UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





(Mark
One)


Form
10-K





[√]
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the Fiscal year ended December 31,
2008


or


[
      ]
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the transition period from __________________ to
      __________________________Commission
      file number: 0-31497





CHINA LOGISTICS GROUP,
      INC.(Exact
      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, CA
            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 Act:





Title
      of each class
            Name
      of each exchange on which registeredNone
            Not
      applicable





Securities
registered under Section 12(g) of the Act:





Common
      Stock(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 [√] 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 [√] 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 [√] 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 10-K or any amendment to this
Form 10-K. [ ]





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
            [√]


Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)  Yes [ ] No [√]





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.
$13,656,130 on June 30, 2008.





Indicated
the number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date.  34,508,203 shares of common
stock are issued and outstanding as of May 18, 2009.





DOCUMENTS
INCORPORATED BY REFERENCE





List
hereunder the following documents if incorporated by reference and the Part of
the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: None.





TABLE
OF CONTENTS





Page
      No.Part
      IItem
      1.
            Business.Item
      1A.
            Risk
      FactorsItem
      1B.
            Unresolved
      Staff Comments.Item
      2.
            Properties.Item
      3.
            Legal
      Proceedings.Item
      4.
            Submission
      of Matters to a Vote of Security Holders.Part
      IIItem
      5.
            Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.Item
      6.
            Selected
      Financial Data.Item
      7.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operation.Item
      7A.
            Quantative
      and Qualitative Disclosures About Market Risk.Item
      8.
            Financial
      Statements and Supplementary Data.Item
      9.
            Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure.Item
      9A.(T)
            Controls
      and Procedures.Item
      9B.
            Other
      Information.Part
      IIIItem
      10.
            Directors,
      Executive Officers and Corporate Governance.Item
      11.
            Executive
      Compensation.Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence.Item
      14.
            Principal
      Accountant Fees and Services.Part
      IVItem
      15.
            Exhibits,
      Financial Statement Schedules.








CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION





Various
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:





•
            risks
      from Securities and Exchange Commission litigation;•
            risks
      from liquidated damages related to warrants sold in our 2008 Unit
      Offering;•
            the
      loss of the services of any of our executive officers or the loss of
      services of any of our employees responsible for the management, sales,
      marketing and operations efforts of our subsidiaries;•
            our
      ability to successfully transition the internal operations of our
      subsidiary as a privately held Chinese company to a subsidiary of a
      publicly-held U.S. company;•
            liabilities
      related to prior acquisitions,•
            continuing
      material weaknesses in our disclosure controls and procedures and internal
      control over financial reporting which may lead to additional restatements
      of our financial statements,•
            difficulties
      in raising capital in the future as a result of the terms of our 2008 Unit
      Offering;•
            our
      ability to effectively integrate our acquisitions and manage our
      growth;•
            the
      lack of various legal protections customary in certain agreements to which
      we are party and which are material to our operations which are
      customarily contained in similar contracts prepared in the United
      States;•
            intense
      competition in the freight forwarding and logistics
      industries;•
            the
      impact of economic downturn in the PRC on our revenues from our operations
      in the PRC;•
            our
      lack of significant financial reporting experience, which may lead to
      delays in filing required reports with the Securities and Exchange
      Commission and suspension of quotation of our securities on the OTCBB,
      which will make it more difficult for you to sell your
      securities;•
            the
      impact of changes in the political and economic policies and reforms of
      the Chinese government; fluctuations in the exchange rate between the U.S.
      dollars and Chinese Renminbi;•
            the
      limitation on our ability to receive and use our revenue effectively as a
      result of restrictions on currency exchange in China;•
            the
      impact of changes to the tax structure in the PRC;•
            our
      inability to enforce our legal rights in China due to policies regarding
      the regulation of foreign investments;•
            the
      existence of extended payment terms which are customary in China;
      and,•
            uncertainties
      related to PRC regulations relating to acquisitions of PRC companies by
      foreign entities that could restrict or limit our ability to operate, and
      could negatively affect our acquisition
  strategy.





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 report in its entirety, including the risks described in
Part I., 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.





OTHER
PERTINENT INFORMATION





We
maintain our web site at www. chinalogisticsinc.com. Information on this web
site is not a part of this annual report . All share and per share information
contained in this annual report gives proforma effect to the 1:40 reverse stock
split of our outstanding common stock which was effective on March 11,
2008.





Unless
specifically set forth to the contrary, when used in this Form 10-K 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 subsidiaries.





PART
I





ITEM
1.                      BUSINESS.





Overview




Our
subsidiary, Shandong Jiajia, was established in November 1999 and acts as an
agent for international freight and shipping companies. Through this subsidiary,
we sell cargo space and arrange international transportation via land, maritime,
and air routes primarily for clients seeking to export goods from China. We
are a non-asset based freight forwarder and we do not own any containers,
trucks, aircraft or ships. We contract with companies owning these assets to
provide transportation services required for shipping freight on behalf of our
customers.




Shandong
Jiajia’s headquarters are in Qingdao, China, and it has branches in Shanghai,
Tianjin and Xiamen with an additional office in Lianyungang.  We coordinate
with agents in North America, Europe, Australia, Asia, and Africa.
Approximately 60% of our revenues are generated from existing, repeat customers
with the remaining 40% generated from new customers. About half of our sales
generated from new customers are derived from our own sales force and the other
half is derived from third party agent referrals.





Prior to our acquisition of Shandong Jiajia, our
historical business model from 2003 to 2007 was to provide products and services
in the home entertainment and media-on-demand marketplace.  We
produced and distributed 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 this business model,
significant competition in our target segment prevented our continued success.
Like many small public companies, we encountered significant difficulties in
raising adequate capital while at the same time 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 International Freight & Forwarding Co., Ltd.
(“Shandong Jiajia”), whereby we acquired a 51% interest in that entity in
exchange for a combination of cash and equity.  For accounting
purposes, we treated this transaction as a capital transaction, effected through
a reverse acquisition with Shandong Jiajia being the accounting acquirer and the
Company being the legal survivor; this transaction is described in greater
detail later in this section under “History of our Company”.  Shandong
Jiajia’s operations now constitute 100% of the operations of the Company.
 The decision to enter into the transaction with Shandong Jiajia was
heavily influenced on its geographic location.  Our management
believed 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 investment capital to expand the
freight forwarding operations and thus enable the newly merged entity to compete
more effectively.  There are no assurances, however, that these
assumptions will prove correct.





The
Chinese Freight Forwarding Industry





In China,
the freight forwarding industry began to develop in the early 1980’s 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 Organization1. For the full year of 2007, the international
trade reached $2.1 trillion in 2007 an increase of 23.5% from 20062, which finished above the US in the 2007
totals. The value of exports was $1,218 billion, up by 25.7%, while that of
imports went up by 20.8% to reach $955.8 billion3. Since joining the WTO in 2002, China has
enjoyed an annual increase rate above 20% for the successively six years4.  In 2008, China remained as the
world’s second biggest exporter5. According to preliminarily statistics of
Customs, China's total import and export in January 2008 through November 2008
amounted to $2.4 trillion, up by 20.9% from the previous year. Of this amount,
exports accounted for $1.3 trillion and imports accounted for $1.1 trillion, up
by 19.3% and 22.8%%, respectively6.





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://news/xinhuanet.com/english/2008-12/19/content_10528088.htm  - 1
-





Our
services





The
typical freight forwarding service package provided by Shandong Jiajia includes
goods reception, space reservation, transit shipment, traffic consolidating,
storage, multimodal transport and large scale transport such as export of large
mechanical equipment. We provide freight forwarding services for a wide variety
of merchandise and we have experience in handling various types of freight such
as refrigerated merchandise, hazardous merchandise and perishable agricultural
products.





To
accommodate our customers shipping needs, we can either facilitate the shipment
of a full container or, if the shipment is less than a full container-load, we
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 our normal services we will
deliver the empty container to a customer’s factory and the customer loads the
merchandise. We then transport the container to the port of departure for
customs clearance. Once the clearance is obtained, the containers are loaded
onto the ship and we then issue the bill of lading and service invoice to our
customer.





For
shipments of less than full container loads, merchandise which will be co-loaded
with merchandise from other customers or freight forwarders, our customers may
either request that the merchandise be picked up at their factory or deliver the
merchandise directly to a warehouse in Shanghai. Upon receipt at the warehouse,
we 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 we
pay for space on an as-used basis depending upon the size, quantity and
duration. The cost of storage is included in the amount charged the customer for
the shipment.





Typically
payment is delineated in the initial order. We will either collect payment for
our 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) basis;
      or•
            from
      the recipient when merchandise arrives at destination port if the trade
      pricing term is on a FOB (free on board)
basis.





We employ
25 full time sales persons.  These sales persons solicit business
through a variety of means including personal visits, sales calls, and
faxes.  Our customers sign annual or project-based contracts with us
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 us,
and the base salaries, profit benchmarks, and commission percentages paid to the
sales persons vary across our branches.





Customers,
transaction currencies and credit terms





We
generate revenues through sales to existing customers as well as new customers.
Existing customers initiate historically approximately 60% of our revenues, 20%
are from new customers generated by our sales persons, and the remaining 20% are
referrals from third party agents.The focus of products
shipped by our customers varies across our branches. In the 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
the Shanghai branch and the Xiamen branch carries daily merchandise and hardware
products to Europe and Africa. The rate we charge our customers fluctuates with
market prices. We may elect to lower the rates, when a particular order involves
a large quantity of freight, the customer has a good credit rating, and/or the
customer has a record of prompt payment.





We do not
require a deposit to engage our services. Sales of our freight forwarding
services are generally made on credit. Fees are denominated in RMB, the
functional currency of the PRC, and shipping costs charged by the various
shipping companies are denominated in U.S. dollars. Historically, our 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 a bill
of lading from us. The customer submits the bill of lading to the bank to settle
the foreign exchange in its account. In FOB pricing term, we issue a delivery
order to our agent at the port of destination.





We are a
designated agent of several cargo carriers including Nippon Yusen Kaisha (“NYK
Line”), P&O Nedlloyd, CMA CGM Group, Safmarine Container Lines, Regional
Container Lines (“RCL”), and Compañía Sud Americana de Vapores
(“CSAV”).  We are 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 120 members including 80 overseas forwarders
operating in 53 countries and 40


- 2
-


Chinese
forwarders. In this alliance, all members are free to trade their services with
peer members. Overseas agents forward orders to us for the services of handling
and/or space purchase. If agents only request procedural handling, we usually
charge $30 to $40 per order as a service fee. If agents choose to purchase the
shipping spaces reserved by Shandong Jiajia, the profits from the order are
evenly shared between agents and our company.


We
generally receive 30 days terms from the airlines and shipping lines with which
we transact business. For the shipping lines to North America, we enter into
annual sales contracts in order to ensure a sufficient amount of shipping and
air cargo space is available at pre-determined prices. In these contracts, we
are assigned a certain amount of cargo space but we are 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 we do not re-sell the cargo space, we would
be required to pay a penalty, which is approximately $400 per
container.  We usually reserve a relatively small amount of cargo
space in order to avoid overbooking. Because of the long-term relationships with
the various shipping companies we use, Shandong Jiajia, however, has never
experienced any difficulties in obtaining sufficient cargo space to meet our
customer’s needs.





Competition





We are
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 companies. Our primary competitors
are state owned Tianjin Zhenhua Logistics Group Co., Ltd., foreign joint
ventures Qingdao Ocean & Great Asia Transportation Co., Ltd., and Air Sea
Transport, Inc. These competitors each have developed a service network
nationwide and internationally and have proprietary warehouses and
transportation departments.





While the
requirement to register as a cargo company to obtain a business license in China
was amended in 2004 to eliminate the requirement for approval from the Ministry
of Commerce, we believe our ability to market our company as a registered cargo
company provides various competitive advantages. We have been operating since
1999 and we believe that our experience is a competitive advantage and serves as
a benefit to exporters as well to shipping agencies seeking to sell cargo
space.  We have developed stable shipping volume since 1999, which
allows us to make a commitment to shipping agencies for cargo space, which in
turn permits us to receive advantageous pricing.





A
significant number of our competitors have more capital, longer operating
histories, greater brand recognition, larger customer bases and significantly
greater financial and marketing resources than we do. 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, and
distribution. For these and other reasons, our competitors' services may achieve
greater acceptance in the marketplace than our company, limiting our ability to
gain market share and customer loyalty and increase our revenues.





Government
Regulation





We are
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 for the supervision of the
transport of merchandise to and from China.





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 May
18, 2009 we had 118 full-time, salaried employees who are all located in
China.  Our employees are organized into a union under the labor laws
of China and receive labor insurance. These employees can bargain collectively
with us. We believe we maintain good relations with our employees.





We are
required to contribute a portion of our 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.


- 3
-


History
of our Company





We were
incorporated in the State of Florida in March 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 1999 when we purchased
assets consisting of property and equipment and inventory for an aggregate
purchase price of $75,000.  In December 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.





Prior to
the end of 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 electronic 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 under the purchase agreement. In
October, 2008, we obtained a general release from Mr. Joachimczyk and Graphics
Distribution, Inc. ., without payment of any consideration by us, releasing us
from any and all liability and causes of action that Mr. Joachimczyk and
Graphics Distribution, Inc. had or may have against us as of October 14,
2008.





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





In early
2007 we had engaged China Direct Investments, Inc. to provide introductions and
advice to us as related to general business activities, including mergers and
acquisitions, business combinations and financial management.  China
Direct Investments, Inc., a subsidiary of China Direct, Inc. (NasdaqGM: CDII),
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, it determined to concentrate its focus on a potential business
combination with a Chinese company as a means of benefiting from the continued
economic expansion of the PRC in general and of businesses in various industries
within that country.  In September 2007,
we engaged Capital One Resource Co., Ltd., also a subsidiary China Direct, Inc.,
to provide introductions and advice to us as it related to general business
activities, including mergers and acquisitions, business combinations and
financial management.





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, the principals of Shandong Jiajia, and
under the terms of a December 31, 2007 consulting agreement it agreed to provide
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 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.





- 4
-


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 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 after the 1:40 reverse stock split.  When we
entered into the December 31, 2007 purchase agreement we did not have sufficient
authorized but unissued shares of our common stock to allow for the conversion
of these liabilities, requiring the issuance of 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 $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. V. Jeffrey Harrell, then our CEO and President, which 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 a $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.





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 balance then 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 ($2,521,379/2,864,606 =$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 and other
matters as a result of the September 24, 2008 lawsuit filed against us, Mr.
Aubel, and Mr. Harrell by the Securities and Exchange Commission.See Part I. Item 3. Legal Proceedings appearing later in
this report.





