SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549


______________




FORM
10-K




þANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For
the fiscal year ended December 31, 2008





 ̈TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For
the transition period from ______ to ______.




Commission
file number: 000-52625





CHINA AUTO LOGISTICS
INC.


(Exact
Name of Registrant as Specified in Its Charter)




Nevada
              
              20-2574314(State
      or Other Jurisdiction of
              
              (I.R.S.
      Employer Identification No.)Incorporation
      or Organization)





No.
87 No. 8 Coastal Way, Floor 2, Construction Bank, FTZ


Tianjin
Province, The People’s Republic of China  300461


(Address
of principal executive offices, Zip Code)




(86)
22-2576-2771


(Registrant’s
telephone number, including area code)




Securities
registered pursuant to Section 12(b) of the Act:




None.




Securities
registered pursuant to Section 12(g) of the Act:




Common
Stock, par value $0.001 per share





Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.Yes ̈Noþ





Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934.Yes ̈Noþ





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.YesþNo ̈





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 registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated
      filer ̈
            Accelerated
      filer ̈Non-accelerated
      filer ̈
            Smaller
      reporting company þ





Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).Yes ̈Noþ





As
of November 11, 2008*, the aggregate market value of the registrant’s common
stock held by non-affiliates of the registrant was $53,395,000 based on the
closing price as reported on the Over the Counter Bulletin Board.





*The
Company did not have any trading activity as of the last business day of its
most recently completed second fiscal quarter. November 11, 2008 represents the
first day following the last business day of the Company’s most recently
completed fiscal quarter where the Company had trading activity.





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.





Class
              
              Outstanding
      at March 26, 2009Common
      Stock, $.001 par value per share
              
              18,100,000
      shares







PART
I





Item 1.
            Business.




Introduction





On
November 10, 2008 (the “Closing”), Fresh Ideas Media,
Inc. (“USCo”) entered
into a Share Exchange Agreement (the “Exchange Agreement”) with Ever
Auspicious International Limited, a Hong Kong company (“HKCo”) and Bright Praise
Enterprises Limited, a British Virgin Islands company and the sole shareholder
of HKCo (the “Stockholder”), pursuant to
which USCo acquired all of the issued and outstanding capital stock of HKCo, an
inactive holding company, from the Stockholder in exchange for 11,700,000
newly-issued shares of USCo’s common stock, representing approximately 64.64% of
USCo’s issued and outstanding common stock (the “Exchange”).  The
closing of the Exchange Agreement occurred on the same day, immediately
following the cancellation of an aggregate of 1,135,000 shares of USCo’s common
stock held by Phillip E. Ray and Ruth Daily, USCo’s principal stockholders
immediately prior to the Closing, which was a condition of the
Closing.  As a result of the Exchange, HKCo became USCo’s wholly owned
subsidiary.  USCo’s primary business operations are those of HKCo.
Shortly after the closing, USCo changed its name to China Auto Logistics Inc.
(the “Company”).




The
following is disclosure regarding the Company, its wholly owned operating
subsidiary Tianjin Seashore New District Shisheng Business Trading Group Co.
Ltd. (formerly Tianjin Shisheng Investment Group Co. Ltd.) (“Shisheng”), a company formed
under the laws of the People’s Republic of China (the “PRC” or “China”) and doing business in
the PRC, and Shisheng’s three majority owned operating subsidiaries, Tianjin
Hengjia Port Logistics Corp. (“Hengjia”), Tianjin Ganghui
Information Technology Corp. (“Ganghui”), and Tianjin Zhengji
International Trading Corp. (“Zhengji”), each of which is a
company formed under the laws of the PRC and doing business in the
PRC.




Except as
otherwise indicated by the context, references in this Report to “we,” “us,”
“our,” or the “Company” are to the consolidated business of the Company,
Shisheng, Hengjia, Ganghui and Zhengji (or, with respect to periods prior to the
Closing but after the Zhengji Consolidation (as defined below), to the
consolidated business of Shisheng, Hengjia, Ganghui and Zhengji; or, with
respect to periods prior to the Zhengji Consolidation, to the consolidated
business of Shisheng, Hengjia, and Ganghui), except such terms, when used with
reference to the audited consolidated financial statements and related notes
contained elsewhere in this Report or in the “Selected Consolidated Financial and
Other Data” Section or “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” Section, are to the
consolidated business of Shisheng, Hengjia, Ganghui and (if with respect to
periods after the Zhengji Consolidation) Zhengji.


1


General





Our
primary business is to provide a high quality comprehensive imported automobile
sales and trading service and a web-based automobile sales and trading
information platform to our customers.  In addition to sales of
imported automobiles, which consisted of more than 95% of our revenues generated
in the last full fiscal year, Shisheng, through its majority owned subsidiary
Hengjia, provides customized services such as financing services (“Financing Services”) and
customs clearance, storage and nationwide delivery services (“Automobile Import Value Added Services”) to
imported automobile distributors and agents as well as individual customers in
China.  Shisheng, through its majority owned subsidiary Ganghui, also
operates two websites which provides subscribers with up-to-date sales and
trading information for imported and domestically manufactured
automobiles.  Our mission is to be a one-stop shop for our customers
in providing valuable pre- and post-sale services and information for imported
and domestically manufactured automobiles.




From
Shisheng’s founding in 1995, we have continued to build our customer base for
imported automobiles to more than 3,000 stable customers throughout
China.  We are currently the only one-stop service provider in Tianjin
for Financing Services and Automobile Import Value Added Services.  We
also offer two websites: (a) www.1365car.com
provides quotes and other information on domestically manufactured automobiles
in Tianjin and averages more than one million visitors per day, with a single
day record of six million; and (b) www.at188.com
provides information on imported automobiles for the industry and individuals
and boasts a fee-based membership of more than 90% of the automobile dealers and
agents in Tianjin.




