UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 ———————
 FORM
10-K/A (AMENDMENT NO. 2)
 ———————
 (Mark
One)
 ý ANNUAL REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934
 
 For
the fiscal year ended December 31, 2007
 
 o TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934
 
 For
the transition period from ____ to _____
 Commission
file number: 000-31497
 ———————
 CHINA
LOGISTICS GROUP, INC.
 (Name of
registrant as specified in its charter)
 ———————
 Florida
              65-1001686(State
      or other jurisdiction of
                incorporation
      or organization)
              (I.R.S.
      Employer
                Identification
      No.)
 
 7300 Alondra Boulevard, Suite 108,Paramount,California
              90723(Address
      of principal executive offices)
              (Zip
      Code)
 
 Registrant’s
telephone number, including area code:     (562)
408-3888
 
 Securities
registered under Section 12(b) of the Exchange Act:
 Title
      of each class
              
              Name
      of each exchange on which registeredNone
              
              Not
      applicable
 
 Securities
registered under Section 12(g) of the Exchange Act:
 
 Common
stock, par value $0.001 per share
 (Title of
class)
  Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.    ̈
 Yes   ý  No
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.    ̈
 Yes   ý  No
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ý   No  ̈
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form,  or any
amendment to this Form.  ý
  1
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company:
 Large
      accelerated filer
               ̈
              
              Accelerated
      filer
               ̈Non-accelerated
      filer
                (Do
      not check if smaller reporting company)
               ̈
              
              Smaller
      reporting company
              ý
  Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes  ̈    No ý
  State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked prices of such common equity, as of the last
business day of the registrant's most recently completed second fiscal quarter.
$7,647,905 on June 29, 2007.
  Indicate
the number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date. 19,394,894 shares of common stock are
issued and outstanding as of March 31, 2008.
  DOCUMENTS
INCORPORATED BY REFERENCE
  List
hereunder the following documents if incorporated by reference and the Part of
the Form   (e.g., Part I, Part II, etc.) into which the document
is incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b)
or (c) under the Securities Act of 1933. None.
  
  2
  EXPLANATORY
PARAGRAPH
  China
Logistics Group, Inc. (“we”, “us”, “our” or the “Company”) is filing this
Amendment No. 2 to amend its Annual Report on Form 10-K/A for the year ended
December 31, 2007 filed on May 19, 2008 to correct the accounting treatment
previously accorded certain transactions and to restate our consolidated balance
sheet at December 31, 2007 and our consolidated statement of operations,
consolidated statements of stockholders' deficit and consolidated statements of
cash flows for the year ended December 31, 2007 (the “December 31, 2007
Financial Statements”).
 
 The
First Amendment to Form 10-K
  On May
14, 2008, our management concluded that the December 31, 2007 Financial
Statements included in our Form 10-K filed on April 15, 2008, could no longer be
relied upon due to an error in these financial statements.  On May 19,
2008, we restated the December 31, 2007 Financial Statements to recognize the
fair value of 450,000 shares of Series B preferred stock totaling $3,780,000
which we were obligated to issue as partial compensation for consulting services
rendered to us in connection with the acquisition of a 51% interest in Shandong
Jiajia International Freight and Forwarding Co., Ltd. (“Shandong Jiajia”) which
was effective on December 31, 2007.  The restated financial statements
were included in our Form 10-K/A filed on May 19, 2008.  The
accounting recognition given these fees in the restated financial statements
included in our Form 10-K/A was subsequently further amended to recognize these
fees more properly as a direct cost of the transaction with Shandong Jiajia,
within the provision of Statement of Financial Accounting Standards No.141,
Business Combinations, rather than an expense item as initially
recorded.
  The
Second Amendment to Form 10-K/A
  Subsequent
to the receipt of comments from the staff of the Securities and Exchange
Commission received in connection with our pending registration statement on
Form S-1, on October 13, 2008 our management concluded that the consolidated
financial statements for the year ended December 31, 2007, as amended, and
quarterly periods ended March 31, 2008 and June 30, 2008 could no longer be
relied upon due to errors in these financial statements including related
disclosures.
  The
December 31, 2007 financial statements included in our Form 10-K filed on April
15, 2008 and the Form 10-K/A filed on May 19, 2008 incorrectly accounted for our
acquisition of a 51% interest in Shandong Jiajia using the purchase method of
accounting.  The December 31, 2007 financial statements included in
this report have been restated to account for the transaction as a capital
transaction, implemented through a reverse acquisition, with Shandong Jiajia
being recognized as the accounting acquirer and our company being recognized as
the accounting acquiree.  Accordingly, the cost basis of the assets
and liabilities of Shandong Jiajia were maintained in our consolidated financial
statements and the assets and liabilities when we were named MediaReady,
Inc. prior to the transaction are accounted for under the purchase
method.  The historical records presented in the financial statements
included in this report include the consolidated statements of operations,
statements of stockholders’ deficit and statements of cash flows of
Shandong Jiajia.
  Upon
further review, we also determined that we did not meet the definition of a
business under the guidance of EITF Issue 98-3 prior to our acquisition of a 51%
interest in Shandong Jiajia on December 31, 2007 but were a public shell company
as of the transaction date.  Under these guidelines, no goodwill or
other intangibles were recognized in the transaction.  Further, as the
transaction for accounting purposes was considered the merger of a private
operating company into a public shell company, the transaction was viewed and
treated as a capital transaction rather than a business
combination.
  In
addition, for the year ended December 31, 2007, we incorrectly classified as
expenses certain costs related to the acquisition of a 51% interest in Shandong
Jiajia, with the fair value of these items recorded in the statements of
operations as fair value of equity instruments.  These costs, totaling
$6,644,900 set forth in the December 31, 2007 financial statements included in
our Form 10-K filed on April 15, 2008 and $10,418,000 set forth in our December
31, 2007 financial statements included in our Form 10-K/A filed on May 19, 2008,
have been reclassified as costs directly associated with our acquisition of a
51% interest in Shandong Jiajia under the provisions of Statement of Financial
Accounting Standard No.141.
  For
all periods presented, we have restated the commitment date and the accounting
and valuation methodology related to a convertible note payable to David Aubel,
a principal shareholder of our company.  The calculations and
disclosures related to this convertible note were restated to recognize, on a
fair value basis, the intrinsic value of shares issued by us to Mr. Aubel as
repayment of the note.  The restatement treats the intrinsic value
recognized by us as a receivable from Mr. Aubel 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 the shares of our common stock to Mr.
Aubel.  The receivable recorded was subsequently expensed as
impaired.
  On
March 11, 2008, we changed our name from MediaReady, Inc. to China Logistics
Group, Inc. and effectuated a 1 for 40 reverse stock split of our common
stock.  As the reverse stock split took place after December 31, 2007
but before the filing of our December 31, 2007 financial statements, we
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.
   3
 
 This Form 10-K/A (Amendment No. 2)
also contains currently dated certifications as Exhibits 31.1, 31.2 and 32.1
hereof.  The remaining Items in this Form 10-K/A (Amendment No. 2)
consist of all other Items originally contained in our Form 10-K for the year
December 31, 2007 as filed on April 15, 2008 and our Form 10-K/A as filed on May
19, 2008.  This Form 10-K/A (Amendment No. 2) supersedes in its
entirety our Annual Report on Form 10-K for the year ended December 31, 2007
filed on April 15, 2008 and our Form 10-K/A filed on May 19,
2008.  Subsequent to the filing of our Form 10-K/A on May 19, 2008,
Mr. V. Jeffrey Harrell resigned as our sole officer and director in July 2008
and Messrs. Wei Chen and Hui Lu were appointed executive officers and directors
of the Company.  Accordingly, this Form 10-K/A (Amendment No.
2) does not reflect the change in our management or other events occurring
after the filing of the Form 10-K/A, except as may be specifically required as a
result of the restatement of the financials described above.  This
Form 10-K/A (Amendment No. 2) also does not disclose the pending action against
the Company by the Securities and Exchange Commission as described in its
Current Reports on Form 8-K filed on October 1, 2008 and October 15,
2008.  Readers are cautioned to review all of the Company’s filings
made with the Securities and Exchange Commission for additional information
about the Company which occurred subsequent to the date of the filing of the
Form 10-K for the year ended December 31, 2007 filed on April 15,
2008.
  4
  CHINA
LOGISTICS GROUP, INC.
  AND
SUBSIDIARY
  TABLE
OF CONTENTS
 Page
      No.PART
      I.Item
      1.
              Business.
              5Item
      1A.
              Risk
      Factors.
              12Item
      1B.
              Unresolved
      Staff Comments.
              18Item
      2.
              Properties.
              18Item
      3.
              Legal
      Proceedings.
              18Item
      4
              Submission
      Of Matters To A Vote Of Security Holders.
              18PART
      IIItem
      5.
              Market
      For Registrant's Common Equity; Related Stockholder Matters And Issuer
      Purchase Of Equity Securities.
              19Item
      6.
              Selected
      Financial Data.
              20Item
      7.
              Management's
      Discussion And Analysis Of Financial Condition And Results Of
      Operations.
              20Item
      7A.
              Quantitative
      And Qualitative Disclosures About Market Risk.
              24Item
      8.
              Financial
      Statements And Supplementary Data.
              24Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting Financial
      Disclosure.
              24Item
      9A(T).
              Controls
      And Procedures.
              25Item
      9B.
              Other
      Information.
              26Part
      IIIItem
      10
              Directors,
      Executive Officers And Corporate Governance.
              26Item
      11
              Executive
      Compensation.
              28Item
      12
              Security
      Ownership Of Certain Beneficial Owners And Management And Related
      Stockholder Matters.
              29Item
      13
              Certain
      Relationships And Related Transactions, And Director
      Independence.
              31Item
      14
              Principal
      Accountant Fees And Services.
              31Part
      IV
              32Item
      15.
              Exhibits,
      Financial Statement Schedules.
 
 5
  OTHER
PERTINENT INFORMATION
  All
share and per share information contained in this annual report, as amended,
gives proforma effect to the 1 for 40 reverse stock split of our outstanding
common stock effective at close of business on March 11,
2008.
 
 AVAILABLE
INFORMATION
 
 Our
principal executive offices are located at 7300 Alondra Boulevard, Suite 108,
Paramount, California 90723, and our telephone number at this location is (562)
408-3888.  We file annual, quarterly and other reports and other
information with the Securities and Exchange Commission.  You may read
and copy any materials we file with the Commission at the Securities and
Exchange Commission's Public Reference Room at 100 Fifth Street N.E.,
Washington, DC 20549, on official business days during the hours of 10 a.m. to 3
p.m. You may obtain information on the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet
site (http://www.sec.gov) that contains reports, proxy and information
statements, and other information regarding us that we file electronically with
the Commission. We
maintain a website with the address www.chinalogisticsinc.com. We are not
including information contained on our website as part of, nor incorporating it
by reference into, this Annual Report on Form 10-K/A (Amendment No. 2). We make
available free of charge through our website our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments
to these reports, as soon as reasonably practicable after we electronically file
such material with or furnish such material to the Securities and Exchange
Commission.
 CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
  Certain
statements in this report contain or may contain forward-looking statements that
are subject to known and unknown risks, uncertainties and other factors which
may cause actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. These forward-looking statements were based on
various factors and were derived utilizing numerous assumptions and other
factors that could cause our actual results to differ materially from those in
the forward-looking statements. These factors include, but are not limited to,
our ability to successfully transition the internal operations of a privately
held Chinese company to a subsidiary of a U.S. publicly held company, our
ability to continue as a going concern due to our weak financial condition,
continuing weaknesses in our disclosure controls and procedures and internal
control over financial reporting which may lead to additional restatements of
our financial condition, our dependence on third parties for equipment and
services essential to operate our business, our reliance on overseas cargo
agents to provide services to us and our customers, the impact of credit risks
in the operation of our business and our operating profits, intense competition
in the freight forwarding and logistics industries, the impact of a worldwide
economic downturn and other factors. Most of these factors are difficult to
predict accurately and are generally beyond our control. You should consider the
areas of risk described in connection with any forward-looking statements that
may be made herein. Readers are cautioned not to place undue reliance on these
forward-looking statements and readers should carefully review this annual
report in its entirety, including the risks described in "Item 1A. - Risk
Factors." Except for our ongoing obligations to disclose material information
under the Federal securities laws, we undertake no obligation to release
publicly any revisions to any forward-looking statements, to report events or to
report the occurrence of unanticipated events. These forward-looking statements
speak only as of the date of this report, and you should not rely on these
statements without also considering the risks and uncertainties associated with
these statements and our business.
   6
 PART
I
  ITEM
1.          BUSINESS.
  Historically,
since 2003 we provided products and services in the home entertainment
media-on-demand marketplace to produce and distribute interactive consumer
electronics equipment to provide streaming digital media and video on demand
(VOD) services.  While we devoted significant time and resources to
the development of our business model, our success was limited due in part to
the significant competition in our target segment. Like many small public
companies, we encountered significant difficulties in raising adequate capital
and the professional fees associated with our reporting obligations under
Federal securities laws continued to increase.
  On
December 31, 2007 we entered into a transaction with the owners of Shandong
Jiajia, whereby we acquired a 51% interests in that entity in exchange for a
combination of cash and equity.  For accounting purposes, the
transaction, which is described in greater detail later in this section under
“History of our Company,” was treated as a reverse acquisition with Shandong
Jiajia being the accounting acquirer and our company the legal
survivor.  Shandong Jiajia, operating since 1999, is a non-asset based
international freight forwarder and logistics manager located in the People’s
Republic of China (the “PRC”).  Shandong Jiajia’s operations now
constitute all the operations of our company. The decision to enter into the
transaction with Shandong Jiajia was heavily influenced on its geographic
location.  Our management believed that a freight forwarder based in
China would be in a position to take advantage of economic growth while our
status as a U.S. public company could provide access to the capital markets for
funds to expand its operations and enable it to compete more
effectively.  There are no assurances, however, that these assumptions
will prove correct.
  Overview
  Shandong
Jiajia acts as an agent for international freight and shipping companies. It
sells cargo space and arranges land, maritime, and air international
transportation for clients seeking primarily to export goods from China. Since
inception, Shandong Jiajia estimates it has processed the delivery of
approximately 80,000 standard International Standards Organization, or
ISO ,shipping containers totaling approximately 500,000 metric tons. While it
can also arrange for the logistics for importing goods into China, historically
less than 1% of its revenues are derived from these services. Shandong Jiajia
does not own any containers, trucks, aircraft or ships. It contracts with
companies owning these assets to provide transportation services required for
shipping freight on behalf of its customers.
  Headquartered
in Qingdao, China, Shandong Jiajia has branches in Shanghai, Xiamen and TianJin
with two additional offices in Lianyungang and Rizhao. Shandong Jiajia has 87
employees and partners with agents in North America, Europe, Australia, Asia,
and Africa. Typically approximately 60% of Shandong Jiajia's revenues are
generated from existing, repeat customers and the remaining 40% are from new
customers. Of the new customers, Shandong Jiajia salesmen generate approximately
20%, the remaining 20% are referrals from third party agents.
  The
Chinese Freight Forwarding Industry
  In
China, the freight forwarding industry began to develop in the early 1980s
following the China Reform policy. In 1983, Sinotrans Ltd. was the only
international freight forwarder registered with the China Ministry of Foreign
Trade and Economic Cooperation. By 2006, China had approximately 6,000
international freight forwarders registered with China Ministry of Commerce and
approximately 30,000 unregistered freight forwarders operated by individuals or
small businesses. The industry boom is attributed to increasing international
trade and relaxed regulation by the Chinese government. China surpassed the
United States as the world's second-largest exporter in the middle of 2006,
according to figures released by the World Trade Organization.[1] For
the full year of 2007, the international trade has hit $2,173.8 billion in
2007 an increase of 23.5% from 2006[2], which
finished above the US in the 2007 totals. The value of exports was US
$1,218 billion up by 25.7%, while that of imports went up by 20.8% to touch
US $955.8 billion[3]. Since
it joined the WTO in 2002, China has enjoyed an annual increase rate above
20% for the successively six years[4]At
current growth rates, China is projected to overtake Germany as the world's
biggest exporter in 2008[5]
..
  ———————
 [1]           http://www.chinadaily.com.cn/china/2007-04/12/content_849420.htm
 [2]           http://www.igovernment.in/site/china%E2%80%99s-gdp-growth-swings-up-by-114/
 [3]           http://www.igovernment.in/site/china%E2%80%99s-gdp-growth-swings-up-by-114/
 [4]           http://www.igovernment.in/site/china%E2%80%99s-gdp-growth-swings-up-by-114/
 [5]           http://www.chinadaily.com.cn/china/2007-04/12/content_849420.htm
  7
 Shandong
Jiajia's services
  The
typical freight forwarding service package provided by Shandong Jiajia includes
goods reception, space reservation, transit shipment, consolidate traffic,
storage, multimodal transport and large scale transport such as export of
large mechanical equipment. Shandong Jiajia provides freight forwarding services
for a wide variety of merchandise and it has experience in handling various
types of freight such as refrigerated merchandise, hazardous merchandise and
perishable agricultural products.
  To
accommodate Shandong Jiajia's customers shipping needs, it can either facilitate
the shipment of a full container or, if the shipment is less than a full
container-load, it will co-load a customer's merchandise with other customers or
freight forwarders to create a full container. Containers are in sizes of either
20 foot or 40 foot, each are used for ocean freight, and a 20 foot container can
carry 17.5 metric tons of merchandise while a 40 foot container can carry 22
metric tons of merchandise. For full container loads, as part of its normal
services, Shandong Jiajia will deliver the empty container to a customer’s
factory and the customer loads the merchandise. Shandong Jiajia then transports
the container to the port of departure for customs clearance. Once the clearance
is obtained, Shandong Jiajia loads the containers on to the ship and issues the
bill of lading and service invoice to its customer.
  For
shipment of less than full container loads merchandise which will be co-loaded
with merchandise from other customers or freight forwarders, Shandong Jiajia's
customers may either request that the merchandise be picked up at its factory or
deliver the merchandise directly to a warehouse in Shanghai. Upon receipt at the
warehouse, Shandong Jiajia will store the merchandise until a sufficient
quantity of other merchandise is received to fill the particular
container. Generally, the merchandise is in storage for 30 days or less. An
unrelated third party owns the warehouse and Shandong Jiajia pays for space on
an as-used basis depending upon the size, quantity and duration. The cost is
included in the amount charged the customer for the shipment. Thereafter, the
procedure for completing the shipment is similar to that which is described
above for full container load shipments from a customer.
  Shandong
Jiajia does not insure its customers' merchandise while it is in Shandong
Jiajia's possession. As part of its normal and customary terms Shandong Jiajia
requires its customers to purchase insurance coverage. Prior to 2007 Shandong
Jiajia offered its customers in-house customs brokerage services, which included
the preparation of all documentation required for the clearance of merchandise
through customs and the collection and payment of import duties to the
appropriate government agencies in the country of destination. Shandong Jiajia
subsequently determined that the costs associated with in-house customs
brokerage services are prohibitive and it began outsourcing all customs
brokerage services to local customs brokers. .
  Once the
ship departs port, Shandong Jiajia tracks the status utilizing web-based
tracking software provided by each particular shipping agency and provides
periodic updates to customers on both the shipping and receiving end of the
transaction. Typically payment is delineated in the initial order. Shandong
Jiajia will either collect payment for its services from:
 