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 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
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 to acquire Shadong Jiajia was amended
to provide that as additional consideration we issue 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


- 5
-


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.


In order
to facilitate the approval by the Chinese authorities of the acquisition of
Shandong Jiajia, effective March 13, 2008 the parties further amended the
acquisition agreement to provide that:





•
            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 various conditions to
      the delivery of such funds was extended to April 30,
      2008.





On April
25, 2008 Shandong Jiajia received its Certificate of Approval from the
Department of Foreign Trade and Economic Cooperation of the Shandong
Province.  Thereafter, in April 2008 following the sale of the units
described elsewhere herein, we used $2,000,000 of the proceeds from that
offering to satisfy our capital commitment to Shandong Jiajia.





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





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 annual report before deciding to invest in our common
stock.





IN
DECEMBER 2007 WE CHANGED 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. Following this transaction which was treated as a reverse
acquisition for accounting purposes, the business and operations of Shandong
Jiajia represent all of our business and operations.  The original
owners of Shandong Jiajia continue to own the remaining minority interest, and
since July 2008, have served as our sole executive officers and directors. Our
acquisition of Shandong Jiajia provides various 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 associated costs may adversely impact the operating
      results of Shandong Jiajia, 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 integrate and upgrade the disclosure and
accounting operations of Shandong Jiajia into our company, 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.





OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAS EXPRESSED CONCERN ABOUT OUR
ABILITY TO CONTINUE AS GOING CONCERN.  IF WE ARE UNABLE TO CONTINUE AS
A GOING CONCERN YOU WILL LOSE YOUR ENTIRE INVESTMENT IN OUR
COMPANY.





For the
year ended December 31, 2008 we reported net loss of $2,086,618 and cash used in
operations of $1,643,461.  At December 31, 2008 we had cash on hand of
approximately $3,156,362.  For the year ended December 31, 2007 we
reported net income of $275,630 and had cash on hand at December 31, 2007 of
$1,121,605.  The increase of cash during the 2008 period is reflective
of proceeds from the 2008 Unit Offering described elsewhere herein.


- 6
-


The
report of our independent registered public accounting firm on our financial
statements for the year ended December 31, 2008 contains an explanatory
paragraph regarding our ability to continue as a going concern based upon our
recurring losses from operations, net cash used in operations, working capital
deficit, stockholders’ deficiency and accumulated deficit.  Our
ability to continue as a going concern is dependent upon our ability to continue
to increase our sales, maintain profitable operations and increase our net
income in future periods.





We
believe our current level of working capital and cash generated from operations
may not be sufficient to meet our cash requirements for 2009 without an increase
in our net income.  Given the global economic slowdown which is
impacting our revenues, we are uncertain as to our results during 2009 and it is
likely we will seek to obtain additional working capital during
2009.  However, we have no firm commitments from any third party to
provide this financing and we cannot assure you we will be successful in raising
working capital as needed, particularly in light of the current economic crisis
which is adversely impacting the ability of most small U.S. public companies to
raise capital through equity or a combination of equity and debt
transactions.  In addition, the terms of our 2008 Unit Offering
described elsewhere herein contain certain restrictive covenants which could
hinder our ability to raise additional capital.  There are no
assurances that we will have sufficient funds necessary to expand our company,
pay our operating expenses and obligations as they become due or generate
positive operating results.  If we are unable to maintain profitable
operations and increase our net profit in sufficient amounts to fund our
operating expenses, and if we are unable to obtain additional capital as needed,
it is possible that we would be required to curtail some or all of our planned
operations, in which event our results of operations in future periods would be
adversely impacted.  Any significant decrease in our sales in future
periods or our failure to report profitable operations could be result in a
decline in the price of our common stock.  In addition, if we were
forced to curtail all of our operations you could lose your entire investment in
our company.





WE
RECENTLY SIGNED A CONSENT ORDER WITH THE SECURITIES AND EXCHANGE COMMISSION
WHICH COULD RESULT IN DISGORGEMENT AND CIVIL MONETARY PENALTIES.





As
described later in this report under Part I., Item 3. Legal Proceedings, on
September 24, 2008 the Securities and Exchange Commission filed a complaint
against us and Messrs. Harrell and Aubel which related to events which occurred
prior to our acquisition of 51% of Shandong Jiajia and the change in our
management.  We have been cooperating with the Securities and Exchange
Commission in this proceeding and in February 2009 we consented to the entry of
a Permanent Injunction and Other Relief to resolve the liability aspects of the
complaint.  As part of the complaint the Securities and Exchange
Commission was seeking disgorgement by us of unspecified amounts.  The
consent order provides that the court will determine whether it is appropriate
to order disgorgement and, if so, the amount of the disgorgement.  If
we are ordered to pay disgorgement, the amount of such disgorgement could have a
material adverse effect on our business, financial condition, results of
operations and cash flows in future periods.  In addition, the consent
order may result in additional claims by shareholders, regulatory proceedings,
government enforcement actions and related investigations and
litigation.  Any continued litigation would result in significant
expenses, management distraction and potential damages, penalties, other
remedies, or adverse findings.  In addition, the consent order which
grants the Securities and Exchange Commission injunctive relief restraining us
from future violations of Federal securities laws which may make future
financing efforts more difficult and costly.





IF
WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROL OVER FINANCIAL
REPORTING, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS. AS A
RESULT, CURRENT AND POTENTIAL SHAREHOLDERS COULD LOSE CONFIDENCE IN OUR
FINANCIAL REPORTING, WHICH WOULD HARM OUR BUSINESS AND THE TRADING PRICE
OF OUR STOCK.





Our
management has determined that as of December 31, 2008, we did not maintain
effective internal controls over financial reporting based on criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
in Internal Control-Integrated Framework as a result of identified material
weaknesses in our internal control over financial reporting related to cash
management and related party transactions.  A material weakness is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of the company's annual or interim financial statements will not be
prevented or detected on a timely basis.  For a detailed description
of these material weaknesses and our remediation efforts and plans, see “Part II
— Item 9A (T) — Controls and Procedures.”  If the result of our
remediation of the identified material weaknesses is not successful, or if
additional material weaknesses are identified in our internal control over
financial reporting, our management will be unable to report favorably as to the
effectiveness of our internal control over financial reporting and/or our
disclosure controls and procedures, and we could be required to further
implement expensive and time-consuming remedial measures and potentially lose
investor confidence in the accuracy and completeness of our financial reports
which could have an adverse effect on our stock price and potentially subject us
to litigation.


- 7
-


We do not
have a Chief Financial Officer or similarly titled executive officer who is a
financial professional and we have historically relied upon the services of
outside accountants. In addition, we have 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 our accounting staff, it is possible that accounting errors will
continue to 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.





WE
ARE DEPENDENT ON THIRD PARTIES FOR EQUIPMENT AND SERVICES ESSENTIAL TO OPERATE
OUR BUSINESS, AND WE COULD LOSE CUSTOMERS AND REVENUES IF WE FAIL TO SECURE THIS
EQUIPMENT AND THESE SERVICES.





We are a
non-asset based freight forwarding company and we rely on third parties to
transport the freight we have arranged to ship. Thus, our ability to forward
this freight and the costs we incur in connection therewith is dependent on our
ability to find carriers willing to ship such freight at acceptable prices.
This, in turn, depends on a number of factors beyond our control, including
availability of cargo space, which depend 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 our profits, which will adversely impact our results of operations in
future periods.





WE
RELY ON OVERSEAS CARGO AGENTS TO PROVIDE SERVICES TO US AND TO OUR CUSTOMERS,
AND OUR ABILITY TO CONDUCT BUSINESS SUCCESSFULLY MAY BE AFFECTED IF WE ARE
UNABLE TO MAINTAIN OUR RELATIONSHIPS WITH THESE OVERSEAS CARGO
AGENTS.





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





WE
INCUR SIGNIFICANT CREDIT RISKS IN THE OPERATION OF OUR BUSINESS WHICH COULD
REDUCE OUR OPERATING PROFITS.





Various
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 we offer 30 days or more credit to
many of our customers. In order to avoid cash flow problems and bad debts, we
attempt to maintain tight credit controls and to avoid doing business with
customers we believe may not be creditworthy. However, we may not be able to
avoid periodic cash flow problems or be able to avoid losses in the event
customers to whom we have extended credit either delay their payments to us or
become unable or unwilling to pay our invoices after we have completed shipment
of their goods or rendered other services to them, all of which could reduce our
operating profits.





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
our operations and substantially all of our assets are in China. In addition,
all of 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.


- 8
-





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.  Our revenues and costs and our 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 us, to the
extent that we 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.





SUBSTANTIALLY
ALL OF OUR ASSETS AND ALL OF OUR 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 WE 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. If that should occur, as Shandong Jiajia represents all of our current
operations, it is likely that we would be forced to cease
operations.





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.





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 our 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 our
services.


- 9
-


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





Because
all of our revenues are in the form of RMB, any future restrictions on currency
exchanges may limit our ability to use revenue generated in RMB 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 RMB 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 RMB 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 RMB, especially with respect to foreign exchange
transactions.





CHINESE
LAWS AND REGULATIONS GOVERNING OUR 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.





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. Any inability to enforce legal rights we may
have under our contracts or otherwise could be limited which could result in a
loss of revenue in future periods which would impact our ability to continue as
a going concern.





RISKS
RELATED TO HOLDING OUR SECURITIES





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





At May
18, 2009 we had 34,508,203 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;•
            31,676,000
      shares of our common stock issuable upon the exercise of common stock
      purchase warrants at an exercise price of $.35 per share to $52.00 per
      share; and•
            2,000,000
      options exercised at $0.30 per
share.





- 10
-


The
Series B Convertible Preferred Stock is convertible at the option of the holder
at any time.  Assuming we do not issue any additional shares of our
common stock, the issuance of the shares of common stock underlying the Series B
Convertible Preferred Stock will increase our issued and outstanding by
approximately 13%.  In the event of the exercise of the warrants and
options, the number of our outstanding common stock will increase by almost 100%
and will have a dilutive effect on our existing shareholders.  In
addition, because warrants to purchase an aggregate of 31,676,000 shares of our
common stock are exercisable on a cashless basis, if the cashless exercise
feature was to be used by the holder, while we would issue a fewer number of
shares of common stock we would not receive any proceeds for these
issuances.





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 director and adopt some
or all of these corporate governance measures, shareholders 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 independent directors and corporate
governance measures in formulating their investment decisions.





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.





CERTAIN
OF OUR OUTSTANDING WARRANTS CONTAIN CASHLESS EXERCISE PROVISIONS WHICH MEANS WE
WILL NOT RECEIVE ANY CASH PROCEEDS UPON THEIR EXERCISE.





The Class
A warrants and Class B warrants issued in our 2008 Unit Offering contain a
cashless exercise provision. At any time after the required effective date of
the registration statement the warrants are exercisable on a cashless basis if
on the exercise date the shares of common stock issuable upon the exercise of
the warrants are not covered by an effective registration statement. This means
that the holders, rather than paying the exercise price in cash, may surrender a
number of warrants equal to the exercise price of the warrants being exercised.
The utilization of this cashless exercise feature will deprive us of additional
capital which might otherwise be obtained if the warrants did not contain a
cashless feature.


- 11
-


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.





Our 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, 2009. The annual rent is approximately $20,346 (RMB
150,562). We expect to renew this lease upon expiration upon similar terms.





We also
rent various office spaces throughout China as set forth in the following
table:





Location
                
                Approximate
      Square Feet
                
                Annual
      Rent
                
                Additional
      Charges
                
                Expiration
      of LeaseShanghai
      Branch (1)
                
                
                7,008
                
                $43,700
                  (RMB
      300,000)
                
                $20,440
                  (RMB
      140,622)
                
                May
      31, 2009Xiamen
      Branch, Xiamen City, Fujian Province (2)
                
                
                1,026
                
                $1,459
                  (RMB
      10,800)
                
                
                0
                
                December
      31, 2009Lianyuangang
      Branch, Lianyuangang City, Jiangsu Province (3)
                
                
                1,184
                
                $4,054
                  (RMB
      30,000)
                
                
                0
                
                March
      15, 2010Tianjin
      Branch, Tianjin City (4)
                
                
                3,014
                
                $21,962
                  (RMB
      150,000)
                
                
                0
                
                May
      31, 2013





(1) We
lease the offices for our Shanghai Branch from Mr. Wei Chen, our Chairman and
CEO.  The additional charges represent a monthly management fee paid
to an unrelated third party.





(2)We
lease the offices for our Xiamen Branch from Mr. Xiangfen Chen, its General
Manager.





(3)We
lease the offices for our Lianyuangang Branch from an unrelated third
party.





(4)We
lease the offices for our Tianjin Branch from Mr. Bin Liu, its General
Manager.





ITEM
3.                      LEGAL
PROCEEDINGS





On
September 24, 2008, the Securities and Exchange Commission filed a civil
complaint in the U.S. District Court for the Southern District of Florida (Case
No. 08-61517-CIV-GOLD MCALILEY) against Mr. V. Jeffrey Harrell, our former CEO
and principal and financial accounting officer, Mr. David Aubel, previously our
largest shareholder and formerly a consultant to us, and our company based upon
the alleged improper conduct of Messrs. Harrell and Aubel that occurred at
various times between in or about April 2003 and September 2006.  The
Securities and Exchange Commission’s complaint alleges that Mr. Harrell filed
annual and quarterly reports with the Securities and Exchange Commission that,
among other things, materially overstated our revenues and assets and
understated our net losses.  The complaint also alleges that Mr.
Harrell falsely certified numerous annual and quarterly reports we filed with
the Securities and Exchange Commission that he knew, or was severely reckless in
not knowing, contained material misstatements and omissions.  The
complaint further alleges that from November 2003 to September 2006, Mr. Harrell
and Mr. Aubel issued a series of false and misleading press releases announcing
our acquisition of another company, the availability of large credit facilities,
and an international operating subsidiary. Taking advantage of our artificially
inflated stock price, the complaint alleges that Mr. Aubel dumped millions of
shares of our stock, acquired at steep discount from us, into the public market
in transactions that were not registered under federal securities
laws.  The complaint alleges that the conduct of Messrs. Harrell and
Aubel and our company constituted violations of various sections of the
Securities Act of 1933 and the Securities Exchange Act of 1934. The complaint
seeks, among other things, to permanently enjoin the Messrs. Harrell and Aubel
and us from engaging in the wrongful conduct alleged in the complaint,
disgorgement, civil monetary penalties, and a penny stock bar against Mr. Aubel,
civil monetary penalties, a penny stock bar, and an officer and director bar
against Mr. Harrell and disgorgement against us.


