UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 ———————
 FORM
10-K/A (AMENDMENT NO. 3 )
 ———————
 (Mark
One)
 
 ý ANNUAL REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934
 
 For
the fiscal year ended December 31, 2007
 
 o TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934
 
 For
the transition period from ____ to _____
 Commission
file number: 000-31497
 ———————
 CHINA
LOGISTICS GROUP, INC.
 (Name of
registrant as specified in its charter)
 ———————
 Florida
              65-1001686(State
      or other jurisdiction of
                incorporation
      or organization)
              (I.R.S.
      Employer
                Identification
      No.)
 
 7300
      Alondra Boulevard, Suite 108, Paramount, California
              90723(Address
      of principal executive offices)
              (Zip
      Code)
 
 Registrant’s
telephone number, including area code:     (562)
408-3888
 
 Securities
registered under Section 12(b) of the Exchange Act:
 Title
      of each class
              
              Name
      of each exchange on which registeredNone
              
              Not
      applicable
 
 Securities
registered under Section 12(g) of the Exchange Act:
 
 Common
stock, par value $0.001 per share
 (Title of
class)
  Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
  ̈
 Yes   ý   No
 
 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   ý   No
 
 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 ý
   No
 
 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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form,  or any
amendment to this Form.  ý
 
 Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company:
 Large
      accelerated filer
               ̈
              
              Accelerated
      filer
               ̈Non-accelerated
      filer
                (Do
      not check if smaller reporting company)
               ̈
              
              Smaller
      reporting company
              ý
  Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes  ̈
    No ý
  State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked prices of such common equity, as of the last
business day of the registrant's most recently completed second fiscal quarter.
$7,647,905 on June 29, 2007.
  Indicate
the number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date. 19,395,203 shares of common
stock are issued and outstanding as of March 31, 2008.
  DOCUMENTS
INCORPORATED BY REFERENCE
  List
hereunder the following documents if incorporated by reference and the Part of
the Form   (e.g., Part I, Part II, etc.) into which the document
is incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b)
or (c) under the Securities Act of 1933. None.
  
  EXPLANATORY
PARAGRAPH
  China
Logistics Group, Inc. (“we”, “us”, “our” or the “Company”) is filing this
Amendment No. 3 to amend our Annual Report on Form 10-K for the year ended
December 31, 2007 filed on December 24, 2008 to correct the accounting treatment
previously accorded certain transactions and to restate our consolidated balance
sheet at December 31, 2007 and our consolidated statement of operations,
consolidated statements of stockholders' deficit and consolidated statements of
cash flows for the year ended December 31, 2007 (the “December 31, 2007
Financial Statements”).
 
 Our
Form 10-K filed on April 15, 2008, and Form 10-K/A (Amendment No.1) filed on May
19, 2008 contained errors and, accordingly, were restated on Form 10-K/A
(Amendment No. 2) filed on December 24, 2008, to correct the accounting
treatment previously accorded certain transactions including:
 
 •
                        the
      recognition of an agreement to issue 450,000 shares of Series B preferred
      stock with a fair value of $3,780,000;•
                        the
      recognition of the Company’s acquisition of a 51% interest in Shandong
      Jiajia as a capital transaction implemented through reverse acquisition
      accounting;•
                        the
      reclassification of costs totaling $10,418,000 from fair value of equity
      interests initially recorded in our statement of operations to costs
      related to our acquisition of a 51% interest in Shandong
      Jiajia;•
                        the
      correction of the accounting treatment accorded a convertible note payable
      to a related party and principal stockholder, Mr. David Aubel;
      and•
                        the
      restatement of historical balance sheets and related disclosures to give
      retroactive effect to a 1 for 40 reverse stock split completed on March
      11,
2008.
 
 Following
comments from the staff of the Securities and Exchange Commission and upon
further review, the Company determined that further amendments were necessary,
and accordingly, we have restated our financial statements and related
disclosures in this Form 10-K/A (Amendment No. 3) to:
 
 •
                  adjust
      the fair value of assets and liabilities of the accounting acquiree
      (formerly MediaReady, Inc.) recognized in connection with the acquisition
      of a 51% interest in Shandong Jiajia  completed on December 31,
      2007 accounted for as a capital transaction implemented through a reverse
      acquisition; and•
                  recognize
      the accrual of certain professional fees, totaling $141,800 in expense,
      which were erroneously omitted from previous
  filings.
 
 Additional
information on the effect of the correction in our financial statements as a
result of this most recent restatement is contained in Note 2 – Restatement of
Financial Statements and Basis of Presentation appearing elsewhere in this
report.
 
 As a
result of these additional corrections to our financial statements and related
disclosures for the year ended December 31, 2007, we are filing this Amendment
No. 3 to our Form 10-K/A to reflect additional changes to our financial
statements necessitated by these restatements.  We have also made
certain changes in the disclosure in response to comments from the staff of the
Securities and Exchange Commission.
 
 The
items in the Form 10-K/A (Amendment No. 3) which are amended and restated as a
result of the foregoing are:
 
 Part
      I
                
                
                Part
      II
              •
      Item 2.
              Properties.•
      Item 7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations,•
      Item 8.
              Financial
      Statements and Supplementary Data including consolidated balance sheets,
      consolidated statements of operations, consolidated statements of
      stockholders’ deficit, consolidated statements of cash flows and notes to
      consolidated audited financial statements, and•
      Item 9A (T)
              Controls
      and Procedures.
 
 This
Form 10-K/A (Amendment No. 3) also contains currently dated certifications as
Exhibits 31.1, 31.2 and 32.1 hereof.  The remaining Items in this Form
10-K/A (Amendment No. 3) consist of all other items originally contained in our
Form 10-K for the year ended December 31, 2007 as filed on April 15, 2008, our
Form 10-K/A (Amendment No. 1) as filed on May 19, 2008, and Form 10-K/A
(Amendment No. 2) as filed on December 24, 2008.  This Form 10-K/A
(Amendment No. 3) supersedes in its entirety our Annual Report on Form 10-K for
the year ended December 31, 2007 filed on April 15, 2008, our Form 10-K/A
(Amendment No. 1) filed on May 19, 2008 and our Form 10-K/A (Amendment No. 2)
filed December 24, 2008.
  - i-
  Subsequent
to the filing of our Form 10-K/A on May 19, 2008, Mr. V. Jeffrey Harrell
resigned as our sole officer and director in July 2008 and Messrs. Wei Chen and
Hui Lu were appointed executive officers and directors of the
Company.  Accordingly, this Form 10-K/A (Amendment No. 3) does
not reflect the change in our management or other events occurring after the
filing of the Form 10-K/A, except as may be specifically required as a result of
the restatement of the financials described above.  This Form 10-K/A
(Amendment No. 3) also does not disclose the action against the Company by the
Securities and Exchange Commission as described in its Current Reports on Form
8-K filed on October 1, 2008, October 15, 2008 and March 11,
2009.  Readers are cautioned to review all of the Company’s filings
made with the Securities and Exchange Commission for additional information
about the Company which occurred subsequent to the date of the original filing
of the Form 10-K for the year ended December 31, 2007 filed on April 15,
2008.
  - ii -
  CHINA
LOGISTICS GROUP, INC.
  AND
SUBSIDIARY
  TABLE
OF CONTENTS
 Page
      No.PART
      I.Item
      1.
              Business.
              1Item
      1A.
              Risk
      Factors.
              7Item
      1B.
              Unresolved
      Staff Comments.
              12Item
      2.
              Properties.
              12Item
      3.
              Legal
      Proceedings.
              13Item
      4
              Submission
      Of Matters To A Vote Of Security Holders.
              13PART
      IIItem
      5.
              Market
      For Registrant's Common Equity; Related Stockholder Matters And Issuer
      Purchase Of Equity Securities.
              13Item
      6.
              Selected
      Financial Data.
              14Item
      7.
              Management's
      Discussion And Analysis Of Financial Condition And Results Of
      Operations.
              14Item
      7A.
              Quantitative
      And Qualitative Disclosures About Market Risk.
              23Item
      8.
              Financial
      Statements And Supplementary Data.
              23Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting Financial
      Disclosure.
              24Item
      9A(T).
              Controls
      And Procedures.
              24Item
      9B.
              Other
      Information.
              25Part
      IIIItem
      10
              Directors,
      Executive Officers And Corporate Governance.
              26Item
      11
              Executive
      Compensation.
              28Item
      12
              Security
      Ownership Of Certain Beneficial Owners And Management And Related
      Stockholder Matters.
              29Item
      13
              Certain
      Relationships And Related Transactions, And Director
      Independence.
              31Item
      14
              Principal
      Accountant Fees And Services.
              31Part
      IVItem
      15.
              Exhibits,
      Financial Statement Schedules.
              32
 
  -
iii -
  OTHER
PERTINENT INFORMATION
 
 All share and per share information contained in this annual report, as amended,
gives retroactive effect to the 1 for 40 reverse stock split of our
outstanding common stock effective at close of business on March 11,
2008.
 
 When
used in this report the terms "China Logistics,"
"we," "us," "our," the "Company," and similar
terms refer to China Logistics Group, Inc., a Florida corporation formerly known
as MediaReady, Inc., and its subsidiary Shandong Jiajia International Freight
and Forwarding Co., Ltd., a Chinese company (“Shandong Jiajia”).  When
used herein “Shandong Jiajia” includes its wholly-owned
subsidiaries.
 
 AVAILABLE
INFORMATION
 
 Our
principal executive offices are located at 7300 Alondra Boulevard, Suite 108,
Paramount, California 90723, and our telephone number at this location is (562)
408-3888.  We file annual, quarterly and other reports and other
information with the Securities and Exchange Commission.  You may read
and copy any materials we file with the Commission at the Securities and
Exchange Commission's Public Reference Room at 100 Fifth Street N.E.,
Washington, DC 20549, on official business days during the hours of 10 a.m. to 3
p.m. You may obtain information on the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet
site (http://www.sec.gov) that contains reports, proxy and information
statements, and other information regarding us that we file electronically with
the Commission. We maintain a website with the address
www.chinalogisticsinc.com. We are not including information contained on our
website as part of, nor incorporating it by reference into, this Annual Report
on Form 10-K/A (Amendment No. 3 ). We make available free of charge
through our website our Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon
as reasonably practicable after we electronically file such material with or
furnish such material to the Securities and Exchange Commission.
  CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
  Certain
statements in this report contain or may contain forward-looking statements that
are subject to known and unknown risks, uncertainties and other factors which
may cause actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. These forward-looking statements were based on
various factors and were derived utilizing numerous assumptions and other
factors that could cause our actual results to differ materially from those in
the forward-looking statements. These factors include, but are not limited to,
our ability to successfully transition the internal operations of a privately
held Chinese company to a subsidiary of a U.S. publicly held company, our
ability to continue as a going concern due to our weak financial condition,
continuing weaknesses in our disclosure controls and procedures and internal
control over financial reporting which may lead to additional restatements of
our financial condition, our dependence on third parties for equipment and
services essential to operate our business, our reliance on overseas cargo
agents to provide services to us and our customers, the impact of credit risks
in the operation of our business and our operating profits, intense competition
in the freight forwarding and logistics industries, the impact of a worldwide
economic downturn and other factors. Most of these factors are difficult to
predict accurately and are generally beyond our control. You should consider the
areas of risk described in connection with any forward-looking statements that
may be made herein. Readers are cautioned not to place undue reliance on these
forward-looking statements and readers should carefully review this annual
report in its entirety, including the risks described in "Item 1A. - Risk
Factors." Except for our ongoing obligations to disclose material information
under the Federal securities laws, we undertake no obligation to release
publicly any revisions to any forward-looking statements, to report events or to
report the occurrence of unanticipated events. These forward-looking statements
speak only as of the date of this report, and you should not rely on these
statements without also considering the risks and uncertainties associated with
these statements and our business.
   - iv -
  PART
I
  ITEM
1.          BUSINESS.
  Historically,
since 2003 we provided products and services in the home entertainment
media-on-demand marketplace to produce and distribute interactive consumer
electronics equipment to provide streaming digital media and video on demand
(VOD) services.  While we devoted significant time and resources to
the development of our business model, our success was limited due in part to
the significant competition in our target segment. Like many small public
companies, we encountered significant difficulties in raising adequate capital
and the professional fees associated with our reporting obligations under
Federal securities laws continued to increase.
  On
December 31, 2007 we entered into a transaction with the owners of Shandong
Jiajia, whereby we acquired a 51% interests in that entity in exchange for a
combination of cash and equity.  For accounting purposes, the
transaction, which is described in greater detail later in this section under
“History of our Company,” was treated as a reverse acquisition with Shandong
Jiajia being the accounting acquirer and our company the legal
survivor.  Shandong Jiajia, operating since 1999, is a non-asset based
international freight forwarder and logistics manager located in the People’s
Republic of China (the “PRC”).  Shandong Jiajia’s operations now
constitute all the operations of our company. The decision to enter into the
transaction with Shandong Jiajia was heavily influenced on its geographic
location.  Our management believed that a freight forwarder based in
China would be in a position to take advantage of economic growth while our
status as a U.S. public company could provide access to the capital markets for
funds to expand its operations and enable it to compete more
effectively.  There are no assurances, however, that these assumptions
will prove correct.
  Overview
  Shandong
Jiajia acts as an agent for international freight and shipping companies. It
sells cargo space and arranges land, maritime, and air international
transportation for clients seeking primarily to export goods from China. Since
inception, Shandong Jiajia estimates it has processed the delivery of
approximately 80,000 standard International Standards Organization, or ISO,
shipping containers totaling approximately 500,000 metric tons. While it can
also arrange for the logistics for importing goods into China, historically less
than 1% of its revenues are derived from these services. Shandong Jiajia does
not own any containers, trucks, aircraft or ships. It contracts with companies
owning these assets to provide transportation services required for shipping
freight on behalf of its customers.
  Headquartered
in Qingdao, China, Shandong Jiajia has branches in Shanghai, Xiamen and TianJin
with two additional offices in Lianyungang and Rizhao. Shandong Jiajia has 87
employees and partners with agents in North America, Europe, Australia, Asia,
and Africa. Typically approximately 60% of Shandong Jiajia's revenues are
generated from existing, repeat customers and the remaining 40% are from new
customers. Of the new customers, Shandong Jiajia salesmen generate approximately
20%, the remaining 20% are referrals from third party agents.
  The
Chinese Freight Forwarding Industry
  In China,
the freight forwarding industry began to develop in the early 1980s following
the China Reform policy. In 1983, Sinotrans Ltd. was the only international
freight forwarder registered with the China Ministry of Foreign Trade and
Economic Cooperation. By 2006, China had approximately 6,000 international
freight forwarders registered with China Ministry of Commerce and approximately
30,000 unregistered freight forwarders operated by individuals or small
businesses. The industry boom is attributed to increasing international trade
and relaxed regulation by the Chinese government. China surpassed the United
States as the world's second-largest exporter in the middle of 2006, according
to figures released by the World Trade Organization.[1]  For the full
year of 2007, the international trade has hit $2,173.8 billion in 2007 an
increase of 23.5% from 2006[2] , which finished above the US in the 2007 totals. The value of
exports was US $1,218 billion up by 25.7%, while that of imports went up by
20.8% to touch US $955.8 billion[3] . Since it joined the
WTO in 2002, China has enjoyed an annual increase rate above 20% for the
successively six years[4].  At current growth rates, China is projected to overtake
Germany as the world's biggest exporter in 2008[5]  .
  ———————
 [1]           http://www.chinadaily.com.cn/china/2007-04/12/content_849420.htm
 [2]           http://www.igovernment.in/site/china%E2%80%99s-gdp-growth-swings-up-by-114/
 [3]           http://www.igovernment.in/site/china%E2%80%99s-gdp-growth-swings-up-by-114/
 [4]           http://www.igovernment.in/site/china%E2%80%99s-gdp-growth-swings-up-by-114/
 [5]           http://www.chinadaily.com.cn/china/2007-04/12/content_849420.htm
   - 1
-
  Shandong
Jiajia's services
  The
typical freight forwarding service package provided by Shandong Jiajia includes
goods reception, space reservation, transit shipment, consolidate traffic,
storage, multimodal transport and large scale transport such as export of large
mechanical equipment. Shandong Jiajia provides freight forwarding services for a
wide variety of merchandise and it has experience in handling various types of
freight such as refrigerated merchandise, hazardous merchandise and perishable
agricultural products.
  To
accommodate Shandong Jiajia's customers shipping needs, it can either facilitate
the shipment of a full container or, if the shipment is less than a full
container-load, it will co-load a customer's merchandise with other customers or
freight forwarders to create a full container. Containers are in sizes of either
20 foot or 40 foot, each are used for ocean freight, and a 20 foot container can
carry 17.5 metric tons of merchandise while a 40 foot container can carry 22
metric tons of merchandise. For full container loads, as part of its normal
services, Shandong Jiajia will deliver the empty container to a customer’s
factory and the customer loads the merchandise. Shandong Jiajia then transports
the container to the port of departure for customs clearance. Once the clearance
is obtained, Shandong Jiajia loads the containers on to the ship and issues the
bill of lading and service invoice to its customer.
  For
shipment of less than full container loads merchandise which will be co-loaded
with merchandise from other customers or freight forwarders, Shandong Jiajia's
customers may either request that the merchandise be picked up at its factory or
deliver the merchandise directly to a warehouse in Shanghai. Upon receipt at the
warehouse, Shandong Jiajia will store the merchandise until a sufficient
quantity of other merchandise is received to fill the particular container.
Generally, the merchandise is in storage for 30 days or less. An unrelated third
party owns the warehouse and Shandong Jiajia pays for space on an as-used basis
depending upon the size, quantity and duration. The cost is included in the
amount charged the customer for the shipment. Thereafter, the procedure for
completing the shipment is similar to that which is described above for full
container load shipments from a customer.
  Shandong
Jiajia does not insure its customers' merchandise while it is in Shandong
Jiajia's possession. As part of its normal and customary terms Shandong Jiajia
requires its customers to purchase insurance coverage. Prior to 2007 Shandong
Jiajia offered its customers in-house customs brokerage services, which included
the preparation of all documentation required for the clearance of merchandise
through customs and the collection and payment of import duties to the
appropriate government agencies in the country of destination. Shandong Jiajia
subsequently determined that the costs associated with in-house customs
brokerage services are prohibitive and it began outsourcing all customs
brokerage services to local customs brokers. .
  Once the
ship departs port, Shandong Jiajia tracks the status utilizing web-based
tracking software provided by each particular shipping agency and provides
periodic updates to customers on both the shipping and receiving end of the
transaction. Typically payment is delineated in the initial order. Shandong
Jiajia will either collect payment for its services from:
 
 •
              the
      shipper when the merchandise departs if the trade pricing term is on a CIF
      (cost, insurance and freight) or CFR (cost and freight cost) basis,
      or•
              from
      the recipient when merchandise arrives at destination port if the trade
      pricing term is on a FOB (free on board)
basis.
  Airfreight
shipments represent less than 10% of Shandong Jiajia revenues and the procedure
for airfreight shipments is similar to ocean freight.
  Shandong
Jiajia is a designated agent of cargo carriers including Nippon Yusen Kaisha
(NYK Line), P&O Nedlloyd, CMA CGM Group, Safmarine Container Lines, and
Regional Container Lines (RCL). Shandong Jiajia is also a member in the China
Cargo Alliance (CCA), an independent network of air and sea freight forwarders
serving international trade of China. Currently CCA has 113 members including 67
overseas forwarders operating in 53 countries and 46 Chinese forwarders. In this
alliance, all members are free to trade their services with peer members.
Overseas agents forward orders to Shandong Jiajia for the services of handling
and/or space purchase. If agents only request procedural handling, Shandong
Jiajia usually charges $30 to $40 per order for service fee. If agents choose to
purchase the shipping spaces reserved by Shandong Jiajia, the profits from the
order are shared in proportion to space utilized between agents and
Shandong Jiajia.
  Shandong
Jiajia generally receives 30 days terms from the airlines and shipping lines
with which it transacts business. For the shipping lines to North America,
Shandong Jiajia enters into annual sales contracts with various shipping
companies in order to ensure a sufficient amount of shipping and air cargo space
is available at pre-determined prices. In these contracts, Shandong Jiajia is
assigned a certain amount of cargo space but it is not required to either
pre-purchase the cargo space or otherwise required to provide a deposit. The
number of available spaces is determined based on negotiation between Shandong
Jiajia and the shipping company. If Shandong Jiajia does not re-sell the cargo
space, Shandong Jiajia would be required to pay a penalty, which is
approximately $400 per container; however, it has never failed to resell the
reserved cargo space. Shandong Jiajia usually reserves a relatively small amount
of cargo space in order to avoid overbooking. Because of the long-term
relationships with the various shipping companies it uses, Shandong Jiajia,
however, has never experienced any difficulties in obtaining sufficient cargo
space to meet its customer’s needs in excess of the amount
reserved.
  - 2
-
  Shandong
Jiajia is committed to providing competitive pricing and efficient, reliable
service to its customers. Shandong Jiajia believes that it has good
relationships with its customers, major airlines, shipping lines and its network
of overseas agents. Shandong Jiajia's sales persons are responsible for
marketing its services to a diversified customer base and for establishing new
customer relationships. Shandong Jiajia employs 13 full time sales persons.
These sales persons solicit business through a variety of means including
personal visits, sales calls, and faxes. Shandong Jiajia's customers sign annual
or project-based contracts with the company and the terms of the contract
determine the merchandise, price, and delivery instructions. Sales persons are
compensated with base salary and earn a sales commission based on net profit
generated in excess of predetermined benchmarks. Sales persons are required to
meet monthly profit benchmarks established by the company, and the base
salaries, profit benchmarks, and commission percentages paid to the sales
persons vary across the company's branches.
  Customers,
transaction currencies and credit terms
  Shandong
Jiajia generates revenues through sales to existing customers as well as new
customers. Existing customers initiate historically approximately 60% of its
revenues, 20% are to new customers generated by Shandong Jiajia salesmen, and
the remaining 20% are referrals from third party agents.  The focus of
products shipped by Shandong Jiajia's customers varies across the branches. In
Qingdao area, the major export is agricultural products to Australian-Zelanian
line and Southeast Asia line. Clothing and electronics products to Europe and
U.S. are the focus of Shanghai branch and the Xiamen branch carries daily
merchandise and hardware products to Europe and Africa. The rate Shandong Jiajia
charges its customers fluctuates with market price. Shandong Jiajia may elect to
lower the rates on the occasions that the particular order involves a large
quantity of freight, customers have good credit rating, and/or the customer has
a record of prompt payment.
  Shandong
Jiajia does not require a deposit to engage its services. Sales of its freight
forwarding services are generally made on credit. Fees are denominated in the
Chinese Reminbi, the functional currency of the PRC, and shipping costs charged
by the various shipping companies are denominated in U.S. dollars. Historically,
Shandong Jiajia's existing customers generally settle their accounts receivable
within 30 days after they receive a commercial invoice. In the pricing terms of
CIF and CFR, new customers are required to make the payment in order to obtain
one original copy of bill of lading from Shandong Jiajia. The customer submits
the bill of lading to the bank to settle the foreign exchange in its account. In
FOB pricing term, Shandong Jiajia issues a delivery order to its agent at the
port of destination.
  Competition
  Shandong
Jiajia is one of approximately 6,000 registered cargo companies in China. Only
registered companies can purchase cargo space and establish foreign currency
accounts. There are also an estimated 30,000 unregistered forwarding companies
and individual agents. These smaller competitors generally do not have the
financial wherewithal to meet the minimum registered capital requirements to
permit the formation as an independent international freight forwarding company.
The industry is dominated by a few state-owned and/or large public companies.
Shandong Jiajia’s primary competitors are state owned Tianjin Zhenhua Logistics
Group, foreign joint ventures Qingdao Ocean & Great Asia Transportation, and
Air Sea Transport. These competitors have each developed a service network
nationwide and internationally and have proprietary warehouses and
transportation departments.
  While the
requirement to register as a cargo company in China was amended in 2004 to
provide that approval from the Ministry of Commerce is no longer necessary to
obtain a business license, Shangdong Jiajia believes its ability to market
itself as a registered cargo company provides certain competitive advantages.
Shandong Jiajia has been operating since 1999 and it believes that its
experience is a competitive advantage for the company and serves as a benefit to
exporters as well to shipping agencies seeking to sell cargo space. Shandong
Jiajia has developed stable shipping volume since 1999, which allows it to make
a commitment to shipping agencies for cargo space, which in turn permits it to
receive advantageous pricing.
  A
significant number of Shandong Jiajia's competitors have more capital, longer
operating histories, greater brand recognition, larger customer bases and
significantly greater financial and marketing resources than the company does.
These competitors may also offer a more comprehensive package of freight
forwarding services than Shandong Jiajia does, or may provide value added
services such as customs brokerage, distribution, warehousing and pick and pack
services. For these and other reasons, Shandong Jiajia's competitors' services
may achieve greater acceptance in the marketplace than the company, limiting our
ability to gain market share and customer loyalty and increase our
revenues.
  Government
Regulation
  Shandong
Jiajia is required to comply with the Customs Law established by the People's
Republic of China, which establishes regulations related to import/export of
merchandise from or to China. The regulations define the criteria of supervision
and monitoring in the transport of merchandise to and from China.
   - 3
-
  Previously,
each year Shandong Jiajia was required to pass an annual inspection by the local
government agency of foreign trade and commerce to maintain the qualification.
Effective April 1, 2005 an annual inspection is no longer required for
approval and an international freight forwarding company, such as Shandong
Jiajia, is only required to file an annual renewal form with the local
government agency of foreign trade and commerce. Shandong Jiajia completed the
required registrations since enactment of the new regulation.
  We are
subject to the United States Foreign Corrupt Practices Act, which generally
prohibits United States companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining
business. Corruption, extortion, bribery, pay-offs, theft and other fraudulent
practices occur from time-to-time in the PRC. We can make no assurance, however,
that our employees or other agents will not engage in such conduct for which we
might be held responsible. If our employees or other agents are found to have
engaged in such practices, we could suffer severe penalties and other
consequences that may have a material adverse effect on our business, financial
condition and results of operations and could cause our company to cease
operations.
  Employees
  As of
March 31, 2008 we had 89 full time employees, including our President, V.
Jeffrey Harrell and an executive administrator in the United States and 87
full-time, salaried employees at Shangdong Jiajia.
  Our
employees in China are organized into a union under the labor laws of China and
receive labor insurance. These employees can bargain collectively with Shandong
Jiajia. Shandong Jiajia believes it maintains good relations with its
employees.
  Shandong
Jiajia is required to contribute a portion of its employees’ total salaries to
the Chinese government’s social insurance funds, including medical insurance,
unemployment insurance and job injuries insurance, and a housing assistance
fund, in accordance with relevant regulations. We expect the amount of our
contributions to the government’s social insurance funds to increase in the
future as we expand our workforce and operations.
  History
Of Our Company
  We were
incorporated in the State of Florida on March 19, 1999 originally under the
name ValuSALES, Inc. to create a single-source Internet solutions company
providing internet and technology products and services to various sized
customers.  We had no operations until July 20, 1999 when we
purchased assets consisting of property and equipment and inventory for an
aggregate purchase price of $75,000. On December 1, 1999, we sold shares of
our common stock and used the proceeds to acquire September Project II
Corp., an inactive entity. For accounting purposes, the acquisition was treated
as a capital transaction rather than a business combination. In conjunction
therewith, we merged with September Project II Corp. with that entity as
the surviving entity named ValuSALES.com, Inc. Following this transaction, we
provided Internet and technology products and services for clients ranging from
small to medium sized customers looking for a solution to develop and integrate
a web site, advertising and marketing, technology products, and streaming video
into their business. Our divisions included e-business solutions, marketing and
advertising, streaming video technology, and Internet mortgage
banking.  In November 2001 we changed our name to Video Without
Boundaries, Inc.
  In 2001
we began operating in only one segment.  During 2002 we discontinued
our previous operations and began to reposition our company within the home
entertainment media-on-demand marketplace to become a producer and distributor
of interactive consumer electronics equipment to provide streaming digital media
and video on demand (VOD) services.
  On
August 11, 2004 (with an effective date of June 1, 2004) we entered
into a stock purchase agreement with Mr. James Joachimczyk, the sole
shareholder of Graphics Distribution, Inc., a privately held company engaged in
the business of selling and distributing electronic products. The principal
terms of the agreement provided that we would acquire all of the issued and
outstanding shares of Graphics Distribution, Inc. for a purchase price of
$1,500,000 plus the issuance of 25,000 shares of our common stock. Additional
consideration included in this stock purchase agreement required our company to
collateralize an existing line of credit in the amount of $2,500,000 as well as
retain the services of the selling shareholder, pursuant to a consulting
agreement dated August 11, 2004, for a term consistent with the fulfillment
of the payment terms under the stock purchase agreement. At closing, we tendered
our initial deposit of $350,000, but thereafter we defaulted on the remaining
balance due and as well as the collateralization provision.
  - 4
-


In
August 2006 we changed our name to MediaREADY, Inc. in an effort to provide
better corporate branding for our company.