Our
executive offices are located in Tianjin, which is one of the largest port
cities in China and the entry point for over half of China’s imported
vehicles.  By our internal calculations, we currently have
approximately 20% to 25% of the market for imported automobiles in
Tianjin.  Beginning in the year 2000, we began providing both
Financing Services and Automobile Import Value Added Services to automobile
dealers and agents.  The Company had 90% of the combined market share
for Financing Services and Automobile Import Value Added Services in 2008, and
the Company’s revenue generated from Financing Services increased 22.12%, as
compared to 2007.




History
and Organizational Structure




In
September 1995, Shisheng was founded by Mr. Tong Shiping and his family as a
private company under the name “Tianjin Tariff-Free Zone Shisheng Property
Management Corp.”.  Its core business was selling the domestically
manufactured automobile model CHARADE, which had 10% of the automobile market
share in China between 1995 and 2000.  With increased popularity of
imported cars and the maturation of the Internet, the company switched its core
business to the sale of imported automobiles and was subsequently renamed
“Tianjin Shisheng Investment Group Co. Ltd”.




In August
2001, Shisheng formed Ganghui to provide web-based, real-time information on
imported automobiles.  Ganghui is 80% owned by Shisheng and 20% owned
by Bian Guiying.




In
September 2003, Shisheng formed Hengjia to provide Financing Services and
Automobile Import Value Added Services to wholesalers and distributors in the
imported vehicle sales and trading industry.  Hengjia is 80% owned by
Shisheng, with the remainder of Hengjia’s equity interest owned by Yang Jitian,
Cheng Beiting, and Qian Lige.




In
February 2005, Shisheng and three other founders formed Zhengji to enhance our
presence in the imported automobile sales and trading industry.  In
January 2007, Shisheng injected additional capital of $1,024,498 (equivalent to
RMB 8,000,000) into Zhengji; consequently, Shisheng’s equity interest in Zhengji
increased from 32% to 86.4%, and Zhengji’s financial results were consolidated
into those of Shisheng (the “Zhengji Consolidation”)
effective January 1, 2007.  The remainder of Zhengji’s equity
interests is owned by Yang Bin (a Senior Vice President and director nominee of
the Company), Qian Shuqing and Zhou Shanglan.


2


On
October 17, 2007, the Company, a wholly owned subsidiary of Bright Praise
Enterprises Limited, was incorporated in Hong Kong to act as a holding company
for Shisheng.  On November 1, 2007, the Company entered into a Share
Exchange Agreement with Cheng Weihong, Xia Qiming, and Qian Yuxi (collectively,
the “Sellers”), pursuant
to which the Sellers transferred their interest in Shisheng to the Company for
an aggregate purchase price of $12,067,254(RMB
95,000,000).  As a result of this transaction, the Company owns all of
the capital stock of Shisheng.  In connection with this transaction,
Shisheng changed its name from “Tianjin Shisheng Investment Group Co. Ltd.” to
“Tianjin Seashore New District Shisheng Business Trading Group Co.
Ltd.”




Bright
Praise Enterprises Limited is 100% owned by Mr. Choi Chun Leung
Robert.  Mr. Choi is not involved in the management of
Shisheng.




Industry
Overview




Over the
past 30 years, China has experienced a significant improvement in its standard
of living.  According to the State Statistics Bureau, China’s GDP
growth was 9% and China contributed over 20% to the world wide economy in 2008.
China’s GDP has leaped to fourth in the world, and China’s automobile market is
second only to that of the United States.  China now accounts for 12%
of worldwide automobile purchases.




A
burgeoning middle class and upper-middle class have emerged as a result of
China’s rapid economic growth.  For these groups, automobiles serve
not only as modes of transportation but also as status
symbols.   As a result, imported automobiles, particularly luxury
automobiles like the Mercedes Benz, BMW, Lexus and Land Rover, are in high
demand.  In 2008, a total of 410,000 imported automobiles were sold in
China, a 31% increase from the 313,000 imported automobiles cold in China in
2007. The value of imported automobile sold increased 41.65% to 15.12 billion in
2008. Imported automobiles represent 4.37% of cars sold in China in
2008.




In 1992,
total production of Chinese domestic automobiles exceeded one million, and by
2000, the annual production of Chinese domestic automobiles exceeded two
million.   Since then, the industry has maintained an annual
growth rate exceeding 15%.  However, 80% of Chinese manufactured
automobiles are focused on the low- to mid-priced market with only 20%
classified as luxury models, and a lack of emphasis in research and development
by domestic manufacturers has restricted the speed of domestic manufacturers in
launching new models. Demand for components and parts is also underserved as the
capital invested in components and parts production is less than 30% of the
total industry investment.  Nevertheless, in 2000, Chinese average
annual income exceeded $1,000 for the first time, an indicator that Chinese
families were beginning to have sufficient capital for automobile
purchases.




In
November 2001, China became a member of the World Trade Organization (the “WTO”).  Due to the
Chinese government’s trade restrictions, imported automobiles did not flood into
the Chinese market, thereby creating an opportunity for the development and
growth of the domestic automobile manufacturing industry.  The result
has been a steady increase in the sales of Chinese manufactured automobiles, not
only to the domestic market, but also into the international
market.  The Chinese government utilized new taxation rules on
imported automobiles beginning in 2005, which included adjustments on automobile
retail and import taxation.  According to the China Association of
Automobile Manufacturers and a May 2008 report from Research and Markets, a
total of 8.88 million automobiles were sold in China in
2007.  Approximately 313,000 vehicles, or 3.52%, of this total were
imported.


3


Despite
the recent global economic downturn and an increase in the Chinese import tax on
automobiles, China has a demonstrated continuous strong growth in both imported
and domestic automobiles. Imported luxury cars recorded 17% growth, as compared
to 2007. Mercedes Benz sold 38,700 cars, a 44% increase from 2007, making China
the highest growth market for Mercedes Benz worldwide. BMW and Mini also
achieved 28% growth rate in 2008, with a total of 65,822 automobiles sold in
China. Lexus, another brand, experienced a growth rate of 30% and sold 31,000
automobiles in China, allowing China to surpass Japan as the second largest
market for Lexus worldwide. Although there are reports that have negative
projections for the imported luxury automobile market in China for 2009, 3
automobile companies have plans to continue to expand in China. Mercedes Benz
stated that they plan on launching 20 vehicle models in China this year, BMW
will put additional efforts into the Chinese market and Lexus plans on
introducing 25 new dealer shops in China.