- 12
-


Our
current management had no knowledge of Messrs. Harrell and Aubel’s improper
conduct as alleged in the complaint which relate to their actions prior to 2007
involving us when our company was known as Video Without Boundaries, Inc. In
December 2007, control of our company, which at the time had changed its name to
MediaREADY, Inc., was acquired by principals and other parties unrelated to
Messrs. Harrell and Aubel in connection with the acquisition and financing of
Shandong Jiajia. After the acquisition of a 51% interest in Shandong Jiajia, we
changed our name to China Logistics Group, Inc. Messrs. Harrell and Aubel remain
minority shareholders of our company.





We
cooperated with the Securities and Exchange Commission in its action against us
and, despite our lack of knowledge of any wrongdoing, in February 2009 we
entered into a consent to the entry of a Permanent Injunction and Other Relief
to resolve the liability aspects of the complaint.  The Permanent
Injunction among other things, permanently restrains and enjoins us from
violation of Sections 5(a) and 5(c) of the Securities Act of 1933, 15 U.S.C. §§
77e(a) and 77e(c); violations of Section 10(b) of the Securities Exchange Act of
1934, 15 U.S.C. § 78j(b), and Rule l0b-5 promulgated thereunder, 17 C.F.R.
§240.l0b-5; violations of Section 13(a) of the Securities Exchange Act of 1934,
15 U.S.C. § 78m(a), and Rules 12b-20, 13a-l, and 13a-13 thereunder, 17 C.F.R. §§
240.12b-20, 240.13a-l, and 240. 13a-13; and violations of Sections 13(b)(2)(A)
and 13(b)(2)(B) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78m(b
)(2)(A) and 8m(b )(2)(B). The consent also provides that the Court will
determine whether it is appropriate to order disgorgement and, if so, the amount
of the disgorgement.





While we
cannot predict the ultimate outcome of the issue of disgorgement and prejudgment
interest, continued litigation would result in significant expenses, management
distraction and potential damages, penalties, other remedies, or adverse
findings, which could have a material adverse effect on our business, financial
condition, results of operations and cash flows.





We are
evaluating filing a separate lawsuit for damages we suffered against Messrs.
Harrell and Aubel and other parties involved in the improper conduct alleged in
the Securities and Exchange Commission September 24, 2008 complaint as a result
of their conduct.  In addition, we are evaluating filing 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 $2,521,379 which we redeemed for
2,864,606 shares of our common stock in March 2008 pursuant to the terms of the
December 2007 agreement to a acquire a 51% interest in Shandong
Jiajia.





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





None.





PART
II





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





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.





High
                  
                  
                  Low2007First
      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
                  
                  
                  $
                  0.80Fourth
      quarter ended December 31, 2007
                  
                  $
                  2.00
                  
                  
                  $
                  0.402008First
      quarter ended March 31, 2008
                  
                  $
                  1.20
                  
                  
                  $
                  0.40Second
      quarter ended June 30, 2008
                  
                  $
                  1.05
                  
                  
                  $
                  0.50Third
      quarter ended September 30, 2008
                  
                  $
                  0.65
                  
                  
                  $
                  0.35Fourth
      quarter ended December 31, 2008
                  
                  $
                  0.62
                  
                  
                  $
                  0.10





On May
14, 2009, the last sale price of our common stock as reported on the OTCBB was
$0.045.  As of May 14, 2009, there were approximately 252 record
owners of our common stock.


- 13
-


Transfer
Agent





Our
transfer agent is Interwest Transfer Co., Inc. which is located at 1981 East
Murray Holladay Rd., Ste. 100, Salt Lake City, UT 84117. The phone number is
(801) 272-9294 and its website is www.interwesttc.com.





Dividend
Policy





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. We have never paid cash dividends on our
common stock and it is highly unlikely that we will pay dividends in the
foreseeable future. Under Florida law, we may declare and pay dividends on our
capital stock either out of our surplus, as defined in the relevant Florida
statutes, or if there is no such surplus, out of our net profits for the year in
which the dividend is declared and/or the preceding year. If, however, the
capital of our company, computed in accordance with the relevant Florida
statutes, has been diminished by depreciation in the value of our property, or
by losses, or otherwise, to an amount less than the aggregate amount of the
capital represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets, we are prohibited from declaring and
paying out of such net profits any dividends upon any shares of our capital
stock until the deficiency in the amount of capital represented by the issued
and outstanding stock of all classes having a preference upon the distribution
of assets shall have been repaid.





Finally,
under the terms of the Subscription Agreement for the 2008 Unit Offering, we are
prohibited from paying dividends on our common stock until the earlier of two
years from the closing date of the offering or the date on which all shares of
common stock sold in the offering have been resold.





Purchases
of Equity Securities by the Issuer and Affiliated Purchasers





None.





Securities
Authorized for Issuance under Equity Compensation Plans





We have
not adopted any equity compensation or similar plans.





Recent
Sales of Unregistered Securities





None.





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
      OPERATION





We
maintain our financial records and report on a calendar year basis; as such the
twelve month period ending December 31, 2008 is referred to as “2008”, the year
ended December 31, 2007 is referred to as “2007”, and the coming year ending
December 31, 2009 is referred to as “2009”.





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 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 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.





- 14
-


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 ($2,521,379/2,864,606 =$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.





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.


- 15
-


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.3





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.





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.





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.


- 16
-


During
the remainder of 2008 and beyond, we face a number of challenges in growing our
business as a result of the weak global economy. We cannot predict when global
economic conditions will improve. We forecast continued weak demand within our
shipping business due to reduced levels of exports from China until global
economic conditions improve.





It should
be noted the report of our independent registered public accounting firm in
connection this annual report on Form 10-K for the year ended December 31, 2008
to be filed by us with the Securities and Exchange Commission 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 condensed 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
October 2008, the FASB issued FSP No. 157-3, “Determining the Fair Value
ofa Financial Asset
when the market for that Asset is not active”, which clarifies the
application of SFAS 157 in a market that is not active.  FSP No. 157-3
was effective upon issuance, including prior periods for which financial
statements have not been issued.
 
 The
adoption of SFAS 157 did not have an effect on the Company’s consolidated
financial statements.  The Company does not expect the adoption of the
remaining provisions of SFAS 157 to have a material effect on its consolidated
financial statements.
 
 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.
 
 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. Early adoption is prohibited.  The
Company does not expect the adoption of SFAS 160 to have a material effect on
its consolidated financial statements.
 - 17
-
 
 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.
 
 In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS No. 162”), which identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements in conformity with generally accepted
accounting principles in the United States.  SFAS No. 162 will become
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Sections 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.  The
Company does not expect that the adoption of SFAS No. 162 will have a material
effect on its consolidated financial statements.
 
 In June
2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock.  EITF
No. 07-5 provides that an entity should use a two step approach to evaluate
whether equity-linked financial instrument (embedded feature) is indexed to its
own stock, including evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies on the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation.  EITF No. 07-5 is effective for years
beginning after December 15, 2008.  The Company does not expect that
the adoption of EITF No. 07-5 will have a material effect on its consolidated
financial statements.
 
 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.
 
 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 when persuasive evidence of an arrangement exists, services have
been rendered or product delivery has occurred, the sales price to the customer
is filed 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.
 
 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 and
knowledge of our industry segment in Asia.  We also rely on certain
assumptions when deriving the fair value of share-based compensation and
calculations underlying our provision for taxes in China.  Assumptions
and estimates employed in the areas are material to our reported financial
conditions and results of operations.  Actual results could differ
from these estimates.
 - 18
-
 
 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.
 
 Year
      endedDecember
      31,2008
              
              
              2007Numerator:
              
              
              
              
              RestatedNet
      income (loss) applicable to common stockholders (A)
              
              $
              (2,086,618
              )
              
              $
              275,630Denominator:Denominator
      for basic earnings per shareWeighted
      average shares outstanding (B)
              
              
              26,823,216
              
              
              
              3,442,152Denominator
      for diluted earnings per shareTreasury
      Stock methodOptions
              
              
              -
              
              
              
              5,127Series
      A and B Convertible Preferred Stock
              
              
              -
              
              
              
              42,329Adjusted
      weighted average shares outstanding (C)
              
              
              26,823,216
              
              
              
              3,489,608Basic
      and Diluted (Loss) Earnings Per Common Share:Earnings
      per share- basic (A)/(B)
              
              $
              (0.08
              )
              
              $
              0.08Earnings
      per share- diluted (A)/(C)
              
              $
              (0.08
              )
              
              $
              0.08
 
 Potentially
issuable shares at December 31, 2008 and 2007 which were anti-dilutive and not
included in diluted earnings per share included:
 
 Year
      endedDecember
      31,2008
              
              
              2007RestatedOptions
              
              
              2,000,000
              
              
              
              -Warrants
              
              
              117,500
              
              
              
              117,500Class
      A and B Warrants
              
              
              31,558,500
              
              
              
              -Series
      B Convertible Preferred Stock
              
              
              4,500,000
              
              
              
              -38,176,000
              
              
              
              117,500
 
 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.
 - 19
-
 
 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.
  The
Company is not currently under examination by any federal or state taxing
authority.
 
 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,
2008 and 2007 customer advances totaled $1,133,283 and $683,436,
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.
  The
reporting currency is the U.S. dollar. The functional currency of Shandong
Jiajia is the local currency, the Chinese dollar or Renminbi
(“RMB”).
 - 20
-
  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.




Results of Operations





The
following table provides certain comparative information based on our
consolidated results of operations for the year ended December 31, 2008 as
compared to the year ended December 31, 2007:








Year
      ended December 31, 2008
                    
                    
                    Year
      ended December 31, 2007
                    
                    
                    $
      Change
                    
                    
                    %
      ChangeSales
                    
                    $
                    35,561,833
                    
                    
                    
                    35,298,453
                    
                    
                    $
                    263,380
                    
                    
                    
                    1
                    %Cost
      of Sales
                    
                    
                    34,552,938
                    
                    
                    
                    34,036,196
                    
                    
                    
                    516,742
                    
                    
                    
                    2
                    %Gross
      Profit
                    
                    
                    1,008,896
                    
                    
                    
                    1,262,257
                    
                    
                    
                    (253,361
                    )
                    
                    
                    20
                    %Total
      Operating Expenses
                    
                    
                    1,003,330
                    
                    
                    
                    678,177
                    
                    
                    
                    325,153
                    
                    
                    
                    48
                    %Income
      (Loss) from Operations
                    
                    
                    5,566
                    
                    
                    
                    584,080
                    
                    
                    
                    (578,514
                    )
                    
                    
                    99
                    %Total
      Other Income (Loss)
                    
                    
                    (1,666,094
                    )
                    
                    
                    13,575
                    
                    
                    
                    (1,679,669
                    )
                    
                    
                    N/MNet
      Income (Loss)
                    
                    
                    (2,086,618
                    )
                    
                    $
                    275,630
                    
                    
                    $
                    (2,362,248
                    )
                    
                    
                    857
                    %Comprehensive
      income (loss)
                    
                    $
                    (2,047,723
                    )
                    
                    $
                    46,654
                    
                    
                    $
                    (2,094,377
                    )
                    
                    
                    4489
                    %





N/M- Not
Meaningful





Other
Key Indicators





Sales





Our sales
for 2008 remained relatively consistently with the prior year, increasing
approximately 1% to $35,561,833.  However, sales for the fourth
quarter of 2008, totaling $7,808,374 decreased from $10,723,247 for the fourth
quarter of 2007.  This decrease, representing a year-over-year
reduction in fourth quarter revenues of 27%, reflects the overall decline in
demand for our transport  services.  We believe this decline
is due to the overall global economic slowdown with the corresponding reduction
in demand for Chinese sourced raw materials and finished goods.  While
the Company has taken, and will continue to take, steps to minimize the negative
impact of these conditions, we are unable to reliably predict either the depth
or duration of this economic trend.


- 21
-





Cost
of sales





Our cost
of sales represents the cost of the cargo space we obtain for our customers from
third parties.  Cost of sales as a percentage of sales increased to
97% in 2008 from 96% in 2007.  This increase is related to (i) small
increases in the price of cargo space, and (ii) the impact of unused reserved
cargo space triggered by a lower demand for our services the initially
anticipated.





Total
operating expenses





Total
operating expenses increased $325,153 or 48% to $1,003,330 in 2008 as compared
to operating expenses of  $678,177 in 2007.  This increase
is primarily due to approximately $540,000 of general and administrative
expenses related to the parent company, formerly MediaReady, Inc.; these
expenses were not included in the prior year pursuant to the accounting
treatment accorded the reverse merger and recapitalization at December 31,
2007.  In addition, we incurred professional fees to respond to a
complaint filed by the Securities and Exchange Commission against us and Messrs.
Harrell and Aubel which related to events which occurred
prior to our acquisition of 51% of Shandong Jiajia and the change in our
management.  We have been cooperating with the Securities and Exchange
Commission in this proceeding and in February 2009 we consented to the entry of
a Permanent Injunction and Other Relief to resolve the liability aspects of the
complaint.


While
operating expenses increased in total, operating expenses as a percentage of
sales for Shandong Jiajia decreased to 1% during the current year from 2% during
the prior year.  This decrease is primarily attributable to increased
efficiencies in the operating structure of Shandong Jiajia on an annualized
basis.  Additionally, during 2008 we recognized one-time recovery of
bad debt of approximately $400,000 for which there was no comparable gain in
2007.  If we had not recovered this amount, our operating expenses
would have increased approximately $725,000 or 10%.





Total
other income (expense)





Total
other non-operating expenses increased sharply in 2008 over the prior
year.  Overall, these expenses totaled $1,666,094 in 2008 compared to
income of $13,575 recognized 2007.  This increase in expense was due
to the recognition of approximately $86,000 in bad debt from Mr. David Aubel
deemed uncollectible and the recognition of $1,597,000 in expense under a
registration payment arrangement related to our 2008 Unit Offering completed in
April 2008.





Other
comprehensive income (loss)





As
described elsewhere herein, our functional currency is the Chinese Renminbi
(“RMB”); 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 realized 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.  We reported a gain on foreign currency translations of
$38,895 in 2008 as compared to a loss of $228,976 in 2007.  Including
these non-cash gains and losses, we reported comprehensive loss of $2,047,723
for 2008 and comprehensive income of $46,654 for 2007.