In
September 2007, we engaged Capital One Resource Co., Ltd. to provide
introductions and advice to us as it related to general business activities,
including mergers and acquisitions, business combinations and financial
management.  Capital One Resource Co., Ltd., a subsidiary of China
Direct, Inc. (NasdaqGM: CDS), provides consulting services to both Chinese
entities seeking access to the U.S. capital markets and North American entities
seeking business opportunities in the PRC.  As a result of the
advisory services provided to our management, we determined to concentrate our
focus on a potential business combination with a Chinese company as a means of
benefiting from the then continued economic expansion of the PRC in general and
of businesses in various industries within that country.




Shandong
Jiajia was initially identified as a PRC based company in search of capital to
expand its operations by Mr. Weidong Wang.  Mr. Wang, who had a
business relationship with Dragon Venture (Shanghai) Capital Management Co.,
Ltd., brought the company to the attention of that entity that in turn brought
it to the attention of Capital One Resource Co., Ltd.  Thereafter,
China Direct, Inc. assisted us with the negotiations with Messrs. Chen and Liu,
including providing translation services as well as advice on the restructure of
our balance sheet, and coordinated the efforts of legal, accounting and auditing
service providers related to the completion of the acquisition of Shandong
Jiajia.  The definitive terms of the transaction were reached after
negotiations by us with Messrs. Chen and Liu.  Messrs. Chen and Liu,
who were unrelated parties to us prior to the transaction, are unrelated
parties to both China Direct, Inc. and Capital One Resource Co.,
Ltd.




On
December 31, 2007 we entered into an acquisition agreement with Shandong
Jiajia and its sole shareholders Messrs. Hui Liu and Wei Chen, pursuant to
which we acquired a 51% interest in Shandong Jiajia. At closing, we issued
Messrs. Liu and Chen an aggregate of 1,000,000 shares of our Series A
preferred stock and we agreed contribute $2,000,000 to increase the registered
capital of Shandong Jiajia subject to:




•
              the
      prior receipt of all regulatory approvals and licenses from the necessary
      governmental agencies in China related to this acquisition,
      and•
              the
      receipt of two years of audited financial statements of Shandong Jiajia
      together with the interim period for the nine months ended
      September 30, 2007.




Under the
terms of our agreement to acquire a 51% interest in Shandong Jiajia, Mr. David
Aubel, a principal shareholder of the Company, agreed to personally assume any
and all liabilities which may result from a stock purchase agreement we entered
into in August 2004 with Graphics Distribution, Inc. Mr. Aubel’s agreement
to assume this liability was the result of negotiations preceding the execution
of the Shangdong Jiajia acquisition agreement as Messrs. Liu and Chen who were
unwilling to proceed with the transaction if the company remained exposed to the
potential liability related to the acquisition of Graphics Distribution,
Inc.  In addition, the acquisition agreement contemplated that the accrued
compensation and convertible note payable-related party included in our current
liabilities at September 30, 2007 will be converted into shares of our
common stock at conversion rates of $.018 and $.02 per share (before giving
effect to the 1 for 40 reverse stock split), respectively, resulting in the
issuance of approximately 3,445,853 shares of our common stock. Included in
these liabilities, which are to be converted, is approximately $419,000 of
accrued compensation due Mr. Jeffrey Harrell, our CEO and President, and
$2,521,380 due to Mr. David Aubel under a convertible note and a loan. At
the time of the agreement with Shandong Jiajia, we did not have sufficient
authorized but unissued shares of our common stock to provide for the conversion
of these liabilities. Effective on the close of business on March 11, 2008
we amended our articles of incorporation to increase our authorized capital
which provided sufficient shares to permit these conversions




Pursuant
to the terms of the December 31, 2007 Shandong Jiajia acquisition agreement, Mr.
V. Jeffrey Harrell, then our CEO and President, converted $448,985 of accrued
compensation due him into 581,247 shares of our common stock at an effective
conversion price of $0.77245 per share.  In addition, pursuant to the
December 31, 2007 Shandong Jiajia acquisition agreement Mr. Aubel converted a
$2,521,380 loan due him from the Company into 2,864,606 shares of our
common stock at an effective conversion price of $0.88 per share.  The
Company entered into conversion agreements with Messrs. Harrell and Aubel
effective March 20, 2008 to memorialize these conversions.  The
effective conversion price on the date we entered into the conversion agreements
with Mr. Aubel was greater than the fair market value of our common stock on the
date of the agreement which was $0.85 per share.  The variance
resulted from a decline in the trading price of our common stock from December
31, 2007 when the conversion rates were informally agreed to with Mr. Aubel and
the actual dates of conversion.




This
number of shares issued to Mr. Aubel was established in the December 31, 2007
Shandong Jiajia acquisition agreement and was derived from the September
30, 2007 liability reflected on the Company’s books owed to Mr. Aubel in
the amount of $2,291,685 $0.02 per share, the agreed upon price prior to the
1 for 40 reverse stock split price  ($2,291,685/$0.02 per share/40 =
2,864,606 shares).





- 5
-





As of the
settlement date in March 2008, Mr. Aubel was owed $2,521,380 , an increase
in the amount owed from September 20, 2007 resulting from additional advances
made by Mr. Aubel, reduced by the issuance of 250,000 shares during the
interim period.  The final conversion price of Mr. Aubel’s note was
$0.88 per share, resulting from the final note balance of $2,521,380 divided by
an agreed upon fixed number of shares of 2,864,606 ( $2,521,380 /2,864,606
=$0.88 per share).  The fair market value of the Company’s common
stock on March 31, 2008 was $0.85 per share.  We are evaluating any rights
we may have to seek damages against Mr. Aubel as a result of the uncertainty as
to the validity of the amount of his note.




In
connection with the Shandong Jiajia acquisition, we issued Capital One Resource
Co., Ltd. 450,000 shares of Series B preferred stock valued at $3,780,000,
and Mr. Weidong Wang 35,000 shares of Series B preferred stock valued
at $294,000, as compensation for assistance in the transaction. In addition, we
agreed to issue an aggregate of 352,500 shares of Series B preferred stock
valued at $2,016,000 to Dragon Venture (Shanghai) Capital Management Co., Ltd.
as finder's fees. Dragon Venture (Shanghai) Capital Management Co., Ltd. is a
subsidiary of Dragon Capital Group Corp. (Pink Sheets: DRGV). Mr. Lawrence
Wang, the CEO of Dragon Capital Group Corp., is the brother of Dr. James Wang,
the CEO of China Direct, Inc. China Direct, Inc. owns approximately 20% of the
issued and outstanding shares of Dragon Capital Group Corp. Finally, we are
obligated to issue China Direct Investments, Inc., a subsidiary of China Direct,
Inc., an additional 450,000 shares of our Series B preferred stock, valued at
$3,780,000, as compensation for its services to us in conjunction with the
transaction pursuant to the terms of a consulting agreement entered into in
December 2007. Upon issuance, these shares of Series B preferred stock will be
immediately convertible into 4,500,000 shares of our common stock.





On
January 28, 2008 we amended the acquisition agreement with Shandong Jiajia to
issue Mr. Chen 120,000 shares of our Series B preferred stock with a fair
value of $960,000 and three year options to purchase an additional
2,000,000 shares of our common stock with a fair value of $480,000 at an
exercise price of $0.30 per share as additional consideration for the
acquisition of a 51% interest in Shandong Jiajia. We agreed to pay Mr. Chen the
additional consideration at his request because he believed that the purchase
price we paid for Shandong Jiajia was more favorable to us.  Mr. Chen,
Shandong Jiajia’s principal owner prior to our acquisition of Shandong Jiajia,
is also its general manager and his continued active involvement in the
operations of that company was crucial to the integration of its operations with
us.  We determined that it would be in our long-term best interests to
agree to Mr. Chen’s request, particularly as the operations of Shandong Jiajia
represent all of our business and operations following the
transaction.





In order
to facilitate the approval by the Chinese authorities of our acquisition of
Shandong Jiajia, we entered into another amendment to the acquisition agreement
effective on March 13, 2008 that provided for:




•
              instead
      of contributing all $2,000,000 to Shandong Jiajia's registered capital, we
      agreed to contribute $1,040,816 to increase the registered capital and the
      remaining $959,184 will be made available to Shandong Jiajia for working
      capital purposes, and•
              the
      date by which Shandong Jiajia is required to satisfy certain conditions to
      the delivery of such funds has been extended to April 30,
      2008.





We will
be required to raise capital from the sale of our securities to provide the
funds necessary to meet this obligation. While we do not presently have any firm
commitments to provide such capital, we reasonably believe we will be able to
raise such funds prior to April 30, 2008.





On
January 28, 2008 we also amended the finder’s agreement with Dragon Venture
(Shanghai) Capital Management Co., Ltd. whereby we reduced the finder’s fee
payable to it from 352,500 shares of the Company’s Series B preferred stock to
240,000 shares.




In
March 2008 we changed our name to China Logistics Group, Inc.







- 6
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ITEM
1A.       RISK FACTORS




An
investment in our common stock involves a significant degree of risk. You should
not invest in our common stock unless you can afford to lose your entire
investment. You should consider carefully the following risk factors and other
information in this report before deciding to invest in our common
stock.




Risks
Relating to Overall Business Operations




WE
HAVE RECENTLY EXPANDED OUR BUSINESS THROUGH THE ACQUISITION OF A MAJORITY
OWNERSHIP INTEREST IN SHANDONG JIAJIA WHICH IS LOCATED IN THE PRC. OUR
MANAGEMENT, WHO ARE ALSO LOCATED IN THE PRC, MAY NOT BE SUCCESSFUL IN
TRANSITIONING THE INTERNAL OPERATIONS OF A PRIVATELY HELD CHINESE COMPANY TO A
SUBSIDIARY OF A U.S. PUBLICLY HELD COMPANY.




On
December 31, 2007 we entered into an agreement to acquire a 51% interest in
Shandong Jiajia. The original owners of Shandong Jiajia continue to own the
remaining 49% interest and since July 2008 have served as our sole executive
officers and directors. Our acquisition of Shandong Jiajia provides certain
challenges for our company, including, among others:





•
              none
      of the members of our management have any experience in operating a U.S.
      public company and the costs associated therewith may adversely impact our
      operating results, and,•
              we
      will need to upgrade the internal accounting systems at Shandong Jiajia,
      as well as educating its staff as to the proper collection and recordation
      of financial data to ensure that we can continue to file our annual,
      quarterly and other reports with the Securities and Exchange Commission on
      a timely basis.




There can
be no assurance that there will not be substantial costs associated with
upgrading of the accounting systems at Shandong Jiajia and the establishment of
disclosure controls necessary to ensure that the reports we file with the
Securities and Exchange Commission are filed on a timely basis, either of which
could have a material adverse effect on our future operating results. If we are
unable to properly and timely upgrade the disclosure and accounting operations
of Shandong Jiajia, our ability to timely file our annual and quarterly reports,
as well as other information we are required to file with the Securities and
Exchange Commission, could be in jeopardy. Any failure on our part to meet the
prescribed filing deadlines could lead to a delisting of our common stock from
the OTC Bulletin Board, which could adversely affect a shareholder's ability to
resell their investment in our company.




In
addition, the acquisition by us of a 51% interest in Shandong Jiajia requires
the approval of the Chinese government. While we believe that the structure of
the transaction in which we agreed to contribute registered capital to Shandong
Jiajia in an amount equal to the membership interests we acquired will be
approved by the proper governmental agency, there are no assurances we are
correct. If the transaction were not approved we would be required to unwind the
acquisition. As it is anticipated that Shandong Jiajia will represent the sole
portion of our operations in future periods, if we were required to unwind the
transaction the result on our future operations would be materially adverse. In
addition, under the terms of the transaction with Shandong Jiajia we agreed to
provide an aggregate of $1,040,816 to that company by April 30, 2008 as
partial consideration for our purchase of a controlling interest. We do not
presently have such funds. While we do not presently have any firm commitments
to provide such capital, we reasonably believe we will be able to raise such
funds prior to April 30, 2008. We have begun preliminary discussions with
potential investors and expect we will be able to secure investment capital
prior to April 30, 3008. In the event we are unable to secure sufficient
resources we will need to revise the terms of our agreement with Shandong
Jiajia. This may include a reduced investment resulting in a reduced interest in
Shandong Jiajia.




HISTORICALLY
OUR WEAK FINANCIAL CONDITION RAISED SUBSTANTIAL DOUBT REGARDING OUR ABILITY TO
CONTINUE AS A GOING CONCERN. THERE ARE NO ASSURANCES THAT THE RESULTS FROM
SHANDONG JIAJIA WILL BE SUFFICIENT IN FUTURE PERIODS TO PAY OUR OPERATING
EXPENSES.





We have
incurred substantial operating and net losses, as well as negative operating
cash flows, since our inception through December 31, 2007. We acquired a
51% interest in Shandong Jiajia on December 31, 2007. Our results of
operations for 2007 do not include any results for the operations of Media
Ready. Our operating results for future periods will include a significant
increase in revenues which will be attributable to the operations of Shandong
Jiajia, as well as significant increases in expenses related to that company.
Although the resignation in July 2008 of our former CEO substantially reduced
our overhead expenses, there are no assurances that our revenues will be
sufficient in future periods to pay our operating expenses or that we will ever
achieve profitability on a consolidated basis in the future.







- 7
-





WE
HAVE MATERIAL WEAKNESSES IN OUR DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL
CONTROL OVER FINANCIAL REPORTING WHICH HAVE LEAD TO RESTATEMENTS OF OUR
2007 FINANCIAL STATEMENTS. THERE IS MORE THAN A REMOTE LIKELIHOOD THAT OUR
FINANCIAL STATEMENTS WILL CONTAIN ERRORS IN FUTURE PERIODS.




Upon
completion of an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as well as management's assessment of the
effectiveness of our internal control over financial reporting at December 31,
2007 as required by Section 404 of the Sarbanes-Oxley Act of 2002 our management
concluded that neither our disclosure controls and procedures nor our internal
control over financial reporting were effective. In addition, management's
assessment of the effectiveness of our internal control over financial reporting
at December 31, 2007 excluded the operations of Shandong Jiajia. Given that
those operations are in the PRC it is likely that had Shandong Jiajia been
included in the assessment our management would have determined we had
additional material weaknesses in our internal control over financial reporting.
Subsequent to December 31, 2007 we were required to restate our December 31,
2007 financial statements because of errors in those financial
statements.




Neither
our sole officer and director at the time of the restatement nor our current
executive officers and directors are accountants and we have historically relied
upon the services of outside accountants. In addition, Shandong Jiajia has an
inadequate number of personnel with the requisite expertise in U.S. generally
accepted accounting principles to ensure the proper application thereof. PRC
companies have historically not adopted a Western style of management and
financial reporting concepts and practices, which includes strong corporate
governance, internal controls and, computer, financial and other control
systems. As a result of these factors, we may experience difficulty in
establishing management, legal and financial controls, collecting financial data
and preparing financial statements, books of account and corporate records and
instituting business practices that meet Western standards. Until such time as
we are able to supplement the accounting staff at Shandong Jiajia, it is
possible that accounting errors will occur which are not prevented or
detected. Accordingly, due to the nature of the material weaknesses in our
internal control over financial reporting, there is more than a remote
likelihood that additional material misstatements of our annual or interim
financial statements could occur.




SHANDONG
JIAJIA IS DEPENDENT ON THIRD PARTIES FOR EQUIPMENT AND SERVICES ESSENTIAL TO
OPERATE ITS BUSINESS, AND IT COULD LOSE CUSTOMERS AND REVENUES IF IT FAILS TO
SECURE THIS EQUIPMENT AND THESE SERVICES.




Shandong
Jiajia is a non-asset based freight forwarding company and it relies on third
parties to transport the freight it has arranged to ship. Thus, its ability to
forward this freight and the costs it incurs in connection therewith is
dependent on Shandong Jiajia's ability to find carriers willing to ship such
freight at acceptable prices. This, in turn, depends on a number of factors
beyond its control, including availability of cargo space, which depends on the
season of the year, the shipment's transportation lane, the number of
transportation providers and the availability of equipment. An increase in the
cost of cargo space due to supply shortages, increases in fuel cost or other
factors would increase costs and may reduce Shandong Jiajia's profits, which
will adversely impact our results of operations in future periods.




SHANDONG
JIAJIA RELIES ON OVERSEAS CARGO AGENTS TO PROVIDE SERVICES TO IT AND TO ITS
CUSTOMERS, AND SHANDONG JIAJIA'S ABILITY TO CONDUCT BUSINESS SUCCESSFULLY MAY BE
AFFECTED IF IT IS UNABLE TO MAINTAIN ITS RELATIONSHIPS WITH THESE OVERSEAS CARGO
AGENTS.




Shandong
Jiajia relies on the services of independent cargo agents, who may also be
providing services to its competitors, which may include consolidating and
deconsolidating various shipments. Although Shandong Jiajia believes its
relationships with its cargo agents are satisfactory, it may not be able to
maintain these relationships. If Shandong Jiajia were unable to maintain these
relationships or develop new relationships, its service levels, operating
efficiency, future freight volumes and operating profits may be reduced which
will adversely impact our results of operations in future periods.




SHANDONG
JIAJIA INCURS SIGNIFICANT CREDIT RISKS IN THE OPERATION OF ITS BUSINESS WHICH
COULD REDUCE OUR OPERATING PROFITS.





Certain
aspects of freight forwarding involve significant credit risks. It is standard
practice for exporters to expect freight forwarders to offer 30 days or more
credit on payment of their invoices from the time cargo has been delivered for
shipment. Competitive conditions require that Shandong Jiajia offer 30 days or
more credit to many of its customers. In order to avoid cash flow problems and
bad debts, Shandong Jiajia attempts to maintain tight credit controls and to
avoid doing business with customers it believes may not be creditworthy.
However, Shandong Jiajia may not be able to avoid periodic cash flow problems or
be able to avoid losses in the event customers to whom it has extended credit
either delay their payments to it or become unable or unwilling to pay its
invoices after Shandong Jiajia has completed shipment of their goods or rendered
other services to them, all of which could reduce our operating
profits.







- 8
-





RISKS
RELATED TO DOING BUSINESS IN CHINA




YOU
MAY EXPERIENCE DIFFICULTIES IN EFFECTING SERVICE OF LEGAL PROCESS, ENFORCING
FOREIGN JUDGMENTS OR BRINGING ORIGINAL ACTIONS IN CHINA BASED ON UNITED STATES
OR OTHER FOREIGN LAWS.





All of
Shandong Jiajia's assets and operations are in China and these assets represent
all of our assets. In addition, all of Shandong Jiajia's executive officers and
directors reside within China. As a result, it may not be possible to effect
service of process within the United States upon these executive officers or
directors, or enforce within the United States any judgments obtained against us
or our officers or directors, including judgments predicated upon the civil
liability provisions under U.S. federal securities laws or applicable state
securities laws. Consequently, you may be effectively prevented from pursuing
remedies under U.S. federal securities laws against them.




FLUCTUATION
IN THE VALUE OF THE RENMINBI (RMB) MAY HAVE A MATERIAL ADVERSE EFFECT ON YOUR
INVESTMENT.





The value
of RMB against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in political and economic conditions.
Shandong Jiajia's revenues and costs and its assets are denominated in RMB. Any
significant fluctuation in value of RMB may materially and adversely affect our
cash flows, revenues, earnings and financial position in future periods. For
example, an appreciation of RMB against the U.S. dollar would make any new RMB
denominated investments or expenditures more costly to Shandong Jiajia, to the
extent that it might need to convert U.S. dollars into RMB for such purposes.
These increased costs would result in greater operating expenses to us and could
increase our operating loss in future periods.




ALL
OF OUR ASSETS AND OPERATIONS ARE LOCATED IN THE PRC AND ARE SUBJECT TO CHANGES
RESULTING FROM THE POLITICAL AND ECONOMIC POLICIES OF THE CHINESE
GOVERNMENT.




Our
business operations could be restricted by the political environment in the PRC.
The PRC has operated as a socialist state since 1949 and is controlled by the
Communist Party of China. In recent years, however, the government has
introduced reforms aimed at creating a "socialist market economy" and policies
have been implemented to allow business enterprises greater autonomy in their
operations. Changes in the political leadership of the PRC may have a
significant effect on laws and policies related to the current economic reform
programs, other policies affecting business and the general political, economic
and social environment in the PRC, including the introduction of measures to
control inflation, changes in the rate or method of taxation, the imposition of
additional restrictions on currency conversion and remittances abroad, and
foreign investment. Moreover, economic reforms and growth in the PRC have been
more successful in certain provinces than in others, and the continuation or
increases of such disparities could affect the political or social stability of
the PRC. Although we believe that the economic reform and the macroeconomic
measures adopted by the Chinese government have had a positive effect on the
economic development of China, the future direction of these economic reforms is
uncertain and the uncertainty may decrease the attractiveness of our company as
an investment, which may in turn result in a decline in the trading price of our
common stock.




THE
CHINESE GOVERNMENT EXERTS SUBSTANTIAL INFLUENCE OVER THE MANNER IN WHICH OUR
CHINESE SUBSIDIARIES MUST CONDUCT OUR BUSINESS ACTIVITIES.




The PRC
only recently has permitted provincial and local economic autonomy and private
economic activities. The government of the PRC has exercised and continues to
exercise substantial control over virtually every sector of the Chinese economy
through regulation and state ownership. Accordingly, government actions in the
future, including any decision not to continue to support recent economic
reforms and to return to a more centrally planned economy or regional or local
variations in the implementation of economic policies, could have a significant
effect on economic conditions in the PRC or particular regions thereof, and
could require us to divest ourselves of any interest we then hold in Shandong
Jiajia.





A
SLOWDOWN IN THE CHINESE ECONOMY OR AN INCREASE IN ITS INFLATION RATE MAY
ADVERSELY IMPACT OUR REVENUES.