A total
of 9.38 million automobiles were sold in China in 2008, an increase of 5.63%
from 2007. It was also the first time in a decade that the Chinese automobile
market has had a one digit growth rate. In the United States, a total of 13.2
million automobiles were sold, representing a 21% decrease from automobiles sold
in 2007. In January of 2009, China, for the first time, surpassed the United
States to become the leading automobile market worldwide with a total of 790,000
cars sold, as compared to 658,000 sold in the United States. In February, China
sold a total of 827,600 automobiles, a 24.72% increase from the amount sold
during the comparable period in 2007, as compared to 689,000 sold in the United
States, a 41.3% decline from the amount sold during the comparable period in
2007.





The
Chinese automobile market is highly competitive for both imported and
domestically manufactured automobiles.  The ten largest manufacturers
in the domestic market sold 3.56 million sedans in 2008, representing 38% of
total car sales. Five of the ten largest manufacturers increased their growth
rate by two digits. Faw Volkswagen and Shangai Volkswagen, ranked as the two
biggest sellers, respectively, in China, each sold about a half million cars. Of
the top ten manufacturers, Shanghai General Motors, Cherry and Ford China had a
negative growth rate as compared to 2007.





Year 2008
                    
                    
                    Year 2007Rank
                    
                    Manufacturer
                    
                    Unit sold
                    
                    
                    Unit sold
                    
                    
                    Growth Rate1
                    
                    FAW
      Volkswagen
                    
                    
                    498,867
                    
                    
                    
                    440,000
                    
                    
                    
                    13.38
                    %2
                    
                    Shanghai
      Volkswagen
                    
                    
                    490,087
                    
                    
                    
                    436,343
                    
                    
                    
                    12.32
                    %3
                    
                    Shanghai
      General Motors
                    
                    
                    468,642
                    
                    
                    
                    500,308
                    
                    
                    
                    -6.33
                    %4
                    
                    FAW
      Toyota
                    
                    
                    365,699
                    
                    
                    
                    280,000
                    
                    
                    
                    30.61
                    %5
                    
                    Cherry
                    
                    
                    356,092
                    
                    
                    
                    381,000
                    
                    
                    
                    -6.54
                    %6
                    
                    Dongfeng
      Nissan
                    
                    
                    350,621
                    
                    
                    
                    271,915
                    
                    
                    
                    28.95
                    %7
                    
                    Guangzhou
      Honda
                    
                    
                    305,997
                    
                    
                    
                    295,000
                    
                    
                    
                    3.73
                    %8
                    
                    Beijing
      Hyundai
                    
                    
                    294,517
                    
                    
                    
                    260,000
                    
                    
                    
                    13.28
                    %9
                    
                    Geely
                    
                    
                    230,420
                    
                    
                    
                    219,512
                    
                    
                    
                    4.97
                    %10
                    
                    Ford
      China
                    
                    
                    202,797
                    
                    
                    
                    217,100
                    
                    
                    
                    -6.59
                    %TOTAL
                    
                    
                    3,563,739
                    
                    
                    
                    3,301,178
                    
                    
                    
                    7.95
                    %




4




Our
Competitive Strengths




We are
committed to keeping our competitive edge by constantly evaluating and
responding to market demand and providing new products and
services.  Our goals are to establish successful and long-term
partnerships with our customers, employees and suppliers and to provide high
quality services and products.  In particular, we believe the
following strengths differentiate our business:




·
            We
      are strategically located in Tianjin, which is the largest port city among
      the top 5 port cities in China for imported
      automobiles.  Tianjin represents more than 55% of the imported
      automobile market in China, which provides us with first-hand knowledge of
      product information and developing industry
  trends.




·
            We
      have a unique business model that combines sales of imported cars,
      Financing Services, Automobile Import Value Added Services, and an
      Internet-based information platform, which enhances our ability to be a
      one-stop service provider for all of our customers’ needs with respect to
      imported automobiles in the PRC.




·
            We
      have continued to grow and maintain a referral network with all major
      automobile distributors and agents in the PRC.  We also intend
      to utilize our websites to aggressively pursue and acquire new customers
      through advertising and promotions to convert them into repeat paying
      customers.




·
            We
      maintain close relationships with many major Chinese commercial banks,
      including China Agriculture Bank, China Construction Bank, China CITIC
      Bank, Pudong Development Bank and China Merchants Bank, which gives us a
      competitive advantage over our competitors in providing Financing
      Services.  As of March 15, 2009, the Company had a credit line
      of $41,406,959.




·
            We
      have pioneered China’s first websites devoted to automobile sales and
      trading information.  All of the major Chinese websites
      containing information on automobile sales and trading, including www.sohu.com
      and www.sina.com,
      directly link to our market data.  We believe that we have a
      “first mover” advantage due to our websites, which specialize in imported,
      domestic and new automobiles, and we intend to capitalize on this
      advantage by expanding our offerings and geographic
  reach.




·
            Our
      key personnel each have more than ten years of Chinese automobile industry
      experience.




Our
Growth Strategy




We intend
to pursue the following key elements to our growth strategy:




·
            Geographic
      Expansion.We intend to
      utilize our existing websites to help expand our offerings and
      geographical reach into more cities in
China.




·
            Create New
      Services.We will capitalize on our existing websites to target the
      market by aggressively introducing new services such as assisting clients
      in obtaining licenses and completing insurance
      processing.  Online financing is also a service we are adding to
      our websites, whereby customers can obtain low interest financing. We also
      plan to expand into the market of selling second-hand
  cars.