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, 2008, we had working capital of $1,698,227, including cash of
$3,156,362, as compared to a working capital deficit of $2,775,652, including
cash of $1,121,605, at December 31, 2007. This significant increase in working
capital was attributable primarily to the completion of our 2008 Unit Offering
completed in April 2008 with net proceeds of $3,359,188.  We believe,
however, that our current working capital and cash generated from operations may
not be sufficient to meet our cash requirements for the current year without the
ability to attain profitable operations and/or obtain additional financing.
Additionally, the terms of the 2008 Unit Offering contains restrictive covenants
which may hamper our ability to raise additional capital. If we are 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 our business, results of
operations and financial condition. There can be no assurance that we will be
able to raise any required capital necessary to achieve our targeted growth
rates and future continuance on favorable terms or at all.





The
report of our independent registered public accounting firm on our financial
statements for the year ended December 31, 2008 contains an explanatory
paragraph regarding our ability to continue as a going concern based upon our
recurring losses from operations, net cash used in operations, and accumulated
deficit.


- 22
-





The
following table provides certain selected balance sheet comparisons between
December 31, 2008 and December 31, 2007.


December
      31, 2008
                  
                  
                  December
      31, 2007
                  
                  
                  Increase/
      Decrease($)
                  
                  
                  ($)
                  
                  
                  ($)
                  
                  
                  %
      ChangeRestatedCash
                  
                  $
                  3,156,362
                  
                  
                  $
                  1,121,605
                  
                  
                  
                  
                  
                  $
                  2,034,757
                  
                  
                  
                  181
                  %Accounts
      receivable, net
                  
                  
                  2,739,173
                  
                  
                  
                  3,131,831
                  
                  
                  
                  
                  
                  
                  (392,658
                  )
                  
                  
                  (13
                  %)Accounts
      receivable - related party
                  
                  
                  -
                  
                  
                  
                  7,000
                  
                  
                  
                  
                  
                  
                  (7,000
                  )
                  
                  
                  (100
                  %)Due
      from related parties
                  
                  
                  518,433
                  
                  
                  
                  511,435
                  
                  
                  
                  
                  
                  
                  6,998
                  
                  
                  
                  1
                  %Prepayments
      and other current assets
                  
                  
                  327,951
                  
                  
                  
                  328,065
                  
                  
                  
                  
                  
                  
                  (114
                  )
                  
                  
                  N/MTotal
      current assets
                  
                  $
                  6,741,920
                  
                  
                  $
                  5,099,936
                  
                  
                  $
                  
                  
                  
                  $
                  1,641,984
                  
                  
                  
                  32
                  %Cash
      overdraft
                  
                  $
                  -
                  
                  
                  $
                  12,633
                  
                  
                  
                  
                  
                  
                  $
                  (12,633
                  )
                  
                  
                  (100
                  %)Accounts
      payable - trade
                  
                  
                  1,752,862
                  
                  
                  
                  3,608,885
                  
                  
                  
                  
                  
                  
                  
                  (1,856,023
                  )
                  
                  
                  (51
                  %)Accrued
      compensation - related party
                  
                  
                  -
                  
                  
                  
                  446,985
                  
                  
                  
                  
                  
                  
                  
                  (446,985
                  )
                  
                  
                  (100
                  %)Other
      accruals and current liabilities
                  
                  
                  1,743,953
                  
                  
                  
                  485,101
                  
                  
                  
                  
                  
                  
                  
                  1,258,852
                  
                  
                  
                  260
                  %Convertible
      note payable/related party
                  
                  
                  -
                  
                  
                  
                  2,373,179
                  
                  
                  
                  
                  
                  
                  
                  (2,373,179
                  )
                  
                  
                  (100
                  %)Advances
      from customers
                  
                  
                  1,133,283
                  
                  
                  
                  683,436
                  
                  
                  
                  
                  
                  
                  
                  449,847
                  
                  
                  
                  66
                  %Due
      to related parties
                  
                  
                  378,697
                  
                  
                  
                  229,252
                  
                  
                  
                  
                  
                  
                  
                  149,445
                  
                  
                  
                  65
                  %Foreign
      tax payable
                  
                  
                  34,897
                  
                  
                  
                  36,117
                  
                  
                  
                  
                  
                  
                  
                  (1,219
                  )
                  
                  
                  (3
                  %)Total
      current liabilities
                  
                  $
                  5,043,693
                  
                  
                  $
                  7,875,588
                  
                  
                  
                  
                  
                  
                  $
                  (2,831,895
                  )
                  
                  
                  -36
                  %





N/M – Not
Meaningful





We
maintain cash balances in the United States and China. At December 31, 2008 and
December 31, 2007, our cash by geographic area was as follows:


December
      31, 2008
                  
                  
                  December
      31, 2007United
      States
                  
                  $
                  201,605
                  
                  
                  
                  6
                  %
                  
                  $
                  215
                  
                  
                  
                  0.02
                  %China
                  
                  
                  2,954,757
                  
                  
                  
                  94
                  %
                  
                  
                  1,121,390
                  
                  
                  
                  99.98
                  %$
                  3,156,362
                  
                  
                  
                  100
                  %
                  
                  $
                  1,121,605
                  
                  
                  
                  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.





Total
current assets increased approximately $1,641,984 or 32% at December 31, 2008
over December 31, 2007. This increase was due primarily to our completion of our
2008 Unit Offering in April 2008 with net proceeds to us of approximately
$3,360,000. Current assets also reflected a decline in accounts receivable of
$392,658 or 13% due to increased collection efforts within Shandong Jiajia
during the period.


- 23
-


Trade
accounts payable declined substantially at December 31, 2008 from our 2007 year
end balances. This decline of $1,856,023 resulted from the satisfaction of
obligations using funds made available from our 2008 Unit Offering as well as
timing difference in payables as of the year end.





Advances
from customers totaled $1,133,283 at December 31, 2008, an increase of
approximately $449,847 or 66% over the prior yearend balance.  This
sharp increase is due to an increase in our overall level of operations and
represents advance payment by our customers for contracted cargo shipments that
have not been shipped as of December 31, 2008. Upon shipment of these goods and
compliance with the related contract terms, these advances will be taken into
income in accordance with our revenue recognition policy.





Accrued
registration rights penalty increased approximately $1.6 million as we accrued
this penalty during the quarter ended September 30, 2008 in accordance with SFAS
5 Accounting for
Contingencies.





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 $2,521,379 note payable due a principal shareholder of our company, Mr.
      David Aubel, into 2,864,606 shares of our common
  stock.





These
transactions had the effect of reducing our liabilities at December 31, 2008 as
compared to December 31, 2007.





Related
Party





From time
to time Shandong Jiajia has entered into transactions with related
parties.  At December 31, 2008, we were owed $518,433 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%).  The loan, which was provided in 2005, is unsecured,
non-interest bearing and payable on demand.  At December 31, 2008, our
balance sheet also reflected (i) $123,458 due to Xiangfen Chen, general manager
of the Xiamen Branch of Shandong Jiajia, (ii) $62,652 due to Liu Bin, general
manager of Tianjin Branch of Shandong Jiajia, and (iii) $183,448 due to Tianjin
Sincere Logistics Co., Ltd., a Chinese limited liability company 90% owned by
Bin Liu.  The loans were provided for working capital purposes are
unsecured, non-interest bearing and repayable on demand.





Statement
of Cash Flows





Net cash
used in operating activities totaled $1,643,461 for the year ended December 31,
2008 as compared to cash provided of $691,569 for the year ended December 31,
2007.  This overall increase in cash used by operating activities is
primarily attributable to a reduction of accounts payable. The largest sources
of cash include $723,098 from customer cash receipts from account receivable,
$449,848 from customer receipts from advances from customers; and $1,458,488
non-cash adjustments to net income.  These sources of cash were offset
primarily by a decrease of $1,856,023 in accounts payable, a decrease of
$338,148 in accruals and current liabilities, and an increase of $298,422 in
other receivables.





Net cash
used in investing activities for the year ended December 31, 2008 decreased
$389,200 from the comparable period in 2007.  This decrease is
primarily due to the decrease in advances to related parties.  In both
periods funds used for capital expenditures related to addition s of property
and equipment.





Net cash
provided by financing activities for the year ended December 31, 2008 was
primarily attributable to proceeds from our 2008 Unit Offering, net of
expenses.  During the comparable prior periods, proceeds from
financing activities was attributable to loans made to us by a principal
shareholder, Mr. David Aubel, which such amounts were satisfied in full during
the 2008 period through the issuance of 2,864,606 shares of our common stock as
described elsewhere herein.





Off
Balance Sheet Arrangements





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.


- 24
-


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





Not
applicable to a smaller reporting company.





ITEM
8.                      FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.


Our
financial statements are contained in pages F-1 through F-X, which appear at the
end of this annual report.


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, 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 December
31, 2008, the end of the period covered by this report (the “Evaluation
Date”).  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.





Based on
this evaluation, our Chief Executive Officer who serves as our principal
executive officer and principal financial officer concluded that as of December
31, 2008 our disclosure controls and procedures were not effective such that the
information relating to our company, including our consolidating subsidiaries,
required to be disclosed in our Securities and Exchange Commission reports (i)
is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms and (ii) is accumulated and communicated to our
management, including our Chief Executive Officer, to allow timely decisions
regarding required disclosure. Our management concluded that our disclosure
controls and procedures were not effective as described in more detail below. 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.





The
specific material weaknesses identified by our management were as
follows:





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, as amended.  In
addition, 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.





Subsequent
to the filing of the first amendment to our 2007 Form 10-K (Amendment No. 1) on
May 19, 2008, we discovered that, as of December 31, 2007, we did not have
appropriate policies and procedures in place to ensure that we: (i) accounted
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, and (iii) 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.





Subsequent
to the filing of the December 31, 2007 Form 10-K/A (Amendment No. 2) on December
24, 2008, it was further determined that, as of December 31, 2007, we did not
have appropriate policies and procedures in place to ensure that the Company;
(i) properly accounted for the fair value of assets and liabilities of the
accounting acquire (formerly MediaReady, Inc.) recognized in connection with the
acquisition of a 51% interest in Shandong Jiajia, and (ii) properly classify
$64,945 in advances to related parties in the consolidated statements of cash
flows, and (iii) recognize the accrual of certain professional fees totaling
$141,800.


- 25
-


Further,
in our 2008 interim reports, the Company: (i) failed to properly recognize and
record $25,060 in professional fees expense attributable to that period, (ii)
correctly classify approximately $400,000 in recovery of bad debts in the
consolidated statements of operations from a component of other income (expense)
to a component of operating income, (iii) failed to recognize an overall accrual
of $137,149 in expenses, and (iv) failed to recognize an accrued loss of
$1,597,000 due under a registration payment arrangement entered into in
connection with the Company’s financing completed in April 2008.





We have
an inadequate number of personnel with the requisite expertise in generally
accepted accounting principles to ensure the proper application thereof. Our
Chief Executive Officer who serves as our Chief Financial Officer is not an
accountant and we have historically relied upon the services of outside
accountants. Our internal accounting staff is primarily engaged in ensuring
compliance with PRC accounting and reporting requirements and their U.S. GAAP
knowledge is 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.





These
material weaknesses at December 31, 2007 continue at December 31,
2008.  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 before.
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. We expect
the material weakness will be remediated prior to December 31,
2009.   As we improve our internal control over financial
reporting and implement remediation measures, we may supplement or modify the
remediation measures described above.





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 of 1934.  Our management assessed the
effectiveness of our internal control over financial reporting as of December
31, 2008.  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, 2008 our internal control over
financial reporting was not effective based on this criteria.





This
annual report does not include an attestation report of our 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





Other
than as expressly noted above in this Item 9A, there was no change in our
internal control over financial reporting identified in connection with our
evaluation that occurred during our last quarter (our fourth quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





ITEM
9B.                      OTHER
INFORMATION.





None.


- 26
-





PART
III





ITEM
10.                      DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.





Directors
and Executive Officers


Name
            Age
            PositionsWei
      Chen
            39
            Chairman
      of the Board, Chief Executive Officer, President, Secretary and
      TreasurerHui
      Liu
            47
            Director,
      Chief Executive Officer of Shandong
Jiajia





Wei Chen.  Mr. Chen
has been a member of our Board of Directors and Chief Executive Officer since
June 2008, and he has served as Chairman of the Board, President, Secretary and
Treasurer since July 2008.  Mr. Chen, a minority owner and co-founder
of Shandong Jiajia, 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 the 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 a Bachelor’s Degree in International
Shipping from Shanghai Maritime University in 1992.





Hui Liu.  Mr. Liu
has been a member of our Board of Directors since July 2008.  Mr. Liu
co-founded Shandong Jiajia in 1999 and is a minority owner of the
company.  Since 1999 Mr. Liu has served as Chief Executive Officer of
Shandong Jiajia.  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.





Each
director is elected at our annual meeting of shareholders and holds office until
the next annual meeting of shareholders, or until his successor is elected and
qualified.





Director
Compensation





We have
not established standard compensation arrangements for our directors and the
compensation payable to each individual for their service on our Board is
determined from time to time by our Board of Directors based upon the amount of
time expended by each of the directors on our behalf.  None of our
directors were compensated for their services as members of our Board of
Directors for the year ended December 31, 2008.





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.




- 27
-





In
addition, we have also adopted a Code of Ethics for our Chief Executive Officer
and senior financial officers who 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 is filed as an exhibit to this
report.  In addition, 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 us at our principal offices at 7300 Alondra Boulevard, Suite 108,
Paramount, CA  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, any committee performing a
similar function. Further, as we are currently quoted on the OTC Bulletin Board,
we are not subject to any exchange rule which includes qualitative requirements
mandating the establishment of any particular committees.





We do not
have a policy regarding the consideration of any director candidates which may
be recommended by our shareholders, 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 shareholders, 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 the nature of our operations and lack of directors and officers
insurance coverage, we do not anticipate that any of our shareholders 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.





Neither
of our directors is an “audit committee financial expert” within the meaning of
Item 401(e) of Regulation S-B. 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.





Neither
of our directors have the requisite professional background necessary to be
considered an audit committee financial expert.  The OTC Bulletin
Board on which our common stock is quoted does not impose any qualitative
standards requiring companies to have independent directors or requiring that
one or more of its directors be audit committee financial experts.





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,
      2008 as that term is defined under Rule 3b-7 of the Securities Exchange
      Act of 1934, 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, 2008.





For
definitional purposes, these individuals are sometimes referred to as the "named
executive officers." The value attributable to any option awards in the
following table is computed in accordance with FAS 123R.


