility from the Company’s Chief Executive Officer and shareholder, Mr. Guoqing Zhuang as a dormitory for its employees. The impact to the Company’s results of operations, in the form of rent expense, for the nine months ended March 31, 2011 and 2010, were $19,582 and $15,795 respectively. The Company’s lease contract with the related party calls for an operating lease commitment as follow:

For the twelve months ending June 30:-

Operating lease commitment from external party

Starting from April 1, 2011, the Company leases a plant from Jinjiang Huahong Textile Co., Ltd. (“Huahong Textile”) to expand its production capacity. The lease contract with Huahong Texitle will expire on March 31, 2016, and calls for a non-cancellable operating lease commitment as follow:

For the twelve months ended June 30:-

Statutory reserve commitment

Operating Segments