 ·
              the
      shipper when the merchandise departs if the trade pricing term is on a CIF
      (cost, insurance and freight) or CFR (cost and freight cost) basis,
      or·
              from
      the recipient when merchandise arrives at destination port if the trade
      pricing term is on a FOB (free on board)
basis.
  Airfreight
shipments represent less than 10% of Shandong Jiajia revenues and the procedure
for airfreight shipments is similar to ocean freight.
  Shandong
Jiajia is a designated agent of cargo carriers including Nippon Yusen Kaisha
(NYK Line), P&O Nedlloyd, CMA CGM Group, Safmarine Container Lines, and
Regional Container Lines (RCL). Shandong Jiajia is also a member in the China
Cargo Alliance (CCA), an independent network of air and sea freight forwarders
serving international trade of China. Currently CCA has 113 members including 67
overseas forwarders operating in 53 countries and 46 Chinese forwarders. In this
alliance, all members are free to trade their services with peer members.
Overseas agents forward orders to Shandong Jiajia for the services of handling
and/or space purchase. If agents only request procedural handling, Shandong
Jiajia usually charges $30 to $40 per order for service fee. If agents choose to
purchase the shipping spaces reserved by Shandong Jiajia, the profits from the
order are evenly shared between agents and Shandong Jiajia.
  Shandong
Jiajia generally receives 30 days terms from the airlines and shipping lines
with which it transacts business. For the shipping lines to North America,
Shandong Jiajia enters into annual sales contracts with various shipping
companies in order to ensure a sufficient amount of shipping and air cargo space
is available at pre-determined prices. In these contracts, Shandong Jiajia is
assigned a certain amount of cargo space but it is not required to either
pre-purchase the cargo space or otherwise required to provide a deposit. The
number of available spaces is determined based on negotiation between Shandong
Jiajia and the shipping company. If Shandong Jiajia does not re-sell the cargo
space, Shandong Jiajia would be required to pay a penalty, which is
approximately $400 per container; however, it has never failed to resell the
reserved cargo space. Shandong Jiajia usually reserves a relatively small amount
of cargo space in order to avoid overbooking. Because of the long-term
relationships with the various shipping companies it uses, Shandong Jiajia,
however, has never experienced any difficulties in obtaining sufficient cargo
space to meet its customer’s needs in excess of the amount
reserved.
  8
 Shandong
Jiajia is committed to providing competitive pricing and efficient, reliable
service to its customers. Shandong Jiajia believes that it has good
relationships with its customers, major airlines, shipping lines and its network
of overseas agents. Shandong Jiajia's sales persons are responsible for
marketing its services to a diversified customer base and for establishing new
customer relationships. Shandong Jiajia employs 13 full time sales persons.
These sales persons solicit business through a variety of means including
personal visits, sales calls, and faxes. Shandong Jiajia's customers sign annual
or project-based contracts with the company and the terms of the contract
determine the merchandise, price, and delivery instructions. Sales persons are
compensated with base salary and earn a sales commission based on net profit
generated in excess of predetermined benchmarks. Sales persons are required to
meet monthly profit benchmarks established by the company, and the base
salaries, profit benchmarks, and commission percentages paid to the sales
persons vary across the company's branches.
  Customers,
transaction currencies and credit terms
  Shandong
Jiajia generates revenues through sales to existing customers as well as new
customers. Existing customers initiate historically approximately 60% of its
revenues, 20% are to new customers generated by Shandong Jiajia salesmen, and
the remaining 20% are referrals from third party agents.The focus of products
shipped by Shandong Jiajia's customers varies across the branches. In Qingdao
area, the major export is agricultural products to Australian-Zelanian line and
Southeast Asia line. Clothing and electronics products to Europe and U.S. are
the focus of Shanghai branch and the Xiamen branch carries daily merchandise and
hardware products to Europe and Africa. The rate Shandong Jiajia charges its
customers fluctuates with market price. Shandong Jiajia may elect to lower the
rates on the occasions that the particular order involves a large quantity of
freight, customers have good credit rating, and/or the customer has a record of
prompt payment.
  Shandong
Jiajia does not require a deposit to engage its services. Sales of its freight
forwarding services are generally made on credit. Fees are denominated in the
Chinese Reminbi, the functional currency of the PRC, and shipping costs charged
by the various shipping companies are denominated in U.S. dollars. Historically,
Shandong Jiajia's existing customers generally settle their accounts receivable
within 30 days after they receive a commercial invoice. In the pricing terms of
CIF and CFR, new customers are required to make the payment in order to obtain
one original copy of bill of lading from Shandong Jiajia. The customer submits
the bill of lading to the bank to settle the foreign exchange in its account. In
FOB pricing term, Shandong Jiajia issues a delivery order to its agent at the
port of destination.
  Competition
  Shandong
Jiajia is one of approximately 6,000 registered cargo companies in China. Only
registered companies can purchase cargo space and establish foreign currency
accounts. There are also an estimated 30,000 unregistered forwarding companies
and individual agents. These smaller competitors generally do not have the
financial wherewithal to meet the minimum registered capital requirements to
permit the formation as an independent international freight forwarding company.
The industry is dominated by a few state-owned and/or large public companies.
Shandong Jiajia’s primary competitors are state owned Tianjin Zhenhua Logistics
Group, foreign joint ventures Qingdao Ocean & Great Asia Transportation, and
Air Sea Transport. These competitors have each developed a service network
nationwide and internationally and have proprietary warehouses and
transportation departments.
  While the
requirement to register as a cargo company in China was amended in 2004 to
provide that approval from the Ministry of Commerce is no longer necessary to
obtain a business license, Shangdong Jiajia believes its ability to market
itself as a registered cargo company provides certain competitive advantages.
Shandong Jiajia has been operating since 1999 and it believes that its
experience is a competitive advantage for the company and serves as a benefit to
exporters as well to shipping agencies seeking to sell cargo space. Shandong
Jiajia has developed stable shipping volume since 1999, which allows it to make
a commitment to shipping agencies for cargo space, which in turn permits it to
receive advantageous pricing.
  A
significant number of Shandong Jiajia's competitors have more capital, longer
operating histories, greater brand recognition, larger customer bases and
significantly greater financial and marketing resources than the company does.
These competitors may also offer a more comprehensive package of freight
forwarding services than Shandong Jiajia does, or may provide value added
services such as customs brokerage, distribution, warehousing and pick and pack
services. For these and other reasons, Shandong Jiajia's competitors' services
may achieve greater acceptance in the marketplace than the company, limiting our
ability to gain market share and customer loyalty and increase our
revenues.
  Government
Regulation
  Shandong
Jiajia is required to comply with the Customs Law established by the People's
Republic of China, which establishes regulations related to import/export of
merchandise from or to China. The regulations define the criteria of supervision
and monitoring in the transport of merchandise to and from
China.
  Previously,
each year Shandong Jiajia was required to pass an annual inspection by the local
government agency of foreign trade and commerce to maintain the qualification.
Effective April 1, 2005 an annual inspection is no longer required for
approval and an international freight forwarding company, such as Shandong
Jiajia, is only required to file an annual renewal form with the local
government agency of foreign trade and commerce. Shandong Jiajia completed the
required registrations since enactment of the new regulation..
  9
 We are
subject to the United States Foreign Corrupt Practices Act, which generally
prohibits United States companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining
business. Corruption, extortion, bribery, pay-offs, theft and other fraudulent
practices occur from time-to-time in the PRC. We can make no assurance, however,
that our employees or other agents will not engage in such conduct for which we
might be held responsible. If our employees or other agents are found to have
engaged in such practices, we could suffer severe penalties and other
consequences that may have a material adverse effect on our business, financial
condition and results of operations and could cause our company to cease
operations.
  Employees
  As of
March 31, 2008 we had 89 full time employees, including our President, V.
Jeffrey Harrell and an executive administrator in the United States and 87
full-time, salaried employees at Shangdong Jiajia.
  Our
employees in China are organized into a union under the labor laws of China and
receive labor insurance. These employees can bargain collectively with Shandong
Jiajia. Shandong Jiajia believes it maintains good relations with its
employees.
  Shandong
Jiajia is required to contribute a portion of its employees’ total salaries to
the Chinese government’s social insurance funds, including medical insurance,
unemployment insurance and job injuries insurance, and a housing assistance
fund, in accordance with relevant regulations. We expect the amount of our
contributions to the government’s social insurance funds to increase in the
future as we expand our workforce and operations.
  History
Of Our Company
  We
were incorporated in the State of Florida on March 19, 1999 originally
under the name ValuSALES, Inc. to create a single-source Internet solutions
company providing internet and technology products and services to various sized
customers.  We had no operations until July 20, 1999 when we
purchased assets consisting of property and equipment and inventory for an
aggregate purchase price of $75,000. On December 1, 1999, we sold shares of
our common stock and used the proceeds to acquire September Project II
Corp., an inactive entity. For accounting purposes, the acquisition was treated
as a capital transaction rather than a business combination. In conjunction
therewith, we merged with September Project II Corp. with that entity as
the surviving entity named ValuSALES.com, Inc. Following this transaction, we
provided Internet and technology products and services for clients ranging from
small to medium sized customers looking for a solution to develop and integrate
a web site, advertising and marketing, technology products, and streaming video
into their business. Our divisions included e-business solutions, marketing and
advertising, streaming video technology, and Internet mortgage
banking.  In November 2001 we changed our name to Video Without
Boundaries, Inc.
  In
2001 we began operating in only one segment.  During 2002 we
discontinued our previous operations and began to reposition our company within
the home entertainment media-on-demand marketplace to become a producer and
distributor of interactive consumer electronics equipment to provide streaming
digital media and video on demand (VOD) services.
  On
August 11, 2004 (with an effective date of June 1, 2004) we entered
into a stock purchase agreement with Mr. James Joachimczyk, the sole
shareholder of Graphics Distribution, Inc., a privately held company engaged in
the business of selling and distributing electronic products. The principal
terms of the agreement provided that we would acquire all of the issued and
outstanding shares of Graphics Distribution, Inc. for a purchase price of
$1,500,000 plus the issuance of 25,000 shares of our common stock. Additional
consideration included in this stock purchase agreement required our company to
collateralize an existing line of credit in the amount of $2,500,000 as well as
retain the services of the selling shareholder, pursuant to a consulting
agreement dated August 11, 2004, for a term consistent with the fulfillment
of the payment terms under the stock purchase agreement. At closing, we tendered
our initial deposit of $350,000, but thereafter we defaulted on the remaining
balance due and as well as the collateralization provision.
  In
August 2006 we changed our name to MediaREADY, Inc. in an effort to provide
better corporate branding for our company.
  In
September 2007, we engaged Capital One Resource Co., Ltd. to provide
introductions and advice to us as it related to general business activities,
including mergers and acquisitions, business combinations and financial
management.  Capital One Resource Co., Ltd., a subsidiary of China
Direct, Inc. (NasdaqGM: CDS), provides consulting services to both Chinese
entities seeking access to the U.S. capital markets and North American entities
seeking business opportunities in the PRC.  As a result of the
advisory services provided to our management, we determined to concentrate our
focus on a potential business combination with a Chinese company as a means of
benefiting from the then continued economic expansion of the PRC in general and
of businesses in various industries within that country.
  10
 Shandong
Jiajia was initially identified as a PRC based company in search of capital to
expand its operations by Mr. Weidong Wang.  Mr. Wang, who had a
business relationship with Dragon Venture (Shanghai) Capital Management Co.,
Ltd., brought the company to the attention of that entity that in turn brought
it to the attention of Capital One Resource Co., Ltd.  Thereafter,
China Direct, Inc. assisted us with the negotiations with Messrs. Chen and Liu,
including providing translation services as well as advice on the restructure of
our balance sheet, and coordinated the efforts of legal, accounting and auditing
service providers related to the completion of the acquisition of Shandong
Jiajia.  The definitive terms of the transaction were reached after
negotiations by us with Messrs. Chen and Liu.  Messrs. Chen and Liu,
who were unrelated parties to us prior to the transaction, are unrelated
parties to both China Direct, Inc. and Capital One Resource Co.,
Ltd.
  On
December 31, 2007 we entered into an acquisition agreement with Shandong
Jiajia and its sole shareholders Messrs. Hui Liu and Wei Chen, pursuant to
which we acquired a 51% interest in Shandong Jiajia. At closing, we issued
Messrs. Liu and Chen an aggregate of 1,000,000 shares of our Series A
preferred stock and we agreed contribute $2,000,000 to increase the registered
capital of Shandong Jiajia subject to:
  ·           the
prior receipt of all regulatory approvals and licenses from the necessary
governmental agencies in China related to this acquisition, and
  ·           the
receipt of two years of audited financial statements of Shandong Jiajia together
with the interim period for the nine months ended September 30,
2007.
  Under the
terms of our agreement to acquire a 51% interest in Shandong Jiajia, Mr. David
Aubel, a principal shareholder of the Company, agreed to personally assume any
and all liabilities which may result from a stock purchase agreement we entered
into in August 2004 with Graphics Distribution, Inc. Mr. Aubel’s agreement
to assume this liability was the result of negotiations preceding the execution
of the Shangdong Jiajia acquisition agreement as Messrs. Liu and Chen who were
unwilling to proceed with the transaction if the company remained exposed to the
potential liability related to the acquisition of Graphics Distribution,
Inc.  In addition, the acquisition agreement contemplated that the accrued
compensation and convertible note payable-related party included in our current
liabilities at September 30, 2007 will be converted into shares of our
common stock at conversion rates of $.018 and $.02 per share (before giving
effect to the 1 for 40 reverse stock split), respectively, resulting in the
issuance of approximately 3,445,853 shares of our common stock. Included in
these liabilities, which are to be converted, is approximately $419,000 of
accrued compensation due Mr. Jeffrey Harrell, our CEO and President, and
$2,521,379 due to Mr. David Aubel under a convertible note and a loan. At the
time of the agreement with Shandong Jiajia, we did not have sufficient
authorized but unissued shares of our common stock to provide for the conversion
of these liabilities. Effective on the close of business on March 11, 2008
we amended our articles of incorporation to increase our authorized capital
which provided sufficient shares to permit these
conversions
  Pursuant
to the terms of the December 31, 2007 Shandong Jiajia acquisition agreement, Mr.
V. Jeffrey Harrell, then our CEO and President, converted $448,985 of accrued
compensation due him into 581,247 shares of our common stock at an effective
conversion price of $0.77245 per share.  In addition, pursuant to the
December 31, 2007 Shandong Jiajia acquisition agreement Mr. Aubel converted a
$2,521,379 loan due him from the Company into 2,864,606 shares of our common
stock at an effective conversion price of $0.88 per share.  The
Company entered into conversion agreements with Messrs. Harrell and Aubel
effective March 20, 2008 to memorialize these conversions.  The
effective conversion price on the date we entered into the conversion agreements
with Mr. Aubel was greater than the fair market value of our common stock on the
date of the agreement which was $0.85 per share.  The variance
resulted from a decline in the trading price of our common stock from December
31, 2007 when the conversion rates were informally agreed to with Mr. Aubel and
the actual dates of conversion.
  This
number of shares issued to Mr. Aubel was established in the December 31, 2007
Shandong Jiajia acquisition agreement and was derived from the September
30, 2007 liability reflected on the Company’s books owed to Mr. Aubel in
the amount of $2,291,685 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).
  11
  As of
the settlement date in March 2008, Mr. Aubel was owed $2,521,379, an increase in
the amount owed from September 20, 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 $2,521,379 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 the Company’s common stock on March
31, 2008 was $0.85 per share.  We are evaluating any rights we may have to
seek damages against Mr. Aubel as a result of the uncertainty as to the validity
of the amount of his note.
  In
connection with the Shandong Jiajia acquisition, we issued Capital One Resource
Co., Ltd. 450,000 shares of Series B preferred stock valued at $3,780,000,
and Mr. Weidong Wang 35,000 shares of Series B preferred stock valued
at $294,000, as compensation for assistance in the transaction. In addition, we
agreed to issue an aggregate of 352,500 shares of Series B preferred stock
valued at $2,016,000 to Dragon Venture (Shanghai) Capital Management Co., Ltd.
as finder's fees. Dragon Venture (Shanghai) Capital Management Co., Ltd. is a
subsidiary of Dragon Capital Group Corp. (Pink Sheets: DRGV). Mr. Lawrence
Wang, the CEO of Dragon Capital Group Corp., is the brother of Dr. James Wang,
the CEO of China Direct, Inc. China Direct, Inc. owns approximately 20% of the
issued and outstanding shares of Dragon Capital Group Corp. Finally, we are
obligated to issue China Direct Investments, Inc., a subsidiary of China Direct,
Inc., an additional 450,000 shares of our Series B preferred stock, valued at
$3,780,000, as compensation for its services to us in conjunction with the
transaction pursuant to the terms of a consulting agreement entered into in
December 2007. Upon issuance, these shares of Series B preferred stock will be
immediately convertible into 4,500,000 shares of our common
stock.
 
 On
January 28, 2008 we amended the acquisition agreement with Shandong Jiajia to
issue Mr. Chen 120,000 shares of our Series B preferred stock with a fair
value of $960,000 and three year options to purchase an additional 80,000,000
shares of our common stock with a fair value of $480,000 at an exercise price of
$0.0075 per share as additional consideration for the acquisition of a 51%
interest in Shandong Jiajia. We agreed to pay Mr. Chen the additional
consideration at his request because he believed that the purchase price we paid
for Shandong Jiajia was more favorable to us.  Mr. Chen, Shandong
Jiajia’s principal owner prior to our acquisition of Shandong Jiajia, is also
its general manager and his continued active involvement in the operations of
that company was crucial to the integration of its operations with
us.  We determined that it would be in our long-term best interests to
agree to Mr. Chen’s request, particularly as the operations of Shandong Jiajia
represent all of our business and operations following the
transaction.
 
 In
order to facilitate the approval by the Chinese authorities of our acquisition
of Shandong Jiajia, we entered into another amendment to the acquisition
agreement effective on March 13, 2008 that provided for:
  ·           instead
of contributing all $2,000,000 to Shandong Jiajia's registered capital, we
agreed to contribute $1,040,816 to increase the registered capital and the
remaining $959,184 will be made available to Shandong Jiajia for working capital
purposes, and
 · the
date by which Shandong Jiajia is required to satisfy certain conditions to the
delivery of such funds has been extended to April 30,
2008.
  We will
be required to raise capital from the sale of our securities to provide the
funds necessary to meet this obligation. While we do not presently have any firm
commitments to provide such capital, we reasonably believe we will be able to
raise such funds prior to April 30, 2008.
 
 On
January 28, 2008 we also amended the finder’s agreement with Dragon Venture
(Shanghai) Capital Management Co., Ltd. whereby we reduced the finder’s fee
payable to it from 352,500 shares of the Company’s Series B preferred stock to
240,000 shares.
  In
March 2008 we changed our name to China Logistics Group, Inc.
  ITEM
1A.       RISK FACTORS
  An
investment in our common stock involves a significant degree of risk. You should
not invest in our common stock unless you can afford to lose your entire
investment. You should consider carefully the following risk factors and other
information in this report before deciding to invest in our common
stock.
  Risks
Relating to Overall Business Operations
  WE
HAVE RECENTLY EXPANDED OUR BUSINESS THROUGH THE ACQUISITION OF A MAJORITY
OWNERSHIP INTEREST IN SHANDONG JIAJIA WHICH IS LOCATED IN THE PRC. OUR
MANAGEMENT, WHO ARE ALSO LOCATED IN THE PRC, MAY NOT BE SUCCESSFUL IN
TRANSITIONING THE INTERNAL OPERATIONS OF A PRIVATELY HELD CHINESE COMPANY TO A
SUBSIDIARY OF A U.S. PUBLICLY HELD COMPANY.
  12
 On
December 31, 2007 we entered into an agreement to acquire a 51% interest in
Shandong Jiajia. The original owners of Shandong Jiajia continue to own the
remaining 49% interest and since July 2008 have served as our sole executive
officers and directors. Our acquisition of Shandong Jiajia provides certain
challenges for our company, including, among others:
  ·           none
of the members of our management have any experience in operating a U.S. public
company and the costs associated therewith may adversely impact our operating
results, and,
  ·           we
will need to upgrade the internal accounting systems at Shandong Jiajia, as well
as educating its staff as to the proper collection and recordation of financial
data to ensure that we can continue to file our annual, quarterly and other
reports with the Securities and Exchange Commission on a timely
basis.
  There
can be no assurance that there will not be substantial costs associated with
upgrading of the accounting systems at Shandong Jiajia and the establishment of
disclosure controls necessary to ensure that the reports we file with the
Securities and Exchange Commission are filed on a timely basis, either of which
could have a material adverse effect on our future operating results. If we are
unable to properly and timely upgrade the disclosure and accounting operations
of Shandong Jiajia, our ability to timely file our annual and quarterly reports,
as well as other information we are required to file with the Securities and
Exchange Commission, could be in jeopardy. Any failure on our part to meet the
prescribed filing deadlines could lead to a delisting of our common stock from
the OTC Bulletin Board, which could adversely affect a shareholder's ability to
resell their investment in our company.
  In
addition, the acquisition by us of a 51% interest in Shandong Jiajia requires
the approval of the Chinese government. While we believe that the structure of
the transaction in which we agreed to contribute registered capital to Shandong
Jiajia in an amount equal to the membership interests we acquired will be
approved by the proper governmental agency, there are no assurances we are
correct. If the transaction were not approved we would be required to unwind the
acquisition. As it is anticipated that Shandong Jiajia will represent the sole
portion of our operations in future periods, if we were required to unwind the
transaction the result on our future operations would be materially adverse. In
addition, under the terms of the transaction with Shandong Jiajia we agreed to
provide an aggregate of $1,040,816 to that company by April 30, 2008 as
partial consideration for our purchase of a controlling interest. We do not
presently have such funds. While we do not presently have any firm commitments
to provide such capital, we reasonably believe we will be able to raise such
funds prior to April 30, 2008. We have begun preliminary discussions with
potential investors and expect we will be able to secure investment capital
prior to April 30, 3008. In the event we are unable to secure sufficient
resources we will need to revise the terms of our agreement with Shandong
Jiajia. This may include a reduced investment resulting in a reduced interest in
Shandong Jiajia.
  HISTORICALLY
OUR WEAK FINANCIAL CONDITION RAISED SUBSTANTIAL DOUBT REGARDING OUR ABILITY TO
CONTINUE AS A GOING CONCERN. THERE ARE NO ASSURANCES THAT THE RESULTS FROM
SHANDONG JIAJIA WILL BE SUFFICIENT IN FUTURE PERIODS TO PAY OUR OPERATING
EXPENSES.
 