- 28
-


SUMMARY
COMPENSATION TABLE





NAME
      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)
                2008
                
                
                61,500
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                61,5002007
                
                
                200,000
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                200,000Hui
      Liu (2)
                2008
                
                
                25,854
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                25,8542007
                
                
                3,732
                
                
                
                14,785
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                11,500
                
                
                
                30,017Wei
      Chen
                2008
                
                
                25,854
                
                
                
                -—
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                25,8542007
                
                
                26,642
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                26,642







(1)
            Mr.
      Harrell served as our Chief Executive Officer from 1999 until July
      2008.  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 owned Mr. Harrell an aggregate of approximately $419,000 of
      accrued but unpaid compensation. As contemplated by the acquisition
      agreement for Shandong Jiajia, in March 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. All other compensation included
      $10,958 for travel allowance and $542 for a car
  allowance







Employment
Agreement with our Executive Officers





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.





How
Mr. Harrell's Compensation was Determined





During
2007 and 2008, our Board of Directors unilaterally fixed the amount of
compensation payable to Mr. Harrell. Mr. Harrell was the sole member of the
Board of Directors until Mr. Chen joined the Board on June 25, 2008. The Board
of Directors did not consult with any experts or other third parties in fixing
the amount of Mr. Harrell's compensation. During 2008 Mr. Harrell's compensation
package included a base salary of $200,000.  On July 22, 2008 Mr.
Harrell resigned all positions with our company and he did not receive any
severance or similar benefits upon his resignation.





How
Mr. Liu's and Mr. Chen's Compensation was Determined





During
2008 Mr. Liu and Mr. Chen served solely as executive officers and directors of
our Shandong Jiajia subsidiary and as such were responsible for its day-to-day
operations.  While they remain in those positions with Shandong
Jiajia, both individuals are now members of our Board of Directors and Mr. Chen
serves as our Chief Executive Officer.  Neither Mr. Liu nor Mr. Chen
is a party 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.  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.


- 29
-


Outstanding
Equity Awards at Fiscal 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, 2008:





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
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Hiu
      Liu
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Wei
      Chen
                
                
                2,000,000
                (1)
                
                
                —
                
                
                
                —
                
                
                $
                0.30
                
                
                January
      1, 2011
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —





(1)
              Options
      were issued in connection with the January 28, 2008 amendment to the
      December 31, 2007 acquisition agreement between us and Shandong Jiajia as
      additional consideration Mr. Chen in connection with such
      acquisition.


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 during fiscal 2008 and Forms
5 and amendments thereto furnished to us with respect to 2008, 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 stockholder failed to
file on a timely basis, as disclosed in the aforementioned Forms, reports
required by Section 16(a) of the Securities Exchange Act during fiscal 2008,
except as follows:





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





At May
18, 2009 we had 34,508,203 shares of our common stock issued and outstanding.
The following table sets forth information regarding the beneficial ownership of
our common stock as of May 18, 2009 by:





•
            each
      person known by us to be the beneficial owner of more than 5% of our
      common stock;•
            each
      of our directors;•
            each
      of our named executive officers; and•
            our
      named executive officers, directors and director nominees as a
      group.





Unless
otherwise indicated, the business address of each person listed is in care of
7300 Alondra Boulevard, Suite 108, Paramount, California 90723. 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 our common stock owned by them, except to
the extent that power may be shared with a spouse.


- 30
-





Amount
      and Nature of Beneficial Ownership (1)Name
                  
                  #
      of Shares
                  
                  
                  %
      of ClassWei
      Chen (2)
                  
                  
                  4,762,500
                  
                  
                  
                  13.0
                  %Hui
      Liu
                  
                  
                  312,500
                  
                  
                  
                  *All
      named executive officers and directors as a group (two persons)
      (2)
                  
                  
                  5,075,000
                  
                  
                  
                  13.9
                  %China
      Direct, Inc. (3)
                  
                  
                  9,512,500
                  
                  
                  
                  24.3
                  %





*
            represents
      less than 1%





(1)
      The inclusion of any shares as deemed beneficially owned does not
      constitute an admission of beneficial ownership by the named
      shareholder.





(2)
      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)
      The shares of our common stock shown beneficially owned by China Direct,
      Inc. includes:





•
            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 subsidiary of China Direct, Inc.,•
            200,000
      shares of our common stock underlying Class A warrants;
      and•
            450,000
      shares of Series B Convertible Preferred Stock held of record by
      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.





China
Direct, Inc.'s address is 431 Fairway Drive, Deerfield Beach, Florida 33441. Dr.
James Wang, Chief Executive Officer of China Direct, Inc. holds voting and
dispositive control over securities owned by China Direct, Inc. in his capacity
of Chief Executive Officer.





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





Up until
March 2008, we relied heavily on advances from Mr. David Aubel, formerly a
principal shareholder of our company, to fund our operations.  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 our
common stock at substantial discounts from the then prevailing market
price.





On
December 3, 2005, we entered into an agreement 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, we
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 us contained no stated redemption
date (due on demand) and the notes were convertible at the option of the
investor, the resulting discount from market was recognized
immediately.





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


- 31
-





Funds
advanced by Mr. Aubel:





Funds
                        
                        
                        IntrinsicAdvanced
                        
                        
                        Value2005
                        
                        $
                        160,000
                        
                        
                        $
                        240,0002006
                        
                        
                        1,730,168
                        
                        
                        
                        2,595,2512007
                        
                        
                        874,164
                        
                        
                        
                        1,311,2462008
                        
                        
                        148,200
                        
                        
                        
                        223,300Totals
                        
                        $
                        2,912,532
                        
                        
                        $
                        4,368,797





A summary
of the intrinsic value of shares actually paid to Mr. Aubel against his note for
the years ended December 31, 2005, 2006 and 2007 is as follows:





Year
                    
                    Number
      of Shares Converted
                    
                    
                    Amount
      of Note Reduction
                    
                    
                    Intrinsic
      Value2005
                    
                    
                    802,500
                    
                    
                    $
                    698,000
                    
                    
                    $
                    14,829,0002006
                    
                    
                    592,500
                    
                    
                    
                    1,442,000
                    
                    
                    
                    2,319,0002007
                    
                    
                    1,795,000
                    
                    
                    
                    1,751,720
                    
                    
                    
                    2,821,2802008
                    
                    
                    2,864,606
                    
                    
                    
                    2,521,379
                    
                    
                    
                    659,4326,054,606
                    
                    
                    $
                    6,416,100
                    
                    
                    $
                    20,628,712





Based on
our review of the facts and circumstances surrounding the agreements with Mr.
Aubel and in connection with the earlier restatement of our financial
statements, we believe 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, we issued Mr. Aubel 2,864,606 shares of our 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 filing a separate lawsuit for damages we suffered against Messrs.
Harrell and Aubel and other parties involved in the improper conduct alleged in
the Securities and Exchange Commission September 24, 2008 complaint as a result
of their conduct.  In addition, we are evaluating filing 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 $2,521,379 which we redeemed for
2,864,606 shares of our common stock in March 2008 pursuant to the terms of the
December 2007 agreement to a acquire a 51% interest in Shandong
Jiajia.





From time
to time we enter into transactions with related parties, including:





At
December 31, 2008 we were owed $518,433 representing amounts due under a loan
from Shandong Huibo Import & Export Co., Ltd., a Chinese limited liability
company owned which is a minority owner of our company.  Shandong
Huibo Import & Export Co., Ltd. is owned by PeiXiang Wang (31.7%) and
PengXiang Liu (68.3%), unrelated third parties.  This loan is
unsecured, non-interest bearing and due on demand, and





At
December 31, 2008 we owed Mr. Xiangfen Chen, an employee, $123,458 representing
amounts loaned to us. This loan is unsecured, non-interest bearing and due on
demand. We used the funds for general working capital.


At
December 31, 2008 we owed Bin Liu, the general manager of Shandong Jiajia
Tianjin branch $62,652.  We also owed Tianjin Sincere Logistics Co.,
Ltd. where Mr. Liu is a 90% owner, $183,448.  These loans were
unsecured, non-interest bearing and repayable on demand. Shandong Jiajia used
the funds for general working capital.


On March
20, 2008 we entered into a conversion agreement with Mr. V. Jeffrey Harrell,
then our CEO and President, whereby he 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.





On June
1, 2008, we entered into a lease with Mr. Chen for a term of one year for office
space for our Shanghai Branch.  Under the terms of the lease, we pay
Mr. Chen a base annual rent of approximately $43,700 for the use of such office
space.  We also lease office space for our Xiamen Branch from its
General Manager, Mr. Xiangfen Chen, under a lease expiring on December 31, 2009 at
an annual rent of approximately $1,459 (RMB 10,800), and we lease office space
for our Tianjian Branch from Mr. Bin Liu, its General Manager, under a lease
expiring on May 31, 2013 at an annual rent of approximately $21,962 (RMB
150,000).


- 32
-





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





Director
Independence





Neither
of our directors is independent within The NASDAQ Stock Market's director
independence standards pursuant to Marketplace Rule 4200.





ITEM
14.                      PRINCIPAL
ACCOUNTANT FEES AND SERVICES.


Sherb
& Co., LLP served as our independent registered public accounting firm for
2008 and 2007.  The following table shows the fees that were billed
for the audit and other services provided by such firm for 2008 and
2007:





2008
                  
                  
                  2007RestatedAudit
      Fees
                  
                  $
                  72,000
                  
                  
                  $
                  65,000Audit-Related
      Fees
                  
                  
                  -
                  
                  
                  
                  -Tax
      Fees
                  
                  
                  -
                  
                  
                  
                  -All
      Other Fees
                  
                  
                  -
                  
                  
                  
                  18,000Total
                  
                  $
                  72,000
                  
                  
                  $
                  83,000


Audit Fees — This category
includes the audit of our annual financial statements, review of financial
statements included in our Form 10-Q 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 SEC 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.


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 our independent
registered public accounting firm with respect to 2008 were pre-approved by the
entire Board of Directors.


- 33
-





PART
IV


ITEM
15.                      EXHIBITS,
FINANCIAL STATEMENT SCHEDULES.


a)  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
(12)4.3
              
              Form
      of common stock purchase warrant issued in the 2008 Unit Offering
      (13)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
      Co., 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
      Co., Ltd., and Messrs. Hui Liu and Wei Chen (11)10.11
              
              Lease
      Agreement between China Logistics Group, Inc. and ETI International, Inc.
      (17)10.12
              
              Form
      of Subscription Agreement for 2008 Unit Offering (13)10.13
              
              Lease
      Agreement between Wei Chen and Shandong Jiajia International Freight &
      Forwarding Co., Ltd.(14)10.14
              
              Lease
      Agreement dated December 31, 2008 between Shandong Jiajia International
      & Freight Forwarding Co., Ltd. and Shandong Import & Export Co.,
      Ltd. (17)10.15
              
              Assumption
      Agreement dated December 31, 2007 between David Aubel and MediaReady, Inc.
      (17)10.16
              
              Conversion
      Agreement dated March 20, 2008 between V. Jeffrey Harrell and China
      Logistics Group, Inc. (16)10.17
              
              Conversion
      Agreement dated March 20, 2008 between David Aubel and China Logistics
      Group, Inc. (16)10.18
              
              Form
      of promissory note in the principal amount of $561,517.27 dated January 1,
      2003 issued by Video Without Boundaries, Inc. to Mr. David Aubel
      (15)10.19
              
              Form
      of Security Agreement dated May 23, 2001 between Valusales.com, Inc. and
      Mr. David Aubel (15)14.1
              
              Code
      of Business Conduct and Ethics (12)21.1
              
              Subsidiaries
      of the Registrant (12)31.1
              
              Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002 *31.2
              
              Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002 *32.1
              
              Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002 *





- 34
-


*  filed
herewith





(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.(12
                )
                Incorporated
      by reference to the Annual Report on Form 10-K for the year ended December
      31, 2007.(13
                )
                Incorporated
      by reference to the Current Report on Form 8-K as filed on April 24,
      2008.(14
                )
                Incorporated
      by reference to the Quarterly Report on Form 10-Q/A (Amendment No. 1) for
      the period ended June 30, 2008.(15
                )
                Incorporated
      by reference to the Quarterly Report on Form 10-Q for the period ended
      September 30, 2008.(16
                )
                Incorporated
      by reference to the Quarterly Report on Form 10-Q/A (Amendment No. 1) for
      the period ended March 31, 2008.(17
                )
                Incorporated
      by reference to the registration statement on Form S-1, SEC File No.
      333-151783, as amended.





- 35
-





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To the
Stockholders and Board of Directors


China
Logistics Group, Inc.








We have
audited the accompanying consolidated balance sheets of China Logistics Group,
Inc (the “Company”) as of December 31, 2008 and 2007 and the related
consolidated statement of operations and comprehensive income, stockholders'
equity and cash flows for the years ended December 31, 2008 and 2007. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.





We
conducted our audits in accordance with 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 as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly 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 audit provides a
reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 2008 and 2007 and the results of their operations and their cash flows for
the years ended December 31, 2008 and 2007, in conformity with accounting
principles generally accepted in the United States of America.





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has incurred a loss
and has negative cash flows from operations for the year ended December 31, 2008
as fully described in Note 3. These issues raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.








/s/Sherb & Co.,
LLP


Certified
Public Accountants


Boca
Raton, Florida


May 18,
2009














-F - 1
-


CHINA
LOGISTICS GROUP, INC.