5


·
            Emphasize
      Service and Support.We will continue to build on our menu of
      established business offerings as a clear and viable alternative to
      price-only selling.  We will also aim to expand our existing
      banking relationships and explore other cooperative relationships with
      major commercial banks to increase our lines of credit to provide
      additional Financing Services to our
customers.




·
            Build a
      Relationship-Oriented Business.  We have a history of
      building long-term relationships with clients rather than focusing on
      single-transactions.  To that end, we aim to capitalize on our
      existing client base by establishing a national automobile dealer network
      for faster information exchange and closer coordination.  We
      will also continue to place an emphasis on obtaining authorized agent
      licenses with large international automobile
  manufacturers.




·
            Build Brand
      Recognition. We will build
      brand name recognition through diverse marketing channels such as online
      advertising, public relations and trade-show
  participation.




Our
Business Lines and Products




With
global economic development and improved living standards, automobiles have
become not only the preferred method of transportation but also an important
status symbol in China. In past years, China maintained double-digit annual
growth rate in its GDP, however, the worldwide economic downturn has affected
the Chinese economy, especially during the last three months of 2008. China is
projected to have over 8% GDP growth in 2009. We aim to integrate our sales of
imported automobiles, Financing Services and Automobile Import Value Added
Services with websites specializing in automobile information to address this
market opportunity.




Sale of Imported
Automobiles




We
conduct our sales operations of imported automobiles primarily through Shisheng
and Zhengji.  We are a general agent and wholesaler authorized by the
Chinese government to import vehicles into the PRC.   We sell
approximately 25% of our vehicles to authorized dealers like Ford or Lexus as
they are not able to import all models directly, 70% to free traders or
wholesalers located in inland China or non-port cities, and 5% to government
agencies and individual customers.  We have the core competencies
within our network to sell all makes and models of imported
vehicles.  Our sales network penetrates to approximately 3,000 agents
and dealers in more than 100 cities.  The largest automobile dealers
in China, including Shanghai Mingjia, Guangzhou Yizhan, Zhuhai Huafa and Wuxi
Baolong all have close working relationships with Shisheng.  Shisheng
is also an authorized agent for Mercedes Benz ambulances and fire
trucks.  We also work closely with major automobile dealers in the
overseas market.




Tianjin
port, as the largest port in China for the importation of automobiles, has
approximately 400 agents and general dealers that sell automobiles to
consumers.  We lease a showroom with 2,190 square meters and sell
between 2,000 and 2,500 automobiles annually. In 2008, the Company sold 2,523
imported automobiles at an average unit price of $73,786, an increase of 21.8%
from 2007’s average price.


6


Our
revenues from the sale of imported automobiles and related activities were $82.9
million for fiscal year 2005 (98.76% of all revenues), $95.4 million for fiscal
year 2006 (98.56%of all revenues), $149.2
million for fiscal year 2007 (97.85% of all revenues), and $186.3 million for
fiscal year 2008, representing a 24.93% increase from the prior fiscal year
(98.21% of all revenues).




Financing
Services




Many of
our customers, including both authorized agents and general dealers, contend
with a shortage of working capital.  The imported automobile service
industry has developed to address these barriers by providing short-term
financing services in connection with the importation of
automobiles.  These service providers are located in the port cities
of Dalin, Tianjin, Shanghai and Guangzhou.




Our
Financing Services include letter of credit issuance services, purchase deposit
financing, and import duty advance services.  Our competitive
advantage comes from relationships with major Chinese commercial banks,
including China Agriculture Bank, China Construction Bank, China CITIC Bank,
Pudong Development Bank and China Merchants Bank.  As of March 15,
2009, the Company had a credit line of $41,406,959.   We are
currently negotiating a number of new credit lines with various banks and the
Company is optimistic that it will be able to obtain financing on an as-needed
basis that will be sufficient for us to provide Financing Services to our
customers.




The
Company provides Financing Services to its customers using its facility lines of
credit with its banks.  The Company earns a service fee for drawing
its facility lines related to customers’ purchases of automobiles and payment of
import taxes.  The customers bear all the interest and fees charged by
the banks and prepay such amounts upon the execution of their service contracts
with the Company. In 2008, the Company provided Financing Services to buyers of
2,220 automobiles.  The customers are also required to make a deposit
in the range of 22% to 30% of the purchase price of the automobile with the
Company.  The banks take custody of the automobiles until the
borrowings are fully paid.




Our
revenues from Financing Services were $31,360for fiscal year 2005
(0.04% of all revenues), $257,983for fiscal year 2006
(0.27% of all revenues), $736,590 for fiscal year 2007 (0.48% of all revenues),
and $899,538 for fiscal year 2008, representing an increase of 22.12% from the
prior fiscal year (0.47% of all revenues).




Automobile Import Value
Added Services




In
addition to a shortage of working capital, all automobile dealers in China,
whether they are authorized agents or general dealers, contend with cumbersome
procedures relating to the import business.  The imported automobile
service industry has developed to address these barriers by providing customs
clearance, storage and delivery services for the dealers and
agents.  These service providers are located in the port cities of
Dalin, Tianjin, Shanghai and Guangzhou.




Our
efficient customs clearance service allows us to complete all vehicle
import-related procedures in just three to five days.  Once vehicles
are cleared through customs, we offer a value-added delivery service to inland
China (by air, by sea or by truck).


7


We have a
strong customer base in our Automobile Import Value Added
Services.  Tianjin Xinhaida Automobile Trading Corp., Tianjin Siguang
Technology Corp, and Tianjin Jigao Technical Consulting Corp. all have long-term
and stable relationships with us.




Our
revenues from Automobile Import Value Added Services were $645,188 for fiscal
year 2005 (0.77% of all revenues), $376,346 for fiscal year 2006 (0.39% of all
revenues), $1,077,140 for fiscal year 2007 (0.71% of all revenues), and $731,600
for fiscal year 2008 (0.39% of all revenues), representing a decrease of 32.08%
from the prior fiscal year. The decrease was due to a suspension of automobile
imports in the Tianjin Port for several weeks in connection with preparation for
the 2008 Beijing Olympic Games, as well as the worldwide economic downturn,
which impacted the Company during 2008. The Company is aiming to transform into
a modernized logistic provider, and the Company plans on putting effort into the
development and expansion of its Automobile Import Value Added Services
sector.