 We
have incurred substantial operating and net losses, as well as negative
operating cash flows, since our inception through December 31, 2007. We
acquired a 51% interest in Shandong Jiajia on December 31, 2007. Our
results of operations for 2007 do not include any results for the operations of
Media Ready. Our operating results for future periods will include a significant
increase in revenues which will be attributable to the operations of Shandong
Jiajia, as well as significant increases in expenses related to that company.
Although the resignation in July 2008 of our former CEO substantially reduced
our overhead expenses, there are no assurances that our revenues will be
sufficient in future periods to pay our operating expenses or that we will ever
achieve profitability on a consolidated basis in the future.
  WE
HAVE MATERIAL WEAKNESSES IN OUR DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL
CONTROL OVER FINANCIAL REPORTING WHICH HAVE LEAD TO A RESTATEMENT OF OUR 2007
FINANCIAL STATEMENTS. THERE IS MORE THAN A REMOTE LIKELIHOOD THAT OUR FINANCIAL
STATEMENTS WILL CONTAIN ERRORS IN FUTURE PERIODS.
  Upon
completion of an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as well as management's assessment of the
effectiveness of our internal control over financial reporting at December 31,
2007 as required by Section 404 of the Sarbanes-Oxley Act of 2002 our management
concluded that neither our disclosure controls and procedures nor our internal
control over financial reporting were effective. In addition, management's
assessment of the effectiveness of our internal control over financial reporting
at December 31, 2007 excluded the operations of Shandong Jiajia. Given that
those operations are in the PRC it is likely that had Shandong Jiajia been
included in the assessment our management would have determined we had
additional material weaknesses in our internal control over financial reporting.
Subsequent to December 31, 2007 we were required to restate our December 31,
2007 financial statements because of an error in those financial
statements.
  13
 Neither
our sole officer and director at the time of the restatement nor our current
executive officers and directors are accountants and we have historically relied
upon the services of outside accountants. In addition, Shandong Jiajia has an
inadequate number of personnel with the requisite expertise in U.S. generally
accepted accounting principles to ensure the proper application thereof. PRC
companies have historically not adopted a Western style of management and
financial reporting concepts and practices, which includes strong corporate
governance, internal controls and, computer, financial and other control
systems. As a result of these factors, we may experience difficulty in
establishing management, legal and financial controls, collecting financial data
and preparing financial statements, books of account and corporate records and
instituting business practices that meet Western standards. Until such time as
we are able to supplement the accounting staff at Shandong Jiajia, it is
possible that accounting errors will occur which are not prevented or detected.
Accordingly, due to the nature of the material weaknesses in our internal
control over financial reporting, there is more than a remote likelihood that
additional material misstatements of our annual or interim financial statements
could occur.
  SHANDONG
JIAJIA IS DEPENDENT ON THIRD PARTIES FOR EQUIPMENT AND SERVICES ESSENTIAL TO
OPERATE ITS BUSINESS, AND IT COULD LOSE CUSTOMERS AND REVENUES IF IT FAILS TO
SECURE THIS EQUIPMENT AND THESE SERVICES.
  Shandong
Jiajia is a non-asset based freight forwarding company and it relies on third
parties to transport the freight it has arranged to ship. Thus, its ability to
forward this freight and the costs it incurs in connection therewith is
dependent on Shandong Jiajia's ability to find carriers willing to ship such
freight at acceptable prices. This, in turn, depends on a number of factors
beyond its control, including availability of cargo space, which depends on the
season of the year, the shipment's transportation lane, the number of
transportation providers and the availability of equipment. An increase in the
cost of cargo space due to supply shortages, increases in fuel cost or other
factors would increase costs and may reduce Shandong Jiajia's profits, which
will adversely impact our results of operations in future periods.
  SHANDONG
JIAJIA RELIES ON OVERSEAS CARGO AGENTS TO PROVIDE SERVICES TO IT AND TO ITS
CUSTOMERS, AND SHANDONG JIAJIA'S ABILITY TO CONDUCT BUSINESS SUCCESSFULLY MAY BE
AFFECTED IF IT IS UNABLE TO MAINTAIN ITS RELATIONSHIPS WITH THESE OVERSEAS CARGO
AGENTS.
  Shandong
Jiajia relies on the services of independent cargo agents, who may also be
providing services to its competitors, which may include consolidating and
deconsolidating various shipments. Although Shandong Jiajia believes its
relationships with its cargo agents are satisfactory, it may not be able to
maintain these relationships. If Shandong Jiajia were unable to maintain these
relationships or develop new relationships, its service levels, operating
efficiency, future freight volumes and operating profits may be reduced which
will adversely impact our results of operations in future periods.
  SHANDONG
JIAJIA INCURS SIGNIFICANT CREDIT RISKS IN THE OPERATION OF ITS BUSINESS WHICH
COULD REDUCE OUR OPERATING PROFITS.
 
 Certain
aspects of freight forwarding involve significant credit risks. It is standard
practice for exporters to expect freight forwarders to offer 30 days or more
credit on payment of their invoices from the time cargo has been delivered for
shipment. Competitive conditions require that Shandong Jiajia offer 30 days or
more credit to many of its customers. In order to avoid cash flow problems and
bad debts, Shandong Jiajia attempts to maintain tight credit controls and to
avoid doing business with customers it believes may not be creditworthy.
However, Shandong Jiajia may not be able to avoid periodic cash flow problems or
be able to avoid losses in the event customers to whom it has extended credit
either delay their payments to it or become unable or unwilling to pay its
invoices after Shandong Jiajia has completed shipment of their goods or rendered
other services to them, all of which could reduce our operating
profits.
  RISKS
RELATED TO DOING BUSINESS IN CHINA
  YOU
MAY EXPERIENCE DIFFICULTIES IN EFFECTING SERVICE OF LEGAL PROCESS, ENFORCING
FOREIGN JUDGMENTS OR BRINGING ORIGINAL ACTIONS IN CHINA BASED ON UNITED STATES
OR OTHER FOREIGN LAWS.
 
 All of
Shandong Jiajia's assets and operations are in China and these assets represent
all of our assets. In addition, all of Shandong Jiajia's executive officers and
directors reside within China. As a result, it may not be possible to effect
service of process within the United States upon these executive officers or
directors, or enforce within the United States any judgments obtained against us
or our officers or directors, including judgments predicated upon the civil
liability provisions under U.S. federal securities laws or applicable state
securities laws. Consequently, you may be effectively prevented from pursuing
remedies under U.S. federal securities laws against them.
  14
 FLUCTUATION
IN THE VALUE OF THE RENMINBI (RMB) MAY HAVE A MATERIAL ADVERSE EFFECT ON YOUR
INVESTMENT.
 
 The
value of RMB against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in political and economic conditions.
Shandong Jiajia's revenues and costs and its assets are denominated in RMB. Any
significant fluctuation in value of RMB may materially and adversely affect our
cash flows, revenues, earnings and financial position in future periods. For
example, an appreciation of RMB against the U.S. dollar would make any new RMB
denominated investments or expenditures more costly to Shandong Jiajia, to the
extent that it might need to convert U.S. dollars into RMB for such purposes.
These increased costs would result in greater operating expenses to us and could
increase our operating loss in future periods.
  ALL
OF OUR ASSETS AND OPERATIONS ARE LOCATED IN THE PRC AND ARE SUBJECT TO CHANGES
RESULTING FROM THE POLITICAL AND ECONOMIC POLICIES OF THE CHINESE
GOVERNMENT.
  Our
business operations could be restricted by the political environment in the PRC.
The PRC has operated as a socialist state since 1949 and is controlled by the
Communist Party of China. In recent years, however, the government has
introduced reforms aimed at creating a "socialist market economy" and policies
have been implemented to allow business enterprises greater autonomy in their
operations. Changes in the political leadership of the PRC may have a
significant effect on laws and policies related to the current economic reform
programs, other policies affecting business and the general political, economic
and social environment in the PRC, including the introduction of measures to
control inflation, changes in the rate or method of taxation, the imposition of
additional restrictions on currency conversion and remittances abroad, and
foreign investment. Moreover, economic reforms and growth in the PRC have been
more successful in certain provinces than in others, and the continuation or
increases of such disparities could affect the political or social stability of
the PRC. Although we believe that the economic reform and the macroeconomic
measures adopted by the Chinese government have had a positive effect on the
economic development of China, the future direction of these economic reforms is
uncertain and the uncertainty may decrease the attractiveness of our company as
an investment, which may in turn result in a decline in the trading price of our
common stock.
  THE
CHINESE GOVERNMENT EXERTS SUBSTANTIAL INFLUENCE OVER THE MANNER IN WHICH OUR
CHINESE SUBSIDIARIES MUST CONDUCT OUR BUSINESS ACTIVITIES.
  The
PRC only recently has permitted provincial and local economic autonomy and
private economic activities. The government of the PRC has exercised and
continues to exercise substantial control over virtually every sector of the
Chinese economy through regulation and state ownership. Accordingly, government
actions in the future, including any decision not to continue to support recent
economic reforms and to return to a more centrally planned economy or regional
or local variations in the implementation of economic policies, could have a
significant effect on economic conditions in the PRC or particular regions
thereof, and could require us to divest ourselves of any interest we then hold
in Shandong Jiajia.
 
 A
SLOWDOWN IN THE CHINESE ECONOMY OR AN INCREASE IN ITS INFLATION RATE MAY
ADVERSELY IMPACT OUR REVENUES.
 
 The
Chinese economy has grown at an approximately 9% rate for more than 25 years,
making it the fastest growing major economy in recorded history. In 2007,
China’s economy grew by 11.4%, the fastest pace in 11 years. While China’s
economy has grown, inflation has also recently become a major issue of concern.
In March 2007, China’s central bank, the People’s Bank of China, announced that
the bank reserve ratio would rise half a percentage point to 15.5% in an effort
to reduce inflation pressures hours after Premier Wen Jiabao highlighted
inflation as a major concern for the government. China’s consumer price index
growth rate reached 8.7% year over year in 2008.
 
 We
cannot assure you that growth of the Chinese economy will be steady, that
inflation will be controllable or that any slowdown in the economy or
uncontrolled inflation will not have a negative effect on Shandong Jiajia's
business. Several years ago, the Chinese economy experienced deflation, which
may recur in the future. More recently, the Chinese government announced its
intention to continuously use macroeconomic tools and regulations to slow the
rate of growth of the Chinese economy, the results of which are difficult to
predict. Adverse changes in the Chinese economy will likely impact the financial
performance of a variety of industries in China that use or would be candidates
to use Shandong Jiajia's services.
  ANY
RECURRENCE OF SEVERE ACUTE RESPIRATORY SYNDROME, OR SARS, OR ANOTHER WIDESPREAD
PUBLIC HEALTH PROBLEM, COULD INTERRUPT OUR OPERATIONS.
  A renewed
outbreak of SARS or another widespread public health problem in China could have
a negative effect on our operations. Our operations may be impacted by a number
of health-related factors, including the following:
  15
 ·           quarantines
or closures of some of our offices, which would severely disrupt Shandong
Jiajia's operations,
  ·           the
sickness or death of its key officers and employees, or
  ·           a
general slowdown in the Chinese economy.
  Any of
the foregoing events or other unforeseen consequences of public health problems
could result in a loss of revenues in future periods and could impact our
ability to conduct Shandong Jiajia's operations as they are presently conducted.
If Shandong Jiajia were unable to continue its operations as they are now
conducted, our revenues in future periods would decline and our ability to
continue as a going concern could be in jeopardy. If we were unable to continue
as a going concern, you could lose your entire investment in our
company.
  RESTRICTIONS
ON CURRENCY EXCHANGE MAY LIMIT OUR ABILITY TO RECEIVE AND USE OUR REVENUES
EFFECTIVELY.
  Because
all of our revenues in future periods will be in the form of Renminbi, any
future restrictions on currency exchanges may limit our ability to use revenue
generated in Renminbi to fund any future business activities outside China or to
make dividend or other payments in U.S. dollars. Although the Chinese government
introduced regulations in 1996 to allow greater convertibility of the Renminbi
for current account transactions, significant restrictions still remain,
including primarily the restriction that foreign-invested enterprises may only
buy, sell or remit foreign currencies, after providing valid commercial
documents, at those banks authorized to conduct foreign exchange business. In
addition, conversion of Renminbi for capital account items, including direct
investment and loans, is subject to government approval in China, and companies
are required to open and maintain separate foreign exchange accounts for capital
account items. We cannot be certain that the Chinese regulatory authorities will
not impose more stringent restrictions on the convertibility of the Renminbi,
especially with respect to foreign exchange transactions.
  CHINESE
LAWS AND REGULATIONS GOVERNING SHANDONG JIAJIA'S BUSINESS OPERATIONS ARE
SOMETIMES VAGUE AND UNCERTAIN. ANY CHANGES IN SUCH CHINESE LAWS AND REGULATIONS
MAY HAVE A MATERIAL AND ADVERSE EFFECT ON OUR BUSINESS.
  China’s
legal system is a civil law system based on written statutes, in which system
decided legal cases have little value as precedents unlike the common law system
prevalent in the United States. There are substantial uncertainties regarding
the interpretation and application of Chinese laws and regulations, including
but not limited to the laws and regulations governing the enforcement and
performance of contractual arrangements with customers in the event a dispute,
as well as the imposition of statutory liens, death, bankruptcy and criminal
proceedings. The Chinese government has been developing a comprehensive system
of commercial laws, and considerable progress has been made in introducing laws
and regulations dealing with economic matters such as foreign investment,
corporate organization and governance, commerce, taxation and trade. However,
because these laws and regulations are relatively new, and because of the
limited volume of published cases and judicial interpretation and their lack of
force as precedents, interpretation and enforcement of these laws and
regulations involve significant uncertainties. New laws and regulations that
affect existing and proposed future businesses may also be applied
retroactively. We cannot predict what effect the interpretation of existing or
new Chinese laws or regulations may have on our businesses. If the relevant
authorities find us in violation of Chinese laws or regulations, they would have
broad discretion in dealing with such a violation, including, without
limitation: levying fines; revoking our business and other licenses; requiring
that we restructure our ownership or operations; and requiring that we
discontinue any portion or all of our business.
  WE
MAY BE UNABLE TO ENFORCE OUR RIGHTS DUE TO POLICIES REGARDING THE REGULATION OF
FOREIGN INVESTMENTS IN CHINA.
  China's
regulations and policies with respect to foreign investments are evolving with
respect to such matters as the permissible percentage of foreign investment
and permissible rates of equity returns. Statements regarding these evolving
policies have been conflicting and any such policies, as administered, are
likely to be subject to broad interpretation and discretion and to be modified,
perhaps on a case-by-case basis. The uncertainties regarding such regulations
and policies present risks, which may affect our ability to achieve our stated
business objectives. If we are unable to enforce legal rights we may have under
our contracts or otherwise, our ability to compete with other companies in our
industry could be limited which could result in a loss of revenue in future
periods which could impact our ability to continue as a going
concern.
  RISKS
RELATED TO HOLDING OUR SECURITIES
  OUR
CORPORATE ACTIONS ARE SUBSTANTIALLY CONTROLLED BY OUR MANAGEMENT.
  Our
executive officers and directors, including the management and minority owners
of Shandong Jiajia, own approximately 27.1% of our voting securities. These
shareholders, acting individually or as a group, could exert substantial
influence over matters such as electing directors and approving mergers or other
business combination transactions. In addition, because of the percentage
of ownership and voting concentration in these principal shareholders, elections
of our board of directors will generally be within the control of these
shareholders. It would be difficult for our shareholders to propose and have
approved proposals not supported by management. There can be no assurances that
matters voted upon by our executive officers and directors, including Shandong
Jiajia's management, in their capacity as shareholders, will be viewed favorably
by all shareholders of our company.
  16
 THE
EXERCISE OF OUTSTANDING WARRANTS AND THE POSSIBLE CONVERSION OF OUR SERIES A
PREFERRED STOCK AND SERIES B PREFERRED STOCK WILL BE DILUTIVE TO OUR EXISTING
SHAREHOLDERS.
  At
March 31, 2008 we had 19,394,894 shares of our common stock issued and
outstanding and the following securities, which are convertible or exercisable
into shares of our common stock, were outstanding:
  ·           up
to 4,500,000 shares of our common stock issuable upon the possible conversion of
450,000 shares of Series B Convertible preferred stock which we are
obligated to issue under the terms of an agreement; and
  ·           2,000,000
shares of our common stock issuable upon the exercise of common stock purchase
warrants at an exercise price of $.30 per share.
  The
conversion of the preferred stock and/or the exercise of the warrants may
materially adversely affect the market price of our common stock and will have a
dilutive effect on our existing shareholders. No services have been provided and
we are currently negotiating a cancellation of the contract.
  WE
HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN THE
ABSENCE OF WHICH, SHAREHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST
INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR
MATTERS.
  Recent
Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in
the adoption of various corporate governance measures designed to promote the
integrity of the corporate management and the securities markets. Some of these
measures have been adopted in response to legal requirements. Others have been
adopted by companies in response to the requirements of national securities
exchanges, such as the NYSE or the NASDAQ Stock Market, on which their
securities are listed. Among the corporate governance measures that are required
under the rules of national securities exchanges are those that address board of
directors' independence, audit committee oversight, and the adoption of a code
of ethics. While we have adopted a Code of Business Conduct and Ethics, none of
the members of our board of directors are considered independent directors and
we have not adopted corporate governance measures such as an audit or other
independent committees of our board of directors. It is possible that if we were
to expand our board of directors to include independent directors and adopt some
or all of these corporate governance measures, stockholders would benefit from
somewhat greater assurances that internal corporate decisions were being made by
disinterested directors and that policies had been implemented to define
responsible conduct. However, because our current board of directors is
comprised of our executive officers, subject to their fiduciary duty
obligations, these individuals have the ability to make decisions regarding
their compensation packages, transactions with related parties and corporate
actions that could involve conflicts of interest.  Prospective
investors should bear in mind our current lack of corporate governance measures
in formulating their investment decisions.
  WE
MAY BE EXPOSED TO POTENTIAL RISKS RELATING TO OUR INTERNAL CONTROLS OVER
FINANCIAL REPORTING AND OUR ABILITY TO HAVE THOSE CONTROLS ATTESTED TO BY OUR
INDEPENDENT AUDITORS.
  As
directed by Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX 404”), the
Securities and Exchange Commission adopted rules requiring small business
issuers, such as our company, to include a report of management on the company’s
internal controls over financial reporting in their annual reports for years
ending on or after December 15, 2007. Such report is contained later in
this annual report under Item 9A(T) Controls and Procedures. In addition, unless
the pending one year delay proposed by the SEC is adopted, for our year ending
December 31, 2008 the independent registered public accounting firm
auditing our financial statements must also attest to and report on management’s
assessment of the effectiveness of our internal controls over financial
reporting as well as the operating effectiveness of our internal controls. In
the event we are unable to receive a positive attestation from our independent
auditors with respect to our internal controls, investors and others may lose
confidence in the reliability of our financial statements and our ability to
obtain financing as needed could suffer.
  BECAUSE
OUR STOCK CURRENTLY TRADES BELOW $5.00 PER SHARE, AND IS QUOTED ON THE OTC
BULLETIN BOARD, OUR STOCK IS CONSIDERED A "PENNY STOCK" WHICH CAN ADVERSELY
AFFECT ITS LIQUIDITY.
  As the
trading price of our common stock is less than $5.00 per share, our common stock
is considered a "penny stock," and trading in our common stock is subject to the
requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under
this rule, broker/dealers who recommend low-priced securities to persons other
than established customers and accredited investors must satisfy special sales
practice requirements. The broker/dealer must make an individualized written
suitability determination for the purchaser and receive the purchaser's written
consent prior to the transaction.
  17
 
 Securities
and Exchange Commission regulations also require additional disclosure in
connection with any trades involving a "penny stock," including the delivery,
prior to any penny stock transaction, of a disclosure schedule explaining the
penny stock market and its associated risks. These requirements severely limit
the liquidity of our common stock in the secondary market because few broker or
dealers are likely to undertake these compliance
activities.  Purchasers of our common stock may find it difficult to
resell the shares in the secondary market.
  ITEM
1B.             UNRESOLVED
STAFF COMMENTS.
  Not
applicable to a smaller reporting company.
  ITEM
2.                PROPERTIES.
 
 We
lease 668 square feet of office space from an unrelated third party at 7300
Alondra Boulevard, Suite 108, Paramount, California 90723 for a two-year term
expiring April 30, 2010. This office serves as our United States
office.  The monthly rate for the facility is $5,000, which includes
office furniture, supplies, equipment and utility services.
  Shandong
Jiajia’s China headquarters occupy approximately 1,776 square feet of leased
office space in Qingdao, China, which is leased from an unrelated third party
under a lease expiring on December 31, 2008. The annual rent is
approximately $20,346 (RMB 150,562). Shandong Jiajia expects to renew this lease
upon expiration upon similar terms.
  Shandong
Jiajia's branches and offices also rent various office spaces throughout China
as set forth in the following table:
 
 Location
              
              Approximate
      Square Feet
              
              Annual
      Rent
              
              Expiration
      of LeaseShanghai
      Branch
                Shanghai
              
              7,008
              
              $64,140
      (RMB 674,063)
              
              May 31,
      2009Xiamen
      Branch
                Xiamen City,
                Fujian Province
              
              1,026
              
              $1,459
      (RMB 10,800)
              
              December 31,
      2008Lianyuangang
      office
                Lianyuangang City,
                Jiangsu Province
              
              1,184
              
              $4,054
      (RMB 30,000)
              
              March 15,
      2009Rizhao
      office
                Rizhao City,
                Shandong Province
              
              1,076
              
              $1,054
      (RMB 7,800)
              
              October 11,
      2008
  Shandong
Jiajia expects to renew the lease for the Shanghai Branch at expiration upon
similar terms. The leases for the Xiamen Branch and Lingyuangag City office are
with unrelated third parties
  ITEM
3.          LEGAL
PROCEEDINGS.
  We are
not a party to any pending legal proceedings.
  ITEM
4.          SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.
  None.
  18
 PART
II
  ITEM
5.
  MARKET
FOR REGISTRANT'S COMMON EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE
OF EQUITY SECURITIES.
  Market
Price of and Dividends on Common Equity and Related Stockholder
Matters
  Our
common stock is quoted on the OTCBB under the symbol CHLO. The reported high and
low sales prices for the common stock as reported on the OTCBB are shown below
for the periods indicated. The quotations reflect inter-dealer prices, without
retail mark-up, markdown or commission, and may not represent actual
transactions. These quotations reflect a 1-40 reverse split effective
March 12, 2008.
 