AND
SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


DECEMBER
31, 2008 AND 2007





December
      31,2008
                      
                      
                      2007RestatedASSETSCurrent
      assets:Cash
                      
                      $
                      3,156,362
                      
                      
                      $
                      1,121,605Accounts
      receivable, net
                      
                      
                      2,739,173
                      
                      
                      
                      3,131,831Accounts
      receivable - related party
                      
                      
                      -
                      
                      
                      
                      7,000Due
      from related parties
                      
                      
                      518,433
                      
                      
                      
                      511,435Prepaid
      expense and other current assets
                      
                      
                      327,952
                      
                      
                      
                      328,065Total
      current assets
                      
                      
                      6,741,920
                      
                      
                      
                      5,099,936Property
      and equipment, net
                      
                      
                      44,144
                      
                      
                      
                      42,336Total
      assets
                      
                      $
                      6,786,064
                      
                      
                      $
                      5,142,272LIABILITIES AND SHAREHOLDERS'
      EQUITYCurrent
      liabilities:Cash
      overdraft
                      
                      $
                      -
                      
                      
                      $
                      12,633Accounts
      payable - trade
                      
                      
                      1,752,862
                      
                      
                      
                      3,608,885Accrued
      compensation - related party
                      
                      
                      -
                      
                      
                      
                      446,985Accrued
      registration rights penalty
                      
                      
                      1,597,000
                      
                      
                      
                      -Other
      accruals and current liabilities
                      
                      
                      146,953
                      
                      
                      
                      485,101Convertible
      note payable/related party
                      
                      
                      -
                      
                      
                      
                      2,373,179Advances
      from customers
                      
                      
                      1,133,283
                      
                      
                      
                      683,436Due
      to related parties
                      
                      
                      378,697
                      
                      
                      
                      229,252Foreign
      tax payable
                      
                      
                      34,898
                      
                      
                      
                      36,117Total
      current liabilities
                      
                      
                      5,043,693
                      
                      
                      
                      7,875,588Minority
      interest
                      
                      
                      794,886
                      
                      
                      
                      601,028Shareholders'
      deficit:Preferred
      stock - $0.001 par value, 10,000,000 shares authorizedSeries
      A Convertible Preferred Stock - 1,000,000 shares issuedand
      oustanding at December 2007
                      
                      
                      -
                      
                      
                      
                      1,000Series
      B Convertible Preferred Stock - 450,000 and 1,295,000
    sharesissued
      and oustanding at December 31, 2008 and 2007, respectively
                      
                      
                      450
                      
                      
                      
                      1,295Common
      stock, $.001 par value, 500,000,000 shares authorized;34,508,203
      shares and 4,999,350 shares issued and outstandingat
      December 31, 2008 and 2007, respectively
                      
                      
                      34,508
                      
                      
                      
                      4,999Additional
      paid-in capital
                      
                      
                      3,572,042
                      
                      
                      
                      (2,729,846
                      )Accumulated
      deficit
                      
                      
                      (2,472,020
                      )
                      
                      
                      (385,402
                      )Accumulated
      other comprehensive loss
                      
                      
                      (187,495
                      )
                      
                      
                      (226,390
                      )Total
      shareholders' equity (deficit)
                      
                      
                      947,485
                      
                      
                      
                      (3,334,344
                      )Total
      liabilities and shareholders' equity
                      
                      $
                      6,786,064
                      
                      
                      $
                      5,142,272





The
accompanying notes are an integral part of these financial
statements


-F - 2
-


CHINA
LOGISTICS GROUP, INC.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007





For
      the Years EndedDecember
      31,2008
                    
                    
                    2007RestatedSales
                    
                    $
                    35,561,833
                    
                    
                    $
                    35,298,453Cost
      of sales
                    
                    
                    34,552,938
                    
                    
                    
                    34,036,196Gross
      profit
                    
                    
                    1,008,895
                    
                    
                    
                    1,262,257Operating
      expenses:Selling
      expenses
                    
                    
                    -
                    
                    
                    
                    37,546General
      and administrative
                    
                    
                    1,333,769
                    
                    
                    
                    640,631Recovery
      of bad debt
                    
                    
                    (330,439
                    )
                    
                    
                    -Total
      operating expenses
                    
                    
                    1,003,330
                    
                    
                    
                    678,177Income
      from operations
                    
                    
                    5,565
                    
                    
                    
                    584,080Other
      income (expenses):Other
      income
                    
                    
                    15,218
                    
                    
                    
                    13,575Registration
      rights penalty
                    
                    
                    (1,597,000
                    )
                    
                    
                    -Non-operating
      bad debt expense
                    
                    
                    (85,844
                    )
                    
                    
                    -Interest
      income
                    
                    
                    1,532
                    
                    
                    
                    -Total
      other income (expenses)
                    
                    
                    (1,666,094
                    )
                    
                    
                    13,575Income
      (loss) before income taxes and minority interest
                    
                    
                    (1,660,529
                    )
                    
                    
                    597,655Foreign
      taxes
                    
                    
                    269,600
                    
                    
                    
                    57,205Income
      (loss) before minority interest
                    
                    
                    (1,930,129
                    )
                    
                    
                    540,450Minority
      interest in income of subsidiary
                    
                    
                    156,489
                    
                    
                    
                    264,820Net
      income (loss)
                    
                    
                    (2,086,618
                    )
                    
                    
                    275,630Other
      comprehensive income (loss):Foreign
      currency translation adjustments
                    
                    
                    38,895
                    
                    
                    
                    (228,976
                    )Comprehensive
      (loss) income
                    
                    $
                    (2,047,723
                    )
                    
                    $
                    46,654Basic
      and diluted (loss) income per common share:Net
      loss per common share
                    
                    $
                    (0.08
                    )
                    
                    $
                    0.08Weighted
      average number of shares outstanding:Basic
                    
                    
                    26,823,216
                    
                    
                    
                    3,442,152Diluted
                    
                    
                    26,823,216
                    
                    
                    
                    3,489,608





The
accompanying notes are an integral part of these financial
statements


-F - 3
-




CHINA
LOGISTICS GROUP, INC.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY


FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007





AccumulatedAdditional
                      
                      
                      
                      
                      
                      OtherPreferred
      A Stock
                      
                      
                      Preferred
      B Stock
                      
                      
                      Common
      Stock
                      
                      
                      Paid-In
                      
                      
                      Accumulated
                      
                      
                      ComprehensiveShares
                      
                      
                      Amount
                      
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      Capital
                      
                      
                      Deficit
                      
                      
                      Income/Loss
                      
                      
                      TotalBalance
      December 31, 2006
                      
                      
                      1,000,000
                      
                      
                      $
                      1,000
                      
                      
                      
                      120,000
                      
                      
                      $
                      120
                      
                      
                      
                      2,750,291
                      
                      
                      $
                      2,750
                      
                      
                      $
                      863,175
                      
                      
                      $
                      (995,334
                      )
                      
                      $
                      2,586
                      
                      
                      $
                      (125,703
                      )Stock
      issued for acquisition
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,175,000
                      
                      
                      
                      1,175
                      
                      
                      
                      450,000
                      
                      
                      
                      450
                      
                      
                      
                      10,398,825
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      10,400,450Recapitalization
      for reverse merger
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,798,750
                      
                      
                      
                      1,799
                      
                      
                      
                      (14,641,049
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (14,639,250
                      )Recapitalization
      for reverse merger
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      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
      loss 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
                      )Convertible
      note payable to related party convertedto
      capital
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,864,606
                      
                      
                      
                      2,865
                      
                      
                      
                      2,518,514
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,521,379Conversion
      of Seiries A Preferred to common stock
                      
                      
                      (1,000,000
                      )
                      
                      
                      (1,000
                      )
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      2,500,000
                      
                      
                      
                      2,500
                      
                      
                      
                      (1,500
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Conversion
      of Seiries B Preferred to common stock
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (845,000
                      )
                      
                      
                      (845
                      )
                      
                      
                      8,450,000
                      
                      
                      
                      8,450
                      
                      
                      
                      (7,605
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Accrued
      salary for president converted to stock
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      581,247
                      
                      
                      
                      581
                      
                      
                      
                      448,404
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      448,985Private
      placement
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      15,113,000
                      
                      
                      
                      15,113
                      
                      
                      
                      3,344,075
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,359,188Foreign
      currency translation adjustment
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      38,895
                      
                      
                      
                      38,895Net
      loss for the period
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (2,086,618
                      )
                      
                      
                      -
                      
                      
                      
                      (2,086,618
                      )Balance
      December 31, 2008
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      450,000
                      
                      
                      $
                      450
                      
                      
                      
                      34,508,203
                      
                      
                      $
                      34,508
                      
                      
                      $
                      3,572,042
                      
                      
                      $
                      (2,472,020
                      )
                      
                      $
                      (187,495
                      )
                      
                      $
                      947,485





The
accompanying notes are an integral part of these financial
statements


-F - 4
-




CHINA
LOGISTICS GROUP, INC.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007





For
      the Year EndedDecember
      31,2008
                  
                  
                  2007CASH
      FLOWS FROM OPERATING ACTIVITIES:
                  
                  
                  
                  
                  RestatedNet
      (loss) income
                  
                  $
                  (2,086,618
                  )
                  
                  $
                  275,630Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
      expense
                  
                  
                  35,438
                  
                  
                  
                  18,406Minority
      interest
                  
                  
                  156,489
                  
                  
                  
                  264,820Allowance
      for doubtful accounts
                  
                  
                  (330,439
                  )
                  
                  
                  68,149Registration
      rights penalty
                  
                  
                  1,597,000Changes
      in assets and liabilities:(Increase)
      decrease in accounts receivable
                  
                  
                  723,098
                  
                  
                  
                  (1,227,947
                  )(Increase)
      in accounts receivable - related party
                  
                  
                  7,000
                  
                  
                  
                  -(Increase)
      decrease  in other receivables
                  
                  
                  -
                  
                  
                  
                  114,158Decrease
      in other assets
                  
                  
                  -
                  
                  
                  
                  (419
                  )Decrease
      (increase) in prepaid expenses and other current assets
                  
                  
                  114
                  
                  
                  
                  (313,237
                  )(Decrease)
      increase in accounts payable
                  
                  
                  (1,856,023
                  )
                  
                  
                  1,054,327(Decrease)
      in other accruals and current liabilities
                  
                  
                  (338,148
                  )
                  
                  
                  (162,440
                  )(Decrease)
      increase in taxes payable
                  
                  
                  (1,220
                  )
                  
                  
                  27,245Increase
      in advances from customers
                  
                  
                  449,848
                  
                  
                  
                  572,877NET
      CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
                  
                  
                  (1,643,461
                  )
                  
                  
                  691,569CASH
      FLOWS FROM INVESTING ACTIVITIES:Capital
      expenditures
                  
                  
                  (37,246
                  )
                  
                  
                  (13,504
                  )Advances
      to related parties
                  
                  
                  (6,998
                  )
                  
                  
                  (419,940
                  )NET
      CASH USED IN FINANCING ACTIVITIES
                  
                  
                  (44,244
                  )
                  
                  
                  (433,444
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from 2008 Unit Offering
                  
                  
                  3,778,250
                  
                  
                  
                  -2008
      Unit Offering expenses
                  
                  
                  (420,863
                  )
                  
                  
                  -Repayment
      of short-term financing
                  
                  
                  (12,633
                  )
                  
                  
                  -Advances
      from related parties
                  
                  
                  299,285
                  
                  
                  
                  -NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                  
                  
                  3,644,039
                  
                  
                  
                  -EFFECT
      OF EXCHANGE RATE ON CASH
                  
                  
                  78,423
                  
                  
                  
                  40,572NET
      INCREASE IN CASH
                  
                  
                  2,034,757
                  
                  
                  
                  298,697CASH  -
      beginning of year
                  
                  
                  1,121,605
                  
                  
                  
                  822,908CASH
      - end of year
                  
                  $
                  3,156,362
                  
                  
                  $
                  1,121,605SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period for foreign taxes
                  
                  $
                  34,524
                  
                  
                  $
                  31,361Convertible
      note payable converted to common stock -related party
                  
                  $
                  2,521,379
                  
                  
                  $
                  -Accrued
      compensation converted to common stock - related party
                  
                  $
                  448,985
                  
                  
                  $
                  -




The
accompanying notes are an integral part of these financial
statements


-F - 5
-


CHINA
LOGISTICS GROUP, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008 AND 2007




NOTE
1 – SUMMARY OF BUSINESS AND 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 its
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.




We are on
a year concurrent with the calendar year; as such the twelve month period ending
December 31, is our year. The year ended December 31, 2008 is referred to as
“2008”, the year ended December 31, 2007 is referred to as “2007”, and the
coming year ending December 31, 2009 is referred to as “2009”.





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 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 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 (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.


-F - 6
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued


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 ($2,521,379/2,864,606 =$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.





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
finder’s fees and consulting fees were incremental to the transaction and
payable contingent upon closing.  Accordingly, pursuant to the
provisions of SFAS 141, were classified as directly related to the
acquisition.  All transactions related fees were determined through
arms length negotiations between the parties.





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.3





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.


-F - 7
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued





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.





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.





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.





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:


-F - 8
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued





•
            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 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:


-F - 9
-
  As
      Filed
                            
                            
                            Adjustment
      to Restate
                            
                            
                            RestatedGeneral
      and administrative expenses
                            
                            $
                            498,831
                            
                            
                            $
                            141,800
                            
                            
                            $
                            640,631Net
      Income (Loss)
                            
                            
                            347,948
                            
                            
                            
                            (141,800
                            )
                            
                            
                            206,148Minority
      Interest component (49%)
                            
                            
                            
                            
                            
                            
                            69,482
                            )
                            
                            
                            69,482Earnings
      (Loss) Per Share:
                            
                            
                            347,948
                            
                            
                            
                            (72,318
                            )
                            
                            
                            275,630Basic
                            
                            $
                            0.10
                            
                            
                            $
                            (0.02
                            )
                            
                            $
                            0.08Diluted
                            
                            $
                            0.04
                            
                            
                            $
                            (0.04
                            )
                            
                            $
                            0.08
   -F - 10
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - 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.  While the revaluation
      did not affect our statements of operations or earnings per share as of
      December 31, 2007.  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 (a)
                
                $
                160,350
                
                
                $
                (153,350
                )
                
                $
                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
                )
                
                
                42,336Deposits
                
                
                12,000
                
                
                
                (12,000
                )
                
                
                -$
                563,317
                
                
                $
                (185,916
                )
                
                $
                377,401Accounts
      payable – trade (b)
                
                $
                4,444,825
                
                
                $
                (835,940
                )
                
                $
                3,608,885Other
      accruals and current liabilities (c)
                
                
                343,301
                
                
                
                141,800
                
                
                
                485,101Minority
      Interest (d)
                
                
                670,510
                
                
                
                (69,482
                )
                
                
                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 of $141,800 in professional fees
      recognized by Shandong Jiajia.





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.




-F - 11
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued





NOTE 3
– GOING CONCERN




The
accompanying consolidated financial statements have been prepared on a going
concern basis. The Company has generated minimal revenue since its
inception until it acquired of a 51% interest in Shandong Jiajia in
December 2007. 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.





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. 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
October 2008, the FASB issued FSP No. 157-3, “Determining the Fair Value of a
Financial Asset when the market for that Asset is not active”, which
clarifies the application of SFAS 157 in a market that is not
active.  FSP No. 157-3 was effective upon issuance, including prior
periods for which financial statements have not been issued.





The
adoption of SFAS 157 did not have an effect on the Company’s consolidated
financial statements.  The Company does not expect the adoption of the
remaining provisions of SFAS 157 to have a material effect on its consolidated
financial statements.





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.




-F - 12
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued





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. 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.





In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS No. 162”), which identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements in conformity with generally accepted
accounting principles in the United States.  SFAS No. 162 will become
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Sections 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.  The
Company does not expect that the adoption of SFAS No. 162 will have a material
effect on its consolidated financial statements.