The
Chinese economy has grown at an approximately 9% rate for more than 25 years,
making it the fastest growing major economy in recorded history. In 2007,
China’s economy grew by 11.4%, the fastest pace in 11 years. While China’s
economy has grown, inflation has also recently become a major issue of concern.
In March 2007, China’s central bank, the People’s Bank of China, announced that
the bank reserve ratio would rise half a percentage point to 15.5% in an effort
to reduce inflation pressures hours after Premier Wen Jiabao highlighted
inflation as a major concern for the government. China’s consumer price index
growth rate reached 8.7% year over year in 2008.





- 9
-





We cannot
assure you that growth of the Chinese economy will be steady, that inflation
will be controllable or that any slowdown in the economy or uncontrolled
inflation will not have a negative effect on Shandong Jiajia's business. Several
years ago, the Chinese economy experienced deflation, which may recur in the
future. More recently, the Chinese government announced its intention to
continuously use macroeconomic tools and regulations to slow the rate of growth
of the Chinese economy, the results of which are difficult to predict. Adverse
changes in the Chinese economy will likely impact the financial performance of a
variety of industries in China that use or would be candidates to use Shandong
Jiajia's services.




ANY
RECURRENCE OF SEVERE ACUTE RESPIRATORY SYNDROME, OR SARS, OR ANOTHER WIDESPREAD
PUBLIC HEALTH PROBLEM, COULD INTERRUPT OUR OPERATIONS.




A renewed
outbreak of SARS or another widespread public health problem in China could have
a negative effect on our operations. Our operations may be impacted by a number
of health-related factors, including the following:





•
                quarantines
      or closures of some of our offices, which would severely disrupt Shandong
      Jiajia's operations,•
                the
      sickness or death of its key officers and employees, or•
                a
      general slowdown in the Chinese
economy.





Any of
the foregoing events or other unforeseen consequences of public health problems
could result in a loss of revenues in future periods and could impact our
ability to conduct Shandong Jiajia's operations as they are presently conducted.
If Shandong Jiajia were unable to continue its operations as they are now
conducted, our revenues in future periods would decline and our ability to
continue as a going concern could be in jeopardy. If we were unable to continue
as a going concern, you could lose your entire investment in our
company.




RESTRICTIONS
ON CURRENCY EXCHANGE MAY LIMIT OUR ABILITY TO RECEIVE AND USE OUR REVENUES
EFFECTIVELY.




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




CHINESE
LAWS AND REGULATIONS GOVERNING SHANDONG JIAJIA'S BUSINESS OPERATIONS ARE
SOMETIMES VAGUE AND UNCERTAIN. ANY CHANGES IN SUCH CHINESE LAWS AND REGULATIONS
MAY HAVE A MATERIAL AND ADVERSE EFFECT ON OUR BUSINESS.




China’s
legal system is a civil law system based on written statutes, in which system
decided legal cases have little value as precedents unlike the common law system
prevalent in the United States. There are substantial uncertainties regarding
the interpretation and application of Chinese laws and regulations, including
but not limited to the laws and regulations governing the enforcement and
performance of contractual arrangements with customers in the event a dispute,
as well as the imposition of statutory liens, death, bankruptcy and criminal
proceedings. The Chinese government has been developing a comprehensive system
of commercial laws, and considerable progress has been made in introducing laws
and regulations dealing with economic matters such as foreign investment,
corporate organization and governance, commerce, taxation and trade. However,
because these laws and regulations are relatively new, and because of the
limited volume of published cases and judicial interpretation and their lack of
force as precedents, interpretation and enforcement of these laws and
regulations involve significant uncertainties. New laws and regulations that
affect existing and proposed future businesses may also be applied
retroactively. We cannot predict what effect the interpretation of existing or
new Chinese laws or regulations may have on our businesses. If the relevant
authorities find us in violation of Chinese laws or regulations, they would have
broad discretion in dealing with such a violation, including, without
limitation: levying fines; revoking our business and other licenses; requiring
that we restructure our ownership or operations; and requiring that we
discontinue any portion or all of our business.







- 10
-





WE
MAY BE UNABLE TO ENFORCE OUR RIGHTS DUE TO POLICIES REGARDING THE REGULATION OF
FOREIGN INVESTMENTS IN CHINA.




China's
regulations and policies with respect to foreign investments are evolving with
respect to such matters as the permissible percentage of foreign investment
and permissible rates of equity returns. Statements regarding these evolving
policies have been conflicting and any such policies, as administered, are
likely to be subject to broad interpretation and discretion and to be modified,
perhaps on a case-by-case basis. The uncertainties regarding such regulations
and policies present risks, which may affect our ability to achieve our stated
business objectives. If we are unable to enforce legal rights we may have under
our contracts or otherwise, our ability to compete with other companies in our
industry could be limited which could result in a loss of revenue in future
periods which could impact our ability to continue as a going
concern.




RISKS
RELATED TO HOLDING OUR SECURITIES




OUR
CORPORATE ACTIONS ARE SUBSTANTIALLY CONTROLLED BY OUR MANAGEMENT.




Our
executive officers and directors, including the management and minority owners
of Shandong Jiajia, own approximately 27.1% of our voting securities. These
shareholders, acting individually or as a group, could exert substantial
influence over matters such as electing directors and approving mergers or other
business combination transactions. In addition, because of the percentage
of ownership and voting concentration in these principal shareholders, elections
of our board of directors will generally be within the control of these
shareholders. It would be difficult for our shareholders to propose and have
approved proposals not supported by management. There can be no assurances that
matters voted upon by our executive officers and directors, including Shandong
Jiajia's management, in their capacity as shareholders, will be viewed favorably
by all shareholders of our company.




THE
EXERCISE OF OUTSTANDING WARRANTS AND THE POSSIBLE CONVERSION OF OUR SERIES A
PREFERRED STOCK AND SERIES B PREFERRED STOCK WILL BE DILUTIVE TO OUR EXISTING
SHAREHOLDERS.




At
March 31, 2008 we had 19,395,203  shares of our common stock
issued and outstanding and the following securities, which are convertible or
exercisable into shares of our common stock, were outstanding:





•
              up
      to 4,500,000 shares of our common stock issuable upon the possible
      conversion of 450,000 shares of Series B Convertible preferred stock
      which we are obligated to issue under the terms of an agreement;
      and•
              2,000,000
      shares of our common stock issuable upon the exercise of common stock
      purchase warrants at an exercise price of $.30 per
  share.





The
conversion of the preferred stock and/or the exercise of the warrants may
materially adversely affect the market price of our common stock and will have a
dilutive effect on our existing shareholders.




WE
HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN THE
ABSENCE OF WHICH, SHAREHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST
INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR
MATTERS.




Recent
Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in
the adoption of various corporate governance measures designed to promote the
integrity of the corporate management and the securities markets. Some of these
measures have been adopted in response to legal requirements. Others have been
adopted by companies in response to the requirements of national securities
exchanges, such as the NYSE or the NASDAQ Stock Market, on which their
securities are listed. Among the corporate governance measures that are required
under the rules of national securities exchanges are those that address board of
directors' independence, audit committee oversight, and the adoption of a code
of ethics. While we have adopted a Code of Business Conduct and Ethics, none of
the members of our board of directors are considered independent directors and
we have not adopted corporate governance measures such as an audit or other
independent committees of our board of directors. It is possible that if we were
to expand our board of directors to include independent directors and adopt some
or all of these corporate governance measures, stockholders would benefit from
somewhat greater assurances that internal corporate decisions were being made by
disinterested directors and that policies had been implemented to define
responsible conduct. However, because our current board of directors is
comprised of our executive officers, subject to their fiduciary duty
obligations, these individuals have the ability to make decisions regarding
their compensation packages, transactions with related parties and corporate
actions that could involve conflicts of interest.  Prospective
investors should bear in mind our current lack of corporate governance measures
in formulating their investment decisions.







- 11
-





WE
MAY BE EXPOSED TO POTENTIAL RISKS RELATING TO OUR INTERNAL CONTROLS OVER
FINANCIAL REPORTING AND OUR ABILITY TO HAVE THOSE CONTROLS ATTESTED TO BY OUR
INDEPENDENT AUDITORS.




As
directed by Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX 404”), the
Securities and Exchange Commission adopted rules requiring small business
issuers, such as our company, to include a report of management on the company’s
internal controls over financial reporting in their annual reports for years
ending on or after December 15, 2007. Such report is contained later in
this annual report under Item 9A(T) Controls and Procedures. In addition, unless
the pending one year delay proposed by the SEC is adopted, for our year ending
December 31, 2008 the independent registered public accounting firm
auditing our financial statements must also attest to and report on management’s
assessment of the effectiveness of our internal controls over financial
reporting as well as the operating effectiveness of our internal controls. In
the event we are unable to receive a positive attestation from our independent
auditors with respect to our internal controls, investors and others may lose
confidence in the reliability of our financial statements and our ability to
obtain financing as needed could suffer.




BECAUSE
OUR STOCK CURRENTLY TRADES BELOW $5.00 PER SHARE, AND IS QUOTED ON THE OTC
BULLETIN BOARD, OUR STOCK IS CONSIDERED A "PENNY STOCK" WHICH CAN ADVERSELY
AFFECT ITS LIQUIDITY.




As the
trading price of our common stock is less than $5.00 per share, our common stock
is considered a "penny stock," and trading in our common stock is subject to the
requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under
this rule, broker/dealers who recommend low-priced securities to persons other
than established customers and accredited investors must satisfy special sales
practice requirements. The broker/dealer must make an individualized written
suitability determination for the purchaser and receive the purchaser's written
consent prior to the transaction.




Securities
and Exchange Commission regulations also require additional disclosure in
connection with any trades involving a "penny stock," including the delivery,
prior to any penny stock transaction, of a disclosure schedule explaining the
penny stock market and its associated risks. These requirements severely limit
the liquidity of our common stock in the secondary market because few broker or
dealers are likely to undertake these compliance
activities.  Purchasers of our common stock may find it difficult to
resell the shares in the secondary market.




ITEM
1B.             UNRESOLVED
STAFF COMMENTS.




Not
applicable to a smaller reporting company.




ITEM
2.                PROPERTIES.





We lease
668 square feet of office space from an unrelated third party at 7300 Alondra
Boulevard, Suite 108, Paramount, California 90723 for a two-year term expiring
April 30, 2010. This office serves as our United States
office.  The monthly rate for the facility is $5,000, which includes
office furniture, supplies, equipment and utility services.   We do
not conduct any business from this U.S. office.




Shandong
Jiajia’s China headquarters occupy approximately 1,776 square feet of leased
office space in Qingdao, China, which is leased from an unrelated third party
under a lease expiring on December 31, 2008. The annual rent is
approximately $20,346 (RMB 150,562). Shandong Jiajia expects to renew this lease
upon expiration upon similar terms.





Shandong
Jiajia's branches and offices also rent various office spaces throughout China
as set forth in the following table:





Location
                
                Approximate
      Square Feet
                
                Annual
      Rent
                Expiration
      of LeaseShanghai
      Branch
                  Shanghai
                
                
                7,008
                
                $64,140
      (RMB 674,063)
                May 31,
      2009Xiamen
      Branch
                  Xiamen City,
                  Fujian Province
                
                
                1,026
                
                $1,459
      (RMB 10,800)
                December 31,
      2008Lianyungang
      office
                  Lianyungang City,
                  Jiangsu Province
                
                
                1,184
                
                $4,054
      (RMB 30,000)
                March 15,
      2009Rizhao
      office
                  Rizhao City,
                  Shandong Province
                
                
                1,076
                
                $1,054
      (RMB 7,800)
                October 11,
      2008







- 12
-








Shandong
Jiajia expects to renew the lease for the Shanghai Branch at expiration upon
similar terms. The leases for the Xiamen Branch and Lianyungan g City
office are with unrelated third parties




ITEM
3.         LEGAL
PROCEEDINGS.




We are
not a party to any pending legal proceedings.




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




None.





PART
II




ITEM
5. MARKET
FOR REGISTRANT'S COMMON EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE
OF EQUITY SECURITIES.




Market
Price of and Dividends on Common Equity and Related Stockholder
Matters




Our
common stock is quoted on the OTCBB under the symbol CHLO. The reported high and
low sales prices for the common stock as reported on the OTCBB are shown below
for the periods indicated. The quotations reflect inter-dealer prices, without
retail mark-up, markdown or commission, and may not represent actual
transactions. These quotations reflect a 1-40 reverse split effective
March  11 , 2008.





High
                
                
                Low2006First
      quarter ended March 31, 2006
                
                $
                12.00
                
                
                $
                8.00Second
      quarter ended June 30, 2006
                
                $
                8.80
                
                
                $
                4.80Third
      quarter ended September 30, 2006
                
                $
                7.60
                
                
                $
                4.40Fourth
      quarter ended December 31, 2006
                
                $
                4.80
                
                
                $
                2.402007First
      quarter ended March 31, 2007
                
                $
                6.80
                
                
                $
                2.40Second
      quarter ended June 30, 2007
                
                $
                3.60
                
                
                $
                1.60Third
      quarter ended September 30, 2007
                
                $
                2.80
                
                
                $
                .80Fourth
      quarter ended December 31, 2007
                
                $
                2.00
                
                
                $
                .402008First
      quarter ended March 31, 2008
                
                $
                1.20
                
                
                $
                .40




On
April 14, 2008, the last sale price of our common stock as reported on the
OTCBB was $0.71. As of March 31, 2008, there were approximately 210 record
owners of our common stock.




Dividend
Policy




We have
never paid cash dividends on our common stock. Payment of dividends will be
within the sole discretion of our Board of Directors and will depend, among
other factors, upon our earnings, capital requirements and our operating and
financial condition. At the present time, our anticipated financial capital
requirements are such that we intend to follow a policy of retaining earnings in
order to finance the development of our business.




Recent
Sales of Unregistered Securities




In
March 2008 we issued Mr. Harrell, our CEO, 581,247 shares of our
common stock in satisfaction of approximately $419,000 of accrued compensation
due him. Mr. Harrell is an accredited investor and the issuance was exempt
from registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.





- 13
-





In
March 2008 we also issued Mr. David Aubel 2,864,606 shares of our
common stock in satisfaction of $ 2,521,380 due him under a convertible
note and a loan. Mr. Aubel, a principal shareholder of our company, is an
accredited investor and the issuance was exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2)
of that act.




Finally,
in March 2008 the holders of shares of our Series A Convertible
preferred stock and Series B Convertible preferred stock converted those
shares into shares of our common stock pursuant to the designations, rights and
preferences of those securities, including:




•
            three
      individuals, who included Messrs. Wei Chen and Hui Liu, minority
      shareholders, officers and directors of Shandong Jiajia, who owned
      1,000,000 shares of our Series A Convertible preferred stock
      converted those shares into an aggregate of 2,500,000 shares of our common
      stock; and three individuals and two entities, which included
      Mr. Chen, who owned 725,000 shares of Series B Convertible
      preferred stock converted those shares into an aggregate of 8,450,000
      shares of our common stock.




The
recipients were accredited or otherwise sophisticated investors who had such
knowledge and experience in business matters that they were capable of
evaluating the merits and risks of the prospective investment in our securities.
The recipients had access to business and financial information concerning our
company. These issuances were exempt from registration under the Securities Act
of 1933 in reliance on exemptions provided by Section 3(a)(9) of that
act.




ITEM
6.            SELECTED
FINANCIAL DATA.




Not
applicable to a smaller reporting company.




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


We are on
a calendar year, as such the year ended December 31, 2006 is referred to as
“2006” and the year ended December 31, 2007 is referred to as
“2007”.




Overview




Beginning
in 2003, we sought to position our company within the entertainment and home
broadband marketplace to develop our MediaREADYTM product line and provide
products and services in the converging digital media on demand, enhanced home
entertainment and emerging interactive consumer electronics markets. We were,
however, unable to successfully penetrate these markets, due in great part to
our limited financial resources. In the fourth quarter of 2007 our management
elected to pursue a business combination with an operating company in an effort
to improve shareholder value.





On
December 31, 2007 we entered into an acquisition agreement with Shandong
Jiajia and its sole shareholders Messrs. Hui Liu and Wei Chen, through
which we acquired a 51%  interest in Shandong Jiajia. At closing, we
issued Messrs. Liu and Chen an aggregate of 1,000,000 shares of our
Series A Convertible Preferred Stock and agreed to contribute $2,000,000 to
increase the registered capital of Shandong Jiajia subject to:





•
            the
      prior receipt of all regulatory approvals and licenses from the necessary
      governmental agencies in China related to this acquisition,
      and•
            the
      receipt of two years of audited financial statements of Shandong Jiajia
      together with the interim period for the nine months ended
      September 30, 2007.





Under
the terms of an assumption agreement dated December 31, 2007 and as contemplated
by the terms of the acquisition agreement for Shandong Jiajia, Mr. David Aubel,
a principal shareholder of our company, agreed to personally assume contingent
liabilities in the aggregate amount of $1,987,895 which may result from a stock
purchase agreement we entered into in August, 2004 with Graphics
Distribution, Inc.  Mr. Aubel’s agreement to assume this liability was the
result of negotiations preceding the execution of the acquisition agreement for
Shandong Jiajia as Messrs. Liu and Chen were unwilling to proceed with the
transaction if the company remained exposed to the potential liability related
to the Graphics Distribution, Inc. stock purchase agreement.  In
addition, the acquisition agreement contemplated that the accrued compensation
and convertible note payable-related party included in our current liabilities
at September 30, 2007 would be converted into shares of our common stock at
conversion rates of $0.72 and $0.80 per share.  At the time of the
agreement we did not have sufficient authorized but unissued shares of our
common stock to provide for the conversion of these liabilities, respectively,
resulting in the issuance of approximately 3,445,853 shares of our common stock.
Included in these liabilities which were to be converted was approximately
$419,000 of accrued compensation due Mr. Jeffrey Harrell, our former CEO
and President, and approximately $2,521,380 due to Mr. David Aubel under a
convertible note and a loan. Effective on the close of business on
March 11, 2008 we amended our articles of incorporation to increase our
authorized capital which provided sufficient shares to permit these
conversions.





- 14
-





As
contemplated by the acquisition agreement for Shandong Jiajia, on March 20, 2008
we entered into a conversion agreement with Mr. Jeffrey Harrell, then our CEO
and President, who converted $448,985 of accrued compensation due him into
581,247 shares of our common stock at an effective conversion price of $0.77245
per share.  In addition and as also contemplated by the terms of
the acquisition agreement for Shandong Jiajia, on March 20, 2008 we entered into
a conversion agreement with Mr. Aubel whereby he converted the $2,521,380 loan
due him by us into 2,864,606 shares of our common stock at an effective
conversion price of $0.88 per share.  The effective conversion price
on the date we entered into the conversion agreements with Mr. Aubel was greater
than the fair market value of our common stock on the date of the agreement
which was $0.85 per share.  The variance resulted from a decline in
the trading price of our common stock from December 31, 2007 when the conversion
rates were informally agreed to with Mr. Aubel and the actual dates of
conversion.





The
number of shares issued to Mr. Aubel was established in the December 31, 2007
Shandong Jiajia acquisition agreement and was derived from the September 30,
2007 liability reflected on our books owed to Mr. Aubel in the amount of
$2,291,685 divided by $0.02 per share the agreed upon price prior to the 1 for
40 reverse stock split price ($2,291,685/$0.02 per share/40 = 2,864,606
shares).





As of
the settlement date in March 2008, Mr. Aubel was owed $2,521,380 by us, an
increase in the amount owed from September 30, 2007 resulting from additional
advances made by Mr. Aubel, reduced by the issuance of 250,000 shares during the
interim period.  The final conversion price of Mr. Aubel’s note was
$0.88 per share, resulting from the final note balance of $2,521,380 divided by
an agreed upon fixed number of shares of 2,864,606 ($2,521,380/2,864,606 =$0.88
per share).  The fair market value of our common stock on March 31,
2008 was $0.85 per share.  We are evaluating any rights we may have to
seek damages against Mr. Aubel as a result of the uncertainty as to the validity
of the amount of his note.





In
connection with the acquisition of Shandong Jiajia, we issued Capital One
Resource Co., Ltd. 450,000 shares of Series B Convertible Preferred Stock
valued at $3,780,000, and Mr. Weidong Wang 35,000 shares of Series B
Convertible Preferred Stock valued at $294,000, as compensation for their
assistance in the transaction. In addition, we agreed to issue an aggregate of
352,500 shares of Series B Convertible Preferred Stock valued at $2,961,000
to Dragon Venture (Shanghai) Capital Management Co., Ltd. as finder's fees.
Dragon Venture (Shanghai) Capital Management Co., Ltd. is a subsidiary of Dragon
Capital Group Corp. (Pink Sheets: DRGV). Mr. Lawrence Wang, the CEO of
Dragon Capital Group Corp., is the brother of Dr. James Wang, the CEO of China
Direct, Inc. which owns approximately 20% of the issued and outstanding shares
Dragon Capital Group Corp. In January 2008 we amended the finder’s
agreement with Dragon Venture (Shanghai) Capital Management Co., Ltd. to reduce
the fee to 240,000 shares of Series B Convertible Preferred Stock which were
valued at $2,016,000.  Finally, we were obligated to issue China
Direct, Inc. an additional 450,000 shares of our Series B Convertible Preferred
Stock valued at $3,780,000 as compensation for its services under the terms of
the December 31, 2007 consulting agreement which were to be issued prior to June
30, 2008.





On
January 28, 2008 the acquisition agreement was amended to provide that as
additional consideration we issued Mr. Chen 120,000 shares of our
Series B Convertible Preferred Stock with a fair value of $960,000 and
three year options to purchase an additional 2,000,000 shares of our common
stock at an exercise price of $0.30 per share with a fair value of
$480,000.  We agreed to pay Mr. Chen the additional consideration at
his request because he believed that the purchase price we paid for our interest
in Shandong Jiajia was more favorable to us.  At the time of the
amendment, Mr. Chen, a minority owner of Shandong Jiajia and who now serves as
our Chairman, CEO and President, was General Manager of Shandong Jiajia and his
continued active involvement in its operations was crucial to the integration of
Shandong Jiajia into our company.  We determined that it would be in
our long-term best interests to agree to Mr. Chen’s request, particularly as the
operations of Shandong Jiajia represented all of our business and operations
following the transaction.





The
accompanying consolidated financial statements contain the audited balance sheet
at December 31, 2007, statement of operations and statements of
stockholders’ equity (deficit) which have been restated to account for the
acquisition of a 51% interest in Shandong Jiajia as a capital transaction,
implemented through a reverse acquisition, effective December 31,
2007.  Accordingly, the historical cost basis of the assets and
liabilities of Shandong Jiajia have been carried forward and the historical
information presented, including the consolidated statements of operation,
consolidated statement of stockholders’ equity (deficit) and consolidated
statements of cash flows prior to December 31, 2007, are those of Shandong
Jiajia.





The
capital structure following the transaction differs from the historical capital
structure of Shandong Jiajia in that shareholders’ equity of the combined
enterprise is presented based on the historical equity of the accounting
acquirer (Shandong Jiajia) prior to the merger retroactively restated to reflect
the number of shares received in the transaction.





Shandong
Jiajia, formed in 1999 as a Chinese limited liability company, is an
international freight forwarder and logistics management company. Shandong
Jiajia, acts as an agent for international freight and shipping companies.
Shandong Jiajia sells cargo space and arranges land, maritime, and air
international transportation for clients seeking to import or export merchandise
from or into China.  Headquartered in Qingdao, Shandong Jiajia has
branches in Shanghai and Xiamen with two additional offices in Lianyungang and
Rizhao. Shandong Jiajia is a designated agent of cargo carriers including Nippon
Yusen Kaisha, P&O Nedlloyd, CMA CGM Group, Safmarine Container Lines, and
Regional Container Lines.





- 15
-





Shandong
Jiajia will seek to develop new business opportunities by utilizing new shipping
routes and expanding its scope of services to provide a full suite of
comprehensive logistics management solutions. Shandong Jiajia management
believes that as they expand their logistics management solutions business and
gain market share they will be able to obtain more container space thereby
increasing potential revenues. We believe that due to the larger volume of
products to be shipped they can negotiate a more favorable rate from their
vendors and suppliers and ultimately increase our profit
margins.





The
additional investment in Shandong Jiajia will be applied as registered capital
and will be utilized for general working capital purposes and for expanded
operations, new business development for new shipping routes, and the
development of new logistics services as well as negotiating favorable pricing
from their suppliers based on a greater capacity of shipping
volumes.





In
expanding these operations, Shandong Jiajia faces the challenges
of:





•
                effective
      consolidation of resources among relatively independent
      affiliates;•
                maintaining
      the balance between the collection of accounts receivable and the
      extension of longer credit terms offered to our current and prospective
      clients in an effort to boost sales; and•
                our
      ability to effectively handle the increases in costs due to soaring fuel
      prices and the weak U.S.
dollar.





Additionally,
Shandong Jiajia also faces the challenges related to the management and
streamlining of the logistical aspect of the new shipping routes that our
company plans to undertake and the possibility that our new routes will not be
met with acceptance by our present and prospective clients. To accomplish their
growth goals, Shandong Jiajia will utilize a portion of the additional
registered capital to invest in an information sharing and personnel training
system among our affiliates, to recruit highly qualified professionals to join
us; and to promote new shipping routes and new services. In addition, we will
rely upon our long-term partnerships with shipping companies, storage management
companies, inland transportation companies, and port logistics companies in our
efforts to develop a comprehensive logistics solution that we do not believe is
currently available on the market today.