 High
              
              Low2006First
      quarter ended March 31, 2006
              
              $12.00
              
              $8.00Second
      quarter ended June 30, 2006
              
              $  8.80
              
              $4.80Third
      quarter ended September 30, 2006
              
              $  7.60
              
              $4.40Fourth
      quarter ended December 31, 2006
              
              $  4.80
              
              $2.402007First
      quarter ended March 31, 2007
              
              $  6.80
              
              $2.40Second
      quarter ended June 30, 2007
              
              $  3.60
              
              $1.60Third
      quarter ended September 30, 2007
              
              $  2.80
              
              $  .80Fourth
      quarter ended December 31, 2007
              
              $  2.00
              
              $  .402008First
      quarter ended March 31, 2008
              
              $  1.20
              
              $  .40
  On
April 14, 2008, the last sale price of our common stock as reported on the
OTCBB was $0.71. As of March 31, 2008, there were approximately 210 record
owners of our common stock.
  Dividend
Policy
  We have
never paid cash dividends on our common stock. Payment of dividends will be
within the sole discretion of our Board of Directors and will depend, among
other factors, upon our earnings, capital requirements and our operating and
financial condition. At the present time, our anticipated financial capital
requirements are such that we intend to follow a policy of retaining earnings in
order to finance the development of our business.
  Recent
Sales of Unregistered Securities
  In
March 2008 we issued Mr. Harrell, our CEO, 581,247 shares of our
common stock in satisfaction of approximately $419,000 of accrued compensation
due him. Mr. Harrell is an accredited investor and the issuance was exempt
from registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
  In
March 2008 we also issued Mr. David Aubel 2,864,606 shares of our
common stock in satisfaction of $2,521,379 due him under a convertible note and
a loan. Mr. Aubel, a principal shareholder of our company, is an accredited
investor and the issuance was exempt from registration under the Securities Act
of 1933 in reliance on an exemption provided by Section 4(2) of that
act.
  Finally,
in March 2008 the holders of shares of our Series A Convertible
preferred stock and Series B Convertible preferred stock converted those
shares into shares of our common stock pursuant to the designations, rights and
preferences of those securities, including:
  ·           three
individuals, who included Messrs. Wei Chen and Hui Liu, minority
shareholders, officers and directors of Shandong Jiajia, who owned 1,000,000
shares of our Series A Convertible preferred stock converted those shares
into an aggregate of 2,500,000 shares of our common stock; and three individuals
and two entities, which included Mr. Chen, who owned 725,000 shares of
Series B Convertible preferred stock converted those shares into an
aggregate of 8,450,000 shares of our common stock.
  19
 The
recipients were accredited or otherwise sophisticated investors who had such
knowledge and experience in business matters that they were capable of
evaluating the merits and risks of the prospective investment in our securities.
The recipients had access to business and financial information concerning our
company. These issuances were exempt from registration under the Securities Act
of 1933 in reliance on exemptions provided by Section 3(a)(9) of that
act.
  ITEM
6.             SELECTED
FINANCIAL DATA.
  Not
applicable to a smaller reporting company.
  ITEM
7.
  MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 
 We are
on a calendar year, as such the year ended December 31, 2006 is referred to
as “2006” and the year ended December 31, 2007 is referred to as
“2007”.
  Overview
  Historically,
since 2003 we provided products and services in the converging digital media on
demand, enhanced home entertainment and emerging interactive consumer
electronics markets. While we devoted significant time and resources to the
development of our business model, our success was limited due in part to the
significant competition in our target segment.  Like many small public
companies, we encountered significant difficulties in raising adequate capital
and the professional fees associated with our reporting obligations under
Federal securities laws continued to increase.
  In the
fourth quarter of 2007, because our management did not believe the outlook for
either our ability to generate any significant revenues or our ability to raise
adequate capital would improve, our management elected to pursue a business
combination with a private Chinese based operating company in an effort to
improve shareholder value.  Our management believed the best way to
improve both the long-term market price of our common stock and our overall
long-term business prospects would be through the acquisition of a company with
historical operations and revenues in an industry with growth
potential.  On December 31, 2007, we acquired a 51% interest in
Shandong Jiajia, a non-asset based international freight forwarding and
logistics manager located in the PRC. The business and operations of Shandong
Jiajia now represent all of our business and operations.
  For
accounting purposes, the transaction with Shandong Jiajia was treated as a
reverse acquisition with Shandong Jiajia being the accounting acquirer and our
company being the legal survivor.  All revenues for 2006 and 2007
relate to the operations of Shandong Jiajia from its freight forwarding and
logistics management business. All historical data of our operations prior to
the acquisition of Shandong Jiajia on December 31, 2007 have been
excluded.
  Established
in November 1999, Shandong Jiajia is a non-asset based international
freight forwarder and logistics manager located in the PRC. Shandong Jiajia acts
as an agent for international freight and shipping companies. It sells cargo
space and arranges land, maritime, and air international transportation for
clients seeking primarily to export goods from China. Since inception, Shandong
Jiajia estimates it has processed the delivery of approximately 80,000 standard
International Shipping Organization ("ISO") shipping containers totaling
approximately 500,000 metric tons. While it can also arrange for the logistics
for importing goods into China, historically less than 1% of its revenues are
derived from these services. Shandong Jiajia does not own any containers,
trucks, aircraft or ships. It contracts with companies owing these assets to
provide transportation services required for shipping freight on behalf of its
customers.
 
 Results
Of Operations
  The
following table provides certain comparative information based on our
consolidated results of operations for the year ended December 31, 2007 as
compared to the year ended December 31, 2006:
 
  
 20
 
  Fiscal
      year ended December 31, 2007
                  
                  
                  Fiscal
      year ended December 31, 2006
                  
                  
                  $
      Change
                  
                  
                  %
      ChangeSales
                  
                  $
                  35,298,453
                  
                  
                  $
                  30,311,924
                  
                  
                  $
                  4,986,529
                  
                  
                  
                  16.5
                  %Cost
      of Sales
                  
                  
                  34,036,196
                  
                  
                  
                  30,884,771
                  
                  
                  
                  3,151,425
                  
                  
                  
                  10.2
                  %Gross
      Profit
                  
                  
                  1,262,257
                  
                  
                  
                  (572,847
                  )
                  
                  
                  1,835,104
                  
                  
                  
                  320.3
                  %Selling
      Expenses
                  
                  
                  37,546
                  
                  
                  
                  35,350
                  
                  
                  
                  2,196
                  
                  
                  
                  6.2
                  %General
      and Administrative Expenses
                  
                  
                  498,831
                  
                  
                  
                  876,926
                  
                  
                  
                  (378,095
                  )
                  
                  
                  (43.1
                  )%Total
      Operating Expenses
                  
                  
                  536,377
                  
                  
                  
                  912,276
                  
                  
                  
                  (375,899
                  )
                  
                  
                  (41.2
                  )%Income
      (loss) from Operations
                  
                  
                  725,880
                  
                  
                  
                  (1,485,123
                  )
                  
                  
                  2,211,003
                  
                  
                  
                  148.9
                  %Total
      Other Income
                  
                  
                  13,575
                  
                  
                  
                  18,812
                  
                  
                  
                  (5,237
                  )
                  
                  
                  (27.8
                  )%Net
      Income (Loss)
                  
                  $
                  347,948
                  
                  
                  $
                  (1,476,700
                  )
                  
                  $
                  1,824,648
                  
                  
                  
                  123.6
                  %
 Other
Key Indicators
  Fiscal
      year ended December 31, 2007
                
                
                Fiscal
      year ended December 31, 2006Other
      Key Indicators:Cost
      of Sales as a percentage of Sales
                
                
                96%
                
                
                
                102%Gross
      Profit Margin
                
                
                4%
                
                
                
                (2)%Selling
      Expenses as a percentage of Sales
                
                
                0%
                
                
                
                0%General
      and Administration Expenses as a percentage of Sales
                
                
                1%
                
                
                
                3%Total
      Operating Expenses as a percentage of Sales
                
                
                2%
                
                
                
                3%
  Sales
 
 Our
consolidated sales for the year ended December 31, 2007 were up $4,986,529 or
approximately 16.5%, increasing from $30,311,924 for the year ending December
31, 2006 to $35,298,453 for the year ending December 31, 2007.  This
increase was due to an overall increase in shipping and freight volume between
the periods.
 
 Cost
of Sales and Gross Profit
 
 Our
consolidated cost of sales increased $3,151,425, or 10.2%, from $30,884,771
during the year ended December 31, 2006 to $34,036,196 during the year ended
December 31, 2007.  Cost of sales as a percentage of net revenues
decreased between periods, from 102% for the year ended December 31, 2006 to 96%
for the year ended December 31, 2007.  This decrease in cost of sales
as a percentage of net revenues contributed to our positive gross profit during
2007 and positive net income.
 
 Consolidated
gross profit increased $1,835,104, from a gross loss of $572,847 for the year
ended December 31, 2006 to a gross profit of $1,262,257 for the year ended
December 31, 2007.  Gross profit as a percentage of sales increased
from a loss of 2% for the year ended December 31, 2006 to a profit of 4% for the
year ended December 31, 2007.
 
 21
 Total
Operating Expenses
 
 Total
operating expenses decreased $375,899, or 41.2%, from $912,276 for the year
ended December 31, 2006 to $536,377 for the year ended December 31,
2007.  Operating expense as a percentage of revenue decreased from 3%
during 2006 compared to 2% in 2007.
  Total
Other Income
 
 Total
other income decreased $5,237, or 27.8% from $18,812 for the year ended December
31, 2006 to $13,575 for the year ended December 31,
2007.
  Net
Income (Loss)
  As a
result of favorable fluctuations in our gross profit margin and the reduction in
general and administrative expenses, we generated net income of $347,948 in
2007, this represents a $1,824,648 increase over the loss of $1,476,700 in
2006.
  Liquidity
and Capital Resources
 
 Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations and otherwise operate on an ongoing basis.
At December 31, 2007, we operated under a working capital deficit of $3,300,162
as compared to a deficit of $180,695 at December 31, 2006.
 
 At December
31, 2007, we had $1,121,605 in unrestricted cash and an accumulated deficit
since inception of $313,084.
 
 Cash
provided from operating activities totaled $255,903 for the  year
ended December 31, 2007 compared to cash used in operating activities of
$199,473 for the  year ended December 31, 2006.  This
overall increase in cash provided by operating activities of $455,376 was
primarily attributable to positive income for the current year.  The
largest sources of cash include funding from the following: $532,859 from an
increase in accrued liabilities and $421,333 from an increase in advances from
customers; these sources of cash were offset primarily by the following uses of
cash: $1,029,756 from an increase in accounts receivable, $419,940 from an
increase in due from related parties, and $162,440 to pay down other
payables.
 
 We
used $13,504 of cash for investing activities during 2007, all of which were for
capital expenditures.
  The
Company believes that its current working capital and cash generated from
operations will not be sufficient to meet the Company’s cash requirements for
the next twelve months without the ability to obtain profitable operations
and/or obtain additional financing. As described elsewhere herein, under the
terms of the December 31, 2007 agreement to acquire a 51% interest in Shandong
Jiajia (the "Share Exchange Agreement") we are required to contribute $1,040,816
in additional registered capital to Shandong Jiajia by April 30, 2008 and to
make an additional $959,184 available for working capital by that date. We do
not presently have the funds necessary to satisfy this contractual commitment
and are reliant on our ability to raise the capital through a private placement
of our securities. We are currently negotiating with investors and while we
reasonably believe we will be able to close the transaction prior to April 30,
2008 any failure on our part to do so will result in a default under the terms
of the Share Exchange Agreement. In addition, Shandong Jiajia's operations have
not historically been profitable and it is likely we will need additional
capital to fund our operating losses as well as any future operating losses at
Shandong Jiajia. If the Company is not successful in generating sufficient cash
flows from operations or in raising additional capital when required in
sufficient amounts and on acceptable terms, these failures could have a material
adverse effect on the Company’s business, results of operations and financial
condition. If additional funds were raised through the issuance of equity
securities, the percentage ownership of the Company’s then-current
stockholders would be diluted. There can be no assurance that the Company will
be able to raise any required capital necessary to achieve its targeted growth
rates and future continuance on favorable terms or at all. Our independent
registered public accounting firm has included a statement in their report on
our financial statements, stating that certain factors raise substantial doubt
about our ability to continue as a going concern.
  Critical
Accounting Policies and Estimates
  The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates based on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
  22
 A summary
of significant accounting policies is included in Note 1 to the audited
consolidated financial statements included in this annual report. Management
believes that the application of these policies on a consistent basis enables us
to provide useful and reliable financial information about our Company's
operating results and financial condition.
  Property,
Plant and Equipment
  We record
property and equipment at cost. Depreciation and amortization are provided using
the straight-line method over the estimated economic lives of the assets, which
are from three to five years. Expenditures for major renewals and improvements,
which extend the useful lives of property and equipment, are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred. We
review the carrying value of long-lived assets for impairment at least annually
or whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of long-lived assets is
measured by a comparison of its carrying amount to the undiscounted cash flows
that the asset or asset group is expected to generate. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the property, if any, exceeds its fair
market value.
  Stock
Based Compensation
  In
December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment",
which replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under
SFAS No. 123(R), companies are required to measure the compensation costs
of share based compensation arrangements based on the grant date fair value and
recognize the costs in the financial statements over the period during which
employees are required to provide services. Share based compensation
arrangements include stock options, share plans, performance based awards, share
appreciation rights and employee share purchase plans. In March 2005 the
Securities and Exchange Commission issued Staff Accounting Bulletin
No. 107, or “SAB 107”. SAB 107 expresses views of the staff regarding the
interaction between SFAS No. 123(R) and certain Securities and Exchange
Commission rules and regulations and provides the staff's views regarding the
valuation of share based payment arrangements for public companies. SFAS
No. 123(R) permits public companies to adopt its requirements using one of
two methods. On April 14, 2005, the Securities and Exchange Commission
adopted a new rule amending the compliance dates for SFAS 123R. Companies may
elect to apply this statement either prospectively, or on a modified version of
retrospective application under which financial statements for prior periods are
adjusted on a basis consistent with the pro forma disclosures required for those
periods under SFAS 123. Effective January 1, 2006, we fully adopted the
provisions of SFAS No. 123R and related interpretations as provided by SAB
107. As such, compensation cost is measured on the date of grant as the excess
of the current market price of the underlying stock over the exercise price.
Such compensation amounts, if any, are amortized over the respective vesting
periods of the option grant.
  Earnings
(Losses) Per Share
 
 Under
the provisions of SFAS 128, “Earnings Per Share”, basic
income (loss) per common share is computed by dividing income (loss) available
to common shareholders by the weighted average number of shares of common stock
outstanding for the periods presented. Diluted income per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that would then share in the income of the company,
subject to anti-dilution limitations.
 
 Potentially
issuable shares for the year ended December 31, 2006 were anti-dilutive and not
included in diluted earnings per share.
 
 Earning
per share presented for the years ended December 31, 2007 and 2006 have been
restated due to the reverse acquisition transaction with Shandong
Jiajia.  The retroactive restatement is based on historical average
number of weighted-average shares outstanding for the periods presented,
adjusted for shares underlying convertible securities issued in the reverse
acquisition transaction.
  Revenue
Recognition
 
 We
follow the guidance of the Securities and Exchange Commission’s Staff Accounting
Bulletin No. 104 and Topic 13 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.
  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.
  Recent
Accounting Pronouncements
  In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
("SFAS 157"). This Statement defines fair value as used in numerous accounting
pronouncements, establishes a framework for measuring fair value in generally
accepted accounting principles and expands disclosure related to the use of fair
value measures in financial statements. The Statement became effective for
financial statements for fiscal years beginning after November 15, 2007;
however, earlier application was encouraged. We have adopted SFAS 157 in
2007.
  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”
(“Statement 159”). Statement 159 allows entities to choose, at specified
election dates, to measure eligible financial assets and liabilities at fair
value that are not otherwise required to be measured at fair value. If a company
elects the fair value option for an eligible item, changes in that item’s fair
value in subsequent reporting periods must be recognized in current earnings.
Statement 159 became effective for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the requirements of
SFAS No, 158.
  23
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS
No. 141R"). SFAS No. 141R is a revision to SFAS No. 141 and
includes substantial changes to the acquisition method used to account for
business combinations (formerly the "purchase accounting" method), including
broadening the definition of a business, as well as revisions to accounting
methods for contingent consideration and other contingencies related to the
acquired business, accounting for transaction costs, and accounting for
adjustments to provisional amounts recorded in connection with acquisitions.
SFAS No.141R retains the fundamental requirement of SFAS No. 141 that
the acquisition method of accounting be used for all business combinations
and for an acquirer to be identified for each business combination.
SFAS No. 141R is effective for periods beginning on or after
December 15, 2008, and will apply to all business combinations occurring
after the effective date. The Company is currently evaluating the requirements
of SFAS No. 141R.
  In
December 2007, the FASB also issued SFAS No. 160, "Non-controlling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51, Consolidated Financial Statements". This Statement amends
ARB No. 51 to establish new standards that will govern the (1) accounting
for and reporting of non-controlling interests in partially owned consolidated
subsidiaries and (2) the loss of control of subsidiaries. Non-controlling
interest will be reported as part of equity in the consolidated financial
statements. Losses will be allocated to the non-controlling interest, and, if
control is maintained, changes in ownership interests will be treated as equity
transactions. Upon a loss of control, any gain or loss on the interest sold will
be recognized in earnings. SFAS No. 160 is effective for periods beginning
after December 15, 2008. The Company is currently evaluating the
requirements of SFAS No. 160.
  In
March 2008, FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. We are currently evaluating the impact of adopting SFAS No.161 on
our consolidated financial statements.
  Off
Balance Sheet Arrangements
  Under
Securities and Exchange Commission regulations, we are required to disclose our
off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, such as changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors. An
off-balance sheet arrangement means a transaction, agreement or contractual
arrangement to which any entity that is not consolidated with us is a party,
under which we have:
  —           Any
obligation under certain guarantee contracts;
  —           Any
retained or contingent interest in assets transferred to an unconsolidated
entity or similar arrangement that serves as credit, liquidity or market risk
support to that entity for such assets;
  —           Any
obligation under a contract that would be accounted for as a derivative
instrument, except that it is both indexed to our stock and classified in
stockholder’s equity in our statement of financial position; and
  —           Any
obligation arising out of a material variable interest held by us in an
unconsolidated entity that provides financing, liquidity, market risk or credit
risk support to us, or engages in leasing, hedging or research and development
services with us.
  We do not
have any off-balance sheet arrangements that we are required to disclose
pursuant to these regulations. In the ordinary course of business, we enter into
operating lease commitments, purchase commitments and other contractual
obligations. These transactions are recognized in our financial statements in
accordance with generally accepted accounting principles in the United
States.
  ITEM
7A.           QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  Not
applicable to smaller reporting companies.
  ITEM
8.             FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.
  Please
see our financial statements beginning on page F-1 of this amended annual
report.
  ITEM
9.             CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  None.
  24
 ITEM
9A(T).      CONTROLS AND PROCEDURES.
  DISCLOSURE
CONTROLS AND PROCEDURES
  Under
the supervision and with the participation of our management, including our
Chief Executive Officer who serves as our principal executive officer and as our
principal financial officer, we conducted an evaluation of the effectiveness of
the design and operation of our disclosure controls and procedures, as defined
in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of
the end of the period covered by this report (the "Evaluation Date"). Based
on this evaluation, our principal executive officer and principal financial
officer concluded that, as a result of the material weaknesses set forth below
in “Management’s Annual Report on Internal Control Over Financial Reporting,”
the Company’s disclosure controls and procedures were not effective as the
Evaluation Date.  Our evaluation included business activities which
were part of our Company for the entire 2007 period and excluded all businesses
which were acquired during 2007. The excluded business is Shandong Jiajia which
was acquired on December 31, 2007 and represents 100% of our consolidated
net revenues and net income for 2007. Our management, solely being our Chief
Executive Officer, does not expect that our disclosure controls and procedures
or our internal controls will prevent all error and all fraud. A control system,
no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered relative to their
costs. Due to the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within our Company have been detected.
  MANAGEMENT'S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act, as amended). Our management assessed the effectiveness
of our internal control over financial reporting as of December 31, 2007.
In making this assessment, our management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in
Internal Control-Integrated Framework.
  Our
management has concluded that, as of December 31, 2007, our internal
control over financial reporting was not effective, due to the failure to
properly record equity transactions which has resulted in several material
weaknesses.  A material weakness is a control deficiency, or
combination of control deficiencies, that results in more than a remote
likelihood that a material misstatement of our annual or interim financial
statements would not be prevented or detected.
 As of
December 31, 2007, we did not have appropriate policies and procedures in place
to ensure that the number of shares of common stock issued and outstanding would
not exceed the number of common stock shares authorized. This material weakness
was reported in our December 31, 2007 Form 10-K. Also, as of December 31, 2007,
we did not have appropriate policies and procedures in place to ensure that the
recognition of the fair value of 450,000 shares of our Series B Convertible
preferred stock to be issued for consulting services rendered during the year
ended December 31, 2007 would be accounted for in 2007.  This material
weakness was not discovered until May 14, 2008, subsequent to the filing of our
December 31, 2007 Form 10-K/A.
  Subsequent
to the filing of the December 31, 2007 Form 10-K/A 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)
account for our acquisition of a 51% interest in Shandong Jiajia as a capital
transaction instead of using the purchase method of accounting, (ii) properly
determine that we were a public shell company prior to the Shandong Jiajia
acquisition, 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.
  We
have an inadequate number of personnel with the requisite expertise in generally
accepted accounting principles to ensure the proper application thereof. Our
sole officer and director is not an accountant and we have historically relied
upon the services of outside accountants. Due to the nature of these material
weaknesses in our internal control over financial reporting, there is more than
a remote likelihood that a material misstatement of our annual or interim
financial statements could occur that would not be prevented or
detected.
  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 the filing date of the December 31,
2008 Form 10-K.  Specifically, for issuances of common stock,
management plans to implement improved policies and procedures that will include
a review of issuances of common stock by appropriate personnel. For issuances of
preferred stock, management plans to implement improved policies and procedures
that will include a review of the accounting for preferred stock to be issued
for consulting services by appropriate personnel. In addition, we will make sure
that we have an adequate number of personnel involved in the preparation of the
financial statements and disclosures with the requisite expertise in generally
accepted accounting principles to ensure the proper application
thereof.  Once fully implemented, management believes that these new
policies and procedures will be effective in remediating the identified material
weaknesses.
  Our
internal accounting staff is primarily engaged in ensuring compliance with PRC
accounting and reporting requirements for our operating affiliates and their
U.S. GAAP knowledge was limited. As a result, a majority of our internal
accounting staff is relatively inexperienced with U.S. GAAP and the related
internal control procedures required of U.S. public companies. Although our
accounting staff is professional and experienced in accounting requirements and
procedures generally accepted in the PRC, management has determined that they
require additional training and assistance in U.S. GAAP matters. Management has
determined that our internal audit function is also significantly deficient due
to insufficient qualified resources to perform internal audit functions.
Finally, management determined that the lack of an Audit Committee of our Board
of Directors also contributed to insufficient oversight of our accounting and
audit functions.
  Our
management, solely being our Chief Executive Officer, does not expect that our
disclosure controls and procedures or our internal controls will prevent all
error and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints and the
benefits of controls must be considered relative to their costs. Due to the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within our company have been detected.
  This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Our management's report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management's report in
this annual report.
  CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
  There
have been no changes in our internal control over financial reporting during our
fourth fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting other than that
noted in the preceding paragraph.
  25
 ITEM
9B.
  OTHER
INFORMATION.
  None.
  PART
III
  ITEM 10.
  DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  Directors
and Executive Officers
  The
following individuals serve as our executive officers and members of our Board
of Directors:
 