In June
2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own
Stock.  EITF No. 07-5 provides that an entity should use a two
step approach to evaluate whether equity-linked financial instrument (embedded
feature) is indexed to its own stock, including evaluating the instrument’s
contingent exercise and settlement provisions. It also clarifies on the impact
of foreign currency denominated strike prices and market-based employee stock
option valuation instruments on the evaluation.  EITF No. 07-5 is
effective for years beginning after December 15, 2008.  The Company
does not expect that the adoption of EITF No. 07-5 will have a material effect
on its consolidated financial statements.





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.




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 when persuasive evidence of an arrangement exists, services have
been rendered or product delivery has occurred, the sales price to the customer
is filed 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.





-F - 13
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued




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.





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 and
knowledge of our industry segment in Asia.  We also rely on certain
assumptions when deriving the fair value of share-based compensation and
calculations underlying our provision for taxes in China.  Assumptions
and estimates employed in the areas are material to our reported financial
conditions and results of operations.  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.


-F - 14
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued




Year
      endedDecember
      31,2008
                
                
                2007Numerator:
                
                
                
                
                RestatedNet
      income (loss) applicable to common stockholders (A)
                
                $
                (2,086,618
                )
                
                $
                275,630Denominator:Denominator
      for basic earnings per shareWeighted
      average shares outstanding (B)
                
                
                26,823,216
                
                
                
                3,442,152Denominator
      for diluted earnings per shareTreasury
      Stock methodOptions
                
                
                -
                
                
                
                5,127Series
      A and B Convertible Preferred Stock
                
                
                -
                
                
                
                42,329Adjusted
      weighted average shares outstanding (C)
                
                
                26,823,216
                
                
                
                3,489,608Basic
      and Diluted (Loss) Earnings Per Common Share:Earnings
      per share- basic (A)/(B)
                
                $
                (0.08
                )
                
                $
                0.08Earnings
      per share- diluted (A)/(C)
                
                $
                (0.08
                )
                
                $
                0.08





Potentially
issuable shares at December 31, 2008 and 2007 which were anti-dilutive and not
included in diluted earnings per share included:




Year
      endedDecember
      31,2008
              
              
              2007RestatedOptions
              
              
              2,000,000
              
              
              
              -Warrants
              
              
              117,500
              
              
              
              117,500Class
      A and B Warrants
              
              
              31,558,500
              
              
              
              -Series
      B Convertible Preferred Stock
              
              
              4,500,000
              
              
              
              -38,176,000
              
              
              
              117,500








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.


-F - 15
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued




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.




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.




The
Company is not currently under examination by any federal or state taxing
authority.





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.


-F - 16
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued





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,
2008 and 2007 customer advances totaled $1,133,283 and $683,436,
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.




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, 2008 and 2007, consisted of the
following:





2008
                  
                  
                  2007RestatedTrade
      receivables
                  
                  $
                  3,203,448
                  
                  
                  $
                  3,926,546Less:
      allowance for doubtful accounts
                  
                  
                  (464,275
                  )
                  
                  
                  (794,715
                  )$
                  2,739,173
                  
                  
                  $
                  3,131,831





-F - 17
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued




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





Prior to
our acquisition of Shandong Jiajia the Company had relied heavily on advances
from Mr. David Aubel, a principal 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 agreement 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.




As
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, commencing 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
                  
                  
                  
                  1,311,2462008
                  
                  
                  148,200
                  
                  
                  
                  222,300$
                  2,912,532
                  
                  
                  $
                  4,368,797




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
                  
                  
                  
                  2,821,2802008
                  
                  
                  2,864,606
                  
                  
                  
                  2,521,380
                  
                  
                  
                  (659,432
                  )Total
                  
                  
                  6,054,606
                  
                  
                  $
                  6,416,100
                  
                  
                  $
                  20,628,712





-F - 18
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued





,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, 2008 and 2007, consisted of the
following:





Useful
      Lives
                
                2008
                
                
                2007RestatedComputer
      equipment
                4
      years
                
                $
                37,246
                
                
                $
                228,707Software
                3
      years
                
                
                -
                
                
                
                361,861Furniture
      and equipment
                4-5
      years
                
                
                89,745
                
                
                
                112,297Total:
                
                
                
                126,991
                
                
                
                702,865Less:
      accumulated depreciation
                
                
                
                (82,847)
                
                
                
                (660,529)$
                44,144
                
                
                $
                42,336




For the
years ended December 31, 2008, and 2007, depreciation expense totaled
$35,438 and $18,406, respectively.




NOTE 8
– 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, 2008, bank deposits in the United
States did not exceed federally insured limits. At December 31, 2008, the
Company had deposits of approximately $2,954,757 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 its Chinese based bank accounts through
December 31, 2008.




NOTE
9 – FAIR VALUE OF FINANCIAL INSTRUMENTS




The
Company’s financial instruments consist primarily of cash, accounts receivable,
accounts payable and accrued expenses. The recorded values of cash, accounts
receivable, accounts payable and accrued expenses, approximates their fair
values based on their short-term nature.




NOTE
10 – REVERSE ACQUISITION




On
December 31, 2007, the Company entered into an acquisition argument 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 through December 31, 2007, which includes our consolidated
statements of operations, consolidated statements of stockholders’ (deficit)
equity, and consolidated statements of cash flows, are those of Shandong
Jiajia.


-F - 19
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued


The value
of the Series A Convertible Preferred Stock and Series B Convertible
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 Convertible Preferred Stock converts into 2.5 shares of common
stock




One share
of Series B Convertible Preferred Stock converts into 10 shares of common
stock




On
March 28, 2008 shareholders holding the Series A Convertible Preferred
Stock converted their 1,000,000 shares into 2,500,000 shares of common stock, no
shares Series A Convertible Preferred Stock remained outstanding at
December 31, 2008. On March 28, 2008 shareholders holding the Series B
Convertible Preferred Stock converted 845,000 shares into 8,450,000 shares of
common stock.




NOTE  11
– STOCKHOLDERS’ EQUITY




On March
11, 2008, the Company:





•
            effected
      a one for 40 reverse stock split of its issued and outstanding common
      stock,•
            increased
      the number of authorized preferred stock shares from 5,000,000 to
      10,000,000 shares, and•
            increased
      the number of common stock shares from 200,000,000 shares to 500,000,000
      shares.





2008
Unit Offering





In April
2008, we completed an offering of 15.113 units of our securities at an offering
price of $250,000 per unit to 32 accredited investors in a private placement
exempt from registration under the Securities Act of 1933 in reliance on
exemptions provided by Regulation D and Section 4(2) of that act. Each unit
consisted of 1,000,000 shares of common stock, five year Class A warrants to
purchase 1,000,000 shares of common stock with an exercise price of $0.35 per
share and five year Class B warrants to purchase 1,000,000 shares of common
stock with an exercise price of $0.50 per share. We received gross proceeds of
$3,778,250 in this offering.





Skyebanc,
Inc., a broker-dealer and a member of FINRA, acted as a selling agent for us in
the offering.  As compensation for its services, we paid Skyebanc,
Inc. a cash commission of $25,938 and issued that firm Class A warrants to
purchase 207,500 shares of our common stock. In addition, we paid due diligence
fees to an advisor to our company as well as to two advisors to investors in the
offering in connection with this offering which included an aggregate of
$315,625 in cash and Class A warrants to purchase 1,125,000 shares of our common
stock.  The Company also paid legal fees for both investors' counsel and
our counsel. After payment of these fees and costs associated with this offering
we received net proceeds of approximately $3.3 million. Approximately $2.0
million of the net proceeds were used by us as a contribution to the registered
capital of our subsidiary Shandong Jiajia and as additional working capital for
that company, approximately $140,000 was used to pay accrued professional fees
and the balance of the net proceeds from the transaction are being used for
working capital purposes. Subsequently, we have provided an additional $500,000
to Shandong Jiajia as working capital.


-F - 20
-





We agreed
to file a registration statement with the Securities and Exchange Commission
covering the shares of common stock underlying the warrants so as to permit the
public resale thereof. We have filed a registration statement covering the
resale of all shares of our common stock issuable upon the exercise of the Class
A and Class B Warrants included in the units sold in the offering, together with
all shares of our common stock issuable upon exercise of the Class A warrants
issued to the selling agent, finders and consultants in the
offering.  We will pay all costs associated with the filing of this
registration statement. In the event the registration statement was not filed
within 60 days of the closing or is not declared effective within 180 days
following the closing date, we will be required to pay liquidated damages in an
amount equal to 2% for each 30 days (or such lesser pro rata amount for any
period of less than 30 days) of the purchase aggregate exercise price of the
warrants, but not to exceed in the aggregate 12% of the aggregate exercise price
of the warrants.


Although
we filed a registration statement and we have been making a good faith effort to
resolve comments on the registration statement we received from the Commission,
it has not yet been declared effective.  Accordingly, for the quarter
ended September 30, 2008, the Company accrued $1,597,000 due to investors under
the provisions of the registration payment arrangement in accordance with the
guidance of SFAS No. 5.





The
transaction documents also provide for the payment of liquidated damages to the
investors if we should fail to be a current reporting issuer and/or to maintain
an effective registration statement covering the resale of the common shares
issued or issuable upon exercise of the Class A and B warrants.





The
subscription agreement for the offering provides that while the purchasers own
any securities sold in the offering such securities are subject to anti-dilution
protections afforded to the purchasers. In the event we were to issue any shares
of common stock or securities convertible into or exercisable for shares of
common stock to any third party purchaser at a price per share of common stock
or exercise price per share which is less than the per share purchase price of
the shares of common stock in this offering, or less than the exercise price per
warrant share, respectively, without the consent of the subscribers then holding
securities issued in this offering, the purchaser is given the right to apply
the lowest such price to the purchase price of share purchased and still held by
the purchaser and to shares issued upon exercise of the warrants and still held
by the purchaser (which will result in the issuance of additional shares to the
purchaser) and to the exercise price of any unexercised warrants. In the event
we enter into a transaction which triggers these anti-dilution rights, we
will:





•
            issue
      additional shares to the purchasers to take into account the amount paid
      by the purchaser as of the closing date for the shares included in the
      units so that the per share price paid by the purchaser equals the lower
      price in the subsequent issuance,•
            reduce
      the warrant exercise price of any unexercised warrants then held by the
      purchaser to such lower price, and•
            if
      necessary, issue additional shares to purchaser to take into account the
      amount paid, whether in cash or by cashless exercise, by the purchaser if
      the purchaser has exercised any warrants so that the per share exercise
      price and to the exercise price for the exercised warrants equals the
      lower price of the subsequent
issuance.





In
addition, until eight months after the effective date of the registration
statement, purchasers will have a right of first refusal with respect to
subsequent offers, if any, by us for the sale of our securities or debt
obligations. The anti-dilution provisions and the right of first refusal do not
apply in limited exceptions, including:





•
            strategic
      license agreements or similar partnering arrangements provided that the
      issuances are not for the purpose of raising capital and there are no
      registration rights granted,•
            strategic
      mergers, acquisitions or consolidation or purchase of substantially all of
      the securities or assets of a corporation or other entity provided that we
      do not grant the holders of such securities registration rights,
      and•
            the
      issuance of common stock or options pursuant to stock option plans and
      employee purchase plans at exercise prices equal to or higher than the
      closing price of our common stock on the issue/grant date or as a result
      of the exercise of warrants issued either in the 2008 Unit Offering or
      which were outstanding prior to the 2008 Unit
  Offering.





-F - 21
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued


Finally,
under the terms of the subscription agreement for the offering we agreed
that:





•
            until
      the earlier of the registration statement having been effective for 240
      days or the date on which all the shares of common stock sold in the
      offering, including the shares underlying the warrants, have been sold we
      will not file any additional registration statements, other than a Form
      S-8, and•
            until
      the earlier of two years from the closing date or the date on which all
      shares of common stock sold in the offering, including the shares
      underlying the warrants, have been sold or transferred we agreed we would
      not:•
            amend
      our articles of incorporation or bylaws so as to adversely affect the
      rights of the investors,•
            repurchase
      or otherwise acquire any of our securities or make any dividends or
      distributions of our securities, or•
            prepay
      any financing related or other outstanding debt
    obligations.





Preferred
Stock





We have
10,000,000 shares of preferred stock, par value $.001, authorized of which we
designated 1,000,000 as our Series A Convertible Preferred Stock in
December 2007. In March 2008 all 1,000,000 shares of our Series A
Convertible Preferred Stock were converted into 2,500,000 shares of our common
stock.





In
December 2007 we designated 1,295,000 shares of Series B Convertible
Preferred Stock. In March 2008, 845,000 shares of Series B Convertible
Preferred Stock were converted into 8,450,000 shares of common
stock.





Common
Stock





A summary
of common shares issued during the year ended December 31, 2008 is as
follows:




SharesSettlement
      of obligation to former President and CEO
                  
                  
                  581,247Settlement
      (conversion) of note payable to principal shareholder
                  
                  
                  2,864,606Conversion
      1,000,000 shares of Series A Convertible Preferred Stock
                  
                  
                  2,500,000Conversion
      of 845,000 shares of Series B Convertible Preferred Stock
                  
                  
                  8,450,0002008
      Unit offering
                  
                  
                  15,113,00029,508,853





On
March 20, 2008 a principal shareholder of our company, Mr. David
Aubel, converted the full amount of a $2,521,380 convertible note payable into
2,864,606 shares of common stock at $0.88 per share.





On
March 20, 2008 our then president and CEO and a principal shareholder of
our company, Mr. V. Jeffrey Harrell, converted the full amount of his
accrued compensation into 581,247 shares of common stock at $0.77 per share, for
a total of $448,985.


-F - 22
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued





During
the year ended December 31, 2007, the Company completed the following stock
transactions:





•
            
            in
      connection with the acquisition of the 51% interest in Shandong Jiajia
      effective December 31, 2007:•
            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,•
            issued
      1,000,000 of Series A preferred stock to finance, in part, the acquisition
      of a 51% interest in a company incorporated in the People Republic of
      China, Shandong Jiajia, at a fair value of $2.10 per preferred share, for
      a total of $2,100,000,•
            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 preferred share, for a total of $960,000,•
            issued
      an additional 725,000 shares of Series B preferred stock to third parties
      for services rendered in connection with the Shandong Jiajia transaction
      at a fair value of $8.40 per share, for a total of
$6,090,000,•
            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, Shandong Jiajia, at a fair value of
      $480,000,•
            
            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,•
            
            issued
      2,500 shares of common stock to an employee for services rendered at $2.60
      per share, for a total of $6,500,•
            
            issued
      16,250 shares of common stock to third parties for services rendered with
      a fair value of $58,950,•
            
            cancelled
      12,500 shares held in treasury at $15.00 per share, for a total of
      $187,500,•
            
            a
      related party, Mr. David Aubel, converted $1,751,720 in convertible notes
      payable into 1,795,000 shares of common stock at prices ranging $0.28 to
      $2.00 per share,•
            
            the
      Company president, Mr. V Jeffrey Harrell, converted $193,500 in accrued
      compensation into 135,000 shares of common stock at $1.44 per
      share,•
            
            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,





-F - 23
-


Stock
Options




On
December 31, 2007 the Company granted three-year stock options to purchase
2,000,000 shares of common stock 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.  These options were issued to an owner of
Shandong Jiajia and were recognized as a direct cost in the acquisition
transaction under the provisions of SFAS 141.