It
should be noted the report of our independent registered public accounting firm
in connection with this annual report on Form 10-K/A for the year ended December
31, 2007 contains an explanatory paragraph that raised substantial doubt as to
our ability to continue as a going concern based on our recurring losses from
operations, net working capital deficiency and accumulated
deficit.  The accompanying consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
assets carrying amounts or the amount and classification of liabilities that
might result from the outcome of these uncertainties.




Recent
Accounting Pronouncements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
("SFAS 157"). This Statement defines fair value as used in numerous accounting
pronouncements, establishes a framework for measuring fair value in generally
accepted accounting principles and expands disclosure related to the use of fair
value measures in financial statements. In February 2008, the FASB issued FASB
Staff Position (“FSP”) No. 157-2, “Effective Date f FASB No.
157”, which delays the effective date of FASB 157 for all non-financial
assets and non-financial liabilities, except those that are recognized or
disclosed at fair value in the consolidated financial statements on a recurring
basis (that is, at least annually), until years beginning after November 15,
2008.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities-including an amendment of FAS
115  ” ("SFAS 159”). SFAS 159 allows entities to choose, at
specified election dates, to measure eligible financial assets and liabilities
at fair value that are not otherwise required to be measured at fair value. If a
company elects the fair value option for an eligible item, changes in that
item’s fair value in subsequent reporting periods must be recognized in current
earnings. The Company adopted SFAS 159 effective January 1, 2008.  The
adoption of SFAS 159 did not have an effect on the Company’s financial
statements.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS
No. 141R"). SFAS No. 141R is a revision to SFAS No. 141 and
includes substantial changes to the acquisition method used to account for
business combinations (formerly the "purchase accounting" method), including
broadening the definition of a business, as well as revisions to accounting
methods for contingent consideration and other contingencies related to the
acquired business, accounting for transaction costs, and accounting for
adjustments to provisional amounts recorded in connection with acquisitions.
SFAS No.141R retains the fundamental requirement of SFAS No. 141 that
the acquisition method of accounting be used for all business combinations
and for an acquirer to be identified for each business combination.
SFAS No. 141R is effective for periods beginning on or after
December 15, 2008, and will apply to all business combinations occurring
after the effective date. SFAS 141R will have an impact on the accounting for
the Company’s business combinations, if any, once adopted, but the effect
depends on the terms of the Company’s business combinations subsequent to
January 1, 2009.





- 16
-





In
December 2007, the FASB also issued SFAS No. 160, "Non-controlling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51, Consolidated Financial Statements" ("FAS No. 160”). This
Statement amends ARB No. 51 to establish new standards that will govern the
(1) accounting for and reporting of non-controlling interests in partially owned
consolidated subsidiaries and (2) the loss of control of subsidiaries.
Non-controlling interest will be reported as part of equity in the consolidated
financial statements. Losses will be allocated to the non-controlling interest,
and, if control is maintained, changes in ownership interests will be treated as
equity transactions. Upon a loss of control, any gain or loss on the interest
sold will be recognized in earnings. SFAS No. 160 is effective for periods
beginning after December 15, 2008. Early adoption is
prohibited.  The Company does not expect the adoption of SFAS 160 to
have a material effect on its consolidated financial
statements.




In
March 2008, FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”.   The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
years and interim periods beginning after November 15, 2008, with early
application encouraged. The Company does not expect the adoption of SFAS 161 to
have a material effect on its consolidated financial statements.  The
Company does not currently have any derivative instruments.





A
variety of proposed or otherwise potential accounting standards are currently
under study by standard-setting organizations and various regulatory
agencies.  Because of the tentative and preliminary nature of these
proposed standards, management has not determined whether implementation of such
proposed standards would be material to the Company’s consolidated financials
statements.





Critical
Accounting Policies and Estimates





The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates based on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.




A
summary of significant accounting policies is included in Note 4 to the audited
consolidated financial statements included in this annual report. Management
believes that the application of these policies on a consistent basis enables us
to provide useful and reliable financial information about our Company's
operating results and financial condition.





Revenue
Recognition





We
provide freight forwarding services generally under contract with our
customers.  Our business model involves placing our customers’ freight
on prearranged contracted transport.





We
follow the guidance of the Securities and Exchange Commission’s Staff Accounting
Bulletin No. 104 in our revenue recognition policy.  In general, we
record revenue and related direct shipping costs when persuasive evidence of an
arrangement exists, services have been rendered or product delivery has
occurred, the sales price to the customer is fixed or determinable, and
collectability is reasonably assured.





Typically
our recognition of revenue is determined by our shipment/payment terms as
follows:





•
                When
      merchandise departs the shipper’s location when the trade pricing terms
      are CIF (cost, insurance and freight),•
                When
      merchandise departs the shipper’s location when the trade pricing terms
      are CFR (cost and freight cost), or•
                When
      the merchandise arrives at the destination port if the trade pricing terms
      are FOB (free on board)
destination.”





The
Company recognizes direct shipping costs concurrently with the recognition of
the related revenue for each shipment.  Essentially, the costs, which
are isolated by billings as the Company does not own the containers, ships,
etc., are readily matched to the related billings.





- 17
-





Use
of Estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions, including estimates of the allowance for doubtful
accounts and stock based compensation, that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements. Estimates also affect the reported amounts of
revenue and expenses during the reported period.





Significant
estimates for the periods reported include the allowance for doubtful accounts
which is based on an evaluation of our outstanding accounts receivable including
the age of amounts due, the financial condition of our specific customers,
knowledge of our industry segment in Asia, and historical bad debt
experience.  This evaluation process resulted in our recognizing bad
debt expense of $57,067 and $259,494 for the years ended December 31, 2007 and
2006, respectively.  This evaluation methodology has proved to provide
a reasonable estimate of bad debt expense in the past and we intend to continue
to employ this approach in our analysis of collectability.  However,
we are aware that given the current global economic situation, including that of
China, meaningful time horizons may change.  We intend to enhance our
focus on the evaluation of our customers sustainability and adjust our estimates
as may be indicted.




We
also rely on assumptions such as volatility, forfeiture rate, and expected
dividend yield when deriving the fair value of share-based compensation; we did
not recognize any stock-based compensation expense during the years ended
December 31, 2007 and 2006.  Further, we rely on certain assumptions
and calculations underlying our provision for taxes in China, see Note 14 –
Income Taxes for further discussion.  Assumptions and estimates
employed in these areas are material to our reported financial conditions and
results of operations.  These assumptions and estimates have been
materially accurate in the past and are not expected to materially change in the
future.  Actual results could differ from these
estimates.





Stock
Based Compensation





The
Company accounts for stock options issues to employees in accordance with SFAS
123R, “Share-Based Payment, on Amendment of FASB Statement No. 123” ("SFAS
123R”).  SFAS 123R requires companies to measure the grant-date fair
value of stock options and other equity based compensation issued to employees
and recognize the costs in the financial statements over the period during which
the employees are required to provide services.  The Company
adopted SFAS 123R in the second quarter of fiscal 2006.





Earnings
(Losses) Per Share





Under
the provisions of SFAS 128, “Earnings Per Share”, basic
income (loss) per common share is computed by dividing income (loss) available
to common shareholders by the weighted average number of shares of common stock
outstanding for the periods presented. Diluted income per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that would then share in the income of the company,
subject to anti-dilution limitations.





Earnings
per share presented for the years ended December 31, 2007 have been restated due
to the reverse acquisition transaction with Shandong Jiajia.  The
retroactive restatement is based on historical average number of
weighted-average shares outstanding for the periods presented, adjusted for
shares underlying convertible securities issued in the reverse acquisition
transaction.





Accounts
Receivable





The
Company provides an allowance for doubtful accounts equal to the estimated
uncollectible portion of accounts receivable. This estimate is based on the
historical collection experience and a review of the current status of trade
receivables. There is no set threshold amount or age for accounts receivable
write-offs; any decision is made by senior management on an account-by-account
basis.





Property
and Equipment





Property
plant and equipment are carried at cost less accumulated depreciation and
includes expenditures, which substantially increase the useful lives of property
and equipment. Maintenance and repairs are charged to expense as incurred. When
property and equipment are retired or otherwise disposed of, the related costs
and accumulated depreciation are removed from the respective accounts and any
gain or loss on the disposition is credited or charged to
income.





Depreciation
is computed using the straight-line method based on the estimated useful lives
of the individual assets, which range from 3-5 years.





- 18
-





Income
Taxes





The
Company follows Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes”
(SFAS No. 109). Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributed to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax base.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109,
the effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. If it is
more likely than not that some portion of a deferred tax asset will not be
realized, a valuation allowance is recognized.





In
July 2006, the Financial Accounting Standard Board (FASB) issued FASB
Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income
Taxes”. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with SFAS NO.
109, “Accounting for Income
Taxes”. FIN 48 requires a company to evaluate whether tax position taken
by a company will more likely than not be sustained upon examination by the
appropriate taxing authority. It also provides guidance on how a company should
measure the amount of benefit that the company is to recognize in its financial
statements. FIN 48 also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. FIN 48 is effective for years beginning after December 15,
2006.





The
Company adopted FIN 48 as of January 1, 2007. As a result of the
implementation of FIN 48, the Company concluded that it has not taken any
uncertain tax positions on any of its open income tax returns that would
materially distort its financial statements. The Company’s methods of accounting
are based on established income tax principles approved in the Internal Revenue
Code (IRC) and are properly calculated and reflected within its income tax
returns.




The
Company periodically reassesses the validity of its conclusions regarding
uncertain income tax positions to determine if facts or circumstances have
arisen that might cause the Company to change its judgment regarding the
likelihood of a tax position’s sustainability under audit. The impact of this
reassessment for the years ended December 31, 2008 and 2007 did not have
any impact on its results of operations, financial conditions or
liquidity.




Cash
and Cash Equivalents




The
Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. The carrying value of these
instruments approximates fair value.




Long-Lived
Assets




The
Company periodically evaluates the carrying value of long-lived assets to be
held and used in the business, other than assets held for sale when events and
circumstances warrant, generally in conjunction with the annual business
planning cycle. If the carrying value of a long-lived asset is considered
impaired, a loss is recognized based on the amount by which the carrying value
exceeds the fair market value for assets to be held and used. Fair market value
is determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Long-lived assets to be disposed of other
than by sale are considered held and used until disposed of.




Customer
Advances





Prepayments
and advance deposits consist of prepayments by Shandong Jiajia for contracted
cargo that has not yet been shipped to the recipient and for other advance
deposits. These amounts are recognized as revenue as customers take delivery of
goods, in compliance with its revenue recognition policy. At December 31,
2007 and 2006 customer advances totaled $683,436 and $110,559,
respectively.




Foreign
Currencies




Transactions
and balances in other currencies are converted into U.S. dollars in accordance
with Statement of Financial Accounting Standard (SFAS) No. 52, “Foreign Currency Translation
”, and are included in determining comprehensive income or
loss.




For
foreign operations with the local currency as the functional currency, assets
and liabilities are translated from the local currency into U.S. dollars at the
exchange rate prevailing at the balance sheet date. Revenues and expenses are
translated at weighted average exchange rates for the period to approximate
translation at the exchange rates prevailing at the dates those elements are
recognized in the financial statements. Translation adjustments resulting from
the process of translating the local currency financial statements into U.S.
dollars are included in determining comprehensive income or
loss.





- 19
-





The
reporting currency is the U.S. dollar. The functional currency of Shandong
Jiajia is the local currency, the Chinese dollar or Renminbi
(“RMB”).




Comprehensive
Income




We
follow Statement of Financial Accounting Standards No. 130 (SFAS 103) “Reporting Comprehensive
Income”  to recognize the elements of comprehensive
income.  Comprehensive income is comprised of net income and all
changes to the statement of stockholders’ equity, except those due to
investments by stockholders, changes in paid-in capital and distributions to
stockholders.  Comprehensive income included net income and foreign
currency translation adjustments.




Minority
Interest




Prior
to implementation of SFAS No. 160, when losses applicable to the minority
interest in a subsidiary exceed the minority interest in the equity capital of
the subsidiary, the excess is not charged to the majority interest since there
is no obligation of the minority interest to make good on such
losses.  We, therefore, absorbed all losses applicable to a minority
interest where applicable.  If future earnings do materialize, we
shall be credited to the extent of such losses previously
absorbed.





Certain
effects of the accounting treatment for the Shandong Jiajia acquisition on our
2007 income statement





As set
forth above, the transaction with Shandong Jiajia was treated as a reverse
merger.  While we were the legal survivor for accounting purposes
Shandong Jiajia was the accounting acquirer.  Because we were a shell
company at the time of the acquisition, under generally accepted accounting
principles no goodwill or other intangibles were recognized in the
costs.  These costs included the fair value of our securities issued
to third parties as compensation for consulting services rendered in connection
with the acquisition which totaled $10,418,000.  Please see Note 11 -
Reverse Acquisition to our financial statements for the years ended December 31,
2007 and 2006 appearing elsewhere in this annual report for a more detailed
discussion of the accounting treatment.





Results
of Operations




The
following table provides certain comparative information based on our
consolidated results of operations for the year ended December 31, 2007 as
compared to the year ended December 31, 2006:





Fiscal
      year ended December 31, 2007
                                                                                          
                                                                                          
                                                                                          Fiscal
      year ended December 31, 2006
                                                                                          
                                                                                          
                                                                                          $
      Change
                                                                                          
                                                                                          
                                                                                          %
      ChangeRestatedSales
                                                                                          $
                                                                                          35,298,453
                                                                                          
                                                                                          
                                                                                          $
                                                                                          30,311,924
                                                                                          
                                                                                          
                                                                                          $
                                                                                          4,986,529
                                                                                          
                                                                                          
                                                                                          
                                                                                          16.5
                                                                                          %Cost
      of Sales
                                                                                          
                                                                                          34,036,196
                                                                                          
                                                                                          
                                                                                          
                                                                                          30,884,771
                                                                                          
                                                                                          
                                                                                          
                                                                                          3,151,425
                                                                                          
                                                                                          
                                                                                          
                                                                                          10.2
                                                                                          %Gross
      Profit
                                                                                          
                                                                                          1,262,257
                                                                                          
                                                                                          
                                                                                          
                                                                                          (572,847
                                                                                          )
                                                                                          
                                                                                          
                                                                                          1,835,104
                                                                                          
                                                                                          
                                                                                          
                                                                                          320.3
                                                                                          %Selling
      Expenses
                                                                                          
                                                                                          37,546
                                                                                          
                                                                                          
                                                                                          
                                                                                          35,350
                                                                                          
                                                                                          
                                                                                          
                                                                                          2,196
                                                                                          
                                                                                          
                                                                                          
                                                                                          6.2
                                                                                          %General
      and Administrative Expenses
                                                                                          
                                                                                          640,631
                                                                                          
                                                                                          
                                                                                          
                                                                                          617,432
                                                                                          
                                                                                          
                                                                                          
                                                                                          23,199
                                                                                          
                                                                                          
                                                                                          
                                                                                          3.8
                                                                                          %Total
      Operating Expenses
                                                                                          
                                                                                          678,177
                                                                                          
                                                                                          
                                                                                          
                                                                                          912,276
                                                                                          
                                                                                          
                                                                                          
                                                                                          (234,099
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (25.7
                                                                                          )%Income
      (loss) from Operations
                                                                                          
                                                                                          584,080
                                                                                          
                                                                                          
                                                                                          
                                                                                          (1,485,123
                                                                                          )
                                                                                          
                                                                                          
                                                                                          2,069,203
                                                                                          
                                                                                          
                                                                                          
                                                                                          139.3
                                                                                          %Total
      Other Income
                                                                                          
                                                                                          13,575
                                                                                          
                                                                                          
                                                                                          
                                                                                          18,812
                                                                                          
                                                                                          
                                                                                          
                                                                                          (5,237
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (27.8
                                                                                          )%Net
      income (loss)
                                                                                          $
                                                                                          275,630
                                                                                          
                                                                                          
                                                                                          $
                                                                                          (1,476,700
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          1,752,330
                                                                                          
                                                                                          
                                                                                          
                                                                                          118.7
                                                                                          %




Other
Key Indicators




Fiscal
      year ended December 31, 2007
                      
                      Fiscal
      year ended December 31, 2006RestatedOther
      Key Indicators:Cost
      of Sales as a percentage of Sales
                      
                      
                      96%
                      
                      102%Gross
      Profit (Loss) Margin
                      
                      
                      4%
                      
                      (2)%Selling
      Expenses as a percentage of Sales
                      
                      
                      0%
                      
                      0%General
      and Administration Expenses as a percentage of Sales
                      
                      
                      2%
                      
                      2%Total
      Operating Expenses as a percentage of Sales
                      
                      
                      2%
                      
                      3%







- 20
-





Sales





Our
consolidated sales for 2007 increased approximately 16% from
2006.  This increase was due to an overall increase in shipping and
freight volume between the periods.





Cost
of sales and Gross profit (loss)





Our
cost of sales represents the cost of cargo space we obtain on behalf of our
customers.  Our consolidated cost of sales increased approximately 10%
during 2007 from 2006.  Cost of sales as a percentage of net revenues
decreased between periods, from 102% for 2006 to 96% for 2007.   This
decrease in cost of sales as a percentage of net revenues contributed to our
positive gross profit during 2007 and positive net income.  This
overall improvement in our gross margins was primarily due to our 16% increase
in sales between the periods and the related economies of scale which resulted
in a positive gross profit.




As a
result of the foregoing, our consolidated gross profit increased $1,835,104 in
2007 from 2006.  Gross profit as a percentage of sales increased from
a loss of 2% for 2006 to a profit of 4% for 2007.





Total
operating expenses





Total
operating expenses decreased approximately 25.7% in 2007 from
2006.  Operating expense as a percentage of revenue decreased to 2% in
2007 compared to 3% during 2006. This decrease is primarily due to a 78%
decrease in bad debt expense to $57,067 in 2007 from $259,494 in 2006;
eliminating the impact of bad debt expense, operating expenses in 2007 would
have decreased approximately 5%.  This 5% decrease is due to a $33,868
decrease in general and administrative expenses during 2007 as compared to 2006
as a result of overall cost-cutting measures related to office and
administrative expenses.




Total
other income





Total
other income decreased approximately 27.8% in 2007 from 2006.  This
change is primarily attributable to a decrease in other income of which
represents revenue from minimal activities related to consulting and third-party
agent services, outside of our core business; such services were rendered to
unrelated parties.





Income
(loss) before income taxes and minority interest; Net income
(loss)




We
generated income before income taxes and minority interest of $597,655 in 2007
compared to a loss before income taxes and minority interest of
$1,466,311.  In addition, during 2006, we recognized $259,494 in bad
debt expense, not incurred in 2007.  Net income in 2007 totaled
$275,630 compared to a loss in 2006 of $1,476,700.





Other
comprehensive income and comprehensive income (loss)





As
described elsewhere herein, our functional currency is the Chinese Renminbi;
however the accompanying consolidated financial statements have been translated
and presented in U.S. dollars using period-end rates of exchange for assets and
liabilities, and average rates of exchange for the period for revenues, costs,
and expenses.  Net gains and losses resulting from foreign exchange
transactions are included in the consolidated statements of operations and can
have a significant effect on our financial statements.  For 2007 we
reported a loss on foreign currency translations of $228,976 as compared to a
gain of $12,754 for 2006.  As a result of these non-cash transactions,
we reported comprehensive income of $46,654 in 2007 as compared to a
comprehensive loss of $1,463,946 in 2006.





Liquidity
and Capital Resources





Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations and otherwise operate on an ongoing basis.
At December 31, 2007, we had a working capital deficit of $2,775,652 as
compared to a deficit of $180,695 at December 31, 2006.





At December
31, 2007, we had $1,121,605 in unrestricted cash and an accumulated deficit
since inception of $385,402.





- 21
-





We
maintain cash balances in the United States and China. At December 31, 2007 and
December 31, 2006, our cash by geographic area was as
follows:




December
      31, 2007
                  
                  
                  December
      31, 2006United
      States
                  
                  $
                  215
                  
                  
                  
                  0.02
                  %
                  
                  $
                  -
                  
                  
                  
                  -
                  %China
                  
                  
                  1,121,390
                  
                  
                  
                  99.98
                  %
                  
                  
                  822,908
                  
                  
                  
                  100
                  %$
                  1,121,605
                  
                  
                  
                  100
                  %
                  
                  $
                  822,908
                  
                  
                  
                  100
                  %





For
the foreseeable future we anticipate that a substantial portion of our cash
balances will be held in the form of RMB held in bank accounts at financial
institutions located in the PRC. Cash held in banks in the PRC is not insured.
In 1996, the Chinese government introduced regulations, which relaxed
restrictions on the conversion of the RMB; however restrictions still remain,
including but not limited to restrictions on foreign invested entities. Foreign
invested entities may only buy, sell or remit foreign currencies after providing
valid commercial documents at only those banks authorized to conduct foreign
exchanges. Furthermore, the conversion of RMB for capital account items,
including direct investments and loans, is subject to PRC government approval.
Chinese entities are required to establish and maintain separate foreign
exchange accounts for capital account items. We cannot be certain Chinese
regulatory authorities will not impose more stringent restrictions on the
convertibility of the RMB, especially with respect to foreign exchange
transactions. Accordingly, cash on deposit in banks in the PRC is not readily
deployable by us for purposes outside of China.




The
Company believes that its current working capital and cash generated from
operations may not be sufficient to meet the Company’s cash requirements
for the next twelve months without the ability to obtain profitable operations
and/or obtain additional financing. As described elsewhere herein, under the
terms of the December 31, 2007 agreement to acquire a 51% interest in Shandong
Jiajia (the "Share Exchange Agreement") we are required to contribute $1,040,816
in additional registered capital to Shandong Jiajia by April 30, 2008 and to
make an additional $959,184 available for working capital by that date. We do
not presently have the funds necessary to satisfy this contractual commitment
and are reliant on our ability to raise the capital through a private placement
of our securities. We are currently negotiating with investors and while we
reasonably believe we will be able to close the transaction prior to April 30,
2008 any failure on our part to do so will result in a default under the terms
of the Share Exchange Agreement. In addition, Shandong Jiajia's operations have
not historically been profitable and it is likely we will need additional
capital to fund our operating losses as well as any future operating losses at
Shandong Jiajia. If the Company is not successful in generating sufficient cash
flows from operations or in raising additional capital when required in
sufficient amounts and on acceptable terms, these failures could have a material
adverse effect on the Company’s business, results of operations and financial
condition. If additional funds were raised through the issuance of equity
securities, the percentage ownership of the Company’s then-current
stockholders would be diluted. There can be no assurance that the Company will
be able to raise any required capital necessary to achieve its targeted growth
rates and future continuance on favorable terms or at all. Our independent
registered public accounting firm has included a statement in their report on
our financial statements, stating that certain factors raise substantial doubt
about our ability to continue as a going concern based upon our recurring
losses from operations, net cash used in operations, net working capital
deficiency, stockholders’ deficiency and accumulated deficit.





Total
current assets increased $1,894,697 or 59% at December 31, 2007 over December
31, 2006. This increase was due primarily to an increase in accounts receivable
of $1,227,947 due to increased sales during the period. Prepayments and other
assets also increased $313,237 as we made payments in advance to various freight
shipping firms to secure cargo space for our customers which reflect our overall
efforts in increasing the level of operations.





Total
current liabilities increased $4,489,654 or 133% at December 31, 2007 over
December 31, 2006. This increase was due primarily to $2,373,179 in a
Convertible note payable – Related Party and $446,985 in Accrued compensation –
Related Party as part of liabilities assumed from MediaReady, Inc. as a result
of the reverse merger effective December 31, 2007.  Trade accounts
payable and advances from customers also increased $875,830 and $572,877,
respectively, at December 31, 2007 from our 2006 year end balances due to an
overall increasing level of operations.  Upon shipment of goods and
compliance with the related contract terms, advances from customers will be
taken into income in accordance with our revenue recognition
policy.





In
addition, in March 2008 under the terms of our agreement with Shandong Jiajia,
we:





•
            satisfied
      $448,985 of accrued compensation due our then president and CEO, Mr.
      Jeffrey Harrell, through the issuance of 581,247 shares of our common
      stock, and


•
            converted
      a $2,521,380 note payable due a principal shareholder of our company, Mr.
      David Aubel, into 2,864,606 shares of our common
  stock.





- 22
-





From
time to time Shandong Jiajia has entered into transactions with related parties.
 At December 31, 2007, we were owed $511,435 by Shandong Huibo Import &
Export Co., Ltd., a 24.3% shareholder in Shandong Jiajia.  Shandong
Huibo Import & Export Co., Ltd., is a Chinese limited liability company
owned by PeiXiang Wang (31.7%) and PengXiang Liu (68.3%), unrelated third
parties.  The loan, which was provided in 2005, is unsecured,
non-interest bearing and payable on demand.





At
December 31, 2007, our balance sheet also reflected $229,252 due to Xiangfen
Chen, general manager of the Xiamen Branch of Shandong Jiajia.  The loan,
which was provided for working capital purposes is unsecured, non-interest
bearing and payable on demand.





Statement
of Cash Flows





Cash
provided from operating activities totaled $691,569 for the  year
ended December 31, 2007 compared to cash used in operating activities of
$154,698 for the  year ended December 31, 2006.  This
overall increase in cash provided by operating activities of $846,267 was
primarily attributable to positive income for the current year as compared to a
large loss in the prior year.  The largest sources of cash include
funding from the following: $1,054,327 from an increase in accounts payable and
accrued liabilities and $572,877 from an increase in advances from customers;
these sources of cash were offset primarily by the following uses of cash:
$1,227,947 from an increase in accounts receivable, $313,237 increase in prepaid
expenses and other current assets, and $162,440 to pay down other
payables.  The increases in operating sources and uses of cash is
directly related to our overall increase in sales activity between the
periods.