 Name
              
              Age
              
              PositionsV.
      Jeffrey Harrell
              
              42
              
              Chairman,
      President, Chief Executive Officer, Secretary, Treasurerand
      sole director
  V. Jeffrey Harrell.
Mr. Harrell is the Chairman and CEO of China Logistics Group, Inc., and has
served in such capacities since 1999. Over the last 20 years he has been
involved in a series of diversified ventures focusing on finance and accounting,
production control and accountability as well as automating an inventory control
system utilizing information technology processes and software within the
textile industry for consumer goods, financial services, property acquisition,
and outsourcing corporate services. Mr. Harrell is a graduate of
East Carolina University and received his degree in Business
Administration with concentrations in finance and accounting. Throughout his
career he has served on the Board of Directors of several non-profit charitable
organizations.
  Key
Employees
  Shandong
Jiajia is located in China and its day-to-day operations are the responsibility
of officers at that subsidiary. Following is biographical information on those
persons whom we consider key employees of our company:
 
 Name
              
              Age
              
              PositionsHui
      Liu
              
              45
              
              Chief
      Executive OfficerWei
      Chen
              
              37
              
              General
      Manager, Shanghai Branch
  Hui Liu. Mr. Liu
co-founded Shandong Jiajia in 1999. From 1997 to 1999, Mr. Liu was the
storage and delivery department manager at Shandong Jiajia Import and Export
Corp., Ltd. and from 1989 to 1997 he managed customs declaration, inspection
declaration, shipping arrangement, and bulk cargo logistics at Cosco
International Freight Co., Ltd. From 1986 to 1989 Mr. Liu was employed as a
sailor with Qingdao Ocean Shipping Co., Ltd. Mr. Liu obtained an Associate
Degree in Vessel Driving from
Qingdao Ocean Shipping Mariner College in 1986
  Wei Chen. Mr. Chen has
been the General Manager of Shandong Jiajia’s Shanghai Branch since
February 2002. Prior to joining Shandong Jiajia, Mr. Chen was a
shipping department manager at Shanghai Branch of Beijing Sunshine International
Freight Co., Ltd. from October 1998 to February 2002. Previously,
Mr. Chen was the chief representative of Shanghai office, Mitrans
International Shipping Co., Ltd. from June 1995 to October 1998.
Mr. Chen started his career as a sales representative at Asian Development
International Transportation Corporation between September 1992 and
May 1995. Mr. Chen obtained the Bachelor’s Degree in International
Shipping from Shanghai Maritime University in 1992.
  Compliance
with Section 16(a) of the Exchange Act
  Based
solely upon a review of Forms 3 and 4 and amendments thereto furnished to us
under Rule 16a-3(d) of the Securities Exchange Act of 1934 during the
fiscal year ended December 31, 2007 and Forms 5 and amendments thereto
furnished to us with respect to the fiscal year ended December 31, 2007, as
well as any written representation from a reporting person that no Form 5
is required, we are not aware that any officer, director or 10% or greater
shareholder failed to file on a timely basis, as disclosed in the aforementioned
Forms, reports required by Section 16(a) of the Securities Exchange Act of
1934 during the fiscal year ended December 31, 2007.
  26
 Code
of Ethics
  We have
adopted a Code of Business Conduct and Ethics to provide guiding principles to
all of our employees. Our Code of Business Conduct and Ethics does not cover
every issue that may arise, but it sets out basic principles to guide our
employees and provides that all of our employees must conduct themselves
accordingly and seek to avoid even the appearance of improper behavior. Any
employee which violates our Code of Business Conduct and Ethics will be subject
to disciplinary action, up to an including termination of his or her
employment.
  Generally,
our Code of Business Conduct and Ethics provides guidelines
regarding:
  ·           compliance
with laws, rules and regulations,
 ·           conflicts
of interest,
 ·           insider
trading,
 ·           corporate
opportunities,
 ·           competition
and fair dealing,
 ·           discrimination
and harassment,
 ·           health
and safety,
 ·           record
keeping,
 ·           confidentiality,
 ·           protection
and proper use of company assets,
 ·           payments
to government personnel,
 ·           waivers
of the Code of Business Conduct and Ethics,
 ·           reporting
any illegal or unethical behavior, and
 ·           compliance
procedures.
  In
addition, we have also adopted a Code of Ethics for our Chief Executive Officer
and senior financial officers. In addition to our Code of Business Conduct and
Ethics, our CEO and senior financial officers are also subject to specific
policies regarding:
  ·           disclosures
made in our filings with the Securities and Exchange Commission,
  ·           deficiencies
in internal controls or fraud involving management or other employees who have a
significant role in our financial reporting, disclosure or internal
controls,
  ·           conflicts
of interests, and
  ·           knowledge
of material violations of securities or other laws, rules or regulations to
which we are subject.
  A copy
of our Code of Business Conduct and Ethics has been filed with the Securities
and Exchange Commission as an exhibit to this annual report. We will provide a
copy, without charge, to any person desiring a copy of the Code of Business
Conduct and Ethics, by written request to, 7300 Alondra Boulevard, Suite 108,
Paramount, California 90723, Attention: Corporate
Secretary.
  Committees
of the Board of Directors
  Our Board
of Directors has not established any committees, including an Audit Committee, a
Compensation Committee or a Nominating Committee, any committee performing a
similar function. The functions of those committees are being undertaken by the
entire board as a whole.
  We do not
have a policy regarding the consideration of any director candidates, which may
be recommended by our stockholders, including the minimum qualifications for
director candidates, nor has our Board of Directors established a process for
identifying and evaluating director nominees. We have not adopted a policy
regarding the handling of any potential recommendation of director candidates by
our stockholders, including the procedures to be followed. Our Board has not
considered or adopted any of these policies as we have never received a
recommendation from any shareholder for any candidate to serve on our Board of
Directors. Given our relative size and lack of directors and officer’s insurance
coverage, we do not anticipate that any of our stockholders will make such a
recommendation in the near future. While there have been no nominations of
additional directors proposed, in the event such a proposal is made, all members
of our Board will participate in the consideration of director
nominees.
  None 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,
  27
 ·           has
experience preparing, auditing, analyzing or evaluating financial statements
comparable to the breadth and complexity to our financial
statements,
  ·           understands
internal controls over financial reporting, and
  ·           understands
audit committee functions.
  We
currently have only one member of our Board of Directors who is also our sole
officer. It is our desire to expand our Board of Directors in the future to
include one or more independent directors. At that time we intend to establish
an Audit Committee of our Board of Directors. It is our intention that one or
more of these independent directors will also qualify as an audit committee
financial expert. Our securities are not quoted on an exchange that has
requirements that a majority of our Board members be independent and we are not
currently otherwise subject to any law, rule or regulation requiring that all or
any portion of our Board of Directors include "independent" directors, nor are
we required to establish or maintain an Audit Committee or other committee of
our Board of Directors.
  ITEM
11.           EXECUTIVE
COMPENSATION.
  The
following table summarizes all compensation recorded by us in the last completed
year for
  ·           our
principal executive officer or other individual serving in a similar
capacity,
  ·           our
two most highly compensated executive officers other than our principal
executive officer who were serving as executive officers at December 31,
2007 as that term is defined under Rule 3b-7 of the Securities Exchange Act
of 1934. In the case of our company this includes the executive officers of our
Shandong Jiajia subsidiary, and
  ·           up
to two additional individuals for whom disclosure would have been required but
for the fact that the individual was not serving as an executive officer at
December 31, 2007.
  For
definitional purposes in this annual report these individuals are sometimes
referred to as the “named executive officers.”
 
 SUMMARY
      COMPENSATION TABLEName
      and Principal Position
                (a)
              
              Year
                (b)
              
              Salary
                ($)
                (c)
              
              Bonus
                ($)
                (d)
              
              Stock
                Awards
                ($)
                (e)
              
              Option
                Awards
                ($)
                (f)
              
              Non-Equity
                Incentive
      Plan
                Compensation
      ($)
                (g)
              
              Nonqualified
                Deferred
                Compensation
                Earnings
      ($)
                (h)
              
              All
                Other
                Compensation
                ($)
                (i)
              
              Total
                ($)
                (j)V.
      Jeffrey Harrell (1)
              
              2007
              
              200,000
              
              0
              
              0
              
              0
              
              0
              
              0
              
              0
              
              200,0002006
              
              200,000
              
              0
              
              0
              
              0
              
              0
              
              0
              
              0
              
              200,000Hui
      Liu (2)
              
              2007
              
              3,732
              
              14,785
              
              0
              
              0
              
              0
              
              0
              
              11,500
              
              30,017Wei
      Chen
              
              2007
              
              26,642
              
              0
              
              0
              
              0
              
              0
              
              0
              
              0
              
              26,642
  ———————
 (1)           During
2007 Mr. Harrell converted $193,500 of accrued but unpaid compensation into
135,000 shares of our common stock. At December 31, 2007 we owed Mr. Harrell an
aggregate of approximately $419,000 of accrued but unpaid compensation. Pursuant
to the terms of the Share Exchange Agreement, on March 20, 2008 he converted all
amounts due him into 581,247 shares of our common stock in full satisfaction of
those obligations.
  (2)           In
2007 Mr. Liu received a $14,785 bonus and $10,958 for travel allowance and
$542 for a car allowance.
  We
currently have no employment agreements with any of our executive officers, nor
any compensatory plans or arrangements resulting from the resignation,
retirement or any other termination of any of our executive officers, from a
change-in-control, or from a change in any executive officer's responsibilities
following a change-in-control.
  28
 Our Board
of Directors, of which Mr. Harrell is the sole member, fixes the amount of
compensation payable to Mr. Harrell. The Board of Directors did not consult with
any experts or other third parties in fixing the amount of Mr. Harrell's
compensation. During 2006 and 2007 Mr. Harrell's compensation package
included a base salary of $200,000. Mr. Harrell has consistently drawn a
salary below his base entitlement. The amount of compensation payable to
Mr. Harrell can be increased at any time upon the determination of the
Board of Directors of which he is the sole member.
  Mr. Liu
and Mr. Chen are executive officers and directors of our Shandong Jiajia
subsidiary and as such are responsible for its day- to-day operations. Neither
Mr. Liu nor Mr. Chen are parties to an employment agreement with
Shandong Jiajia. The compensation for each of these individuals is determined by
Shandong Jiajia's Board of Directors of which they are members and is based upon
a number of factors including the scope of each of their duties and
responsibilities to Shandong Jiajia and the time each devotes to its business.
Such deliberations are not arms-length. Shandong Jiajia did not consult with any
experts or other third parties in fixing the amount of either Mr. Liu's or
Mr. Chen's compensation. We anticipate that similar procedures will be
followed for 2008. The amount of compensation payable to either Mr. Liu or
Mr. Chen can be increased at any time upon the determination of Shandong
Jiajia's Board of Directors.
  Outstanding
Equity Awards at Year End
  The
following table provides information concerning unexercised options, stock that
has not vested and equity incentive plan awards for each named executive officer
outstanding as of December 31, 2007:
 
 OPTION
      AWARDS
              
              STOCK
      AWARDSName
                (a)
              
              Number
      of
                Securities
                Underlying
                Unexercised
                options
                (#)
                exercisable
                (b)
              
              Number
      of
                Securities
                Underlying
                Unexercised
                Options
      (#)
                unexercisable
                (c)
              
              Equity
                incentive
                plan
      awards:
                Number
      of
                Securities
                Underlying
                Unexercised
                Unearned
                options
                (#)
                (d)
              
              Option
                Exercise
                price
                ($)
                (e)
              
              Option
      expiration
                date
                (f)
              
              Number
      of
                shares
      or
                units
      of
                stock
      that
                have
      not
                vested
      (#)
                (g)
              
              Market
                value
      of
                shares
      or
                units
      of
                stock
      that
                have
      not
                vested
      ($)
                (h)
              
              Equity
                Incentive
                plan
      awards:
                Number
      of
                Unearned
                shares,
      units
                or
      other
                rights
      that
                have
      not
                Vested
      (#)
                (i)
              
              Equity
                Incentive
                plan
      awards:
                Market
      or
                payout
      value
                of
      unearned
                shares,
      units
                or
      other
                rights
      that
                have
      not
                vested
      (#)
                (j)V.
      Jeffrey Harrell
              
              0
              
              0
              
              0
              
              0
              
              0
              
              0
              
              0
              
              0
              
              0Hiu
      Liu
              
              0
              
              0
              
              0
              
              0
              
              0
              
              0
              
              0
              
              0
              
              0Wei
      Chen
              
              0
              
              0
              
              0
              
              0
              
              0
              
              0
              
              0
              
              0
              
              0
  Director
Compensation
  Mr.
Harrell, our sole director, did not receive any compensation in 2007 solely
related to his services as a director.
  ITEM
12.         SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
  At
March 31, 2008, there were 19,394,894  shares of our common stock
issued and outstanding after giving effect to our 1 for 40 reverse stock split.
Our common stock is our only class of voting security. The following table sets
forth information known to us as of April 2, 2008 relating to the
beneficial ownership of shares of our voting securities by:
  ·           each
person who is the beneficial owner of more than 5% of the outstanding shares of
voting securities;
  29
 ·           each
director;
  ·           each
named executive officer; and
  ·           all
named executive officers and directors as a group.
  Unless
otherwise indicated, the address of each beneficial owner in the table set forth
below is care of 7300 Alondra Boulevard, Suite 108, Paramount, California
90723.
  The percentages
in the table have been calculated on the basis of treating as outstanding for a
particular person, all shares of our common stock outstanding on that date and
all shares of our common stock issuable to that holder in the event of exercise
of outstanding options, warrants, rights or conversion privileges owned by that
person at that date which are exercisable within 60 days of that date. Except as
otherwise indicated, the persons listed below have sole voting and investment
power with respect to all shares of stock owned by them, except to the extent
that power may be shared with a spouse.
 
 Amount
      and Nature of Beneficial Ownership(1)Name
              
              No. of
      Shares
              
              %
      of ClassV.
      Jeffrey Harrell
              
              
              731,336
              
              
              3.8%Wei
      Chen 2
              
              
              4,762,500
              
              
              22.3%Hui
      Liu 3
              
              
              312,500
              
              
              1.6%All
      named executive officers and directors as a group (three
      persons)
              
              
              5,806,336
              
              
              27.1%China
      Direct, Inc. 4
              
              
              9,312,500
              
              
              39.0%Dragon
      Venture (Shanghai) Capital Management Co., Ltd. 5
              
              
              1,400,000
              
              
              7.2%David
      J. Aubel 6
              
              
              2,864,608
              
              
              14.8%Lili
      Gong 7
              
              
              1,000,000
              
              
              5.2%
  ———————
 1           The
inclusion of any shares as deemed beneficially owned does not constitute an
admission of beneficial ownership by the named shareholder.
  2           Mr. Wei
Chen is an executive officer and minority shareholder of Shandong Jiajia.
Mr. Chen's address is 8 S. Henan Road Lane 1001 Apt. 3404, Shanghai, China
200000. The number of shares beneficially owned by Mr. Chen includes
2,000,000 shares of our common stock issuable upon the exercise of warrants with
an exercise price of $0.30 per share.
  3           Mr. Hui
Liu is an executive officer and minority shareholder of Shandong Jiajia.
Mr. Liu's address is Golden Plaza North Building Suite 1618B, 20 Middle
Hongkong Road, Qingdao, China, 266071.
  4           The
shares of our common stock shown 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 subsidiaries of China Direct, Inc., and
  ·           450,000
shares of Series B preferred stock to be issued to China Direct
Investments, Inc. which has no voting rights but is convertible at the option of
the holder into 4,500,000 shares of common stock. Under the terms of the
consulting agreement entered into with China Direct, Inc. in December 2007,
we agreed to issue it 450,000 shares of our Series B preferred stock as
compensation for services to be rendered, which such shares are to be issued on
or before June 30, 2008. However, as pursuant to the terms of the agreement
even if the agreement should be terminated prior to its expiration such
compensation will be payable, under the rules of the Securities and Exchange
Commission, China Direct Investments, Inc. is deemed to beneficially own such
securities.
  China
Direct, Inc.'s address is 431 Fairway Drive, Deerfield Beach,
Florida 33441. Dr. James Wang and Mr. Marc Siegel, executive officers
of China Direct, Inc., hold voting and dispositive control over securities owned
by China Direct, Inc. in their capacities of Chief Executive Officer
and President, respectively.
  30
 5           Dragon
Venture (Shanghai) Capital Management Co. Ltd. is a subsidiary of Dragon Capital
Group Corp. Mr. Lawrence Wang, the CEO of Dragon Capital Group Corp., has
voting and dispositive control over securities owned by Dragon Venture
(Shanghai) Capital Management Co., Ltd. by virtue of his position as CEO of
Dragon Capital Group Corp. Dragon Venture (Shanghai) Capital Management Co.
Ltd.'s address is 335 Guo Ding Road, 2 Building, Suite 2009, Shanghai, China
200433.
  6           Mr. Aubel's
address is 4901 NW 17th Way,
Fort Lauderdale, FL 33309.
  7           Ms. Gong's
address is Room 501, No. 19 Lane, Tianshan Road, Shanghai,
20051
  ITEM
13.            CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
  From
time to time Mr. David Aubel, a principal shareholder of our company, has
provided funds to us to pay our operating costs. During 2007 Mr. David Aubel, a
principal shareholder of our company, paid $185,336 in our overhead costs. At
December 31, 2007 we owed him $2,373,179 under a note. The note, which bore
interest at 8% per annum, was due on demand and collateralized by all of our
assets. In 2007 we recorded interest of $201,583 on this note. During the first
quarter of 2008 he advanced us an additional approximate $138,000 for working
capital. Pursuant to the terms of the Share Exchange Agreement, on March 28,
2008 Mr. Aubel converted all amounts due him under the note as well as the
subsequent advances into 2,864,606 shares of our common stock.  We are
evaluating any rights we may have to seek damages against Mr. Aubel as a result
of the uncertainty as to the validity of the amount of the note
payable.
  From time
to time Shandong Jiajia enters into transactions with related parties,
including:
 
 At
December 31, 2007 Shandong Jiajia was owed $511,435  from Shandong
Huibo Import & Export Co., Ltd., a 24.3% shareholder of Shandong Jiajia.
 This loan is unsecured, non-interest bearing and due on
demand.
  At
December 31, 2007 Shandong Jiajia owed Mr. Xiangfen Chen, the general manager of
its Xiamin branch, $229,252 representing amounts loaned to it. This loan is
unsecured, non-interest bearing and due on demand. Shandong Jiajia used the
funds for general working capital.
  There
are no assurances that the terms of the transactions with these related parties
are comparable to terms we could have obtained from unaffiliated third
parties.
    Director
Independence
  Our sole
director is not an independent director within the meaning of Marketplace
Rule 4200 of The NASDAQ Stock Market.
  ITEM
14.            PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
  Sherb
& Co., LLP served as our independent registered public accounting firm for
2007 and 2006. The following table shows the fees that were billed for the audit
and other services provided by such firm for 2007 and 2006.
 