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).




The
following assumptions were made in estimating fair value:





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







A summary
of our stock options activity during the year ended December 31, 2008 is as
follows:




Shares
      Underlying options
                  
                  
                  Weighted
      Average Exercise Price
                  
                  
                  Weighted
      Average Contractual Term (years)
                  
                  
                  Aggregate
      Intrinsic ValueOutstanding
      at December 31, 2007
                  
                  
                  2,000,000
                  
                  
                  $
                  0.30
                  
                  
                  
                  2.0
                  
                  
                  $
                  -Granted
                  
                  
                  -
                  
                  
                  
                  -Exercised
                  
                  
                  -
                  
                  
                  
                  -Outstanding
      at December 31, 2008
                  
                  
                  2,000,000
                  
                  
                  $
                  0.30
                  
                  
                  
                  2.0
                  
                  
                  $
                  -





Common
Stock Purchase Warrants





At
December 31, 2008 and 2007, the Company had outstanding warrants to
purchase 31,676,000 and 117,500 shares of common stock, at an weighted average
exercise price of $0.42  and $9.69 per warrant share,
respectively. The Company adopted the provisions of SFAS No. 123R to
compute an estimated fair value of $3,877,123 and $527,000 for the stock
warrants using the “Black Scholes” model at December 31, 2008 and 2007 and
reserved 31,676,000 and 117,500 shares for the exercise of the stock warrants.
The following assumptions were made in estimating fair value:





December
      31, 2008
                  
                  
                  December
      31, 2007RestatedRisk-free
      rate
                  
                  
                  3.0
                  %
                  
                  
                  4.45
                  %Volatility
                  
                  
                  100
                  %
                  
                  
                  96
                  %Expected
      Dividend Yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %




The
following table summarizes the stock warrant activity:





Shares
                    Underlying
                    Warrants
                  
                  
                  Weighted Average
                    Exercise PriceOutstanding
      at December 31, 2007 (1)
                  
                  
                  117,500
                  
                  
                  $
                  9.69Granted  (2)
                  
                  
                  31,558,500
                  
                  
                  
                  0.42Exercised
                  
                  
                  —
                  
                  
                  
                  —Outstanding
      at December 31, 2008
                  
                  
                  31,676,000
                  
                  
                  $
                  0.46





(1)
Includes 110,000 common stock purchase warrants issued to Trilogy Capital
Partners, Inc. which expire May 31, 2009


(2)
Issued in connection with our 2008 Unit Offering completed in April,
2008.


-F - 24
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued


NOTE
12  – RELATED PARTIES




Due
from related parties





On
December 31, 2008 and 2007, the Company held a due from related party in
the amount of $518,433 and $511,435, respectively, which reflected advances due
from Shandong Huibo Import & Export Co., Ltd., a 24.3% shareholder in
Shandong Jiajia.   The loans were unsecured, non-interest bearing and
repayable on demand.





Due
to related parties





On
December 31, 2008 and 2007, due to related parties consist of the
following:








2008
                  
                  
                  2007RestatedDue
      to Xiangfen Chen
                  
                  $
                  123,458
                  
                  
                  $
                  229,252Due
      to Bin Liu
                  
                  
                  62,652
                  
                  
                  
                  -Due
      to Tianjin Sincere Logistics Co., Ltd.
                  
                  
                  183,448
                  
                  
                  
                  -Other
                  
                  
                  9,139$
                  378,697
                  
                  
                  $
                  229,252





Xiangfen
Chen  is the general manager of Shandong Jiajia Xiamen branch. Bin Liu
is the general manager of Shandong Jiajia Tianjin branch. Mr. Liu is a 90% owner
of Tianjin Sincere Logistics Co., Ltd.. The loans were unsecured, non-interest
bearing and repayable on demand. Shandong Jiajia used the funds for general
working capital.




On
December 31, 2008, 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.





On
June 1, 2008 Shandong Jiajia entered into a one year lease the CEO of
Shandong Jiajia for a property in the Peoples Republic of China. The base
annual rental is $43,700 per annum.





We also
rent three office spaces throughout China from related parties as set forth in
the following table:





Location
                    
                    Approximate
      Square Feet
                    
                    Annual
      Rent
                    
                    Additional
      Charges
                    
                    Expiration
      of LeaseShanghai
      Branch (1)
                    
                    
                    7,008
                    
                    $43,700
                      (RMB
      300,000)
                    
                    $20,440
                      (RMB
      140,622)
                    
                    May
      31, 2009Xiamen
      Branch, Xiamen City, Fujian Province (2)
                    
                    
                    1,026
                    
                    $1,459
                      (RMB
      10,800)
                    
                    
                    0
                    
                    December
      31, 2009Tianjin
      Branch, Tianjin City (3)
                    
                    
                    3,014
                    
                    $21,962
                      (RMB
      150,000)
                    
                    
                    0
                    
                    May
      31, 2013





(1) We
lease the offices for our Shanghai Branch from Mr. Wei Chen, our Chairman and
CEO.  The additional charges represent a monthly management fee paid
to an unrelated third party.


(2)We
lease the offices for our Xiamen Branch from Mr. Xiangfen Chen, its General
Manager.


(3)We
lease the offices for our Tianjin Branch from Mr. Bin Liu, its General
Manager.


-F - 25
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued





During
the years ended December 31, 2007, the Company expensed $200,000 in each
year for the salary of Mr. V. Jeffrey Harrell, the former CEO and 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.  In March 2008, the entire accrued liability was converted into
581,247 shares of common stock.





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.




NOTE   13
– 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
Company's subsidiary Shandong Jiajia incorporated and operating  in
China is governed by the Income Tax Law of the Peoples 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
approximately 33% (30% state income tax plus 3% local income tax) for the
calendar year ended December 31, 2007.





Effective
January 1, 2008 the Company's subsidiaries in China are governed by the
Enterprise Income Tax Law of the Peoples Republic of China and local income tax
laws (the "PRC Enterprise Income Tax Law"). Pursuant to the PRC Enterprise
Income Tax Law, our Chinese subsidiaries are Resident Enterprises as defined in
Chapter 1 Article 2 “... an enterprise established within the territory of another
country or other tax region pursuant to foreign laws, whose actual management or
control is located is located in China” and are subject to tax at a statutory
rate of approximately 25% for the calendar year ended December 31,
2008.





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





Year
      Ended December 31,2008
                  
                  
                  2007RestatedUS
      Operations
                  
                  $
                  (2,249,
      494
                  )
                  
                  $
                  -Chinese
      Operations
                  
                  
                  588,965
                  
                  
                  
                  597,655$
                  (1,660,529
                  )
                  
                  $
                  597,655





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





Year
      Ended December 31,2008
                  
                  
                  2007ResatedUS
      Operations
                  
                  $
                  -
                  
                  
                  $
                  -Chinese
      Operations
                  
                  
                  269,600
                  
                  
                  
                  57,205$
                  269,600
                  
                  
                  $
                  57,205





-F - 26
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued


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 31,2008
                        
                        
                        2007RestatedIncome
      tax provision (benefit) at Federal statutory rate
                        
                        $
                        (581,000
                        )
                        
                        $
                        209.000State
      income taxes, net of Federal Benefit
                        
                        
                        (76,000
                        )
                        
                        
                        27,000Permanent
      differences
                        
                        
                        632,000
                        
                        
                        
                        -Temporary
      differences
                        
                        
                        123,000
                        
                        
                        
                        -U.S.
      tax rate in excess of foreign tax rate
                        
                        
                        (86,000
                        )
                        
                        
                        (39,000
                        )Increase
      in valuation allowance
                        
                        
                        258,000
                        
                        
                        
                        -Abatement
      of foreign income taxes
                        
                        
                        -
                        
                        
                        
                        (140,000
                        )Tax
      provision (benefit)
                        
                        $
                        270,000
                        
                        
                        $
                        57,000





The
Company has a net operating loss (“NOL”) carryforward for United States income
tax purposes at December 31, 2008 and 2007 expiring through the year 2028 of
approximately $12,800,000. 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. 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 U.S. parent, China
Logistics Group, Inc., are not reflected in the above tax
calculations.





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, 2008 and 2007 are as
follows:





December
      31,2008
                  
                  
                  2007RestatedFederal
      net operating loss carryforward
                  
                  $
                  3,928,000
                  
                  
                  $
                  3,700,000State
      net operating loss carryforward
                  
                  
                  633,000
                  
                  
                  
                  600,000Provisions
                  
                  
                  -
                  
                  
                  
                  -Timing
      differences
                  
                  
                  639,000
                  
                  
                  
                  167,0005,200,000
                  
                  
                  
                  4,467,000Valuation
      allowance
                  
                  
                  (5,200,000
                  )
                  
                  
                  (4,467,000
                  )Tax
      provision (benefit)
                  
                  $
                  -
                  
                  
                  $
                  -





-F - 27
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued




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.





NOTE
14 – COMMITMENTS




On
June 1, 2008 Shandong Jiajia entered into a one year lease with the CEO of
Shandong Jiajia for a property in the Peoples Republic of China. The base
annual rental is $43,700 per annum.




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





Year
      ending December 31, 2008
                  
                  
                  $
                  25,492




NOTE
15 – REGIONS




The table
below presents information by operating regions for the year ended
December 31, 2008.





Sales
                  
                  
                  AssetsUnited
      States
                  
                  $
                  —
                  
                  
                  $
                  201,605Peoples Republic
      of China
                  
                  
                  35,561,833
                  
                  
                  
                  6,584,459$
                  35,561,833
                  
                  
                  $
                  6,786,064




For the
year ended December 31, 2008 all operations were within the
Peoples Republic of China.




NOTE
16 – CONTINGENCIES





As a
result of the September 24, 2008 complaint filed by the Securities and Exchange
Commission against us and Messrs. Harrell and Aubel as described in Item 1,
“Legal Proceedings” of this annual report, we have agreed in principle to entry
of a consent order granting the Commission the injunctive relief it seeks
against us. We have been cooperating with the Commission in this proceeding and
are still in settlement discussions with the Commission regarding disgorgement
and prejudgment interest sought by the Commission.  In the event we
are unable to reach an agreement with the Commission with respect to
disgorgement and prejudgment interest, we have agreed with the Commission to
have the court determine the propriety of such amounts, if any.  In
addition, the pending lawsuit with the Commission may result in additional
claims by stockholders, regulatory proceedings, government enforcement actions
and related investigations and litigation. We cannot predict the ultimate
outcome of this litigation and any continued
litigation would result in significant expenses, management distraction and
potential damages, penalties, other remedies, or adverse findings, which could
have a material adverse effect on our business, financial condition, results of
operations and cash flows.  In addition, our agreement to entry of a
consent order granting the Commission injunctive relief restraining us from
future violations of Federal securities laws may make future financing efforts
more difficult and costly.


-F - 28
-
 CHINA
LOGISTICS GROUP, INC.   AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007 - Continued


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
17 - OPERATING RISK





(a)
Country risk





The
majority of the Company's revenues will be derived from the sale of magnesium
and basic materials in the PRC. The Company hopes to expand its operations to
countries outside the PRC, however, such expansion has not been commenced and
there are no assurances that the Company will be able to achieve such an
expansion successfully. Therefore, a downturn or stagnation in the economic
environment of the PRC could have a material adverse effect on the Company’s
financial condition.





(b)
Products risk





In
addition to competing with other companies, the Company could have to compete
with larger US companies who have greater funds available for expansion,
marketing, research and development and the ability to attract more qualified
personnel if access is allowed into the PRC market. If U.S. companies do gain
access to the





PRC
markets, they may be able to offer products at a lower price. There can be no
assurance that the Company will remain competitive should this
occur.





(c)
Exchange risk





The
Company cannot guarantee that the current exchange rate will remain steady,
therefore there is a possibility that the Company could post the same amount of
profit for two comparable periods and because of a fluctuating exchange rate
actually post higher or lower profit depending on exchange rate of RMB converted
to U.S. dollars on that date. The exchange rate could fluctuate depending on
changes in the political and economic environments without notice.





(d)
Political risk





Currently,
PRC is in a period of growth and is openly promoting business development in
order to bring more business into PRC. Additionally, the PRC allows a Chinese
corporation to be owned by a United States corporation. If the laws or
regulations are changed by the PRC government, the Company's ability to operate
the PRC subsidiaries could be affected.





(e)
Key personnel risk





The
Company’s future success depends on the continued services of executive
management in China and the United States. The loss of any of their services
would be detrimental to the Company and could have an adverse effect on business
development. The Company maintains key-man insurance on the lives of Yuejian
(James) Wang our CEO and Chairman, and Marc Siegel, our President and director.
Future success is also dependent on the ability to identify, hire, train and
retain other qualified managerial and other employees. Competition for these
individuals is intense and increasing.


-F - 29
-





(f)
Performance of subsidiaries risk





The vast
majority of the Company’s revenues will be derived via the operations of the
Company’s wholly owned or majority owned Chinese subsidiaries. Economic,
governmental, political, industry and internal company factors outside of the
Company’s control affect each of the subsidiaries. If the subsidiaries do not
succeed, the value of the assets and the price of our common stock would
decline.


NOTE
18 – SUBSEQUENT EVENTS




On
January 9, 2009 Shandong Jiajia added a new branch office to its freight
forwarding operations in Lianyungang in Jiangsu province in the
PRC.  This branch was formerly a satellite sales office of the
Shanghai branch and now will function as an independent branch
office.


-F - 30
-




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:
      May 18, 2009
            By:
      /s/ Wei ChenWei
      Chen, Chairman, Chief Executive Officer and President (Principal Executive
      Officer)








Pursuant
to the requirements of the Securities Act of 1933, this report has been signed
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.





Signature
                    Title
                    Date/s/ Wei Chen
                    Chairman
      of the Board, Chief Executive Officer and President (Principal Executive
      Officer)
                    May
      18, 2009Wei Chen/s/ Wei Chen
                    Chief
      Financial Officer (Principal Financial and Accounting
    Officer)
                    May
      18, 2009Wei Chen/s/ Hui Liu
                    Director
                    May
      18, 2009Hui
      Liu