We
used $433,444 of cash for investing activities during 2007, which included
$419,940 advances to related parties and $13,504 for capital
expenditures.  This sharp increase in cash used in investing activity
from $40,032 in 2006 was due to advances made to related parties for their
working capital needs.




Off
Balance Sheet Arrangements




Under
Securities and Exchange Commission regulations, we are required to disclose our
off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, such as changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors. An
off-balance sheet arrangement means a transaction, agreement or contractual
arrangement to which any entity that is not consolidated with us is a party,
under which we have:





•
                  Any
      obligation under certain guarantee contracts;•
                  Any
      retained or contingent interest in assets transferred to an unconsolidated
      entity or similar arrangement that serves as credit, liquidity or market
      risk support to that entity for such assets;•
                  Any
      obligation under a contract that would be accounted for as a derivative
      instrument, except that it is both indexed to our stock and classified in
      stockholder’s equity in our statement of financial position;
      and•
                  Any
      obligation arising out of a material variable interest held by us in an
      unconsolidated entity that provides financing, liquidity, market risk or
      credit risk support to us, or engages in leasing, hedging or research and
      development services with
us.




We do not
have any off-balance sheet arrangements that we are required to disclose
pursuant to these regulations. In the ordinary course of business, we enter into
operating lease commitments, purchase commitments and other contractual
obligations. These transactions are recognized in our financial statements in
accordance with generally accepted accounting principles in the United
States.




ITEM
7A.           QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.




Not
applicable to smaller reporting companies.




ITEM
8.             FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.




Please
see our financial statements beginning on page F-1 of this amended annual
report.







- 23
-





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




None.




ITEM
9A(T).      CONTROLS AND
PROCEDURES.




DISCLOSURE
CONTROLS AND PROCEDURES




Under the
supervision and with the participation of our management, including our Chief
Executive Officer who serves as our principal executive officer and as our
principal financial officer, we conducted an evaluation of the effectiveness of
the design and operation of our disclosure controls and procedures, as defined
in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of
the end of the period covered by this report (the "Evaluation Date"). Based
on this evaluation, our principal executive officer and principal financial
officer concluded that, as a result of the material weaknesses set forth below
in “Management’s Report on Internal Control Over Financial Reporting,” the
Company’s disclosure controls and procedures were not effective as the
Evaluation Date.  Our evaluation included business activities which
were part of our Company for the entire 2007 period and excluded all businesses
which were acquired during 2007. The excluded business is Shandong Jiajia which
was acquired on December 31, 2007 and represents 100% of our consolidated
net revenues and net income for 2007. Our management, solely being our Chief
Executive Officer, does not expect that our disclosure controls and procedures
or our internal controls will prevent all error and all fraud. A control system,
no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered relative to their
costs. Due to the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within our Company have been detected.




MANAGEMENT'S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act, as amended). Our management assessed the effectiveness
of our internal control over financial reporting as of December 31, 2007.
In making this assessment, our management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in
Internal Control-Integrated Framework.




Our
management has concluded that, as of December 31, 2007, our internal
control over financial reporting was not effective, due to the failure to
properly record equity transactions which has resulted in several material
weaknesses.  A material weakness is a control deficiency, or
combination of control deficiencies, that results in more than a remote
likelihood that a material misstatement of our annual or interim financial
statements would not be prevented or detected.




As of
December 31, 2007, we did not have appropriate policies and procedures in place
to ensure that the number of shares of common stock issued and outstanding would
not exceed the number of common stock shares authorized. This material weakness
was reported in our December 31, 2007 Form 10-K. Also, as of December 31, 2007,
we did not have appropriate policies and procedures in place to ensure that the
recognition of the fair value of 450,000 shares of our Series B Convertible
preferred stock to be issued for consulting services rendered during the year
ended December 31, 2007 would be accounted for in 2007.  This material
weakness was not discovered until May 14, 2008, subsequent to the filing of our
December 31, 2007 Form 10-K/A.




Subsequent
to the filing of our initial December 31, 2007 Form 10-K, we
discovered  that,  as of December 31, 2007,  we
did not have appropriate policies and procedures in place to: (i) ensure that we
account for our acquisition of a 51% interest in Shandong Jiajia as a capital
transaction instead of using the purchase method of accounting, (ii) properly
determine that we were a public shell company prior to the Shandong Jiajia
acquisition, (iii) ensure that we account for certain costs related to
the Shandong Jiajia acquisition as costs directly associated with the
acquisition under the provisions of Statement of Financial Accounting Standard
No.141, and (iv) properly adjust the assets and liabilities of MediaReady,
Inc. to fair value in recording the Shandong Jiajia capital
transaction




We have
an inadequate number of personnel with the requisite expertise in generally
accepted accounting principles to ensure the proper application thereof. Our
sole officer and director is not an accountant and we have historically relied
upon the services of outside accountants. Due to the nature of these material
weaknesses in our internal control over financial reporting, there is more than
a remote likelihood that a material misstatement of our annual or interim
financial statements could occur that would not be prevented or
detected.







- 24
-





To
correct these ongoing material weaknesses we plan to implement changes in our
disclosure controls and procedures and internal control over financial reporting
to correct these material weaknesses.   We initially believed that
those changes would be implemented before the filing date of the December 31,
2008 Form 10-K; however, our current estimate as of the date of this Amendment
No. 3 to the Annual Report on Form 10-K for the year ended December 31, 2007 is
that these changes will be implemented prior to the filing date of our December
31, 2009 10-K.   Specifically, for issuances of common stock,
management plans to implement improved policies and procedures that will include
a review of issuances of common stock by appropriate personnel. For issuances of
preferred stock, management plans to implement improved policies and procedures
that will include a review of the accounting for preferred stock to be issued
for consulting services by appropriate personnel. In addition, we will make sure
that we have an adequate number of personnel involved in the preparation of the
financial statements and disclosures with the requisite expertise in generally
accepted accounting principles to ensure the proper application
thereof.  Once fully implemented, management believes that these new
policies and procedures will be effective in remediating the identified material
weaknesses




Our
internal accounting staff is primarily engaged in ensuring compliance with PRC
accounting and reporting requirements for our operating affiliates and their
U.S. GAAP knowledge was limited. As a result, a majority of our internal
accounting staff is relatively inexperienced with U.S. GAAP and the related
internal control procedures required of U.S. public companies. Although our
accounting staff is professional and experienced in accounting requirements and
procedures generally accepted in the PRC, management has determined that they
require additional training and assistance in U.S. GAAP matters. Management has
determined that our internal audit function is also significantly deficient due
to insufficient qualified resources to perform internal audit functions.
Finally, management determined that the lack of an Audit Committee of our Board
of Directors also contributed to insufficient oversight of our accounting and
audit functions.




Our
management, solely being our Chief Executive Officer, does not expect that our
disclosure controls and procedures or our internal controls will prevent all
error and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints and the
benefits of controls must be considered relative to their costs. Due to the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within our company have been detected.




This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Our management's report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management's report in
this annual report.




CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING




There
have been no changes in our internal control over financial reporting during our
fourth fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting other than that
noted in the preceding paragraphs.




ITEM
9B.       OTHER INFORMATION.




None.





- 25
-





PART
III




ITEM
10.        DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE




Directors
and Executive Officers





The
following individuals serve as our executive officers and members of our Board
of Directors:





Name
                  
                  Age
                  
                  PositionsV.
      Jeffrey Harrell
                  
                  
                  42
                  
                  Chairman,
      President, Chief Executive Officer, Secretary, Treasurer and sole
      director




V. Jeffrey Harrell.
Mr. Harrell is the Chairman and CEO of China Logistics Group, Inc., and has
served in such capacities since 1999. Over the last 20 years he has been
involved in a series of diversified ventures focusing on finance and accounting,
production control and accountability as well as automating an inventory control
system utilizing information technology processes and software within the
textile industry for consumer goods, financial services, property acquisition,
and outsourcing corporate services. Mr. Harrell is a graduate of
East Carolina University and received his degree in Business
Administration with concentrations in finance and accounting. Throughout his
career he has served on the Board of Directors of several non-profit charitable
organizations.




Key
Employees




Shandong
Jiajia is located in China and its day-to-day operations are the responsibility
of officers at that subsidiary. Following is biographical information on those
persons whom we consider key employees of our company:





Name
                    
                    Age
                    
                    PositionsHui
      Liu
                    
                    
                    45
                    
                    Chief
      Executive OfficerWei
      Chen
                    
                    
                    37
                    
                    General
      Manager, Shanghai
Branch




Hui Liu. Mr. Liu
co-founded Shandong Jiajia in 1999. From 1997 to 1999, Mr. Liu was the
storage and delivery department manager at Shandong Jiajia Import and Export
Corp., Ltd. and from 1989 to 1997 he managed customs declaration, inspection
declaration, shipping arrangement, and bulk cargo logistics at Cosco
International Freight Co., Ltd. From 1986 to 1989 Mr. Liu was employed as a
sailor with Qingdao Ocean Shipping Co., Ltd. Mr. Liu obtained an Associate
Degree in Vessel Driving from
Qingdao Ocean Shipping Mariner College in 1986




Wei Chen. Mr. Chen has
been the General Manager of Shandong Jiajia’s Shanghai Branch since
February 2002. Prior to joining Shandong Jiajia, Mr. Chen was a
shipping department manager at Shanghai Branch of Beijing Sunshine International
Freight Co., Ltd. from October 1998 to February 2002. Previously,
Mr. Chen was the chief representative of Shanghai office, Mitrans
International Shipping Co., Ltd. from June 1995 to October 1998.
Mr. Chen started his career as a sales representative at Asian Development
International Transportation Corporation between September 1992 and
May 1995. Mr. Chen obtained the Bachelor’s Degree in International
Shipping from Shanghai Maritime University in 1992.




Compliance
with Section 16(a) of the Exchange Act




Based
solely upon a review of Forms 3 and 4 and amendments thereto furnished to us
under Rule 16a-3(d) of the Securities Exchange Act of 1934 during the
fiscal year ended December 31, 2007 and Forms 5 and amendments thereto
furnished to us with respect to the fiscal year ended December 31, 2007, as
well as any written representation from a reporting person that no Form 5
is required, we are not aware that any officer, director or 10% or greater
shareholder failed to file on a timely basis, as disclosed in the aforementioned
Forms, reports required by Section 16(a) of the Securities Exchange Act of
1934 during the fiscal year ended December 31, 2007.





- 26
-





Code
of Ethics




We have
adopted a Code of Business Conduct and Ethics to provide guiding principles to
all of our employees. Our Code of Business Conduct and Ethics does not cover
every issue that may arise, but it sets out basic principles to guide our
employees and provides that all of our employees must conduct themselves
accordingly and seek to avoid even the appearance of improper behavior. Any
employee which violates our Code of Business Conduct and Ethics will be subject
to disciplinary action, up to an including termination of his or her
employment.




Generally,
our Code of Business Conduct and Ethics provides guidelines
regarding:




•
            compliance
      with laws, rules and regulations,•
            conflicts
      of interest,•
            insider
      trading,•
            corporate
      opportunities,•
            competition
      and fair dealing,•
            discrimination
      and harassment,•
            health
      and safety,•
            record
      keeping,•
            confidentiality,•
            protection
      and proper use of company assets,•
            payments
      to government personnel,•
            waivers
      of the Code of Business Conduct and Ethics,•
            reporting
      any illegal or unethical behavior, and•
            compliance
      procedures.





In
addition, we have also adopted a Code of Ethics for our Chief Executive Officer
and senior financial officers. In addition to our Code of Business Conduct and
Ethics, our CEO and senior financial officers are also subject to specific
policies regarding:





•
            disclosures
      made in our filings with the Securities and Exchange
      Commission,•
            deficiencies
      in internal controls or fraud involving management or other employees who
      have a significant role in our financial reporting, disclosure or internal
      controls,•
            conflicts
      of interests, and•
            knowledge
      of material violations of securities or other laws, rules or regulations
      to which we are subject.





A copy of
our Code of Business Conduct and Ethics has been filed with the Securities and
Exchange Commission as an exhibit to this annual report. We will provide a copy,
without charge, to any person desiring a copy of the Code of Business Conduct
and Ethics, by written request to, 7300 Alondra Boulevard, Suite 108, Paramount,
California 90723, Attention: Corporate Secretary.




Committees
of the Board of Directors




Our Board
of Directors has not established any committees, including an Audit Committee, a
Compensation Committee or a Nominating Committee, or any committee performing a
similar function. The functions of those committees are being undertaken by the
entire board as a whole.




We do not
have a policy regarding the consideration of any director candidates, which may
be recommended by our stockholders, including the minimum qualifications for
director candidates, nor has our Board of Directors established a process for
identifying and evaluating director nominees. We have not adopted a policy
regarding the handling of any potential recommendation of director candidates by
our stockholders, including the procedures to be followed.  Our Board
has not considered or adopted any of these policies as we have never received a
recommendation from any shareholder for any candidate to serve on our Board of
Directors. Given our relative size and lack of directors and officer’s insurance
coverage, we do not anticipate that any of our stockholders will make such a
recommendation in the near future. While there have been no nominations of
additional directors proposed, in the event such a proposal is made, all members
of our Board will participate in the consideration of director
nominees.





- 27
-





None of
our directors is an "audit committee financial expert" within the meaning of
Item 401(e) of Regulation S-K. In general, an "audit committee financial
expert" is an individual member of the audit committee or Board of Directors
who:




•
            understands
      generally accepted accounting principles and financial
      statements,•
            is
      able to assess the general application of such principles in connection
      with accounting for estimates, accruals and reserves,•
            has
      experience preparing, auditing, analyzing or evaluating financial
      statements comparable to the breadth and complexity to our financial
      statements,•
            understands
      internal controls over financial reporting, and•
            understands
      audit committee functions.





We
currently have only one member of our Board of Directors who is also our sole
officer. It is our desire to expand our Board of Directors in the future to
include one or more independent directors. At that time we intend to establish
an Audit Committee of our Board of Directors. It is our intention that one or
more of these independent directors will also qualify as an audit committee
financial expert. Our securities are not quoted on an exchange that has
requirements that a majority of our Board members be independent and we are not
currently otherwise subject to any law, rule or regulation requiring that all or
any portion of our Board of Directors include "independent" directors, nor are
we required to establish or maintain an Audit Committee or other committee of
our Board of Directors.




ITEM
11.           EXECUTIVE
COMPENSATION.




The
following table summarizes all compensation recorded by us in the last completed
year for




•
            our
      principal executive officer or other individual serving in a similar
      capacity,•
            our
      two most highly compensated executive officers other than our principal
      executive officer who were serving as executive officers at
      December 31, 2007 as that term is defined under Rule 3b-7 of the
      Securities Exchange Act of 1934. In the case of our company this includes
      the executive officers of our Shandong Jiajia subsidiary,
    and•
            up
      to two additional individuals for whom disclosure would have been required
      but for the fact that the individual was not serving as an executive
      officer at December 31, 2007.





For
definitional purposes in this annual report these individuals are sometimes
referred to as the “named executive officers.”





SUMMARY
      COMPENSATION TABLEName
      and Principal Position
                            (a)
                          
                          Year
                            (b)
                          
                          Salary
                            ($)
                            (c)
                          
                          
                          Bonus
                            ($)
                            (d)
                          
                          
                          Stock
                            Awards
                            ($)
                            (e)
                          
                          
                          Option
                            Awards
                            ($)
                            (f)
                          
                          
                          Non-Equity
                            Incentive
      Plan
                            Compensation
      ($)
                            (g)
                          
                          
                          Nonqualified
                            Deferred
                            Compensation
                            Earnings
      ($)
                            (h)
                          
                          
                          All
                            Other
                            Compensation
                            ($)
                            (i)
                          
                          
                          Total
                            ($)
                            (j)V.
      Jeffrey Harrell (1)
                          
                          2007
                          
                          
                          200,000
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          200,0002006
                          
                          
                          200,000
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          200,000Hui
      Liu (2)
                          
                          2007
                          
                          
                          3,732
                          
                          
                          
                          14,785
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          11,500
                          
                          
                          
                          30,017Wei
      Chen
                          
                          2007
                          
                          
                          26,642
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          26,642
  (1)
                        During
      2007 Mr. Harrell converted $193,500 of accrued but unpaid compensation
      into 135,000 shares of our common stock. At December 31, 2007 we owed Mr.
      Harrell an aggregate of approximately $419,000 of accrued but unpaid
      compensation. Pursuant to the terms of the Share Exchange Agreement, on
      March 20, 2008 he converted all amounts due him into 581,247 shares of our
      common stock in full satisfaction of those obligations.(2)
                        In
      2007 Mr. Liu received a $14,785 bonus and $10,958 for travel
      allowance and $542 for a car
allowance.





We
currently have no employment agreements with any of our executive officers, nor
any compensatory plans or arrangements resulting from the resignation,
retirement or any other termination of any of our executive officers, from a
change-in-control, or from a change in any executive officer's responsibilities
following a change-in-control.





- 28
-





Our Board
of Directors, of which Mr. Harrell is the sole member, fixes the amount of
compensation payable to Mr. Harrell. The Board of Directors did not consult with
any experts or other third parties in fixing the amount of Mr. Harrell's
compensation. During 2006 and 2007 Mr. Harrell's compensation package
included a base salary of $200,000. Mr. Harrell has consistently drawn a
salary below his base entitlement. The amount of compensation payable to
Mr. Harrell can be increased at any time upon the determination of the
Board of Directors of which he is the sole member.




Mr. Liu
and Mr. Chen are executive officers and directors of our Shandong Jiajia
subsidiary and as such are responsible for its day- to-day operations. Neither
Mr. Liu nor Mr. Chen are parties to an employment agreement with
Shandong Jiajia. The compensation for each of these individuals is determined by
Shandong Jiajia's Board of Directors of which they are members and is based upon
a number of factors including the scope of each of their duties and
responsibilities to Shandong Jiajia and the time each devotes to its business.
Such deliberations are not arms-length. Shandong Jiajia did not consult with any
experts or other third parties in fixing the amount of either Mr. Liu's or
Mr. Chen's compensation. We anticipate that similar procedures will be
followed for 2008. The amount of compensation payable to either Mr. Liu or
Mr. Chen can be increased at any time upon the determination of Shandong
Jiajia's Board of Directors.




Outstanding
Equity Awards at Year End




The
following table provides information concerning unexercised options, stock that
has not vested and equity incentive plan awards for each named executive officer
outstanding as of December 31, 2007:





OPTION
      AWARDS
                
                
                STOCK
      AWARDSName
                  (a)
                
                Number
      of
                  Securities
                  Underlying
                  Unexercised
                  options
                  (#)
                  exercisable
                  (b)
                
                
                Number
      of
                  Securities
                  Underlying
                  Unexercised
                  Options
      (#)
                  unexercisable
                  (c)
                
                
                Equity
                  incentive
                  plan
      awards:
                  Number
      of
                  Securities
                  Underlying
                  Unexercised
                  Unearned
                  options
                  (#)
                  (d)
                
                
                Option
                  Exercise
                  price
                  ($)
                  (e)
                
                
                Option
      expiration
                  date
                  (f)
                
                
                Number
      of
                  shares
      or
                  units
      of
                  stock
      that
                  have
      not
                  vested
      (#)
                  (g)
                
                
                Market
                  value
      of
                  shares
      or
                  units
      of
                  stock
      that
                  have
      not
                  vested
      ($)
                  (h)
                
                
                Equity
                  Incentive
                  plan
      awards:
                  Number
      of
                  Unearned
                  shares,
      units
                  or
      other
                  rights
      that
                  have
      not
                  Vested
      (#)
                  (i)
                
                
                Equity
                  Incentive
                  plan
      awards:
                  Market
      or
                  payout
      value
                  of
      unearned
                  shares,
      units
                  or
      other
                  rights
      that
                  have
      not
                  vested
      (#)
                  (j)V.
      Jeffrey Harrell
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0Hiu
      Liu
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0Wei
      Chen
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0




Director
Compensation




Mr.
Harrell, our sole director, did not receive any compensation in 2007 solely
related to his services as a director.




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




At
March 31, 2008, there were 19,395,203  shares of our common
stock issued and outstanding . Our common stock is our only class of
voting security. The following table sets forth information known to us as of
April 2, 2008 relating to the beneficial ownership of shares of our voting
securities by:





•
            each
      person who is the beneficial owner of more than 5% of the outstanding
      shares of voting securities;•
            each
      director;•
            each
      named executive officer; and•
            all
      named executive officers and directors as a group.•
            understands
      audit committee functions.





Unless
otherwise indicated, the address of each beneficial owner in the table set forth
below is care of 7300 Alondra Boulevard, Suite 108, Paramount, California
90723.




- 29
-





The percentages
in the table have been calculated on the basis of treating as outstanding for a
particular person, all shares of our common stock outstanding on that date and
all shares of our common stock issuable to that holder in the event of exercise
of outstanding options, warrants, rights or conversion privileges owned by that
person at that date which are exercisable within 60 days of that date. Except as
otherwise indicated, the persons listed below have sole voting and investment
power with respect to all shares of stock owned by them, except to the extent
that power may be shared with a spouse.





Amount
      and Nature of Beneficial Ownership(1)Name
                  
                  No. of
      Shares
                  
                  %
      of ClassV.
      Jeffrey Harrell
                  
                  
                  731,336
                  
                  3.8%Wei Chen
    (2)
                  
                  
                  4,762,500
                  
                  22.3%Hui Liu
(3)
                  
                  
                  312,500
                  
                  1.6%All
      named executive officers and directors as a group (three
      persons)
                  
                  
                  5,806,336
                  
                  27.1%China Direct, Inc.
      (4)
                  
                  
                  9,312,500
                  
                  39.0%Dragon Venture (Shanghai) Capital
      Management Co., Ltd. (5)
                  
                  
                  1,400,000
                  
                  7.2%David J. Aubel
      (6)
                  
                  
                  2,864,608
                  
                  14.8%Lili Gong
    (7)
                  
                  
                  1,000,000
                  
                  5.2%




(1)
            The
      inclusion of any shares as deemed beneficially owned does not constitute
      an admission of beneficial ownership by the named
    shareholder.(2)
            Mr. Wei
      Chen is an executive officer and minority shareholder of Shandong Jiajia.
      Mr. Chen's address is 8 S. Henan Road Lane 1001 Apt. 3404, Shanghai,
      China 200000. The number of shares beneficially owned by Mr. Chen
      includes 2,000,000 shares of our common stock issuable upon the exercise
      of warrants with an exercise price of $0.30 per share.(3)
            Mr. Hui
      Liu is an executive officer and minority shareholder of Shandong Jiajia.
      Mr. Liu's address is Golden Plaza North Building Suite 1618B, 20
      Middle Hongkong Road, Qingdao, China, 266071.(4)
            The
      shares of our common stock shown are beneficially owned by China Direct,
      Inc., address: 431 Fairway Drive Suite 200, Deerfield Beach,
      Florida 33441. Dr. James Wang and Mr. Marc Siegel, executive
      officers of China Direct, Inc., hold voting and dispositive control over
      securities owned by China Direct, Inc. in their capacities of Chief
      Executive Officer and President, respectively.  The shares
      of common stock beneficially owned by China Direct, Inc.
      include:•
            4,750,000
      shares of common stock held of record by Capital One Resource Co., Ltd., a
      wholly owned subsidiary of CDI China, Inc., which is in turn a wholly
      owned subsidiary of China Direct, Inc.,•
            62,500
      shares of common stock held of record by China Direct Investments, Inc., a
      wholly owned subsidiaries of China Direct, Inc., and•
            450,000
      shares of Series B preferred stock to be issued to China Direct
      Investments, Inc. which has no voting rights but is convertible at the
      option of the holder into 4,500,000 shares of common stock. Under the
      terms of the consulting agreement entered into with China Direct, Inc. in
      December 2007, we agreed to issue it 450,000 shares of our
      Series B preferred stock as compensation for services to be rendered,
      which such shares are to be issued on or before June 30, 2008.
      However, as pursuant to the terms of the agreement even if the agreement
      should be terminated prior to its expiration such compensation will be
      payable, under the rules of the Securities and Exchange Commission, China
      Direct Investments, Inc. is deemed to beneficially own such
      securities.(5)
            Dragon
      Venture (Shanghai) Capital Management Co. Ltd. is a subsidiary of Dragon
      Capital Group Corp. Mr. Lawrence Wang, the CEO of Dragon Capital
      Group Corp., has voting and dispositive control over securities owned by
      Dragon Venture (Shanghai) Capital Management Co., Ltd. by virtue of his
      position as CEO of Dragon Capital Group Corp. Dragon Venture (Shanghai)
      Capital Management Co. Ltd.'s address is 335 Guo Ding Road, 2 Building,
      Suite 2009, Shanghai, China 200433.(6)
            Mr. Aubel's
      address is 4901 NW 17th Way, Fort Lauderdale,
      FL 33309.(7)
            Ms. Gong's
      address is Room 501, No. 19 Lane, Tianshan Road, Shanghai,
      20051




- 30
-





ITEM
13.            CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.




From time
to time Mr. David Aubel, a principal shareholder of our company, has provided
funds to us to pay our operating costs. During 2007 Mr. David Aubel, a principal
shareholder of our company, paid $185,336 in our overhead costs. At December 31,
2007 we owed him $2,373,179 under a note. The note, which bore interest at 8%
per annum, was due on demand and collateralized by all of our assets. In 2007 we
recorded interest of $201,583 on this note. During the first quarter of 2008 he
advanced us an additional approximate $138,000 for working capital. Pursuant to
the terms of the Share Exchange Agreement, on March 28, 2008 Mr. Aubel converted
all amounts due him under the note as well as the subsequent advances into
2,864,606 shares of our common stock.  We are evaluating any rights we may
have to seek damages against Mr. Aubel as a result of the uncertainty as to the
validity of the amount of the note payable.