Automobile Information
Websites and Advertising




www.at188.com —
Imported Automobiles




With the
continuous development of network technology and the growing popularization of
the Internet, value-added Internet-based businesses are experiencing rapid
growth in China.  Because only 15% of automobiles in China are sold by
authorized agents and 85% are sold by free traders, there is a strong demand for
timely information regarding demand changes, market status and competitors’
quotations.  www.at188.com was
established by the Company in August 2000 to provide subscribers easily
accessible, accurate sales and trading information about imported
automobiles.  In addition to imported automobile sales and trading and
new model information, www.at188.com also
provides parts and components information.




After six
years of development and operation, www.at188.com has
linked automobile wholesalers and retailers in China and has achieved more than
120 enterprise subscribers and an average in excess of 800,000 daily
visitors.  The website provides more than 1,100 quotations every day,
and over 60 wholesalers place quotations on our website.  The website
also cooperates with major media outlets such as newspapers and television and
radio stations in more than 50 major cities in China.  Also, the
website has strategic alliances with 120 Internet media and traditional media
outlets and partnerships with more than 400 portals, Internet media,
governmental websites and automobile dealer websites.




www.at188.com charges
subscribers an annual membership fee of $3,350.  We also generate
revenue from on-line advertisements and web-based listing services, which when
combined with subscription revenues, represents 90% of our web-based
revenue.  The remaining 10% is derived from Automobile Import Value
Added Services and Financing Services sold through the
Internet.  Currently, we have over 120 corporate subscribers
nationwide with 70 corporate subscribers in Tianjin.




www.1365car.tj.cn –
Domestic Automobiles




In 2006,
China’s annual production of domestically manufactured automobiles exceeded
7 million, making it one of the largest automobile manufacturing countries
in the world.  Seven of the top ten domestic automobile manufacturers
are worldwide automotive leaders with Chinese manufacturing
facilities.  These include General Motors, Volkswagen, Hyundai, Honda,
Peugot Citroen and Ford.  To provide real-time price comparison and
sales and trading information directly to this huge domestic automobile market,
we launched the website www.1365car.tj.cn in
2005.  This website is a platform that connects manufacturers,
regional distributors and end users of domestically manufactured cars, providing
them with a compelling source of information about domestic vehicles and serving
as a timelier alternative to traditional magazines and television. www.1365car.tj.cn
currently provides real-time price comparison and sales and trading information
in the local and regional Tianjin market with respect to domestically
manufactured automobiles.


8


www.1365car.tj.cn
began generating revenue in June 2007.  It targets customers
interested in purchasing vehicles, and it generates revenues from subscriptions
and advertisements.  Most domestic automobile purchases are made from
“4S” shops which offer sales, service, spare parts and survey.  In
Tianjin city, there are 132 4S shops, and in less than one year, more than 60%
(80 shops) have become paid subscribers of www.1365car.tj.cn.  Annual
subscriptions cost between $1,370 and $4,110 depending on the package
selected.   Currently, advertisements generate revenues of
approximately $30,000 per month.  In addition to providing customers
with online information directly through the website, the Company intends to
offer value-added services including automobile insurance, automobile financing,
after-sale service and used car quotations.




Our
revenues from our websites were $366,033for fiscal year 2005
(0.44% of all revenues), $757,872 for fiscal year 2006 (0.78% of all revenues),
$1,459,948 for fiscal year 2007 (0.96% of all revenues), and $1,762,859 for
fiscal year 2008 (0.93% of all revenues), representing an increase of 20.75%
from the prior fiscal year.




Products
Under Development




The
further development of our websites are attractive means for us to develop our
business due to the relatively low cost of operation, the global reach of the
medium, and the security enhancements that have been and will be put in
place.  The business model could be expanded to combine Internet
commerce and traditional sales.  The success of the Internet business
can help us build brand name recognition and awareness in the automobile sales
and trading industry and increase our automobile sales volume.




In the
coming years, we intend to incorporate a section for used imported automobiles
on www.at188.com to
further enrich the website.  Emphasis will also be placed on
increasing the number of enterprise subscribers and expanding advertising
revenue.




We also
aim to develop the revenue streams of www.160.com such that
it will be comprised of 10% membership fees, 40% advertising fees and 50% from
automobile value added services.  Since November of 2008, the Company
has expanded its domestic automobile website to 10 more cities, including
Beijing, Xi’an, Jinan, Shenyang, Dalian, Zhengzou, Wuxi, Qingdao, Nanjing and
Kunming. The Company will soon expand its domestic automobile website to Suzhou
too. The Company has now expanded its domestic automobile website to a total of
12 cities, and the Company believes it will achieve its goal of launching a
national website that will provide complete national market information rather
than city and provincial specific information. The Company has reserved the
domain name www.at160.com for the
national website. The national website will focus on promotions and
advertisements for manufacturers, and the city-level websites will focus on
area-wide pricing information and promotions. We plan to continue expanding and
including new cities to the national website, with the goal of making our
national website the leading quoting and trading platform for domestic
manufactured car dealers.


9


In the
coming years, we aim to shift the business focus of the Company from a
traditional automobile trader to a web-based automobile-related logistics
service provider.




We will
place additional effort into the development of websites and value added
services, such as online insurance and online financing. We are currently
coordinating with major commercial banks and insurance companies to develop
these services. Although the revenue generated thus far through these services
has been minimal, we believe that expanding these services will be profitable.
In 2008, the automobile worldwide web media generated $171 million, representing
a 36% growth from 2007. From 2005 to 2007, the automobile worldwide web media
achieved over a 50% growth rate, and we believe the world wide economic decline
slowed the growth rate in 2008. We are confident that the Company’s website
development in certain cities, in which the automobile market is expected to
grow at a higher pace, will benefit the Company in 2009.