 2007
              
              2006Audit
      Fees
              
              $
              65,000
              
              $
              156,568Audit-Related
      Fees
              
              
              0
              
              
              0Tax
      Fees
              
              
              0
              
              
              0All
      Other Fees
              
              
              18,000
              
              
              0Total
              
              $
              83,000
              
              $
              156,568
  Audit Fees — This category
includes the audit of our annual financial statements, review of financial
statements included in our Form 10-QSB Quarterly Reports and services that
are normally provided by the independent auditors in connection with engagements
for those years. This category also includes advice on audit and accounting
matters that arose during, or as a result of, the audit or the review of interim
financial statements.
  Audit-Related Fees — This
category consists of assurance and related services by the independent auditors
that are reasonably related to the performance of the audit or review of our
financial statements and are not reported above under “Audit Fees.” The services
for the fees disclosed under this category include consultation regarding our
correspondence with the Securities and Exchange Commission and other accounting
consulting.
  Tax Fees — This category
consists of professional services rendered by our independent auditors for tax
compliance and tax advice. The services for the fees disclosed under this
category include tax return preparation and technical tax advice.
  31
 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 the auditors
with respect to year 2007 were pre-approved by our Board of
Directors.
  PART
IV
  ITEM
15.            EXHIBITS, FINANCIAL STATEMENT
SCHEDULES.
  The
following documents are filed as a part of this report or are incorporated by
reference to previous filings, if so indicated:
 
 Exhibit  
      No.
              
              Description3.1
              
              Articles
      of Incorporation (1)3.2
              
              Articles
      of Amendment (1)3.3
              
              Articles
      of Amendment (5)3.4
              
              Articles
      of Amendment (2)3.5
              
              Form of
      Articles of Amendment (10)3.6
              
              Bylaws
      (1)4.1
              
              Trilogy
      Capital Partners, Inc. Warrant Agreement dated June 1,
      2006(3)4.2
              
              Form of
      common stock purchase warrant issued to Mr. Chen *10.1
              
              Debt
      Conversion Agreement with David Aubel dated December 3, 2005
      (4)10.2
              
              Amendment
      to Debt Conversion Agreement with David Aubel dated May 15, 2006
      (6)10.3
              
              Consulting
      and Management Agreement dated May 22, 2007 with China Direct
      Investments, Inc. (7)10.4
              
              Consulting
      and Management Agreement dated September 5, 2007 with Capital One
      Resource Co., Ltd (8)10.5
              
              Acquisition
      Agreement dated as of December 31, 2007 between MediaREADY, Inc.,
      Shandong Jiajia International Freight & Forwarding (Logistics Co.)
      Ltd., and Messrs. Hui Liu and Wei Chen (2)10.6
              
              Finder's
      Agreement dated as of December 31, 2007 between MediaREADY, Inc. and
      Dragon Venture (Shanghai) Capital Management Co., Ltd.
  (2)10.7
              
              Consulting
      Agreement dated as of December 31, 2007 between MediaREADY, Inc. and
      China Direct, Inc. (2)10.8
              
              Form of
      Amendment to Acquisition Agreement dated as of January 28, 2008
      between MediaREADY, Inc., Shandong Jiajia International Freight &
      Forwarding Ltd., and Messrs. Hui Liu and Wei Chen
  (9)10.9
              
              Form of
      Amendment to Finder's Agreement dated as of January 28, 2008 between
      MediaREADY, Inc. and Dragon Venture (Shanghai) Capital Management Co.,
      Ltd. (9)10.10
              
              Form of
      Amendment to Acquisition Agreement dated as of March 13, 2008 between
      MediaREADY, Inc., Shandong Jiajia International Freight & Forwarding
      Ltd., and Messrs. Hui Liu and Wei Chen
(11)
 10.11
                
                Promissory
      Note dated January 1, 2003 between Video Without Boundaries, Inc. and
      David Aubel in the principal amount of $561,517.27 (incorporated herein by
      reference to Exhibit 10.11 filed as a part of the Company’s Form 10-Q
      filed with the Commission on December 22, 2008 (Commission File No.
      000-31497)).10.12
                
                Security
      Agreement dated May 23, 2001 between ValuSales.com, Inc. and David Aubel
      (incorporated herein by reference to Exhibit 10.12 filed as a part of the
      Company’s Form 10-Q filed with the Commission on December 22, 2008
      (Commission File No. 000-31497)).10.14
                
                Conversion
      Agreement effective as of March 20, 2008 between China Logistics Group,
      Inc. and David Aubel (incorporated herein by reference to Exhibit 10.14
      filed as a part of the Company’s Form 10-Q filed with the Commission on
      December 22, 2008 (Commission File No. 000-31497)).10.15
                
                Conversion
      Agreement effective as of March 20, 2008 between China Logistics Group,
      Inc. and V. Jeffrey Harrell (incorporated herein by reference to Exhibit
      10.15 filed as a part of the Company’s Form 10-Q filed with the Commission
      on December 22, 2008 (Commission File No.
  000-31497)).
 14.1
              
              Code
      of Business Conduct and Ethics *21.1
              
              Subsidiaries
      of the Registrant *31.1
              
              Section 302
      Certificate of Chief Executive Officer  **31.2
              
              Section 302
      Certificate of principal financial and accounting
      officer  **32.1
              
              Section 906
      Certificate of Chief Executive Officer and principal financial and
      accounting officer  **
  ———————
 *           previously
filed
 **           filed
herewith
  (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.
  32
 (3)           Incorporated
by reference to the Current Report on Form 8-K as filed on June 2,
2006.
  (4)           Incorporated
by reference to the Annual Report on Form 10-KSB for the  year
ended December 31, 2004.
  (5)           Incorporated
by reference to the Current Report on Form 8-K as filed on
September 27, 2006.
  (6)           Incorporated
by reference to the Quarterly Report on Form 10-QSB for the period ended
September 30, 2006.
  (7)           Incorporated
by reference to the Current Report on Form 8-K as filed on May 23,
2007.
  (8)           Incorporated
by reference to the Current Report on Form 8-K as filed on
September 10, 2007.
  (9)           Incorporated
by reference to the Current Report on Form 8-K as filed on January 31,
2008.
  (10)           Incorporated
by reference to the definitive information statement on Schedule 14C as filed on
February 14, 2008.
  (11)           Incorporated
by reference to the Current Report on Form 8-K as filed on March 18,
2008.
  
  33
  SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
 
 CHINA
      LOGISTICS GROUP, INC.Date:
      December 23, 2008
              By:
              /s/
      Wei ChenWei
      Chen, Chief Executive Officer and
President
  
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
 
 Signature
              
              Title
              
              Date/s/
      Wei Chen
              
              Chief
      Executive Officer, Principal Financial and Accounting Officer
      and director
              
              December
      23, 2008Wei
      Chen/s/
      Hui Liu
              
              Director
              
              December
      23, 2008Hui
      Liu
  
  34
  CHINA
LOGISTICS GROUP, INC.
  AND
SUBSIDIARIES
  FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
  INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
  CONTENTS
  
 
 Report
      of Independent Registered Public Accounting Firm
              
              F-2Consolidated
      Financial Statements:Consolidated
      Balance Sheets
              
              F-3Consolidated
      Statements of Operations
              
              F-4Consolidated
      Statements of Stockholders’ Deficit
              
              F-5Consolidated
      Statements of Cash Flows
              
              F-6Notes
      to Consolidated Financial Statements
              
              F-7
      to 21
  
 F-1
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Shareholders
and Directors
  China
Logistics Group, Inc.
  We have
audited the accompanying consolidated balance sheets of China Logistics Group,
Inc. and its subsidiary as of December 31, 2007 and 2006, and the related
consolidated statements of operations, stockholders’ equity and cash flows for
the years ended December 31, 2007 and 2006. These consolidated financial
statements are the responsibility of the company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal controls over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
  In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of China Logistics Group, Inc. and its
subsidiary as of December 31, 2007 and 2006, and the results of its
operations and its cash flows for the years ended December 31, 2007 and
2006 in conformity with accounting principles generally accepted in the United
States.
  The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 4 to the financial
statements, the Company has suffered recurring losses from operations, has net
cash used in operations, a net working capital deficiency, a stockholders’
deficiency and an accumulated deficit that raises substantial doubt about its
ability to continue as a going concern. Management’s plan in regard to these
matters is also described in Note 4. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
 The
accompanying financial statements have been restated to give effect to the
correction of an accounting error relating to the reverse acquisition on
December 31, 2007 (see Note 2).
  
 /s/ Sherb
      & Co., LLPCertified
      Public Accountants
  
  Boca
Raton, Florida
  March 31,
2008, except for Note 2, as to which the date is December 19, 2008.
  
 F-2
  CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 DECEMBER
31, 2007 AND 2006
 
 2007
              
              
              2006ASSETS
              
              Restated
              
              
              RestatedCurrent
      assets:Cash
              
              $
              1,121,605
              
              
              $
              822,908Accounts
      receivable, net of allowance for doubtful accounts of $794,715and
      $1,262,902 at December 31, 2007 and 2006,
respectively
              
              
              3,131,831
              
              
              
              1,903,884Accounts
      receivable - related party
              
              
              160,350
              
              
              
              -Deferred
      expenses
              
              
              5,450
              
              
              
              -Other
      receivables
              
              
              -
              
              
              
              181,060Due
      from related parties
              
              
              511,435
              
              
              
              282,559Prepayments
      and other current assets
              
              
              338,895
              
              
              
              14,828Total
      current assets
              
              
              5,269,566
              
              
              
              3,205,239Property
      and equipment, net
              
              
              46,622
              
              
              
              50,309Other
      assets:Intangible
      assets
              
              
              821
              
              
              
              -Deposits
              
              
              12,000
              
              
              
              4,683Total
      other assets
              
              
              12,821
              
              
              
              4,683Total
      assets
              
              $
              5,329,009
              
              
              $
              3,260,231LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilities:Cash
      overdraft
              
              $
              12,633
              
              
              $
              -Accounts
      payable – trade
              
              
              4,444,825
              
              
              
              2,733,055Accrued
      compensation – related party
              
              
              446,985
              
              
              
              -Other
      accruals and current liabilities
              
              
              343,301
              
              
              
              319,237Convertible
      note payable/related party
              
              
              2,373,179
              
              
              
              -Advances
      from customers
              
              
              683,436
              
              
              
              110,559Due
      to related parties
              
              
              229,252
              
              
              
              214,211Foreign
      tax payable
              
              
              36,117
              
              
              
              8,872Total
      current liabilities
              
              
              8,569,728
              
              
              
              3,385,934Minority
      interest
              
              
              670,510
              
              
              
              -Stockholders'
      deficit:Preferred
      stock - $.001 par value, 5,000,000 shares authorizedSeries
      A preferred stock - 1,000,000 shares issued and outstanding at
      December 31, 2007 and 2006, respectively
              
              
              1,000
              
              
              
              1,000Series
      B preferred stock - 1,295,000 and 120,000 shares issued and outstanding at
      December 31, 2007 and 2006, respectively
              
              
              1,295
              
              
              
              120Common
      stock - $.001 par value, 200,000,000 shares authorized, 4,999,041 and
      2,750,291 shares issued and outstanding at December 31, 2007 and
      2006, respectively
              
              
              4,999
              
              
              
              2,750Additional
      paid-in capital
              
              
              (3,379,049
              )
              
              
              863,175Accumulated
      deficit
              
              
              (313,084
              )
              
              
              (995,334
              )Accumulated
      other comprehensive (loss) income
              
              
              (226,390
              )
              
              
              2,586Total
      stockholders' deficit
              
              
              (3,911,229
              )
              
              
              (125,703
              )Total
      liabilities and stockholders' deficit
              
              $
              5,329,009
              
              
              $
              3,260,231
  The
accompanying notes are an integral part of these financial
statements
  F-3
 CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 
 2007
              
              
              2006Restated
              
              
              RestatedSales
              
              $
              35,298,453
              
              
              $
              30,311,924Cost
      of sales
              
              
              34,036,196
              
              
              
              30,884,771Gross
      profit (loss)
              
              
              1,262,257
              
              
              
              (572,847
              )Operating
      expenses:Selling
      expenses
              
              
              37,546
              
              
              
              35,350General
      administrative
              
              
              498,831
              
              
              
              617,432Bad
      debt expense
              
              
              -
              
              
              
              259,494Total
      operating expenses
              
              
              536,377
              
              
              
              912,276Income
      (loss) from operations
              
              
              725,880
              
              
              
              (1,485,123
              )Other
      income:Other
      income
              
              
              13,575
              
              
              
              18,588Interest
      income
              
              
              -
              
              
              
              224Total
      other income
              
              
              13,575
              
              
              
              18,812Income
      (loss) before income taxes and minority interest
              
              
              739,455
              
              
              
              (1,466,311
              )Foreign
      taxes
              
              
              (57,205
              )
              
              
              (10,389
              )Income
      (loss) before minority interest
              
              
              682,250
              
              
              
              (1,476,700
              )Minority
      interest in income of consolidated income
              
              
              334,302
              
              
              
              -Net
      income (loss)
              
              
              347,948
              
              
              
              (1,476,700
              )Other
      comprehensive income (loss):Foreign
      currency translation adjustments
              
              
              (228,976
              )
              
              
              12,754Comprehensive
      income (loss)
              
              $
              118,972
              
              
              $
              (1,463,946)Earnings
      (loss) per share:Basic
              
              $
              0.10
              
              
              $
              (0.63
              )Diluted
              
              $
              0.04
              
              
              $
              (0.63
              )Weighted-average
      number of shares outstandingBasic
              
              
              3,442,152
              
              
              
              2,329,307Diluted
              
              
              9,421,336
              
              
              
              2,329,307
  The
accompanying notes are an integral part of these financial
statements
  F-4
  CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 
   AccumulatedAccumulated
                
                
                OtherSeries
      A
                
                
                Series
      B
                
                
                
                
                
                
                
                
                Additional
                
                
                Retained
                
                
                ComprehensivePreferred
      Stock
                
                
                Preferred
      Stock
                
                
                Common
      Stock
                
                
                Paid-In
                
                
                Earnings
                
                
                IncomeShares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Capital
                
                
                (Deficit)
                
                
                (Loss)
                
                
                TotalRestated
                
                
                Restated
                
                
                Restated
                
                
                RestatedBalance
      December 31, 2005
                
                
                1,000,000
                
                
                
                1,000
                
                
                
                120,000
                
                
                
                120
                
                
                
                2,750,291
                
                
                
                2,750
                
                
                
                863,175
                
                
                
                481,366
                
                
                
                (10,168
                )
                
                
                1,338,243Net
      loss for the year
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,476,700
                )
                
                
                -
                
                
                
                (1,476,700
                )Foreign
      currency translation adjustments
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                12,754
                
                
                
                12,754Balance
      December 31, 2006
                
                
                1,000,000
                
                
                
                1,000
                
                
                
                120,000
                
                
                
                120
                
                
                
                2,750,291
                
                
                
                2,750
                
                
                
                863,175
                
                
                
                (995,334
                )
                
                
                2,586
                
                
                
                (125,703
                )Stock
      issued in reverse acquisition
                
                
                -
                
                
                
                -
                
                
                
                1,175,000
                
                
                
                1,175
                
                
                
                450,000
                
                
                
                450
                
                
                
                10,398,825
                
                
                
                -
                
                
                
                -
                
                
                
                10,400,450Recapitalization
      for reverse acquisition
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,798,750
                
                
                
                1,799
                
                
                
                (14,641,049
                )
                
                
                334,302
                
                
                
                -
                
                
                
                (14,304,948
                )Foreign
      currency translation adjustments
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (228,976
                )
                
                
                (228,976
                )Net
      income for the year
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                347,948
                
                
                
                -
                
                
                
                347,948Balance
      December 31, 2007
                
                
                1,000,000
                
                
                $
                1,000
                
                
                
                1,295,000
                
                
                $
                1,295
                
                
                
                4,999,041
                
                
                $
                4,999
                
                
                $
                (3,379,049
                )
                
                $
                (313,084
                )
                
                $
                (226,390
                )
                
                $
                (3,911,229
                )
    The
accompanying notes are an integral part of these financial
statements
  
 F-5
  CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
  For
      the Year EndedDecember
      31,2007
                
                
                2006CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                
                $
                347,948
                
                
                $
                (1,476,700
                )Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
      expense
                
                
                18,406
                
                
                
                1,129Minority
      interest
                
                
                334,302
                
                
                
                -Allowance
      for doubtful accounts
                
                
                68,149
                
                
                
                341,503Changes
      in assets and liabilities:(Increase)
      decrease in accounts receivable
                
                
                (1,029,756
                )
                
                
                148,724Decrease
      (increase) in other receivables
                
                
                114,158
                
                
                
                (62,468
                )(Increase)
      decrease in other assets
                
                
                (419
                )
                
                
                3,642Decrease
      in prepaid expenses and other current assets
                
                
                5,458
                
                
                
                6,014(Increase)
      in due to/from related parties
                
                
                (419,940
                )
                
                
                (44,775
                )Increase
      in accounts payable and accrued expenses
                
                
                532,859
                
                
                
                807,279(Decrease)
      in other payables
                
                
                (162,440
                )
                
                
                (37,138
                )Increase
      in taxes payable
                
                
                25,845
                
                
                
                3,713Increase
      in advances from customers
                
                
                421,333
                
                
                
                109,604NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
                
                
                255,903
                
                
                
                (199,473
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Capital
      expenditures
                
                
                (13,504
                )
                
                
                -Retirement
      of property and equipment
                
                
                -
                
                
                
                4,743NET
      CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
                
                
                (13,504
                )
                
                
                4,743EFFECT
      OF EXCHANGE RATE ON CASH
                
                
                56,298
                
                
                
                12,754NET
      INCREASE (DECREASE)  IN CASH
                
                
                298,697
                
                
                
                (181,976
                )CASH  -
      beginning of year
                
                
                822,908
                
                
                
                1,004,884CASH
      - end of year
                
                $
                1,121,605
                
                
                $
                822,908SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period for foreign taxes
                
                $
                31,361
                
                
                $
                10,389
  The
accompanying notes are an integral part of these financial
statements
  F-6
  CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  NOTE
1 – ORGANIZATION
  China
Logistics Group, Inc. (“we”, “us”, “our” or the “Company”) is a Florida
corporation and was incorporated on March 19, 1999 under the name of
ValuSALES.com, Inc. The Company changed its name to Video Without Boundaries,
Inc. on November 16, 2001. On August 31, 2006 the Company changed our
name from Video Without Boundaries, Inc. to MediaREADY, Inc. and on
February 14, 2008, the Company changed its name from MediaREADY, Inc. to
China Logistics Group, Inc.
  On
December 31, 2007 the Company entered into an acquisition agreement to
acquire a 51% interest in Shandong Jiajia International Freight & Forwarding
Co., Ltd (“Shandong Jiajia”) which was a private company incorporated in the
Peoples Republic of China (the “PRC”).  Prior to the acquisition
of a 51% interest in Shandong Jiajia, the Company was unable to successfully
penetrate the market for the production and distribution of interactive consumer
electronics equipment that provided streaming digital media and video on demand
(VOD) services.
  The
accompanying consolidated financial statements including the audited balance
sheet at December 31, 2007, statement of operations and  statements of
stockholders’ equity (deficit) have been restated to account for the acquisition
of a 51% interest in Shandong Jiajia as a capital transaction, implemented
through a reverse acquisition.  Accordingly, the historical cost basis
of the assets and liabilities of Shandong Jiajia have been carried forward and
the historical information presented, including the statements of operation,
statement of stockholders’ equity (deficit) and statements of cash flows, are
those of Shandong Jiajia.
  Shandong
Jiajia, formed in 1999 as a Chinese limited liability company, is an
international freight forwarder and logistics management company. Shandong
Jiajia, acts as an agent for international freight and shipping companies.
Shandong Jiajia sells cargo space and arranges land, maritime, and air
international transportation for clients seeking to import or export merchandise
from or into China.  Headquartered in Qingdao, Shandong Jiajia has
branches in Shanghai and Xiamen with two additional offices in Lianyungang and
Rizhao. Shandong Jiajia is a designated agent of cargo carriers including Nippon
Yusen Kaisha, P&O Nedlloyd, CMA CGM Group, Safmarine Container Lines, and
Regional Container Lines.
  The
accompanying consolidated financial statements include accounts of the Company
and its 51% owned subsidiary, Shandong Jiajia. Intercompany transactions and
balances have been eliminated in consolidation.  All share and per
share information contained in this report gives proforma effect to the 1 for 40
reverse stock split of the Company’s outstanding common stock effective at the
close of business on March 11, 2008.
 NOTE
2- RESTATEMENT OF FINANCIAL STATEMENTS AND BASIS OF PRESENTATION
 
 The
financial statements for the year ended December 31, 2007 have been restated to
correct the accounting treatment previously accorded certain
transactions.
  On May
19, 2008 the Company amended its Annual Report on Form 10-K/A for the year ended
December 31, 2007.  On May 14, 2008, the Company’s management
concluded that the consolidated financial statements for the year ended December
31, 2007, as initially filed on April 15, 2008, could no longer be relied upon
due to an error in these financial statements.  On May 19, 2008, we
restated our December 31, 2007 financial statements to recognize the fair value
of 450,000 shares of Series B preferred stock totaling $3,780,000 which we were
obligated to issue as partial compensation for consulting services rendered to
us in connection with the acquisition of a 51% interest in Shandong Jiajia which
was effective on December 31, 2007.
 