From time
to time Shandong Jiajia enters into transactions with related parties,
including:





At
December 31, 2007 Shandong Jiajia was owed $511,435  from Shandong
Huibo Import & Export Co., Ltd., a 24.3% shareholder of Shandong Jiajia.
 This loan is unsecured, non-interest bearing and due on
demand.




At
December 31, 2007 Shandong Jiajia owed Mr. Xiangfen Chen, the general manager of
its Xiamin branch, $229,252 representing amounts loaned to it. This loan is
unsecured, non-interest bearing and due on demand. Shandong Jiajia used the
funds for general working capital.




There are
no assurances that the terms of the transactions with these related parties are
comparable to terms we could have obtained from unaffiliated third
parties.




On
December 31, 2007, the Company had a commitment to Xiangfen Chen for the lease
of the Company's branch office in Xiamin City, China, totaling $1,459 per
year.




Director
Independence




Our sole
director is not an independent director within the meaning of Marketplace
Rule 4200 of The NASDAQ Stock Market.




ITEM
14.            PRINCIPAL
ACCOUNTANT FEES AND SERVICES.




Sherb
& Co., LLP served as our independent registered public accounting firm for
2007 and 2006. The following table shows the fees that were billed for the audit
and other services provided by such firm for 2007 and 2006.





2007
                  
                  
                  2006Audit
      Fees
                  
                  $
                  65,000
                  
                  
                  $
                  156,568Audit-Related
      Fees
                  
                  
                  0
                  
                  
                  
                  0Tax
      Fees
                  
                  
                  0
                  
                  
                  
                  0All
      Other Fees
                  
                  
                  18,000
                  
                  
                  
                  0Total
                  
                  $
                  83,000
                  
                  
                  $
                  156,568




Audit Fees — This category
includes the audit of our annual financial statements, review of financial
statements included in our Form 10-QSB Quarterly Reports and services that
are normally provided by the independent auditors in connection with engagements
for those years. This category also includes advice on audit and accounting
matters that arose during, or as a result of, the audit or the review of interim
financial statements.




Audit-Related Fees — This
category consists of assurance and related services by the independent auditors
that are reasonably related to the performance of the audit or review of our
financial statements and are not reported above under “Audit Fees.” The services
for the fees disclosed under this category include consultation regarding our
correspondence with the Securities and Exchange Commission and other accounting
consulting.




Tax Fees — This category
consists of professional services rendered by our independent auditors for tax
compliance and tax advice. The services for the fees disclosed under this
category include tax return preparation and technical tax advice.




All Other Fees — This
category consists of fees for other miscellaneous items.





- 31
-





Our Board
of Directors has adopted a procedure for pre-approval of all fees charged by the
our independent auditors. Under the procedure, the Board approves the engagement
letter with respect to audit, tax and review services. Other fees are subject to
pre-approval by the Board, or, in the period between meetings, by a designated
member of Board. Any such approval by the designated member is disclosed to the
entire Board at the next meeting. The audit and tax fees paid to the auditors
with respect to year 2007 were pre-approved by our Board of
Directors.


PART
IV




ITEM
15.            EXHIBITS, FINANCIAL STATEMENT
SCHEDULES.




The
following documents are filed as a part of this report or are incorporated by
reference to previous filings, if so indicated:





Exhibit  
      No.
            
            Description3.1
            
            Articles
      of Incorporation (1)3.2
            
            Articles
      of Amendment (1)3.3
            
            Articles
      of Amendment (5)3.4
            
            Articles
      of Amendment (2)3.5
            
            Form of
      Articles of Amendment (10)3.6
            
            Bylaws
      (1)4.1
            
            Trilogy
      Capital Partners, Inc. Warrant Agreement dated June 1,
      2006(3)4.2
            
            Form of
      common stock purchase warrant issued to Mr. Chen *10.1
            
            Debt
      Conversion Agreement with David Aubel dated December 3, 2005
      (4)10.2
            
            Amendment
      to Debt Conversion Agreement with David Aubel dated May 15, 2006
      (6)10.3
            
            Consulting
      and Management Agreement dated May 22, 2007 with China Direct
      Investments, Inc. (7)10.4
            
            Consulting
      and Management Agreement dated September 5, 2007 with Capital One
      Resource Co., Ltd (8)10.5
            
            Acquisition
      Agreement dated as of December 31, 2007 between MediaREADY, Inc.,
      Shandong Jiajia International Freight & Forwarding (Logistics Co.)
      Ltd., and Messrs. Hui Liu and Wei Chen (2)10.6
            
            Finder's
      Agreement dated as of December 31, 2007 between MediaREADY, Inc. and
      Dragon Venture (Shanghai) Capital Management Co., Ltd.
  (2)10.7
            
            Consulting
      Agreement dated as of December 31, 2007 between MediaREADY, Inc. and
      China Direct, Inc. (2)10.8
            
            Form of
      Amendment to Acquisition Agreement dated as of January 28, 2008
      between MediaREADY, Inc., Shandong Jiajia International Freight &
      Forwarding Ltd., and Messrs. Hui Liu and Wei Chen
  (9)10.9
            
            Form of
      Amendment to Finder's Agreement dated as of January 28, 2008 between
      MediaREADY, Inc. and Dragon Venture (Shanghai) Capital Management Co.,
      Ltd. (9)10.10
            
            Form of
      Amendment to Acquisition Agreement dated as of March 13, 2008 between
      MediaREADY, Inc., Shandong Jiajia International Freight & Forwarding
      Ltd., and Messrs. Hui Liu and Wei Chen (11)10.11
            
            Promissory
      Note dated January 1, 2003 between Video Without Boundaries, Inc. and
      David Aubel in the principal amount of $561,517.27 (incorporated herein by
      reference to Exhibit 10.11 filed as a part of the Company’s Form 10-Q
      filed with the Commission on December 22, 2008 (Commission File No.
      000-31497)).10.12
            
            Security
      Agreement dated May 23, 2001 between ValuSales.com, Inc. and David Aubel
      (incorporated herein by reference to Exhibit 10.12 filed as a part of the
      Company’s Form 10-Q filed with the Commission on December 22, 2008
      (Commission File No. 000-31497)).10.14
            
            Conversion
      Agreement effective as of March 20, 2008 between China Logistics Group,
      Inc. and David Aubel (incorporated herein by reference to Exhibit 10.14
      filed as a part of the Company’s Form 10-Q filed with the Commission on
      December 22, 2008 (Commission File No. 000-31497)).10.15
            
            Conversion
      Agreement effective as of March 20, 2008 between China Logistics Group,
      Inc. and V. Jeffrey Harrell (incorporated herein by reference to Exhibit
      10.15 filed as a part of the Company’s Form 10-Q filed with the Commission
      on December 22, 2008 (Commission File No. 000-31497)).14.1
            
            Code
      of Business Conduct and Ethics *21.1
            
            Subsidiaries
      of the Registrant *31.1
            
            Section 302
      Certificate of Chief Executive Officer  **31.2
            
            Section 302
      Certificate of principal financial and accounting
      officer  **32.1
            
            Section 906
      Certificate of Chief Executive Officer and principal financial and
      accounting officer  **




———————


*             previously
filed


**           filed
herewith





- 32
-








(1)
            Incorporated
      by reference to the registration statement on Form 10-SB, SEC File
      No. 0-31497, as filed with the Securities and Exchange Commission on
      September 11, 2000, as amended.(2)
            Incorporated
      by reference to the Current Report on Form 8-K as filed on
      January 7, 2008.(3)
            Incorporated
      by reference to the Current Report on Form 8-K as filed on
      June 2, 2006.(4)
            Incorporated
      by reference to the Annual Report on Form 10-KSB for the year
      ended December 31, 2004.(5)
            Incorporated
      by reference to the Current Report on Form 8-K as filed on
      September 27, 2006.(6)
            Incorporated
      by reference to the Quarterly Report on Form 10-QSB for the period
      ended September 30, 2006.(7)
            Incorporated
      by reference to the Current Report on Form 8-K as filed on
      May 23, 2007.(8)
            Incorporated
      by reference to the Current Report on Form 8-K as filed on
      September 10, 2007.(9)
            Incorporated
      by reference to the Current Report on Form 8-K as filed on
      January 31, 2008.(10)
            Incorporated
      by reference to the definitive information statement on Schedule 14C as
      filed on February 14, 2008.(11)
            Incorporated
      by reference to the Current Report on Form 8-K as filed on
      March 18, 2008.







- 33
-





SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.





CHINA
      LOGISTICS GROUP, INC.Date:
      June 9, 2009
            By:
            /s/
      Wei ChenWei
      Chen, Chief Executive Officer and
President









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 registrant and in the
capacities and on the dates indicated.








Signature
            
            Title
            
            Date/s/
      Wei Chen
            
            Chief
      Executive Officer, Principal Financial and Accounting Officer
      and director
            
            June
      9, 2009Wei
      Chen/s/
      Hui Liu
            
            Director
            
            June
      9, 2009Hui
      Liu








- 34
-





CHINA
LOGISTICS GROUP, INC.




AND
SUBSIDIARIES




FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006




INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS




CONTENTS










Report
      of Independent Registered Public Accounting Firm
            
            F-2Consolidated
      Financial Statements:Consolidated
      Balance Sheets
            
            F-3Consolidated
      Statements of Operations
            
            F-4Consolidated
      Statements of Stockholders’ Deficit
            
            F-5Consolidated
      Statements of Cash Flows
            
            F-6Notes
      to Consolidated Financial Statements
            
            F-7







F- 1





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




Shareholders
and Directors




China
Logistics Group, Inc.




We have
audited the accompanying consolidated balance sheets of China Logistics Group,
Inc. and its subsidiary as of December 31, 2007 and 2006, and the related
consolidated statements of operations, stockholders’ equity and cash flows for
the years ended December 31, 2007 and 2006. These consolidated financial
statements are the responsibility of the company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform 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 controls over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of China Logistics Group, Inc. and its
subsidiary as of December 31, 2007 and 2006, and the results of its
operations and its cash flows for the years ended December 31, 2007 and
2006 in conformity with accounting principles generally accepted in the United
States.




The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 3 to the financial
statements, the Company  has a net working capital deficiency, a
stockholders’ deficiency and an accumulated deficit that raises substantial
doubt about its ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.





The
accompanying financial statements have been restated to give effect to the
correction of an accounting error relating to the reverse acquisition on
December 31, 2007 (see Note 2).





/s/ Sherb
      & Co., LLPCertified
      Public Accountants




Boca
Raton, Florida




March 31,
2008, except for Note 2, as to which the date is May 27,
2009.








F-
2





CHINA
LOGISTICS GROUP, INC.


AND
SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


DECEMBER
31, 2007 AND 2006





2007
                    
                    
                    2006ASSETS
                    
                    RestatedCurrent
      assets:Cash
                    
                    $
                    1,121,605
                    
                    
                    $
                    822,908Accounts receivable, net of allowance for doubtful accounts of $794,715
      and $1,262,902 at December 31, 2007 and 2006,
      respectively
                    
                    
                    3,131,831
                    
                    
                    
                    1,903,884Accounts receivable - related party
                    
                    
                    7,000
                    
                    
                    
                    -Other receivables
                    
                    
                    -
                    
                    
                    
                    181,060Due from related parties
                    
                    
                    511,435
                    
                    
                    
                    282,559Prepayments and other current assets
                    
                    
                    328,065
                    
                    
                    
                    14,828Total current assets
                    
                    
                    5,099,936
                    
                    
                    
                    3,205,239Property and equipment, net
                    
                    
                    42,336
                    
                    
                    
                    50,309Deposits
                    
                    
                    -
                    
                    
                    
                    4,683Total assets
                    
                    $
                    5,142,272
                    
                    
                    $
                    3,260,231LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilities:Cash
      overdraft
                    
                    $
                    12,633
                    
                    
                    $
                    -Accounts payable – trade
                    
                    
                    3,608,885
                    
                    
                    
                    2,733,055Accrued compensation – related party
                    
                    
                    446,985
                    
                    
                    
                    -Other accruals and current liabilities
                    
                    
                    485,101
                    
                    
                    
                    319,237Convertible note payable/related party
                    
                    
                    2,373,179
                    
                    
                    
                    -Advances from customers
                    
                    
                    683,436
                    
                    
                    
                    110,559Due to related parties
                    
                    
                    229,252
                    
                    
                    
                    214,211Foreign tax payable
                    
                    
                    36,117
                    
                    
                    
                    8,872Total current liabilities
                    
                    
                    7,875,588
                    
                    
                    
                    3,385,934Minority
      interest
                    
                    
                    601,028
                    
                    
                    
                    -Stockholders'
      deficit:Preferred
      stock - $.001 par value, 5,000,000 shares authorizedSeries
      A preferred stock - 1,000,000 shares issued and outstanding at
      December 31, 2007 and 2006, respectively
                    
                    
                    1,000
                    
                    
                    
                    1,000Series
      B preferred stock - 1,295,000 and 120,000 shares issued and outstanding at
      December 31, 2007 and 2006, respectively
                    
                    
                    1,295
                    
                    
                    
                    120Common
      stock - $.001 par value, 200,000,000 shares authorized, 4,999,350
      and 2,750,291 shares issued and outstanding at December 31, 2007 and
      2006, respectively
                    
                    
                    4,999
                    
                    
                    
                    2,750Additional
      paid-in capital
                    
                    
                    (2,729,846
                    )
                    
                    
                    863,175Accumulated
      deficit
                    
                    
                    (385,402
                    )
                    
                    
                    (995,334
                    )Accumulated
      other comprehensive (loss) income
                    
                    
                    (226,390
                    )
                    
                    
                    2,586Total stockholders' deficit
                    
                    
                    (3,334,344
                    )
                    
                    
                    (125,703
                    )Total liabilities and stockholders' deficit
                    
                    $
                    5,142,272
                    
                    
                    $
                    3,260,231




The
accompanying notes are an integral part of these financial
statements







F-
3





CHINA
LOGISTICS GROUP, INC.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006





2007
                  
                  2006RestatedSales
                  $
                  35,298,453
                  
                  $
                  30,311,924Cost
      of sales
                  
                  34,036,196
                  
                  
                  30,884,771Gross
      profit (loss)
                  
                  1,262,257
                  
                  
                  (572,847
                  )Operating
      expenses:Selling
      expenses
                  
                  37,546
                  
                  
                  35,350General
      and administrative expenses
                  
                  583,564
                  
                  
                  617,432Bad
      debt expense
                  
                  57,067
                  
                  
                  259,494Total
      operating expenses
                  
                  678,177
                  
                  
                  912,276Income
      (loss) from operations
                  
                  584,080
                  
                  
                  (1,485,123
                  )Other
      income:Other
      income
                  
                  13,575
                  
                  
                  18,588Interest
      income
                  
                  -
                  
                  
                  224Total
      other income
                  
                  13,575
                  
                  
                  18,812Income
      (loss) before income taxes and minority interest
                  
                  597,655
                  
                  
                  (1,466,311
                  )Foreign
      taxes
                  
                  (57,205)
                  
                  
                  (10,389
                  )Income
      (loss) before minority interest
                  
                  540,450
                  
                  
                  (1,476,700
                  )Minority
      interest in income of consolidated income
                  
                  264,820
                  
                  
                  -Net
      income (loss)
                  
                  275,630
                  
                  
                  (1,476,700
                  )Other
      comprehensive income (loss):Foreign
      currency translation adjustments
                  
                  (228,976)
                  
                  
                  12,754Comprehensive
      income (loss)
                  $
                  46,654
                  
                  $
                  (1,463,946)Earnings
      (loss) per share:Basic
                  $
                  0.08
                  
                  $
                  (0.63
                  )Diluted
                  $
                  0.03
                  
                  $
                  (0.63
                  )Weighted-average
      number of shares outstandingBasic
                  
                  3,442,152
                  
                  
                  2,329,307Diluted
                  
                  9,045,589
                  
                  
                  2,329,307




The
accompanying notes are an integral part of these financial
statements







F-
4







CHINA
LOGISTICS GROUP, INC.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)


FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006







Accumulated
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          AccumulatedSeries
      A
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Series
      B
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Additional
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Retained
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          OtherPreferred
      Stock
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Preferred
      Stock
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Common
      Stock
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Paid-In
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Earnings
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          ComprehensiveShares
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Amount
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Shares
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Amount
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Shares
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Amount
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Capital
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          (Deficit)
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Income/Loss
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          TotalRestated
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Restated
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Restated
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Restated
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Restated
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Restated
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Restated
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Restated
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          Restated
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          RestatedBalance
      December 31, 2005
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          1,000,000
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                          1,000
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          120,000
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                          120
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          2,750,291
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                          2,750
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                          863,175
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                          481,366
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                          (10,168
                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                          1,338,243Net
      loss for the year
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          (1,476,700
                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          (1,476,700
                                                                                                                                                                                                                                          )Foreign
      currency translation adjustments
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          12,754
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          12,754Balance
      December 31, 2006
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          1,000,000
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          1,000
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          120,000
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          120
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          2,750,291
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          2,750
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          863,175
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          (995,334
                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          2,586
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          (125,703
                                                                                                                                                                                                                                          )Recapitalization
      for reverse acquisition
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          1,175,000
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          1,175
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          2,249,059
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          2,249
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          (3,593,021
                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          334,302
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          (3,255,295
                                                                                                                                                                                                                                          )Foreign
      currency translation adjustments
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          (228,976
                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          (228,976
                                                                                                                                                                                                                                          )Net
      income for the year
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          275,630
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          275,630Balance
      December 31, 2007
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          1,000,000
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                          1,000
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          1,295,000
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                          1,295
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          4,999,350
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                          4,999
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                          (2,729,846
                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                          (385,402
                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                          (226,390
                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                          (3,334,344
                                                                                                                                                                                                                                          )




The
accompanying notes are an integral part of these financial
statements










F-
5







CHINA
LOGISTICS GROUP, INC.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006




For
      the Year EndedDecember
      31,2007
                
                
                2006RestatedCASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                
                $
                275,630
                
                
                $
                (1,476,700
                )Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
      expense
                
                
                18,406
                
                
                
                1,129Minority
      interest
                
                
                264,820
                
                
                
                -Allowance
      for doubtful accounts
                
                
                68,149
                
                
                
                341,503Changes
      in assets and liabilities:(Increase)
      decrease in accounts receivable
                
                
                (1,227,947
                )
                
                
                148,724(Increase)
      decrease  in other receivables
                
                
                114,158
                
                
                
                (62,468
                )(Increase)
      decrease in other assets
                
                
                (419
                )
                
                
                3,642(Increase)
      decrease in prepaid expenses and other current assets
                
                
                (313,237)
                
                
                
                6,014Increase
      in accounts payable and accrued expenses
                
                
                1,054,327
                
                
                
                807,279(Decrease)
      in other payables
                
                
                (162,440
                )
                
                
                (37,138
                )Increase
      in taxes payable
                
                
                27,245
                
                
                
                3,713Increase
      in advances from customers
                
                
                572,877
                
                
                
                109,604NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
                
                
                691,569
                
                
                
                (154,698
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Capital
      expenditures
                
                
                (13,504
                )
                
                
                -Retirement
      of property and equipment
                
                
                -
                
                
                
                4,743Advances
      to related parties
                
                
                (419,940
                )
                
                
                (44,775
                )NET
      CASH USED IN INVESTING ACTIVITIES
                
                
                (433,444
                )
                
                
                (40,032
                )EFFECT
      OF EXCHANGE RATE ON CASH
                
                
                40,572
                
                
                
                12,754NET
      INCREASE (DECREASE)  IN CASH
                
                
                298,697
                
                
                
                (181,976
                )CASH  -
      beginning of year
                
                
                822,908
                
                
                
                1,004,884CASH
      - end of year
                
                $
                1,121,605
                
                
                $
                822,908SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period for foreign taxes
                
                $
                31,361
                
                
                $
                10,389





The
accompanying notes are an integral part of these financial
statements





F-
6
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006





NOTE
1 – ORGANIZATION




China
Logistics Group, Inc. (“we”, “us”, “our” or the “Company”) is a Florida
corporation and was incorporated on March 19, 1999 under the name of
ValuSALES.com, Inc. The Company changed its name to Video Without Boundaries,
Inc. on November 16, 2001. On August 31, 2006 the Company changed our
name from Video Without Boundaries, Inc. to MediaREADY, Inc. and on
February 14, 2008, the Company changed its name from MediaREADY, Inc. to
China Logistics Group, Inc.




On
December 31, 2007 we entered into an acquisition agreement with Shandong
Jiajia International Freight and Forwarding Co., Ltd. (“Shandong Jiajia”) and
its sole shareholders Messrs. Hui Liu and Wei Chen, through which we
acquired a 51%  interest in Shandong Jiajia. At closing, we issued
Messrs. Liu and Chen an aggregate of 1,000,000 shares of our Series A
Convertible Preferred Stock and we agreed contribute $2,000,000 to increase the
registered capital of Shandong Jiajia subject to:





•
            the
      prior receipt of all regulatory approvals and licenses from the necessary
      governmental agencies in China related to this acquisition,
      and


•
            the
      receipt of two years of audited financial statements of Shandong Jiajia
      together with the interim period for the nine months ended
      September 30, 2007.





Under
the terms of an assumption agreement dated December 31, 2007 and as contemplated
by the terms of the acquisition agreement for Shandong Jiajia, Mr. David Aubel,
a principal shareholder of our company, agreed to personally assume contingent
liabilities in the aggregate amount of $1,987,895 which may result from a stock
purchase agreement we entered into in August 2004 with Graphics
Distribution, Inc.  Mr. Aubel’s agreement to assume this liability was the
result of negotiations preceding the execution of the acquisition agreement for
Shandong Jiajia as Messrs. Liu and Chen were unwilling to proceed with the
transaction if the company remained exposed to the potential liability related
to the Graphics Distribution, Inc. stock purchase agreement.  In
addition the acquisition agreement contemplated that the accrued compensation
and convertible note payable-related party included in our current liabilities
at September 30, 2007 would be converted into shares of our common stock at
conversion rates of $0.72 and $0.80 per share (post 1:40 reverse stock
split).  At the time of the agreement we did not have sufficient
authorized but unissued shares of our common stock to provide for the conversion
of these liabilities, respectively, resulting in the issuance of approximately
3,445,853 shares of our common stock. Included in these liabilities which were
to be converted was approximately $419,000 of accrued compensation due
Mr. Jeffrey Harrell, our former CEO and President, and approximately
$2,521,380 due to Mr. David Aubel under a convertible note and a loan. Effective
on the close of business on March 11, 2008 we amended our articles of
incorporation to increase our authorized capital which provided sufficient
shares to permit these conversions.





As
contemplated by the acquisition agreement for Shandong Jiajia, on March 20, 2008
we entered into a conversion agreement with Mr. Jeffrey Harrell, then our CEO
and President, who converted $448,985 of accrued compensation due him into
581,247 shares of our common stock at an effective conversion price of $0.77245
per share.  In addition and as also contemplated by the terms of
the acquisition agreement for Shandong Jiajia, on March 20, 2008 we entered into
a conversion agreement with Mr. Aubel whereby he converted the $2,521,380 loan
due him by us into 2,864,606 shares of our common stock at an effective
conversion price of $0.88 per share.  The effective conversion price
on the date we entered into the conversion agreements with Mr. Aubel was greater
than the fair market value of our common stock on the date of the agreement
which was $0.85 per share.  The variance resulted from a decline in
the trading price of our common stock from December 31, 2007 when the conversion
rates were informally agreed to with Mr. Aubel and the actual dates of
conversion.





The
number of shares issued to Mr. Aubel was established in the December 31, 2007
Shandong Jiajia acquisition agreement and was derived from the September 30,
2007 liability reflected on our books owed to Mr. Aubel in the amount of
$2,291,685 divided by an agreed upon prior to the 1 for 40 reverse stock split
price of $0.02 per share ($2,291,685/$0.02 per share/40 = 2,864,606
shares).





As of
the settlement date in March 2008, Mr. Aubel was owed $2,521,380 by us, an
increase in the amount owed from September 30, 2007 resulting from additional
advances made by Mr. Aubel, reduced by the issuance of 10,000,000 shares during
the interim period.  The final conversion price of Mr. Aubel’s note
was $0.88 per share, resulting from the final note balance of $2,521,380 divided
by an agreed upon fixed number of shares of 2,864,606 ($2,521,380/2,864,606
=$0.88 per share).  The fair market value of our common stock on March
31, 2008 was $0.85 per share.  We are evaluating any rights we may
have to seek damages against Mr. Aubel as a result of the uncertainty as to the
validity of the amount of his note. See “Legal Proceedings” appearing elsewhere
in this report.