Although
we expect sales of imported automobile sales to continue to represent a
considerable percentage of our revenues, we expect the percentage of our net
profit generated from imported automobile sales to decline.  While we
intend to maintain our position as one of the leading imported automobile
traders in Tianjin, we do not anticipate that revenues generated by automobile
sales will maintain the same growth rate as in the past, though we do expect the
percentage of our net profits generated from Automobile Import Value Added
Services and from our websites to increase.




Major
Suppliers and Customers




We have
stable relationships with both Chinese domestic and foreign international
manufacturers.  We derive a significant portion of our revenues on an
aggregate basis from our top five customers, and we make a significant portion
of our purchases from our top five suppliers.  During the years ended
December 31, 2005, 2006, 2007 and 2008, the Company’s three largest customers
together accounted for 31%, 44%, 27% and 22%, respectively, of the Company’s
sales for such years.  During the same period, automobiles purchased
from the Company’s two largest suppliers together accounted for approximately
26%, 32%, 18% and 24% in 2005, 2006, 2007 and 2008, respectively, of the
Company’s total purchases for such years.




Three of
our top six customers in 2008 by revenue (Tianjin Jingdian Auto Trading, Tianjin
Haowu Jidian Auto Trading Co., Ltd., and Beijing Means of Production Trading
Co.,) were three of our top six customers by revenue in 2007. Three of our top
six suppliers in 2008 (Tianjin Tariff-free Zone Sipi International Trading Co.,
Ltd., Tianjin Economy Technology Electrical Equipment Corp. and Tianjin Shimao
International Trading Co., Ltd.) were three of our top six suppliers in
2007.




Many of
our largest customers are also our largest suppliers.  In 2008,
Tianjin Tariff-free Zone Sipi International Trading Co., Ltd., Tianjin Jingdian
Auto Trading & Consulting Co., Ltd and Tianjin Haowu Jidian Auto Trading
Co., Ltd. were each both one of our ten largest customers and one of our ten
largest suppliers.




We
maintain close working relationships with our top customers and
suppliers.   We do not believe that the loss of any one major
customer or supplier in and of itself would have a material adverse effect on
our financial condition or results of operation, although we also continue to
diversify our revenues and purchases among our top customers and
suppliers.


10




Intellectual
Property




Our two
websites, www.at188.com and
www.1365car.com, both
of which are key drivers of our growth strategies, have registered domain names
expiring in November 2010 and April 2010, respectively.  These
registrations, together with registrations for other sub-websites of the
Company, will be renewed in the ordinary course of our
business.   We are currently contemplating expansion into
additional cities through websites that will expand our geographical coverage
and improve our brand recognition nationwide.  The Company has also
registered the domain name www.1365car.com in
anticipation of launching the national website after it has achieved target
penetration with 12 city-level websites.  The registration for www.1365car.com
expires August 2009.




Competition
and Pricing




Tianjin
is the entry port for approximately 50% to 60% of the automobiles imported into
China annually.  Many of these vehicles are imported by general
dealers such as Ford and Nissan, and the government also imports vehicles
directly.  Authorized dealers also have the right to import directly
from foreign manufacturers and account for approximately 10,000 of the imports
via Tianjin, with our Company responsible for approximately, by our estimates,
20% to 25% of that total.  Among the 400 free-trading wholesalers and
dealers in Tianjin, we estimate that our market share is approximately
25%.  We believe our two closest competitors in this market command
just 8% and 5% of the market, respectively.  For the specialized
services market related to Automobile Import Value Added Services and Financing
Services, we believe we have 90% of the combined market share for such services
in Tianjin, with four competitors sharing the remaining 10% of the
market.  Although there are a few other companies in the Tianjin
market that provide Financing Services or some Automobile Import Value Added
Services (such as storage or delivery services), we are the only one-stop
service provider in Tianjin.  With respect to our web-based
businesses, we do not presently have any major competitors.




Competitive
threats may come from any company that is able to provide the services offered
by us at lower price and better quality.  We charge appropriately for
the high-end, high-quality services and products we offer, and we do not aspire
to be the lowest cost provider of our services.  Rather, we aim to
distinguish ourselves from our competitors by providing the highest value to our
customers.




Employees




We
currently employ 103 full-time employees.  None of our employees are
unionized.




Geographical
Area of the Company’s Business




All of
our revenue is derived from operations within the PRC, and all of our assets are
located in the PRC.  For risks relating to our operations in the PRC,
see discussions in the section entitled “Risk Factors”
below.




11


Item 1A.
            Risk
      Factors.





You should carefully consider the
following risks and the other information set forth elsewhere in this Current
Report.  If any of these risks occur, our business, financial
condition and results of operations could be adversely affected.  As a
result, the trading price of our common stock could decline, perhaps
significantly.




RISKS
RELATING TO OUR COMPANY




Our
business may adversely change due to the cyclical nature of the automotive
industry.  If the Chinese luxury automotive market does not grow as we
expect or grows at a slower rate than we expect, our sales and profitability may
be materially and adversely affected.




Our
financial performance depends, in large part, on the varying conditions in the
automotive markets, specifically the market for imported luxury automobiles in
China.  The volume of automobile production in Asia, North America,
Europe and the rest of the world has fluctuated, sometimes significantly, from
year to year, and such fluctuations often are in response to overall economic
conditions and factors such as changes in interest rate levels, vehicle
manufacturer incentive programs, fuel costs, consumer spending and confidence,
and environmental issues. If the automotive market experiences a downturn, our
results of operations and business will suffer.




We derive
most of our sales revenue from sales of imported automobiles and related
services in China. The continued development of our business depends, in large
part, on continued growth in the luxury automotive market in China and the
increase in disposable income among the Chinese population.  Although
China’s luxury automotive market has grown rapidly in the past, it may not
continue to grow at the same rate in the future or at all. However, the
developments in our market are, to a large extent, outside of our control and
any reduced demand for imported automobiles or related services, or any other
downturn or other adverse changes in China’s economy that impacts the disposable
income of ultimate luxury car purchasers could severely harm our
business.