 F-7
 
 CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 Components
of this initial restatement are detailed in the following tables:
 
 Balance
sheet data as of December 31, 2007:
 
 AdjustmentAs Filed
              
              
              To Restate
              
              
              RestatedAccrued
      consulting fees
              
              $
              -
              
              
              $
              3,780,000
              
              
              $
              3,780,000$
              -
              
              
              $
              3,780,000
              
              
              $
              3,780,000
 
 Consolidated
statements of operations for the year ended December 31, 2007:
 
 AdjustmentAs Filed
              
              
              To Restate
              
              
              RestatedFair
      Value of equity instruments
              
              $
              6,644,900
              
              
              $
              3,780,000
              
              
              $
              10,424,900$
              6,644,900
              
              
              $
              3,780,000
              
              
              $
              10,424,900Net
      loss per common share
              
              $
              (.05
              )
              
              $
              (.03
              )
              
              $
              (.08
              )
  The
accounting recognition given these fees in the initial amendment to the
Company's Form 10-K/A, filed on May 19, 2007, was subsequently further amended
to recognize these fees as a direct cost of the transaction with Shandong
Jiajia, within the provision of Statement of Financial Accounting Standards
No.141,Business
Combinations,  rather than an expense item as initially
recorded.
 
 On
October 13, 2008 the Company’s management concluded that the consolidated
financial statements for the year ended December 31, 2007, as amended, and
quarterly periods ended March 31, 2008 and June 30, 2008 could no longer be
relied upon due to errors in these financial statements including related
disclosures.
  The
December 31, 2007 financial statements included in the Company’s Form 10-K filed
on April 15, 2008 and the Form 10-K/A filed on May 19, 2008 incorrectly
accounted for the Company’s acquisition of a 51% interest in Shandong Jiajia
using the purchase method of accounting.  The December 31, 2007
Financial Statements included in this report have been restated to account for
the transaction as a capital transaction, implemented through a reverse
acquisition, with Shandong Jiajia being recognized as the accounting acquirer
and the Company being recognized as the accounting
acquiree.  Accordingly, the cost basis of the assets and liabilities
of Shandong Jiajia were maintained in the consolidated financial statements and
the assets and liabilities of the Company then named MediaReady, Inc. prior
to the transaction are accounted for under the purchase method.  The
historical records presented in the financial statements included in this report
include the consolidated statements of operations, statements of stockholders’
deficit and statements of cash flows of Shandong Jiajia.
  Upon
further review, the Company also determined that we did not meet the definition
of a business under the guidance of EITF Issue 98-3 prior to the Company’s
acquisition of a 51% interest in Shandong Jiajia on December 31, 2007 but were a
public shell company as of the transaction date.  Under these
guidelines, no goodwill or other intangibles were recognized in the
transaction.  Further, as the transaction for accounting purposes was
considered the merger of a private operating company into a public shell
company, the transaction was viewed and treated as a capital transaction rather
than a business combination.
  In
addition, for the year ended December 31, 2007, the Company had incorrectly
classified as expenses certain costs related to the acquisition of a 51%
interest in Shandong Jiajia, with the fair value of these items recorded in the
statements of operations as fair value of equity instruments.  These
costs, totaling $6,644,900 set forth in the December 31, 2007 Financial
Statements included in the Company’s Form 10-K filed on April 15, 2008 and
$10,418,000 set forth in the Company’s December 31, 2007 Financial Statements
included in the Company’s Form 10-K/A filed on May 19, 2008, have been
reclassified as costs directly associated with the Company’s acquisition of a
51% interest in Shandong Jiajia under the provisions of Statement of Financial
Accounting Standard No.141.
  For all
periods presented, the Company has restated the commitment date and the
accounting and valuation methodology related to a convertible note payable to
David Aubel, a principal shareholder of the Company.  The calculations
and disclosures related to this convertible note were restated to recognize, on
a fair value basis, the intrinsic value of shares issued by us to Mr. Aubel as
repayment of the note.  The restatement treats the intrinsic value
recognized by us as a receivable from Mr. Aubel 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.
  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 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.
 All share
and per share information contained in this report gives retroactive effect to a
1 for 40 reverse stock split of the Company's outstanding common stock
which took place on March 11, 2008.
  The
presentation of financial statement in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statement and the reported amounts of
revenues and expenses during the reporting period.  Actual results
could differ from those estimates.
  F-8
 
 CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (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. It should be noted that while the Company’s operations
reflect profit for the nine month period ended September 30, 2008, the entire
amount of profit resulted from one-time transactions including $764,220 for the
forgiveness of debt and approximately $400,000 in recovery of bad debts
previously recognized as uncollectable. Additionally, the Company has a
minimal level of working capital totaling $4,257,135 at September 30, 2008, and
cash used in operations totaling approximately $895,000 during the nine months
ended September 30, 2008. 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. The Statement is to be effective for
financial statements for fiscal years beginning after November 15, 2007;
however, earlier application is encouraged. The Company is currently evaluating
the requirements of SFAS 157.
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities-including an amendment of FAS 115”
(“SFAS 159”). SFAS 159 allows entities to choose, at specified election dates,
to measure eligible financial assets and liabilities at fair value that are not
otherwise required to be measured at fair value. If a company elects the fair
value option for an eligible item, changes in that item’s fair value in
subsequent reporting periods must be recognized in current earnings. Statement
159 is effective for fiscal years beginning after November 15, 2007. The
Company is currently evaluating the requirements of SFAS 159.
  In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS
No. 141R"). SFAS No. 141R is a revision to SFAS No. 141 and
includes substantial changes to the acquisition method used to account for
business combinations (formerly the "purchase accounting" method), including
broadening the definition of a business, as well as revisions to accounting
methods for contingent consideration and other contingencies related to the
acquired business, accounting for transaction costs, and accounting for
adjustments to provisional amounts recorded in connection with acquisitions.
SFAS No.141R retains the fundamental requirement of SFAS No. 141 that
the acquisition method of accounting be used for all business combinations
and for an acquirer to be identified for each business combination.
SFAS No. 141R is effective for periods beginning on or after
December 15, 2008, and will apply to all business combinations occurring
after the effective date. The Company is currently evaluating the requirements
of SFAS No. 141R.
  In
December 2007, the FASB also issued SFAS No. 160, "Non-controlling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51, Consolidated Financial Statements". This Statement amends
ARB No. 51 to establish new standards that will govern the (1) accounting
for and reporting of non-controlling interests in partially owned consolidated
subsidiaries and (2) the loss of control of subsidiaries. Non-controlling
interest will be reported as part of equity in the consolidated financial
statements. Losses will be allocated to the non-controlling interest, and, if
control is maintained, changes in ownership interests will be treated as equity
transactions. Upon a loss of control, any gain or loss on the interest sold will
be recognized in earnings. SFAS No. 160 is effective for periods beginning
after December 15, 2008. The Company is currently evaluating the
requirements of SFAS No. 160.
  In
March 2008, FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. We are currently evaluating the impact of adopting SFAS No.161 on
our consolidated financial statements.
  Revenue
Recognition
 
 We
provide freight forwarding services generally under contract with our
customers.  Our business model involves placing our customers’ freight
on prearranged contracted transport.
 
 We follow
the guidance of the Securities and Exchange Commission’s Staff Accounting
Bulletin No. 104 in our revenue recognition policy.  In general, we
record revenue 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.
 
 F-9
 
 CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 Typically
our recognition of revenue is determined by our shipment/payment terms as
follows:
 
 ·
              When
      merchandise departs the shipper’s location when the trade pricing terms
      are CIF (cost, insurance and freight),·
              When
      merchandise departs the shipper’s location when the trade pricing terms
      are CFR (cost and freight cost), or·
              When
      the merchandise arrives at the destination port if the trade pricing terms
      are FOB (free on board)
destination.”
  Use
of Estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions, including estimates of the allowance for doubtful
accounts and stock based compensation, that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements. Estimates also affect the reported amounts of
revenue and expenses during the reported period. Actual results could differ
from those estimates.
  Stock
Based Compensation
  In
December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment",
which replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under
SFAS No. 123(R), companies are required to measure the compensation costs
of share based compensation arrangements based on the grant date fair value and
recognize the costs in the financial statements over the period during which
employees are required to provide services. Share based compensation
arrangements include stock options, share plans, performance based awards, share
appreciation rights and employee share purchase plans. In March 2005 the
Securities and Exchange Commission issued Staff Accounting Bulletin
No. 107, or “SAB 107”. SAB 107 expresses views of the staff regarding the
interaction between SFAS No. 123(R) and certain Securities and Exchange
Commission rules and regulations and provides the staff's views regarding the
valuation of share based payment arrangements for public companies. SFAS
No. 123(R) permits public companies to adopt its requirements using one of
two methods. On April 14, 2005, the Securities and Exchange Commission
adopted a new rule amending the compliance dates for SFAS 123R. Companies may
elect to apply this statement either prospectively, or on a modified version of
retrospective application under which financial statements for prior periods are
adjusted on a basis consistent with the pro forma disclosures required for those
periods under SFAS 123. Effective January 1, 2006, we fully adopted the
provisions of SFAS No. 123R and related interpretations as provided by SAB
107. As such, compensation cost is measured on the date of grant as the excess
of the current market price of the underlying stock over the exercise price.
Such compensation amounts, if any, are amortized over the respective vesting
periods of the option grant.
  Earnings
(Losses) Per Share
 
 Under the
provisions of SFAS 128, “Earnings Per Share”, basic
income (loss) per common share is computed by dividing income (loss) available
to common shareholders by the weighted average number of shares of common stock
outstanding for the periods presented. Diluted income per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that would then share in the income of the company,
subject to anti-dilution limitations.
 
 Potentially
issuable shares for the year ended December 31, 2006 were anti-dilutive and not
included in diluted earnings per share.
 
 Earning
per share presented for the years ended December 31, 2007 and 2006 have been
restated due to the reverse acquisition transaction with Shandong
Jiajia.  The retroactive restatement is based on historical average
number of weighted-average shares outstanding for the periods presented,
adjusted for shares underlying convertible securities issued in the reverse
acquisition transaction.
 Year
      endedDecember
      31,2007
                
                
                2006Numerator:Net
      Income (loss) applicable to common stockholders (A)
                
                $
                347,948
                
                
                $
                (1,476,700
                )Denominator:Denominator
      for basic earnings per shareWeighted
      average shares outstanding (B)
                
                
                3,442,152
                
                
                
                2,329,307Denominator
      for diluted earnings per shareTreasury
      Stock methodWarrants
                
                
                279,184
                
                
                
                --Series
      B preferred – unconverted
                
                
                5,700,000
                
                
                
                --Adjusted
      weighted average shares outstanding (C)
                
                
                9,421,336
                
                
                
                2,329,307Basic
      and Diluted Earnings Per Common Share:Earnings
      per share- basic (A)/(B)
                
                $
                0.10
                
                
                $
                0.63Earnings
      per share- diluted (A)/(C)
                
                $
                0.04
                
                
                $
                0.63
  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.
  Income
Taxes
  The
Company follows Statement of Financial Accounting Standards No. 109
“Accounting for Income Taxes” (SFAS No. 109). Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributed to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax base. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under SFAS
No. 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date. If it is more likely than not that some portion of a deferred tax asset
will not be realized, a valuation allowance is recognized.
  In
July 2006, the Financial Accounting Standard Board (FASB) issued FASB
Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income
Taxes”. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with SFAS NO.
109, “Accounting for Income Taxes”. FIN 48 requires a company to evaluate
whether tax position taken by a company will more likely than not be sustained
upon examination by the appropriate taxing authority. It also provides guidance
on how a company should measure the amount of benefit that the company is to
recognize in its financial statements. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006.
  The Company adopted FIN 48 as of
January 1, 2007. As a result of the implementation of FIN 48, the Company
concluded that it has not taken any uncertain tax positions on any of its open
income tax returns filed through the period ended December 31, 2006 that
would materially distort its financial statement. The Company’s methods of
accounting are based on established income tax principles approved in the
Internal Revenue Code (IRC) and are properly calculated and reflected within its
income tax returns.
  The Company re-assesses the validity of
its conclusions regarding uncertain income tax positions on a quarterly basis to
determine if facts or circumstances have arisen that might cause the Company to
change its judgment regarding the likelihood of a tax position’s sustainability
under audit. The impact of this reassessment for the year ended
December 31, 2007 did not have any impact on its results of operations,
financial conditions or liquidity.
  Cash
and Cash Equivalents
  The
Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
  F-10
 
 CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 Long-Lived
Assets
  The
Company periodically evaluates the carrying value of long-lived assets to be
held and used in the business, other than assets held for sale when events and
circumstances warrant, generally in conjunction with the annual business
planning cycle. If the carrying value of a long-lived asset is considered
impaired, a loss is recognized based on the amount by which the carrying value
exceeds the fair market value for assets to be held and used. Fair market value
is determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Long-lived assets to be disposed of other
than by sale are considered held and used until disposed of.
  Customer
Advances
  Prepayments
and advance deposits consist of prepayments by Shandong Jiajia for contracted
cargo that has not yet been shipped to the recipient and for other advance
deposits. These amounts are recognized as revenue as customers take delivery of
goods, in compliance with its revenue recognition policy. At December 31,
2007 and 2006 customer advances totaled $683,436 and $110,559,
respectively.
  Foreign
Currencies
  Transactions
and balances in other currencies are converted into U.S. dollars in accordance
with Statement of Financial Accounting Standard (SFAS) No. 52, “Foreign
Currency Translation”, and are included in determining comprehensive income or
loss.
  For
foreign operations with the local currency as the functional currency, assets
and liabilities are translated from the local currency into U.S. dollars at the
exchange rate prevailing at the balance sheet date. Revenues and expenses are
translated at weighted average exchange rates for the period to approximate
translation at the exchange rates prevailing at the dates those elements are
recognized in the financial statements. Translation adjustments resulting from
the process of translating the local currency financial statements into U.S.
dollars are included in determining comprehensive income or loss.
  The
reporting currency is the U.S. dollar. The functional currency of Shandong
Jiajia is the local currency, the Chinese dollar or Renminbi
(“RMB”).
  Comprehensive
Income
  We follow Statement of Financial
Accounting Standards No. 130 (SFAS 103) “Reporting Comprehensive
Income” to recognize the elements of comprehensive
income.  Comprehensive income is comprised of net income and all
changes to the statement of stockholders’ equity, except those due to
investments by stockholders, changes in paid-in capital and distributions to
stockholders.  Comprehensive income included net income and foreign
currency translation adjustments.
  Minority
Interest
  Under generally accepted accounting
principles when losses applicable to the minority interest in a subsidiary
exceed the minority interest in the equity capital of the subsidiary, the excess
is not charged to the majority interest since there is no obligation of the
minority interest to make good on such losses.  We, therefore,
absorbed all losses applicable to a minority interest where
applicable.  If future earnings do materialize, we shall be credited
to the extent of such losses previously absorbed.
  NOTE
5 – ACCOUNTS RECEIVABLE
  Accounts
receivable at December 31, 2007 and 2006, consisted of the
following:
 
 2007
              
              
              2006Trade
      receivables
              
              $
              3,926,546
              
              
              $
              3,166,786Less:
      allowance for doubtful accounts
              
              
              (794,715
              )
              
              
              (1,262,902
              )$
              3,131,831
              
              
              $
              1,903,884
  NOTE
6 - CONVERTIBLE NOTE PAYABLE-DAVID AUBEL, RELATED PARTY
 
 The Company has relied heavily on
advances from Mr. David Aubel, a principle shareholder of the Company, to fund
its operations.  Mr. Aubel has never held a position as an officer or
director of the Company.  Mr. Aubel has, over the years, executed a
number of convertible debt agreements and related amendments addressing the
collateral arrangements and repayment terms covering his
advances.  These agreements and related amendments, provided for the
repayment of these obligations through the issuance of common stock of the
Company at substantial discounts from the then prevailing market
price.
 
 On
December 3, 2005, the Company entered into an argument with Mr. Aubel which
provided for the conversion of his obligation:
 
 ·
              For
      the first and second quarters of 2005 at $0.01 per
  share;
 
 ·
              For
      the third quarter 2005 at 20% of the closing price on the date of
      conversion; and
 
 ·
              For
      the fourth quarter 2005 and beyond at 40% of the closing price on the date
      of conversion
 
  F-11
 
 CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 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, December 3, 2005, is as follows:
  Funds
advanced by Mr. Aubel:
  Funds
              
              
              IntrinsicYear
              
              Advanced
              
              
              Value2005
              
              $
              160,000
              
              
              $
              240,0002006
              
              
              1,730,168
              
              
              
              2,595,2512007
              
              
              874,164
              
              
              
              1,311,246$
              2,764,332
              
              
              $
              4,146,497
  A summary
of the intrinsic value of shares actually paid to Mr. Aubel against his note for
three years ended December 31, 2007 is as follows:
  Year
              
              Number
      of Shares Converted
              
              
              Amount
      of Note Reduction
              
              
              Intrinsic
      Value2005
              
              
              32,100,000
              
              
              $
              698,000
              
              
              $
              14,829,0002006
              
              
              23,700,000
              
              
              
              1,442,000
              
              
              
              2,319,0002007
              
              
              71,800,000
              
              
              
              1,751,720
              
              
              
              2,821,280Total
              
              
              127,600,000
              
              
              $
              3,894,720
              
              
              $
              19,969,280
  Based on
the Company’s review of the facts and circumstances surrounding the agreements
with Mr. Aubel and in connection with the restatement of the Company’s financial
statements, the Company believed the appropriate accounting treatment was to
record a receivable due from Mr. Aubel for the intrinsic value of the shares
tendered due to uncertainty as to the validity of the amount of the note payable
and the potential for a lack of consideration for the issuance of such
shares.  The receivable recorded was subsequently expensed as impaired
as collection was not reasonably assured.
  During
the first quarter of 2008, the Company issued Mr. Aubel 2,864,606 shares of its
common stock in full payment of the then $2,521,379 balance of his
note.  The shares issued to Mr. Aubel had a fair value $659,432 less
than the obligation settled.  This difference was recorded as a
contribution to capital rather than a gain on the debt settlement. We are
evaluating any rights we may have to seek damages against Mr. Aubel as a result
of the uncertainty as to the validity of the amount of the note
payable.
  NOTE
7 – PROPERTY AND EQUIPMENT
  Property
and equipment at December 31, 2007 and 2006, consisted of the
following:
 
 Useful
      Lives
              
              2007
              
              
              2006Computer
      equipment
              4
      years
              
              $
              228,707
              
              
              $
              -Software
              3
      years
              
              
              361,861
              
              
              
              -Furniture
      and equipment
              4-5
      years
              
              
              116,583
              
              
              
              82,812Total:
              
              
              
              707,151
              
              
              
              82,812Less:
      accumulated depreciation
              
              
              
              (660,529
              )
              
              
              (50,309
              )$
              46,622
              
              
              $
              50,309
  For the
years ended December 31, 2007, and 2006, depreciation expense totaled
$18,406 and $1,129, respectively.
  NOTE
8 – STOCK OPTIONS
  On
December 31, 2007 the Company granted three-year stock options to purchase
2,000,000 shares of common stock at an exercise price of $.30 per share as
partial consideration for the acquisition of a 51% interest in Shandong Jiajia.
The options were fully vested on the date of grant and are exercisable within 3
years of the date of grant at an exercise price of $0.30 per share.
  F-12
 
 CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 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%
  At
December 31, 2007 no options had been exercised.
  NOTE  9
– CONCENTRATION OF CREDIT RISK
  Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist principally of cash and trade accounts receivable. The Company
places its cash with high credit quality financial institutions in the United
States and China. As of December 31, 2007, bank deposits in the United
States did not exceed federally insured limits. At December 31, 2007, the
Company had deposits of $1,100,000 in banks in China. In China, there is no
equivalent federal deposit insurance as in the United States; as such these
amounts held in banks in China are not insured. The Company has not experienced
any losses in such bank accounts through December 31, 2007.
  NOTE
10 – FAIR VALUE OF FINANCIAL INSTRUMENTS
  The
Company’s financial instruments are cash, accounts receivable, accounts payable,
accrued expenses, accrued compensation, and notes payable. The recorded values
of cash, accounts receivable, accounts payable, accrued expenses, and accrued
compensation approximates their fair values based on their short-term nature.
The fair value of notes payable is based on current rates at which the Company
could borrow funds with similar remaining maturities, and the carrying amount
approximates fair value.
  NOTE
11 – REVERSE ACQUISITION
  On
December 31, 2007, the Company entered into an acquisition 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 under the purchase method.  The historical
records presented, which includes our consolidated statements of operations,
statements of stockholders’ deficit and statements of cash flows, are those of
Shandong Jiajia.
  Total
cost associated with Shandong Jiajia transaction:
 
 To
      Shareholders of Shandong Jiajia:Cash
      consideration
              
              $
              1,040,816Series A
      preferred stock (1,000,000
      shares)
              
              
              2,100,000Series B
      preferred stock (120,000 shares)
              
              
              960,000Options
      to purchase common stock
              
              
              480,0004,580,816Other
      CostsConsulting
      agreement with Capital One Resources (450,000 common
stock)
              
              
              548,000Consulting
      and acquisition finder agreement with Capital One Resources (450,000
      Series B preferred shares)
              
              
              3,780,000Finders
      agreement with Mr. Weindong Wong (35,000 Series B preferred
      shares)
              
              
              294,000Finders
      agreement with Dragon Venture (Shanghai) Capital Management Co. (240,000
      Series B preferred shares)
              
              
              2,016,000Consulting
      agreement with China Direct, Inc. (450,000 Series B preferred
      shares)
              
              
              3,780,000$
              14,998,816
  F-13
 
 CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 The value
of the Series A preferred stock and Series B preferred stock were
based on the fair value of the common stock to be issued upon conversion at
December 31, 2007 as follows:
  One share
of Series A preferred stock converts into 100 shares of common
stock
  One share
of Series B preferred stock converts into 400 shares of common
stock
  On
March 28, 2008 shareholders holding the Series A preferred stock
converted into 2,500,000 shares of common stock, no Series A preferred
stock remain outstanding. On March 28, 2008 shareholders holding the
Series B preferred stock issued to the shareholders of Shandong Jiajia
converted into 1,200,000 shares of the Company’s common stock.
  A
condensed balance sheet showing the amount assigned to each major asset and
liability caption of Shandong Jiajia at December 31, 2007 (transaction
date) is as follows:
 
 AssetsCash
              
              $
              1,121,390Accounts
      receivable
              
              
              3,131,831Due
      from related parties
              
              
              511,435Other
      assets
              
              
              365,4005,130,056LiabilitiesAccounts
      payable
              
              
              (3,580,822
              )Customer
      advances
              
              
              (683,436
              )Due
      to related parties
              
              
              (229,252
              )Other
      liabilities
              
              
              (308,974
              )(4,802,484
              )Net
      assets
              
              
              327,572Capital
      infusion
              
              
              1,040,816Total
      net assets after infusion
              
              $
              1,368,388
  Minority
interest recognized equaled $670,510 ($1,368,388 x 49%).
  NOTE  12 – STOCKHOLDERS’
EQUITY
  Share and per share figures in the
report have been retroactively restated to give effect to the reverse
split.
  On
April 5, 2006 the Company increased its authorized common stock from
100 million to 200 million shares and on March 11, 2008 further
increased its authorized common stock to 500 million shares and
additionally combined the common stock on the basis of one share for each forty
shares issued and outstanding.
  During
the year ended December 31, 2006 a related party, Mr. David Aubel,
converted $1,445,000 in convertible notes payable into 592,500 shares of common
stock at prices ranging $1.60 to $3.60 per share.
  During
the year ended December 31, 2006 the Company issued 3,625 shares of common
stock to third parties and employees for services rendered at prices ranging
$4.00 to $5.60 per share, for a total of $19,900.
  During
the year ended December 31, 2006 the Company recognized the fair market
value of 7,500 shares of common stock to be issued to an employee under an
employment agreement and expensed a total of $43,500 at $5.80 per share. On
April 11, 2007 the Company was released from all obligations under the
employment agreement.
  During
the year ended December 31, 2006 the Company recognized the estimated fair
market value of 2,500 stock warrants issued to an employee under an employment
agreement, using the Black Scholes model and expensed a total of $10,000 at
$4.00 per warrant share.
  During
the year ended December 31, 2006 the Company recognized the estimated fair
market value of 110,000 stock warrants to be issued to a third party under a
service agreement, using the Black Scholes model and expensed a total of
$396,000 at $3.60 per warrant share.
  F-14
 
 CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 During
the year ended December 31, 2007 the Company issued 1,000,000 of Series A
preferred stock to finance the purchase of a 51% interest in a company
incorporated in the People Republic of China at a fair value of $2.10 per share,
for a total of $2,100,000.
  During
the year ended December 31, 2007 the Company issued 120,000 shares of
Series B preferred stock as partial compensation in connection with the
acquisition of a 51% interest in Shandong Jiajia at $8.00 per share, for a total
of $960,000.
  During
the year ended December 31, 2007 in connection with the Shandong Jiajia
transaction the Company issued an additional 725,000 shares of Series B
preferred stock to third parties for services rendered at a fair value of $8.40
per share, for a total of $6,090,000.
  During
the year ended December 31, 2007 a related party, Mr. David Aubel,
converted $1,768,520 in convertible notes payable into 1,795,000 shares of
common stock at prices ranging $.280 to $2.00 per share.
  During
the year ended December 31, 2007 the Company president converted $193,500
in accrued compensation into 135,000 shares of common stock at $1.44 per
share.
  During
the year ended December 31, 2007 the Company granted stock options to
purchase 2,000,000 shares of common stock to finance the purchase of a 51%
interest in a company incorporated in the Peoples Republic of China, at a fair
value of $480,000.
  On
April 11, 2007 the Company was released from an obligation to issue 18,000
shares of common stock to an employee under an employment agreement.
Accordingly, during the year ended December 31, 2007 the Company reversed
the amounts expensed for the fair market value of the stock during the years
ended December 31, 2006, 2005 and 2004, respectively, for a total of
$221,100.
  During
the year ended December 31, 2007 in connection with the Shandong Jiajia
transaction, the Company recognized the fair market value of 200,000 shares of
common stock to be issued to a third party for services rendered at $.84 per
share, for a total of $168,000.
  During
the year ended December 31, 2007 the Company issued 2,500 shares of common
stock to an employee for services rendered at $2.60 per share, for a total of
$6,500.
  During
the year ended December 31, 2007 the Company issued 328,750 shares of
common stock to third parties for services rendered at prices ranging $1.48 to
$4.40 per share, for a total of $606,950.
  During
the year ended December 31, 2007 the Company cancelled 12,500 shares held
in treasury at $15.00 per share, for a total of $187,500.
  On
March 11, 2008 the Company increased its authorized preferred stock from
5 million to 10 million shares.
  The
number of shares of Series A preferred stock shall be limited to 1,000,000,
with a par value of $.001 per share. In the event of any liquidation,
dissolution or winding up of the Company the holders are entitled to receive,
out of legally available assets, a liquidation preference of $.001 per share,
and no more, before any payment or distribution is made to the holders of the
Company’s common stock. Holders shall have 250 votes per share and will be
entitled to vote on any and all matters brought to a vote of stockholders of
common stock. Each share is convertible into 100 shares of common
stock.
  The
number of shares of Series B preferred stock shall be limited to 1,295,000,
with a par value of $.001 per share. In the event of any liquidation,
dissolution or winding up of the Company the holders are entitled to receive,
out of legally available assets, a liquidation preference other than to the
Series A Preferred  holders of $.001 per share, and no more, before
any payment or distribution is made to the holders of the Company’s common
stock. Holders shall have no votes per share except as otherwise provided by
law. Each share is convertible into 400 shares of common stock.
  On
March 28, 2008 all outstanding Series A preferred stock and
Series B preferred stock were converted into common stock, no Series A
preferred stock or Series B preferred stock remain
outstanding.
  NOTE
13  – RELATED PARTIES
  During
the years ended December 31, 2007 and 2006 the Company expensed $200,000 in
each year for the salary of the President. At December 31, 2007 a total of
$446,985 for the period January 1, 2002 through December 31, 2007 was
unpaid and has been accrued under current liabilities. Additionally, during the
year ended December 31, 2007 a total of $193,500 in accrued salary was
converted into 135,000 shares of common stock.
  F-15
 
 CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 On
December 31, 2007, the Company was due $511,435 from Shandong Huibo Import
& Export, Ltd., a 24.3% shareholder in Shandong Jiajia.   The loans
were unsecured, non-interest bearing and repayable on demand.
  On
December 31, 2007, the Company had an amount of $229,252 due to Xiangfen
Chen who is the general manager of Shandong Jiajia Xiamen branch. The loans were
unsecured, non-interest bearing and repayable on demand. Shandong Jiajia used
the funds for general working capital.
  On
December 31, 2007, the Company had a commitment to Xiangfen Chen for the
lease of the Company's branch office in Xiamen City, China, totaling $1,459 per
year.
  There are
no assurances that the terms of the transactions with these related parties are
comparable to terms the Company could have obtained from unaffiliated third
parties.
  NOTE   14
– INCOME TAXES
  The
Company’s subsidiary Shandong Jiajia incorporated and operating in China is
governed by the Income Tax Law of the People’s Republic of China concerning
Foreign Investment Enterprises and Foreign Enterprises and local income tax laws
(the “PRC Income Tax Law”). Pursuant to the PRC Income Tax Law, wholly-owned
foreign enterprises are subject to tax at a statutory rate of 33% (30% state
income tax plus 3% local income tax). Commencing January 2008, the PRC Income
Tax rate was reduced to a maximum of 25% (inclusive of state and local income
taxes) for all companies.
 
 The
components of income (loss) before income tax consist of the
following:
 
 Year
      Ended December 31,2007
                
                
                2006US
      Operations
                
                $
                -
                
                
                $
                -Chinese
      Operations
                
                
                739,455
                
                
                
                (1,466,311
                )$
                739,455
                
                
                $
                (1,466,311
                )
 
 The
components of the provision (benefit) for income taxes are as
follows:
 
 Year
      Ended December 31,2007
                
                
                2006US
      Operations
                
                $
                -
                
                
                $
                -Chinese
      Operations
                
                
                57,205
                
                
                
                10,389$
                57,205
                
                
                $
                10,389
 
 The table
below summarizes the reconciliation of the Company’s income tax provision
(benefit) computed at the statutory U.S. Federal rate and the actual tax
provision:
 
 Year
      Ended December 31,2007
                
                
                2006Income
      tax provision (benefit) at Federal statutory rate
                
                $
                259,000
                
                
                $
                (513,000
                )State
      income taxes, net of Federal Benefit
                
                
                34,000
                
                
                
                (67,000
                )Permanent
      differences
                
                
                -
                
                
                
                -U.S.
      tax rate in excess of foreign tax rate
                
                
                (49,000
                )
                
                
                97,000Abatement
      of foreign income taxes
                
                
                (187,000
                )
                
                
                494,000Tax
      provision (benefit)
                
                $
                57,000
                
                
                $
                11,000
 
 The
Company has a net operating loss (“NOL”) carryforward for United States income
tax purposes at December 31, 2007 and 2006 expiring through the year 2027. The
utilization of the Company’s NOL’s may be limited because of a possible change
in ownership as defined under Section 382 of Internal Revenue Code.
 
 On
December 31, 2007 the Company acquired a 51% interest in Shandong Jiajia, a PRC
company. This acquisition was treated as a recapitalization of the Company, with
Shandong Jiajia recognized as the accounting acquirer. Accordingly, the tax
provisions recorded above are those of Shandong Jiajia. The Company’s US parent,
China Logistics Group, Inc., are not reflected in the above tax
calculations.
 
 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 asset are included below and have been fully
reserved with a valuation allowance as management of the Company has not
determined if realization of these assets are to occur in the future. In
addition, management has determined that the acquisition of 51% of Shandong
Jiajia might have limited the utilization of the Company’s NOL for US Federal
and State income tax purposes, due to a possible change in ownership as defined
under Section 382 of Internal Revenue Code.
 
 The
Company’s deferred tax assets as of December 31, 2007 and 2006 are as
follows:
 
 December
      31,2007
                
                
                2006Federal
      net operating loss carryforward
                
                $
                3,700,000
                
                
                $
                3,500,000State
      net operating loss carryforward
                
                
                600,000
                
                
                
                55,000Provisions
                
                
                -
                
                
                
                545,000Timing
      differences
                
                
                167,000
                
                
                
                246,0004,467,000
                
                
                
                4,841,000Valuation
      allowance
                
                
                (4,467,000
                )
                
                
                (4,841,000
                )Tax
      provision (benefit)
                
                $
                -
                
                
                $
                -
 F-16
 
 CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (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 fiscal years
beginning after December 15, 2006.
  The
Company adopted FIN 48 as of January 1, 2007. As a result of the
implementation of FIN 48, the Company concluded that it has not taken any
uncertain tax positions on any of its open income tax returns filed through the
period ended December 31, 2006 that would materially distort its financial
statement. The Company’s methods of accounting are based on established income
tax principles approved in the Internal Revenue Code (IRC) and are properly
calculated and reflected within its income tax returns.
  The
Company re-assesses the validity of its conclusions regarding uncertain income
tax positions on a quarterly basis to determine if facts or circumstances have
arisen that might cause the Company to change its judgment regarding the
likelihood of a tax position’s sustainability under audit. The impact of this
reassessment for the year ended December 31, 2007 did not have any impact
on its results of operations, financial conditions or liquidity.
  NOTE
15  – COMMON STOCK WARRANTS
  At
December 31, 2007 and 2006, the Company had outstanding warrants to
purchase 110,000 and 7,500 shares of common stock, at an exercise price of
$6.80  and $52.00  per warrant share, respectively. The
Company adopted the provisions of SFAS No. 123R to compute an estimated
fair value of $527,000 for the stock warrants using the “Black Scholes” model at
December 31, 2007 and 2006 and reserved 117,500 shares for the exercise of
the stock warrants. The following assumptions were made in estimating fair
value:
 
 Risk-free
      rate
              4.45%Volatility
              96%
  The
following table summarizes the stock warrant activity:
 
 Number
      of
                Shares2004Warrants
      granted (five year term expiring April 2, 2009)
              
              
              2,500Warrants
      exercised
              
              
              —2005Warrants
      granted (five year term expiring April 2,
      2010)
              
              
              2,500Warrants
      exercised
              
              
              —2006Warrants
      granted (three year term expiring May 15, 2009)
              
              
              110,000Warrants
      exercised
              
              
              —2006Warrants
      granted (five year term expiring April 2, 2011)
              
              
              2,500Warrants
      exercised
              
              
              —117,500
  NOTE
16 – COMMITMENTS
  On
June 1, 2007 Shandong Jiajia entered into a one year lease with a
shareholder of Shandong Jiajia for a property in the Peoples Republic of
China. The base annual rental is $37,585 per annum.
  On
November 1, 2003 the Company entered into a sixty two month lease of a
property in the Peoples Republic of China at a base rent of $18,863 per
annum
  F-17
 
 CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 The
following is a schedule of minimum future rentals on the operating
leases:
 
 Year
      ending December 31, 2008
              
              
              $
              62,533
  On
April 2, 2004 the Company entered into a three-year employment agreement
with its Chief Technology Officer, with automatic one-year extensions after the
expiry of the initial term. The terms of the agreement called for a minimum
salary of $180,000 per annum. The agreement also provided for a signing on bonus
of $50,000, a minimum annual bonus equal to the lesser of the base salary or 15%
of the gross profit as agreed or determined in accordance with generally
accepted accounting principles, and participation in other compensation plans
and programs for the Company’s senior executives. The agreement further called
for the issue of 100,000 shares of common stock upon the signing of the
agreement and a further 150,000 shares of common stock to be vested and
delivered in fifty thousand share lots in three equal installments through the
first year following the execution of the agreement. Under the agreement 100,000
and 150,000 shares had been issued during the years ended December 31, 2005
and 2004, respectively. At each anniversary of the effective date the Company
was required issue the executive five-year warrants to purchase at least 100,000
shares of common stock, with the exercise price being set within the 30 days
prior to each anniversary. The Company elected not to renew the contract after
the April 2007 expiration date.
  On
August 15, 2004 the Company entered into a three-year employment agreement
with its Executive Vice-President – Sales and Marketing, with automatic one-year
extensions after the expiration of the initial term. The terms of the agreement
called for a minimum annual salary of $150,000 per annum. The agreement also
provided for a minimum annual bonus of between 50% and 100% of base salary based
on certain criterion to be agreed between the executive and the Company, and a
further bonus of 2% of the gross profit of the Company as agreed or determined
in accordance with generally accepted accounting principles. The agreement
further called for the issue of 120,000 shares of common stock upon signing of
the agreement. At each anniversary of the effective date the Company was
required to issue the executive 300,000 shares of common stock for the
three-year period of his employment. On April 11, 2007 the Company was
released from all obligations under the employment agreement.
  In
December 2007 we entered into a consulting agreement with China Direct
Investments, Inc., a subsidiary of China Direct, Inc., under which we are
obligated to issue 450,000 shares of our Series B preferred stock, valued at
$3,780,000, as compensation for its services to us in conjunction with the
transaction pursuant to the terms of a consulting agreement entered into in
December 2007.  Upon issuance, these shares of Series B preferred stock
will be immediately convertible into 4,500,000 shares of our common
stock.
  NOTE
17 – REGIONS
  The table
below presents information by operating regions for the year ended
December 31, 2007.
 
 Sales
              
              
              Net
      AssetsUnited
      States
              
              $
              —
              
              
              $
              198,953Peoples Republic
      of China
              
              
              35,298,453
              
              
              
              5,130,056$
              35,298,453
              
              
              $
              5,329,009
  For the
year ended December 31, 2006 all operations were within the
Peoples Republic of China.
  NOTE
18 – CONTINGENCIES
  On
August 11, 2004 (with an effective date of June 1, 2004) the Company
entered into a stock purchase agreement with Mr. James Joachimczyk, the
sole shareholder of Graphics Distribution, Inc., a privately held company
engaged in the business of selling and distributing electrical products. The
principal terms of the agreement provide for the Company to acquire all of the
issued and outstanding shares of the acquired entity for a purchase price of
$1,500,000 plus the issuance of 1,000,000 common stock shares in the acquiring
entity. Additional considerations included in this stock purchase agreement
require the Company to collateralize an existing line of credit in the amount of
$2,500,000 as well as retain the services of the selling shareholder, pursuant
to a consulting agreement dated August 11, 2004, for a term consistent with
the fulfillment of the stock purchase agreement. The Company, at time of
closing, gave its initial deposit of $350,000, but has defaulted on the
remaining balance due and is also in default of the collateralization
provision.
  Management
has written off the deposit of $350,000 and the seller has informally agreed to
forbear from any action at this time. Management anticipates, but cannot assure
that a settlement will be forthcoming and that the Company loss will consist of
their forfeited deposit. On December 31, 2007, David Aubel, a principal
shareholder of the Company personally guaranteed any and all liabilities
resulting from the stock purchase agreement.
  We are
evaluating any rights the Company may have to file a lawsuit against Mr. Aubel
as a result of the uncertainty as to the validity of the amount of the note
payable in the amount of $2,521,379 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.
  F-18
 
 CHINA
LOGISTICS GROUP, INC.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 NOTE
19 – SUBSEQUENT EVENTS
  In
March 2008 we issued Mr. Harrell, our CEO, 581,247 shares of our
common stock in satisfaction of approximately $419,000 of accrued compensation
due him. Mr. Harrell is an accredited investor and the issuance was exempt
from registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
  In
March 2008 we also issued to Mr. David Aubel, a principle shareholder of
the Company 2,864,606 shares of our common stock in satisfaction of a $2,521,379
convertible note and loan due to him from the Company. Mr. Aubel, is an
accredited investor and the issuance was exempt from registration under the
Securities Act of 1933 in reliance on an exemption from registration provided by
Section 4(2) of that act.
  In
March 2008 the holders of shares of our Series A Convertible preferred
stock and Series B Convertible preferred stock converted those shares into
shares of our common stock pursuant to the designations, rights and preferences
of those securities, including:
  ·           three
individuals, who included Messrs. Wei Chen and Hui Liu, minority
shareholders, officers and directors of Shandong Jiajia, who owned 1,000,000
shares of our Series A Convertible preferred stock converted those shares
into an aggregate of 2,500,000 shares of our common stock; and
  ·           three
individuals and two entities, which included Mr. Chen, who owned 725,000
shares of Series B Convertible preferred stock converted those shares into
an aggregate of 8,450,000 shares of our common stock.
   F-19