F- 7
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued





In
connection with the acquisition of Shandong Jiajia, we issued Capital One
Resource Co., Ltd. 450,000 shares of Series B Convertible Preferred Stock
valued at $3,780,000, and Mr. Weidong Wang 35,000 shares of Series B
Convertible Preferred Stock valued at $294,000, as compensation for their
assistance in the transaction. In addition, we agreed to issue an aggregate of
352,500 shares of Series B Convertible Preferred Stock valued at $2,961,000
to Dragon Venture (Shanghai) Capital Management Co., Ltd. as finder's fees.
Dragon Venture (Shanghai) Capital Management Co., Ltd. is a subsidiary of Dragon
Capital Group Corp. (Pink Sheets: DRGV). Mr. Lawrence Wang, the CEO of
Dragon Capital Group Corp., is the brother of Dr. James Wang, the CEO of China
Direct, Inc. China Direct, Inc. owns approximately 20% of the issued and
outstanding shares Dragon Capital Group Corp. In January 2008 we amended
the finder’s agreement with Dragon Venture (Shanghai) Capital Management Co.,
Ltd. to reduce the fee to 240,000 shares of Series B Convertible Preferred Stock
which were valued at $2,016,000.  Finally, we were obligated to issue
China Direct, Inc. an additional 450,000 shares of our Series B Convertible
Preferred Stock valued at $3,780,000 as compensation for its services under the
terms of the December 31, 2007 consulting agreement which were to be issued
prior to June 30, 2008.  These shares were issued in June
2008.





On
January 28, 2008 the acquisition agreement was amended to provide that as
additional consideration we issued Mr. Chen 120,000 shares of our
Series B Convertible Preferred Stock with a fair value of $960,000 and
three year options to purchase an additional 2,000,000 shares of our common
stock at an exercise price of $0.30 per share with a fair value of
$480,000.  We agreed to pay Mr. Chen the additional consideration at
his request because he believed that the purchase price we paid for our interest
in Shandong Jiajia was more favorable to us.  At the time of the
amendment, Mr. Chen, a minority owner of Shandong Jiajia and who now serves as
our Chairman, CEO and President, was General Manager of Shandong Jiajia and his
continued active involvement in its operations was crucial to the integration of
Shandong Jiajia into our company.  We determined that it would be in
our long-term best interests to agree to Mr. Chen’s request, particularly as the
operations of Shandong Jiajia represented all of our business and operations
following the transaction.





The
accompanying consolidated financial statements including the audited balance
sheet at December 31, 2007, statement of operations and  statements of
stockholders’ equity (deficit) have been restated to account for the acquisition
of a 51% interest in Shandong Jiajia as a capital transaction, implemented
through a reverse acquisition.  Accordingly, the historical cost basis
of the assets and liabilities of Shandong Jiajia have been carried forward and
the historical information presented, including the statements of operation,
statement of stockholders’ equity (deficit) and statements of cash flows, are
those of Shandong Jiajia.




Shandong
Jiajia, formed in 1999 as a Chinese limited liability company, is an
international freight forwarder and logistics management company. Shandong
Jiajia, acts as an agent for international freight and shipping companies.
Shandong Jiajia sells cargo space and arranges land, maritime, and air
international transportation for clients seeking to import or export merchandise
from or into China.  Headquartered in Qingdao, Shandong Jiajia has
branches in Shanghai and Xiamen with two additional offices in Lianyungang and
Rizhao. Shandong Jiajia is a designated agent of cargo carriers including Nippon
Yusen Kaisha, P&O Nedlloyd, CMA CGM Group, Safmarine Container Lines, and
Regional Container Lines.




The
accompanying consolidated financial statements include accounts of the Company
and its 51% owned subsidiary, Shandong Jiajia. Intercompany transactions and
balances have been eliminated in consolidation.  All share and per
share information contained in this report gives retroactive effect to the 1 for
40 reverse stock split of the Company’s outstanding common stock effective at
the close of business on March 11, 2008.




NOTE
2- RESTATEMENT OF FINANCIAL STATEMENTS AND BASIS OF
PRESENTATION





The
consolidated balance sheets, consolidated statements of operations, consolidated
statement of stockholders’ equity (deficit), and consolidated statement of cash
flows for the year ended December 31, 2007 have been restated to correct
the accounting treatment previously accorded certain
transactions.





F-
8
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued





The
December 31, 2007 financial statements included in the Company’s Form 10-K filed
on April 15, 2008, and Form 10-K/A filed on May 19, 2008 contained errors and,
accordingly, were restated to correct the accounting treatment previously given
certain transactions including:





•
            the
      recognition of an agreement to issue 450,00 shares of Series B preferred
      stock with a fair value of $3,780,000;•
            the
      recognition of the Company’s acquisition of a 51% interest in Shandong
      Jiajia as a capital transaction implemented through reverse acquisition
      accounting;•
            the
      correction of the accounting treatment accorded a convertible note payable
      to a related party and principal stockholder, Mr. David Aubel;
      and,•
            the
      restatement of historical balance sheets and related disclosures to give
      retroactive effect to a 1 for 40 reverse stock split completed on March
      11, 2008;





Following
comments from the Securities and Exchange Commission and upon further review,
the Company determined that further amendments to the December 31, 2007
financial statements included in the Company’s Form 10-K/A (Amendment No. 2)
filed on December 24, 2008 were necessary including:





•
            the
      recognition of an accrual of certain professional fees, totaling $141,800
      in expense, which were erroneously omitted.•
            the
      adjustment to the fair value of assets and liabilities of the accounting
      acquiree (formerly MediaReady, Inc.) recognized in connection with the
      acquisition of a 51% interest in Shandong Jiajia International Freight
      Forwarding Co., Ltd. accounted for as a capital transaction implemented
      through a reverse acquisition;





Components
of this restatement are detailed in the following tables:





Balance
sheet data as of December 31, 2007:





AdjustmentAs
      Filed
                
                
                to
      Restate
                
                
                RestatedOther
      Accruals and Current Liabilites
                
                $
                343,301
                
                
                $
                141,800
                
                
                $
                485,101Accumulated
      Deficit
                
                $
                (313,084
                )
                
                $
                (141,800
                )
                
                $
                (454,884
                )Minority
      Interest component (49%)
                
                
                
                
                
                
                69,482
                
                
                
                69,482$
                (313,084
                )
                
                $
                (72,318
                )
                
                $
                (385,402
                )





Consolidated
statements of operations for the year ended December 31, 2007:





AdjustmentAs
      Filed
                
                
                to
      Restate
                
                
                RestatedGeneral
      and administrative expenses (including bad debt
    expense)
                
                $
                498,831
                
                
                $
                141,800
                
                
                $
                640,631Net
      Income (Loss)
                
                $
                347,948
                
                
                $
                (141,800
                )
                
                
                206,148Minority
      Interest component (49%)
                
                
                -
                
                
                
                69,482
                
                
                
                69,482Net
      Income (Loss)
                
                
                347,948
                
                
                
                (72,318
                )
                
                
                275,630Earnings
      (Loss) Per Share:Basic
                
                $
                0.10
                
                
                $
                (0.02
                )
                
                $
                0.08Diluted
                
                $
                0.04
                
                
                $
                (0.01
                )
                
                $
                0.03








F-
9
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued





In
connection with the recording of our acquisition of a 51% interest in Shandong
Jiajia on December 31, 2007, the Company failed to adequately recognize all
adjustments necessary to properly reflect the fair value of the accounting
acquiree (then named MediaReady, Inc.) as of the effective date of the
transactions as provided under the provisions of Statement of Financial
Accounting Standards No. 141,Business Combinations.  As a result of this re-evaluation,
several assets and liabilities were adjusted to fair value as of the transaction
date.  These corrections resulted in the restatement to our balance
sheet as of December 31, 2007.  This revaluation did not affect our
statements of operations or earnings per share as of December 31, 2007, as it
was deemed a contribution to capital by the accounting
acquirer.  These fair value adjustments did not affect our
consolidated statements of operations or earnings (loss) per share for the
periods presented.


Components
of this re-statement are detailed in the following tables:





Balance
sheet data as of December 31, 2007:





AdjustmentAs
      Filed
                        
                        To
      Restate
                        
                        
                        RestatedAccounts
      receivable – related party
                        
                        $
                        160,350
                        
                        $
                        (153,350
                        )
                        (a)
                        $
                        7,000Deferred
      expenses
                        
                        
                        5,450
                        
                        
                        (5,450
                        )
                        
                        
                        -Prepaid
      expenses and other current assets
                        
                        
                        338,895
                        
                        
                        (10,830
                        )
                        
                        
                        328,065Property
      and equipment, net
                        
                        
                        46,622
                        
                        
                        (4,286
                        )
                        
                        
                        42,336Intangible
      assets
                        
                        
                        821
                        
                        
                        (821
                        )
                        
                        
                        -Deposits
                        
                        
                        12,000
                        
                        
                        (12,000
                        )
                        
                        
                        -$
                        564,
      138
                        
                        $
                        (186,737
                        )
                        
                        $
                        377,401Accounts
      payable – trade (b)
                        
                        $
                        4,444,825
                        
                        $
                        (835,940
                        )
                        (b)
                        $
                        3,608,885Other
      accruals and current liabilities (c)
                        
                        
                        343,301
                        
                        
                        141,800
                        
                        (c)
                        
                        485,101Minority
      Interest (d)
                        
                        
                        670,510
                        
                        
                        (69,482
                        )
                        (d)
                        
                        601,028Additional
      paid-in capital
                        
                        
                        (3,379,049
                        )
                        
                        649,203
                        
                        
                        
                        (2,729,846
                        )Accumulated
      deficit
                        
                        
                        (313,084
                        )
                        
                        (72,318
                        )
                        
                        
                        (385,402
                        )$
                        1,766,503
                        
                        $
                        (186,737
                        )
                        
                        $
                        1,579,766





(a)
            Reflects
      fair value adjustment to accounts receivable balance due from a single
      customer subsequently deemed uncollectible.(b)
            Reflects
      fair value adjustment including $764,220 due to a single vendor, formally
      forgiven in April 2008, and previously reported as a gain in the second
      quarter 2008.(c)
            Reflects
      recording of accrued professional fees at December 31, 2007 by Shandong
      Jiajia as discussed above.(d)
            Reflects
      the effect on minority interest (49%) of $141,800 in professional fees
      recognized by Shandong Jiajia, see adjustment (c).





On
March 11, 2008, the Company changed its name from MediaReady, Inc. to China
Logistics Group, Inc. and effectuated a 1 for 40 reverse split of its common
stock.  As the reverse stock split took place after December 31, 2007
but before the filing of the Company’s December 31, 2007 consolidated
financial statements, the Company should have reflected the reverse stock split
retroactively in the balance sheets and related disclosures presented as
provided in the Interpretation Guidance of Staff Accounting Bulletin Topic
4:C.  We have restated the balance sheets presented and share and per
share related disclosures to give retroactive effect to the 1 for 40 reverse
stock split.







NOTE  3
– GOING CONCERN





The
accompanying consolidated financial statements have been prepared on a going
concern basis. The Company’s  ability to continue as a going concern
is dependent upon the Company’s ability to obtain the necessary financing to
meet its obligations and repay its liabilities arising from normal business
operations when they become due, to fund possible acquisitions, and to generate
profitable operations in the future.





F-
10
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued





These
matters, among others, raise substantial doubt about the Company’s ability to
continue as a going concern. These financial statements do not include any
adjustments to the amounts and classification of assets and liabilities that may
be necessary should the Company be unable to continue as a going
concern.





NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Recent
Accounting Pronouncements




In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 157, "Fair Value Measurements "
("SFAS 157"). This Statement defines fair value as used in numerous accounting
pronouncements, establishes a framework for measuring fair value in generally
accepted accounting principles and expands disclosure related to the use of fair
value measures in financial statements. The Statement is to be effective for
financial statements for fiscal years beginning after November 15, 2007;
however, earlier application is encouraged. The Company is currently evaluating
the requirements of SFAS 157.




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities-including an amendment of FAS 115 ”
(“SFAS 159”). SFAS 159 allows entities to choose, at specified election dates,
to measure eligible financial assets and liabilities at fair value that are not
otherwise required to be measured at fair value. If a company elects the fair
value option for an eligible item, changes in that item’s fair value in
subsequent reporting periods must be recognized in current earnings. Statement
159 is effective for fiscal years beginning after November 15, 2007. The
Company is currently evaluating the requirements of SFAS 159.




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS
No. 141R"). SFAS No. 141R is a revision to SFAS No. 141 and
includes substantial changes to the acquisition method used to account for
business combinations (formerly the "purchase accounting" method), including
broadening the definition of a business, as well as revisions to accounting
methods for contingent consideration and other contingencies related to the
acquired business, accounting for transaction costs, and accounting for
adjustments to provisional amounts recorded in connection with acquisitions.
SFAS No.141R retains the fundamental requirement of SFAS No. 141 that
the acquisition method of accounting be used for all business combinations
and for an acquirer to be identified for each business combination.
SFAS No. 141R is effective for periods beginning on or after
December 15, 2008, and will apply to all business combinations occurring
after the effective date. The Company is currently evaluating the requirements
of SFAS No. 141R.




In
December 2007, the FASB also issued SFAS No. 160, "Non-controlling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51, Consolidated Financial Statements ". This Statement amends
ARB No. 51 to establish new standards that will govern the (1) accounting
for and reporting of non-controlling interests in partially owned consolidated
subsidiaries and (2) the loss of control of subsidiaries. Non-controlling
interest will be reported as part of equity in the consolidated financial
statements. Losses will be allocated to the non-controlling interest, and, if
control is maintained, changes in ownership interests will be treated as equity
transactions. Upon a loss of control, any gain or loss on the interest sold will
be recognized in earnings. SFAS No. 160 is effective for periods beginning
after December 15, 2008. The Company is currently evaluating the
requirements of SFAS No. 160.




In
March 2008, FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”.  The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged. We are currently evaluating the impact of adopting
SFAS No.161 on our consolidated financial statements.




Revenue
Recognition





We
provide freight forwarding services generally under contract with our
customers.  Our business model involves placing our customers’ freight
on prearranged contracted transport.





We follow
the guidance of the Securities and Exchange Commission’s Staff Accounting
Bulletin No. 104 in our revenue recognition policy.  In general, we
record revenue and related direct shipping costs when persuasive evidence of
an arrangement exists, services have been rendered or product delivery has
occurred, the sales price to the customer is fixed or determinable, and
collectability is reasonably assured.





F-
11
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued





Typically
our recognition of revenue is determined by our shipment/payment terms as
follows:





•
            When
      merchandise departs the shipper’s location when the trade pricing terms
      are CIF (cost, insurance and freight),•
            When
      merchandise departs the shipper’s location when the trade pricing terms
      are CFR (cost and freight cost), or•
            When
      the merchandise arrives at the destination port if the trade pricing terms
      are FOB (free on board)
destination.




Use
of Estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions, including estimates of the allowance for doubtful
accounts and stock based compensation, that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements. Estimates also affect the reported amounts of
revenue and expenses during the reported period.




Significant
estimates for the periods reported include the allowance for doubtful accounts
which is based on an evaluation of our outstanding accounts receivable including
the age of amounts due, the financial condition of our specific customers,
knowledge of our industry segment in Asia, and historical bad debt
experience.  This evaluation process resulted in our recognizing bad
debt expense of $57,067 and $259,494 for the years ended December 31, 2007 and
2006, respectively.  This evaluation methodology has proved to provide
a reasonable estimate of bad debt expense in the past and we intend to continue
to employ this approach in our analysis of collectability.  However,
we are aware that given the current global economic situation, including that of
China, meaningful time horizons may change.  We intend to enhance our
focus on the evaluation of our customers sustainability and adjust our estimates
as may be indicted.




We
also rely on assumptions such as volatility, forfeiture rate, and expected
dividend yield when deriving the fair value of share-based compensation; we did
not recognize any stock-based compensation expense during the years ended
December 31, 2007 and 2006.  Further, we rely on certain assumptions
and calculations underlying our provision for taxes in China, see Note 14 –
Income Taxes for further discussion.  Assumptions and estimates
employed in these areas are material to our reported financial conditions and
results of operations.  These assumptions and estimates have been
materially accurate in the past and are not expected to materially change in the
future.  Actual results could differ from these
estimates.




Stock
Based Compensation




The
Company accounts for stock options issues to employees in accordance with SFAS
123R, “Share-Based Payment, on Amendment of FASB Statement No. 123” ("SFAS
123R”).  SFAS 123R requires companies to measure the grant-date fair
value of stock options and other equity based compensation issued to employees
and recognize the costs in the financial statements over the period during which
the employees are required to provide services.  The Company adopted
SFAS 123R in the second quarter of fiscal 2006.




Earnings
(Losses) Per Share





Under the
provisions of SFAS 128, “Earnings Per Share”, basic
income (loss) per common share is computed by dividing income (loss) available
to common shareholders by the weighted average number of shares of common stock
outstanding for the periods presented. Diluted income per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that would then share in the income of the company,
subject to anti-dilution limitations.





Potentially
issuable shares for the year ended December 31, 2006 were anti-dilutive and not
included in diluted earnings per share.





Earnings
per share presented for the years ended December 31, 2007 and 2006 have been
restated due to the reverse acquisition transaction with Shandong
Jiajia.  The retroactive restatement is based on historical average
number of weighted-average shares outstanding for the periods presented,
adjusted for shares underlying convertible securities issued in the reverse
acquisition transaction.







F-
12
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued








Year
      endedDecember
      31,2007
                
                
                2006RestatedNumerator:Net
      income (loss) applicable to common stockholders (A)
                
                $
                275,630
                
                
                $
                (1,476,700
                )Denominator:Denominator
      for basic earnings per shareWeighted
      average shares outstanding (B)
                
                
                3,442,152
                
                
                
                2,329,307Denominator
      for diluted earnings per shareTreasury
      stock methodOptions
                
                
                1,871,245
                
                
                
                --Series
      A and B preferred stock – unconverted
                
                
                3,732,192
                
                
                
                --Adjusted
      weighted average shares outstanding (C)
                
                
                9,045,589
                
                
                
                2,329,307Basic
      and diluted earnings per common share:Earnings
      per share- basic (loss)(A)/(B)
                
                $
                0.08
                
                
                $
                ( 0.63
                )Earnings
      per share- diluted (A)/(C)
                
                $
                0.03
                
                
                $
                ( 0.63
                )





At
December 31, 2007 and 2006, 117,500 shares potentially issuable upon the
exercise of warrants were not included as they were
anti-dilutive.  Common shares potentially issuable upon the exercise
or conversion of securities issued at December 31, 2007 as consideration for the
Company’s acquisition of a 51% ownership interest of Shandong Jiajia, including
2,000,000 shares upon the exercise of options, 2,500,000 common shares upon the
conversion of 1,000,000 shares of Series A convertible preferred stock and
1,200,000 shares upon the conversion of 120,000 shares of Series B convertible
preferred stock, were considered outstanding for all periods presented for
purposes of calculating diluted earnings per share at December 31, 2007. 
An additional 11,750,000 common shares underlying 1,175,000 shares of Series B
preferred stock issued on December 31, 2007 were considered outstanding for one
day and could potentially dilute future earnings of the
Company.





The
presentation for the year ended December 31, 2006 does not include 2,000,000
shares of common stock upon the exercise of options, 1,000,000 shares of Series
A Convertible Preferred Stock, convertible into 2,500,000 shares of common
stock, 120,000 shares of Series B Convertible Preferred Stock, convertible into
1,200,000 shares of common stock, and 12,950,000 common shares
underlying the Series A and B Convertible Preferred Shares were not
considered outstanding for the period presented as their inclusion would be
anti-dilutive.





Accounts
Receivable




The
Company provides an allowance for doubtful accounts equal to the estimated
uncollectible portion of accounts receivable. This estimate is based on the
historical collection experience and a review of the current status of trade
receivables. There is no set threshold amount or age for accounts receivable
write-offs; any decision is made by senior management on an account-by-account
basis.




Property
and Equipment




Property
plant and equipment are carried at cost less accumulated depreciation and
includes expenditures, which substantially increase the useful lives of property
and equipment. Maintenance and repairs are charged to expense as incurred. When
property and equipment are retired or otherwise disposed of, the related costs
and accumulated depreciation are removed from the respective accounts and any
gain or loss on the disposition is credited or charged to income.





F-
13
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued





Depreciation
is computed using the straight-line method based on the estimated useful lives
of the individual assets, which range from 3-5 years.




Income
Taxes




The
Company follows Statement of Financial Accounting Standards No. 109
“Accounting for Income Taxes” (SFAS No. 109). Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributed to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax base. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under SFAS
No. 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date. If it is more likely than not that some portion of a deferred tax asset
will not be realized, a valuation allowance is recognized.




In
July 2006, the Financial Accounting Standard Board (FASB) issued FASB
Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income
Taxes”. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with SFAS NO.
109, “Accounting for Income Taxes”. FIN 48 requires a company to evaluate
whether tax position taken by a company will more likely than not be sustained
upon examination by the appropriate taxing authority. It also provides guidance
on how a company should measure the amount of benefit that the company is to
recognize in its financial statements. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006.




The
Company adopted FIN 48 as of January 1, 2007. As a result of the
implementation of FIN 48, the Company concluded that it has not taken any
uncertain tax positions on any of its open income tax returns filed through the
period ended December 31, 2006 that would materially distort its financial
statement. The Company’s methods of accounting are based on established income
tax principles approved in the Internal Revenue Code (IRC) and are properly
calculated and reflected within its income tax returns.




The
Company re-assesses the validity of its conclusions regarding uncertain income
tax positions on a quarterly basis to determine if facts or circumstances have
arisen that might cause the Company to change its judgment regarding the
likelihood of a tax position’s sustainability under audit. The impact of this
reassessment for the year ended December 31, 2007 did not have any impact
on its results of operations, financial conditions or liquidity.




Cash
and Cash Equivalents




The
Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.




Long-Lived
Assets




The
Company periodically evaluates the carrying value of long-lived assets to be
held and used in the business, other than assets held for sale when events and
circumstances warrant, generally in conjunction with the annual business
planning cycle. If the carrying value of a long-lived asset is considered
impaired, a loss is recognized based on the amount by which the carrying value
exceeds the fair market value for assets to be held and used. Fair market value
is determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Long-lived assets to be disposed of other
than by sale are considered held and used until disposed of.




Customer
Advances




Prepayments
and advance deposits consist of prepayments by Shandong Jiajia for contracted
cargo that has not yet been shipped to the recipient and for other advance
deposits. These amounts are recognized as revenue as customers take delivery of
goods, in compliance with its revenue recognition policy. At December 31,
2007 and 2006 customer advances totaled $683,436 and $110,559,
respectively.




Foreign
Currencies




Transactions
and balances in other currencies are converted into U.S. dollars in accordance
with Statement of Financial Accounting Standard (SFAS) No. 52, “Foreign
Currency Translation”, and are included in determining comprehensive income or
loss.





F-
14
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued





For
foreign operations with the local currency as the functional currency, assets
and liabilities are translated from the local currency into U.S. dollars at the
exchange rate prevailing at the balance sheet date. Revenues and expenses are
translated at weighted average exchange rates for the period to approximate
translation at the exchange rates prevailing at the dates those elements are
recognized in the financial statements. Translation adjustments resulting from
the process of translating the local currency financial statements into U.S.
dollars are included in determining comprehensive income or loss.




The
reporting currency is the U.S. dollar. The functional currency of Shandong
Jiajia is the local currency, the Chinese dollar or Renminbi
(“RMB”).




Comprehensive
Income




We follow
Statement of Financial Accounting Standards No. 130 (SFAS 103) “Reporting Comprehensive
Income” to recognize the elements of comprehensive
income.  Comprehensive income is comprised of net income and all
changes to the statement of stockholders’ equity, except those due to
investments by stockholders, changes in paid-in capital and distributions to
stockholders.  Comprehensive income included net income and foreign
currency translation adjustments.







Minority
Interest




Under
generally accepted accounting principles when losses applicable to the minority
interest in a subsidiary exceed the minority interest in the equity capital of
the subsidiary, the excess is not charged to the majority interest since there
is no obligation of the minority interest to make good on such
losses.  We, therefore, absorbed all losses applicable to a minority
interest where applicable.  If future earnings do materialize, we
shall be credited to the extent of such losses previously absorbed.




NOTE
5 – ACCOUNTS RECEIVABLE




Accounts
receivable at December 31, 2007 and 2006, consisted of the
following:





2007
                
                
                2006RestatedTrade
      receivables
                
                $
                3,926,546
                
                
                $
                3,166,786Less:
      allowance for doubtful accounts
                
                
                (794,715
                )
                
                
                (1,262,902
                )$
                3,131,831
                
                
                $
                1,903,884




NOTE
6 - CONVERTIBLE NOTE PAYABLE-DAVID AUBEL, RELATED PARTY





The
Company has relied heavily on advances from Mr. David Aubel, a principle
shareholder of the Company, to fund its operations.  Mr. Aubel has
never held a position as an officer or director of the Company.  Mr.
Aubel has, over the years, executed a number of convertible debt agreements and
related amendments addressing the collateral arrangements and repayment terms
covering his advances.  These agreements and related amendments,
provided for the repayment of these obligations through the issuance of common
stock of the Company at substantial discounts from the then prevailing market
price.





On
December 3, 2005, the Company entered into an argument with Mr. Aubel which
provided for the conversion of his obligation:





•
            For
      the first and second quarters of 2005 at $0.01 per share;•
            For
      the third quarter 2005 at 20% of the closing price on the date of
      conversion; and•
            For
      the fourth quarter 2005 and beyond at 40% of the closing price on the date
      of conversion





Under the
provision of Emerging Issue Task Force (“EITF”) 98-5 and EITF 00-27, the Company
determined that the agreement with Mr. Aubel contained an embedded conversion
feature which should be valued separately at issuance.  Further, as
Mr. Aubel’s December 3, 2005 agreement with the Company contained no stated
redemption date (due on demand) and the notes were convertible at the option of
investor, the resulting discount from market was recognized
immediately.