A
disproportionate amount of our income from operations is derived from the sale
of imported automobiles and related services, and a disruption in, or compromise
of, our sale operations or our ability to provide Automobile Import Value Added
Services and Financing Services could adversely impact our financial condition
and results of operations.




In 2008,
we derived approximately 64% of our income from operations from the sale of
imported automobiles, approximately 9% of our income from operations from
Financing Services, approximately 9% of our income from operations from
Automobile Import Value Added Services, and approximately 18% of our income from
operations from our websites.  We view our Financing Services and our
Automobile Import Value Added Services to be integrally related, as our business
model emphasizes our ability to be a “one-stop” services provider for all such
services.  A disruption in, or compromise of, our sales operations or
our ability to provide Automobile Import Value Added Services and/or Financing
Services to our customers could have a material adverse effect on our financial
condition and results of operations.


12


We
derive a significant amount of our revenue from a limited number of customers
and purchase a significant portion our supplies from a limited number of
suppliers.  Certain of our major customers are also major suppliers,
and therefore the loss of such customers or suppliers could adversely impact our
financial condition and results of operations.




We
derived a significant portion of our revenues on an aggregate basis from our top
five customers, and a significant portion of our purchases come from our top
five suppliers.  During the years ended December 31, 2005, 2006, 2007
and 2008, our three largest customers together accounted for 31%, 44%, 27% and
22% respectively, of our sales for such years, and our two largest suppliers
together accounted for approximately 26%, 32%, 18% and 24% respectively, of our
total purchases for such years.  Three of our top six customers in
2008 by revenue were three of our top six customers by revenue in 2007. Three of
our top six suppliers in 2008 were three of our top six suppliers in 2007. In
addition, many of our larger customers are also our largest suppliers. In 2008,
three of our top ten customers by revenue were also in our list of top ten
suppliers. We maintain close working relationships with our top customers and
suppliers and continue to reduce the business concentration of our revenues and
purchases among our top customers and suppliers.   While we do
not believe that the loss of any one major customer or supplier in and of itself
would have a material adverse effect on our financial condition or results of
operation, the loss of more than one such major customer or supplier, or our
failure to replace such customer or supplier with other customers and suppliers,
could have a material adverse effect on our financial condition and our results
of operations.




The
imported automobile sales and services market in Tianjin is competitive; Failure
to maintain our current relationships with various Chinese banks or to renew
existing credit lines or enter into new credit lines may hamper our growth and
negatively affect our results.




Currently,
five companies compete with us in the imported automobile sales market in
Tianjin.  In 2008, the Chinese automobile market recorded a 30.53%
volume increase in the number of imported cars sold. As most of these imported
automobiles sold are directly purchased by authorized agents and the Chinese
government, our market share in Tianjin recorded a 20% increase in 2008. As the
only one-stop service provider in Tianjin, our market share in the combined
Financing Services and Automobile Import Value Added Services maintained its
leading position with approximately a 90% market share in Tianjin. However, in
the future we anticipate increasing pressure on our business from competitors,
and failure to maintain our relationships with various Chinese banks in Tianjin
may adversely affect our ability to provide Financing Services to our customers
and to be a “one-stop” service provider for Automobile Import Value Added
Services and Financing Services.  In addition, if our competitors are
able to establish similar relationships with these banks or other financial
institutions in Tianjin or our future markets, we will no longer enjoy our
current competitive advantage.




As of
March 15, 2009, the Company had a credit line of $41,406,959 We are currently
negotiating a number of new credit lines with various banks, though there can be
no guarantee that we will be successful in doing so.  If we are unable
to renew existing credit lines or enter into new credit lines on a consistent
basis that allows us to meet the requirements of our business or the demand of
our customers for Financing Services, our business, operating margins, financial
condition, cash flows and profitability could be adversely
affected.




13


We
face competition from other companies, which could force us to lower our prices,
thereby adversely affecting our operating margins, financial condition, cash
flows and profitability.




The
markets in which we operate are highly competitive, and this competition could
harm our business, results of operations, cash flow and financial
condition.  We believe that one significant competitive factor for our
products is selling price.  Although we do not aspire to be the lowest
cost provider but rather the highest value provider to our customers, we could
be subject to adverse results caused by our competitors’ pricing
decisions.  If we do not compete successfully, our business, operating
margins, financial condition, cash flows and profitability could be adversely
affected.




To
maintain our competitive advantage, we will need to further invest in research
and development of our Internet operations.




In order
to maintain the current competitive advantage we enjoy through our websites
www.at188.com,
we will need to invest further in research and development of our websites to
meet the needs of our customers.  The failure to consistently deliver
accurate real-time industrial information could cause us to lose potential or
existing subscribers.  In addition, if we are unable to open
sub-websites in other major cities in the near future, we may fail to implement
our strategy of becoming the first nationwide automobile marketing
network.  As technical barriers to entry for Internet competitors are
not substantial, successful entry into the market by competitors could result in
a decrease in our revenue.




Concerns
about security of e-commerce transactions and confidentiality of information on
the Internet may reduce the use of our websites and impede our growth, and our
Internet operations may be vulnerable to hacking, viruses and other
disruptions.




A
significant barrier to e-commerce and confidential communications over the
Internet has been the need for security. Internet usage could decline if any
well-publicized compromise of security occurred. We may incur significant costs
to protect against the threat of security breaches or to alleviate problems
caused by these breaches. If unauthorized persons are able to penetrate our
network security, they could misappropriate proprietary information or cause
interruptions in our services. As a result, we may be required to expend capital
and resources to protect against or to alleviate these problems. Security
breaches could have a material adverse effect on our business, financial
condition and results of operations.




We
cannot assure you that our organic growth strategy will be
successful.