F-
15
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued





A summary
of the intrinsic value, the difference between the conversion price Mr. Aubel
paid and the fair value of the Company’s common stock on the commitment date,
December 3, 2005, is as follows:





Funds
advanced by Mr. Aubel:





Funds
                    
                    
                    IntrinsicYear
                    
                    Advanced
                    
                    
                    Value2005
                    
                    $
                    160,000
                    
                    
                    $
                    240,0002006
                    
                    
                    1,730,168
                    
                    
                    
                    2,595,2512007
                    
                    
                    874,164
                    
                    
                    
                    1,311,246$
                    2,764,332
                    
                    
                    $
                    4,146,497




A summary
of the intrinsic value of shares actually paid to Mr. Aubel against his note for
three years ended December 31, 2007 is as follows:







Year
                  
                  Number
      of Shares Converted
                  
                  
                  Amount
      of Note Reduction
                  
                  
                  Intrinsic
      Value2005
                  
                  
                  802,500
                  
                  
                  $
                  698,000
                  
                  
                  $
                  14,829,0002006
                  
                  
                  592,500
                  
                  
                  
                  1,445,000
                  
                  
                  
                  2,319,0002007
                  
                  
                  1,795,000
                  
                  
                  
                  1,751,720
                  
                  
                  
                  2,821,280Total
                  
                  
                  3,190,000
                  
                  
                  $
                  3,894,720
                  
                  
                  $
                  19,969,280




Based on
the Company’s review of the facts and circumstances surrounding the agreements
with Mr. Aubel and in connection with the restatement of the Company’s financial
statements, the Company believed the appropriate accounting treatment was to
record a receivable due from Mr. Aubel for the intrinsic value of the shares
tendered due to uncertainty as to the validity of the amount of the note payable
and the potential for a lack of consideration for the issuance of such
shares.  The receivable recorded was subsequently expensed as impaired
as collection was not reasonably assured.




During
the first quarter of 2008, the Company issued Mr. Aubel 2,864,606 shares of its
common stock in full payment of the then $ 2,521,380 balance of his
note.  The shares issued to Mr. Aubel had a fair value $659,432 less
than the obligation settled.  This difference was recorded as a
contribution to capital rather than a gain on the debt settlement. We are
evaluating any rights we may have to seek damages against Mr. Aubel as a result
of the uncertainty as to the validity of the amount of the note
payable.




NOTE
7 – PROPERTY AND EQUIPMENT




Property
and equipment at December 31, 2007 and 2006, consisted of the
following:





Useful
      Lives
                  
                  2007
                  
                  
                  2006RestatedComputer
      equipment
                  4
      years
                  
                  $
                  228,707
                  
                  
                  $
                  -Software
                  3
      years
                  
                  
                  361,861
                  
                  
                  
                  -Furniture
      and equipment
                  4-5
      years
                  
                  
                  112,297
                  
                  
                  
                  82,812Total:
                  
                  
                  
                  702,865
                  
                  
                  
                  82,812Less:
      accumulated depreciation
                  
                  
                  
                  (660,529
                  )
                  
                  
                  (32,503
                  )$
                  42,336
                  
                  
                  $
                  50,309




For the
years ended December 31, 2007, and 2006, depreciation expense totaled
$18,406 and $1,129, respectively.







F-
16
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued





NOTE
8 – STOCK OPTIONS




On
December 31, 2007 the Company granted three-year stock options to purchase
2,000,000 shares of common stock at an exercise price of $.30 per share as
partial consideration for the acquisition of a 51% interest in Shandong Jiajia.
The options were fully vested on the date of grant and are exercisable within 3
years of the date of grant at an exercise price of $0.30 per share.




The
Company has adopted the “Black Scholes” pricing model to book the estimated fair
value of the stock options totaling $480,000 under the provisions of SFAS
No. 123 (R). This amount was ultimately charged to equity (deficit) as
partial consideration for the acquisition.




The
following assumptions were made in estimating fair value:





Risk-free
      rate
                        
                        
                        2.5
                        %Expected
      Volatility
                        
                        
                        175
                        %Life
                        
                        3
      yearsDividend
      yield
                        
                        
                        0
                        %




At
December 31, 2007 no options had been exercised.




NOTE  9
– CONCENTRATION OF CREDIT RISK




Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist principally of cash and trade accounts receivable. The Company
places its cash with high credit quality financial institutions in the United
States and China. As of December 31, 2007, bank deposits in the United
States did not exceed federally insured limits. At December 31, 2007, the
Company had deposits of approximately $1,100,000 in banks in China. In
China, there is no equivalent federal deposit insurance as in the United States;
as such these amounts held in banks in China are not insured. The Company has
not experienced any losses in such bank accounts through December 31,
2007.




NOTE
10 – FAIR VALUE OF FINANCIAL INSTRUMENTS




The
Company’s financial instruments are cash, accounts receivable, accounts payable,
accrued expenses, accrued compensation, and notes payable. The recorded values
of cash, accounts receivable, accounts payable, accrued expenses, and accrued
compensation approximates their fair values based on their short-term nature.
The fair value of notes payable is based on current rates at which the Company
could borrow funds with similar remaining maturities, and the carrying amount
approximates fair value.




NOTE
11 – REVERSE ACQUISITION




On
December 31, 2007, the Company entered into an acquisition agreement with
the shareholders of Shandong Jiajia to acquire a 51% interest in that
company.  This transaction was initially recorded and reported as an
acquisition of Shandong Jiajia under the guidance of SFAS 141.  After
further review of the transaction, including post transaction ownership, the
transaction was deemed a capital transaction, implemented through a reverse
acquisition.  Accordingly, our financial statements have been
restated, with the cost basis of the assets and liabilities of Shandong Jiajia
being maintained in the consolidated financial statements and the assets and
liabilities of the Company prior to the transaction (then named MediaReady,
Inc.), being accounted for at their fair value under the purchase
method.  The historical records presented, which includes our
consolidated statements of operations, statements of stockholders’ deficit and
statements of cash flows, are those of Shandong Jiajia.




The value
of the Series A preferred stock and Series B preferred stock were
based on the fair value of the common stock to be issued upon conversion at
December 31, 2007 as follows:




One share
of Series A preferred stock converts into 2.5 shares of common
stock




One share
of Series B preferred stock converts into 10 shares of common
stock




On
March 28, 2008 shareholders holding the Series A preferred stock
converted into 2,500,000 shares of common stock, no shares of
Series A preferred stock remain outstanding. On March 28, 2008
shareholders holding the Series B preferred stock issued to the
shareholders of Shandong Jiajia converted into 1,200,000 shares of the Company’s
common stock.





F-
17
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued





NOTE  12
– STOCKHOLDERS’ EQUITY




Share and
per share figures in the report have been retroactively restated to give effect
to the 1 for 40 reverse split which took place on March 11,
2008 .




On
April 5, 2006 the Company increased its authorized common stock from
100 million to 200 million shares and on March 11, 2008 further
increased its authorized common stock to 500 million shares and
additionally combined the common stock on the basis of one share for each forty
shares issued and outstanding.




During
the year ended December 31, 2006 a related party, Mr. David Aubel,
converted $1,445,000 in convertible notes payable into 592,500 shares of common
stock at prices ranging $1.60 to $3.60 per share.




During
the year ended December 31, 2006 the Company issued 3,625 shares of common
stock to third parties and employees for services rendered at prices ranging
$4.00 to $5.60 per share, for a total of $19,900.




During
the year ended December 31, 2006 the Company recognized the fair market
value of 7,500 shares of common stock to be issued to an employee under an
employment agreement and expensed a total of $43,500 at $5.80 per share. On
April 11, 2007 the Company was released from all obligations under the
employment agreement.




During
the year ended December 31, 2006 the Company recognized the estimated fair
market value of 2,500 stock warrants issued to an employee under an employment
agreement, using the Black Scholes model and expensed a total of $10,000 at
$4.00 per warrant share.




During
the year ended December 31, 2006 the Company recognized the estimated fair
market value of 110,000 stock warrants to be issued to a third party under a
service agreement, using the Black Scholes model and expensed a total of
$396,000 at $3.60 per warrant share.





In May
2007, the Company issued 62,500 shares of common stock to China Direct
Investments, Inc. under a management consulting agreement.  The shares
had a fair value of $168,000 at issuance.





In
September 2007, the Company issued 250,000 share of common stock to Capital One
Resources Co., Ltd. in connection with consulting services rendered in the
Shandong Jiajia transaction.  The shares had a fair value at issuance
of $380,000.





During
the year ended December 31, 2007 the Company issued 1,000,000 of Series A
preferred stock to finance , in part, the purchase of a 51% interest in a
company incorporated in the People Republic of China at a fair value of $2.10
per share, for a total of $2,100,000.




During
the year ended December 31, 2007 the Company issued 120,000 shares of
Series B preferred stock as partial compensation in connection with the
acquisition of a 51% interest in Shandong Jiajia valued at $8.00 per
share, for a total of $960,000.




During
the year ended December 31, 2007 in connection with the Shandong Jiajia
transaction the Company issued an additional 725,000 shares of Series B
preferred stock to third parties for services rendered at a fair value of $8.40
per share, for a total of $6,090,000.




During
the year ended December 31, 2007 a related party, Mr. David Aubel,
converted $1,768,520 in convertible notes payable into 1,795,000 shares of
common stock at prices ranging $0.28 to $2.00 per share.




During
the year ended December 31, 2007 the Company president converted $193,500
in accrued compensation into 135,000 shares of common stock at $1.44 per
share.




During
the year ended December 31, 2007 the Company granted stock options to
purchase 2,000,000 shares of common stock to finance , in part, the
purchase of a 51% interest in a company incorporated in the Peoples Republic of
China, at a fair value of $480,000.







F-
18
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued





On
April 11, 2007 the Company was released from an obligation to issue 18,000
shares of common stock to an employee under an employment agreement.
Accordingly, during the year ended December 31, 2007 the Company reversed
the amounts expensed for the fair market value of the stock during the years
ended December 31, 2006, 2005 and 2004, respectively, for a total of
$221,100.





During
the year ended December 31, 2007 the Company issued 2,500 shares of common
stock to an employee for services rendered at $2.60 per share, for a total of
$6,500.




During
the year ended December 31, 2007 the Company issued 16,250 shares of
common stock to third parties for services rendered with a fair value of
$58,950 .




During
the year ended December 31, 2007 the Company cancelled 12,500 shares held
in treasury at $15.00 per share, for a total of $187,500.




On
March 11, 2008 the Company increased its authorized preferred stock from
5 million to 10 million shares.




The
number of shares of Series A preferred stock shall be limited to 1,000,000,
with a par value of $.001 per share. In the event of any liquidation,
dissolution or winding up of the Company the holders are entitled to receive,
out of legally available assets, a liquidation preference of $.001 per share,
and no more, before any payment or distribution is made to the holders of the
Company’s common stock. Holders shall have 250 votes per share and will be
entitled to vote on any and all matters brought to a vote of stockholders of
common stock. Each share is convertible into 2.5 shares of common
stock.




The
number of shares of Series B preferred stock shall be limited to 1,295,000,
with a par value of $.001 per share. In the event of any liquidation,
dissolution or winding up of the Company the holders are entitled to receive,
out of legally available assets, a liquidation preference other than to the
Series A Preferred  holders of $.001 per share, and no more, before
any payment or distribution is made to the holders of the Company’s common
stock. Holders shall have no votes per share except as otherwise provided by
law. Each share is convertible into 10 shares of common
stock.




On
March 28, 2008 all outstanding Series A preferred stock and
Series B preferred stock issued to the owners of Shandong Jiajia
were converted into common stock, no Series A preferred stock remain
outstanding.




NOTE
13  – RELATED PARTIES




During
the years ended December 31, 2007 and 2006 the Company expensed $200,000 in
each year for the salary of the President. At December 31, 2007 a total of
$446,985 for the period January 1, 2002 through December 31, 2007 was
unpaid and has been accrued under current liabilities. Additionally, during the
year ended December 31, 2007 a total of $193,500 in accrued salary was
converted into 135,000 shares of common stock.




On
December 31, 2007, the Company was due $511,435 from Shandong Huibo Import
& Export, Ltd., a 24.3% shareholder in Shandong Jiajia.   The loans
were unsecured, non-interest bearing and repayable on demand.




On
December 31, 2007, the Company had an amount of $229,252 due to Xiangfen
Chen who is the general manager of Shandong Jiajia Xiamen branch. The loans were
unsecured, non-interest bearing and repayable on demand. Shandong Jiajia used
the funds for general working capital.




On
December 31, 2007, the Company had a commitment to Xiangfen Chen for the
lease of the Company's branch office in Xiamen City, China, totaling $1,459 per
year.




There are
no assurances that the terms of the transactions with these related parties are
comparable to terms the Company could have obtained from unaffiliated third
parties.





F-
19
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued





NOTE   14
– INCOME TAXES




The
Company’s subsidiary Shandong Jiajia incorporated and operating in China is
governed by the Income Tax Law of the People’s Republic of China concerning
Foreign Investment Enterprises and Foreign Enterprises and local income tax laws
(the “PRC Income Tax Law”). Pursuant to the PRC Income Tax Law, wholly-owned
foreign enterprises are subject to tax at a statutory rate of 33% (30% state
income tax plus 3% local income tax). Commencing January 2008, the PRC Income
Tax rate was reduced to a maximum of 25% (inclusive of state and local income
taxes) for all companies.





The
components of income (loss) before income tax consist of the
following:





Year
      Ended December 31,2007
                  
                  
                  2006RestatedUS
      Operations
                  
                  $
                  -
                  
                  
                  $
                  -Chinese
      Operations
                  
                  
                  275,630
                  
                  
                  
                  (1,476,700
                  )$
                  275,630
                  
                  
                  $
                  (1,476,700
                  )





The
components of the provision (benefit) for income taxes are as
follows:





Year
      Ended December 31,2007
                  
                  
                  2006RestatedUS
      Operations
                  
                  $
                  -
                  
                  
                  $
                  -Chinese
      Operations
                  
                  
                  57,205
                  
                  
                  
                  10,389$
                  57,205
                  
                  
                  $
                  10,389





The table
below summarizes the reconciliation of the Company’s income tax provision
(benefit) computed at the statutory U.S. Federal rate and the actual tax
provision:





Year
      Ended December 31,2007
                    
                    
                    2006RestatedIncome
      tax provision (benefit) at Federal statutory rate
                    
                    $
                    259,000
                    
                    
                    $
                    (513,000
                    )State
      income taxes, net of Federal Benefit
                    
                    
                    34,000
                    
                    
                    
                    (67,000
                    )Permanent
      differences
                    
                    
                    -
                    
                    
                    
                    -U.S.
      tax rate in excess of foreign tax rate
                    
                    
                    (49,000
                    )
                    
                    
                    97,000Abatement
      of foreign income taxes
                    
                    
                    (187,000
                    )
                    
                    
                    494,000Tax
      provision (benefit)
                    
                    $
                    57,000
                    
                    
                    $
                    11,000





The
Company has a net operating loss (“NOL”) carryforward for United States income
tax purposes at December 31, 2007 and 2006 expiring through the year 2027. The
utilization of the Company’s NOL’s may be limited because of a possible change
in ownership as defined under Section 382 of Internal Revenue Code.





On
December 31, 2007 the Company acquired a 51% interest in Shandong Jiajia, a PRC
company. This acquisition was treated as a recapitalization of the Company, with
Shandong Jiajia recognized as the accounting acquirer. Accordingly, the tax
provisions recorded above are those of Shandong Jiajia. The Company’s US parent,
China Logistics Group, Inc., are not reflected in the above tax
calculations.





F-
20
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued





Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The Company has recognized, a
valuation allowance for those deferred tax assets for which it is more likely
than not that realization will not occur. The Company’s US parent, China
Logistics Group, Inc., deferred tax assets are included below and have been
fully reserved with a valuation allowance as management of the Company has not
determined if realization of these assets are to occur in the future. In
addition, management has determined that the acquisition of 51% of Shandong
Jiajia might have limited the utilization of the Company’s NOL for US Federal
and State income tax purposes, due to a possible change in ownership as defined
under Section 382 of Internal Revenue Code.





The
Company’s deferred tax assets as of December 31, 2007 and 2006 are as
follows:





December
      31,2007
                  
                  
                  2006RestatedFederal
      net operating loss carryforward
                  
                  $
                  3,700,000
                  
                  
                  $
                  3,500,000State
      net operating loss carryforward
                  
                  
                  600,000
                  
                  
                  
                  550,000Provisions
                  
                  
                  -
                  
                  
                  
                  545,000Timing
      differences
                  
                  
                  167,000
                  
                  
                  
                  246,0004,467,000
                  
                  
                  
                  4,841,000Valuation
      allowance
                  
                  
                  (4,467,000
                  )
                  
                  
                  (4,841,000
                  )Tax
      provision (benefit)
                  
                  $
                  -
                  
                  
                  $
                  -




In
July 2006, the Financial Accounting Standard Board (FASB) issued FASB
Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income
Taxes”. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with SFAS NO.
109, “Accounting for Income
Taxes”. FIN 48 requires a company to evaluate whether tax position taken
by a company will more likely than not be sustained upon examination by the
appropriate taxing authority. It also provides guidance on how a company should
measure the amount of benefit that the company is to recognize in its financial
statements. FIN 48 also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006.




The
Company adopted FIN 48 as of January 1, 2007. As a result of the
implementation of FIN 48, the Company concluded that it has not taken any
uncertain tax positions on any of its open income tax returns filed through the
period ended December 31, 2006 that would materially distort its financial
statements. The Company’s methods of accounting are based on established income
tax principles approved in the Internal Revenue Code (IRC) and are properly
calculated and reflected within its income tax returns.




The
Company re-assesses the validity of its conclusions regarding uncertain income
tax positions on a quarterly basis to determine if facts or circumstances have
arisen that might cause the Company to change its judgment regarding the
likelihood of a tax position’s sustainability under audit. The impact of this
reassessment for the year ended December 31, 2007 did not have any impact
on its results of operations, financial conditions or liquidity.




NOTE
15 – COMMON STOCK WARRANTS




At
December 31, 2007 and 2006, the Company had outstanding warrants to
purchase 110,000 and 7,500 shares of common stock, at an exercise price of
$6.80  and $52.00  per warrant share, respectively. The
Company adopted the provisions of SFAS No. 123R to compute an estimated
fair value of $527,000 for the stock warrants using the “Black Scholes” model at
December 31, 2007 and 2006 and reserved 117,500 shares for the exercise of
the stock warrants. The following assumptions were made in estimating fair
value:





Risk-free
      rate
                    
                    
                    4.45
                    %Volatility
                    
                    
                    96
                    %







F-
21
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued





The
following table summarizes the stock warrant activity:





Number
      of
                    Shares2004Warrants
      granted (five year term expiring April 2, 2009)
                  
                  
                  2,500Warrants
      exercised
                  
                  
                  —2005Warrants
      granted (five year term expiring April 2, 2010)
                  
                  
                  2,500Warrants
      exercised
                  
                  
                  —2006Warrants
      granted (three year term expiring May  31 ,
2009)
                  
                  
                  110,000
                  *Warrants
      exercised
                  
                  
                  —2006Warrants
      granted (five year term expiring April 2, 2011)
                  
                  
                  2,500Warrants
      exercised
                  
                  
                  —117,500





*
      -
                110,000
      common share purchase warrants issued to Trilogy Partners, Inc. for
      marketing and public relations services with a fair value of $396,000
      expensed in 2006.  These warrants expire May 31,
      2009





NOTE
16 – COMMITMENTS




On
June 1, 2007 Shandong Jiajia entered into a one year lease with a
shareholder of Shandong Jiajia for a property in the Peoples Republic of
China. The base annual rental is $37,585 per annum.




On
November 1, 2003 the Company entered into a sixty two month lease of a
property in the Peoples Republic of China at a base rent of $18,863 per
annum




The
following is a schedule of minimum future rentals on the operating
leases:





Year
      ending December 31, 2008
                    
                    
                    $
                    62,533




On
April 2, 2004 the Company entered into a three-year employment agreement
with its Chief Technology Officer, with automatic one-year extensions after the
expiry of the initial term. The terms of the agreement called for a minimum
salary of $180,000 per annum. The agreement also provided for a signing on bonus
of $50,000, a minimum annual bonus equal to the lesser of the base salary or 15%
of the gross profit as agreed or determined in accordance with generally
accepted accounting principles, and participation in other compensation plans
and programs for the Company’s senior executives. The agreement further called
for the issue of 2,500 shares of common stock upon the signing of the
agreement and a further 3,750 shares of common stock to be vested and
delivered in 1,250 share lots in three equal installments through the
first year following the execution of the agreement. Under the agreement
2,500 and 3,750 shares had been issued during the years ended
December 31, 2005 and 2004, respectively. At each anniversary of the
effective date the Company was required issue the executive five-year warrants
to purchase at least 2,500 shares of common stock, with the exercise
price being set within the 30 days prior to each anniversary. The Company
elected not to renew the contract after the April 2007 expiration
date.







F-
22
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued





On
August 15, 2004 the Company entered into a three-year employment agreement
with its Executive Vice-President – Sales and Marketing, with automatic one-year
extensions after the expiration of the initial term. The terms of the agreement
called for a minimum annual salary of $150,000 per annum. The agreement also
provided for a minimum annual bonus of between 50% and 100% of base salary based
on certain criterion to be agreed between the executive and the Company, and a
further bonus of 2% of the gross profit of the Company as agreed or determined
in accordance with generally accepted accounting principles. The agreement
further called for the issue of 3,000 shares of common stock upon signing
of the agreement. At each anniversary of the effective date the Company was
required to issue the executive 7,500 shares of common stock for the
three-year period of his employment. On April 11, 2007 the Company was
released from all obligations under the employment agreement.




In
December 2007 we entered into a consulting agreement with China Direct
Investments, Inc., a subsidiary of China Direct, Inc., under which we are
obligated to issue 450,000 shares of our Series B preferred stock, valued at
$3,780,000, as compensation for its services to us in conjunction with the
transaction pursuant to the terms of a consulting agreement entered into in
December 2007.




NOTE
17 – REGIONS




The table
below presents information by operating regions for the year ended
December 31, 2007 (Restated) .





Sales
                  
                  
                  AssetsUnited
      States
                  
                  $
                  —
                  
                  
                  $
                  12,216Peoples Republic
      of China
                  
                  
                  35,298,453
                  
                  
                  
                  5,130,056$
                  35,298,453
                  
                  
                  $
                  5,142,272




For the
year ended December 31, 2006 all operations were within the
Peoples Republic of China.




NOTE
18 – CONTINGENCIES




On
August 11, 2004 (with an effective date of June 1, 2004) the Company
entered into a stock purchase agreement with Mr. James Joachimczyk, the
sole shareholder of Graphics Distribution, Inc., a privately held company
engaged in the business of selling and distributing electrical products. The
principal terms of the agreement provide for the Company to acquire all of the
issued and outstanding shares of the acquired entity for a purchase price of
$1,500,000 plus the issuance of 25,000 common stock shares in the
acquiring entity. Additional considerations included in this stock purchase
agreement require the Company to collateralize an existing line of credit in the
amount of $2,500,000 as well as retain the services of the selling shareholder,
pursuant to a consulting agreement dated August 11, 2004, for a term
consistent with the fulfillment of the stock purchase agreement. The Company, at
time of closing, gave its initial deposit of $350,000, but has defaulted on the
remaining balance due and is also in default of the collateralization
provision.




Management
has written off the deposit of $350,000 and the seller has informally agreed to
forbear from any action at this time. Management anticipates, but cannot assure
that a settlement will be forthcoming and that the Company loss will consist of
their forfeited deposit. On December 31, 2007, David Aubel, a principal
shareholder of the Company personally guaranteed any and all liabilities
resulting from the stock purchase agreement.




We are
evaluating any rights the Company may have to file a lawsuit against Mr. Aubel
as a result of the uncertainty as to the validity of the amount of the note
payable in the amount of $ 2,521,380 which the Company redeemed for
2,864,606 shares of its common stock in March, 2008 pursuant to the terms of the
December 2007 agreement entered into by the Company to acquire a 51% interest in
Shandong Jiajia.




NOTE
19 – SUBSEQUENT EVENTS




In
March 2008 we issued Mr. Harrell, our CEO, 581,247 shares of our
common stock in satisfaction of approximately $419,000 of accrued compensation
due him. Mr. Harrell is an accredited investor and the issuance was exempt
from registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.




In
March 2008 we also issued to Mr. David Aubel, a principle shareholder of
the Company 2,864,606 shares of our common stock in satisfaction of a
$ 2,521,380 convertible note and loan due to him from the Company. Mr.
Aubel, is an accredited investor and the issuance was exempt from registration
under the Securities Act of 1933 in reliance on an exemption from registration
provided by Section 4(2) of that act.





F-
23
 
 CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006 – Continued





In
March 2008 the holders of shares of our Series A Convertible preferred
stock and Series B Convertible preferred stock converted those shares into
shares of our common stock pursuant to the designations, rights and preferences
of those securities, including:




•
            three
      individuals, who included Messrs. Wei Chen and Hui Liu, minority
      shareholders, officers and directors of Shandong Jiajia, who owned
      1,000,000 shares of our Series A Convertible preferred stock
      converted those shares into an aggregate of 2,500,000 shares of our common
      stock; and•
            three
      individuals and two entities, which included Mr. Chen, who owned
      725,000 shares of Series B Convertible preferred stock converted
      those shares into an aggregate of 8,450,000 shares of our common
      stock.





F-
24