One of
our growth strategies is to grow organically through increasing the distribution
and sales of our products, increasing our market share and entering new
geographical markets in the PRC.  However, many obstacles to
increasing our market share and entering such new markets exist, including, but
not limited to, costs associated with entering into such markets and attendant
marketing efforts.  We cannot therefore assure you that we will be
able to successfully overcome such obstacles and establish our products in any
additional markets.  Our inability to implement this organic growth
strategy successfully may have a negative impact on our ability to grow and on
our future financial condition, results of operations or cash
flows.




If
we are not able to implement our strategies in achieving our business
objectives, our business operations and financial performance may be adversely
affected.




Our
business plan is based on circumstances currently prevailing and the bases and
assumptions that certain circumstances will or will not occur, as well as the
inherent risks and uncertainties involved in various stages of
development.  However, there is no assurance that we will be
successful in implementing our strategies or that our strategies, even if
implemented, will lead to the successful achievement of our
objectives.  If we are not able to successfully implement our
strategies, our business operations and financial performance may be adversely
affected.


14


We
may not be able to manage our expanding operations effectively, which could harm
our business.




We
anticipate expanding our business as we address growth in our customer base and
market opportunities. In addition, the geographic dispersion of our operations
as a result of overall internal growth requires significant management resources
that our locally-based competitors do not need to devote to their operations. In
order to manage the expected growth of our operations and personnel, we will be
required to improve and implement operational and financial systems, procedures
and controls, and expand, train and manage our growing employee base. Further,
our management will be required to maintain and expand our strategic
relationships necessary to our business. We cannot assure you that our current
and planned personnel, systems, procedures and controls will be adequate to
support our future operations. If we are not successful in establishing,
maintaining and managing our personnel, systems, procedures and controls, our
business will be materially and adversely affected.




Our
business and growth could suffer if we are unable to retain our key
executives.




We depend
upon the continued contributions of our senior management and other key
executives, many of whom are difficult to replace.  In particular, our
future success is heavily dependent upon the continued service of Mr. Tong
Shiping, Mr. Yang Bin, Ms. Wang Xinwei, Mr. Li Yangqian and Ms. Cheng
Weihong.  If one or more of our key executives are unable or unwilling
to continue in their present positions, we may not be able to easily replace
them, and our business, financial condition and results of operations may be
materially and adversely affected.  In addition, if any of these key
executives joins a competitor or forms a competing company, we may lose
customers and suppliers and incur additional expenses to recruit and train
personnel.  Each of our executive officers has entered into standard
employment agreements with us (in accordance with the format issued by the
Tianjin Labor and Social Security Administration) but are not subject to
specific non-competition or non-solicitation agreements, as such agreements are
not standard in China.  We also do not maintain key-man life insurance
for any of our key executives.




We
face a competitive labor market in China for skilled personnel and therefore are
highly dependent on the skills and services of our existing key skilled
personnel and our ability to hire additional skilled employees.




Competition
for highly skilled software design, technical, managerial, finance, marketing,
sales and customer service personnel is intense in China.  Failure to
attract, assimilate or retain qualified personnel to fulfill our current or
future needs could impair our growth.  Limitations on our ability to
hire and train a sufficient number of personnel at all levels would limit our
ability to undertake projects in the future and could cause us to lose market
share.  We may need to increase the levels of our employee
compensation more rapidly than in the past in order to remain competitive. These
additional costs could reduce our profitability and cause
losses.


15


If
we need additional capital to fund our growing operations, we may not be able to
obtain sufficient capital and may be forced to limit the scope of our
operations.




As we
implement our growth strategies, we may experience increased capital needs and
we may not have enough capital to fund our future operations without additional
capital investments.  Our capital needs will depend on numerous
factors, including: (i) our profitability; (ii) the release of competitive
products by our competition; (iii) the level of our investment in research and
development; and (iv) the amount of our capital expenditures.  We
cannot assure you that we will be able to obtain capital in the future to meet
our needs.




If we
cannot obtain additional funding, we may be required to:




reduce
      our investments in research and
development;




limit
      our marketing efforts; and




decrease
      or eliminate capital expenditures.




Such
reductions could materially and adversely affect our business and our ability to
compete.  Even if we do find a source of additional capital, we may
not be able to negotiate terms and conditions for receiving the additional
capital that are acceptable to us.  Any future capital investments
could dilute or otherwise materially and adversely affect the holdings or rights
of investors in our common stock.  We cannot give you any assurance
that any additional financing will be available to us, or if available, will be
on terms favorable to us.




We
have limited insurance coverage and do not carry any business interruption or
third party liability insurance or insurance that covers the risk of loss of
automobiles in shipment.




Operation
of our facilities involves many risks, including natural disasters, power
outages, labor disturbances and other business interruptions.  We do
not carry any business interruption insurance or third party liability insurance
for accidents on our property or damage relating to our
operations.  In addition, our existing insurance coverage may not be
sufficient to cover all risks associated with our business.  As a
result, we may be required to pay for financial and other losses, damages and
liabilities, including those caused by natural disasters and other events beyond
our control, out of our own funds, which could have a material adverse effect on
our business, financial condition and results of operations.




Furthermore,
under the shipping terms of some of our customer contracts, we bear the risk of
loss in shipment of our products.  We do not insure this
risk.  While we believe that the shipping companies that we use carry
adequate insurance or are sufficiently solvent to cover any loss in shipment,
there can be no assurance that we will be adequately reimbursed upon the loss of
a significant shipment of our products.




Our
efforts in protecting our intellectual property rights from infringement may not
be sufficient, and our failure to adequately protect our intellectual property
rights may undermine our competitive position.




We regard
our domain name registrations and other intellectual property as critical to our
success.  Our domain names for our websites are currently registered
domain names.  However, no assurance can be given that such
registrations and licenses will not be challenged, invalidated, infringed or
circumvented or that such intellectual property rights will provide a
competitive advantage to us.


16


Presently
we sell our products only in China.  China will remain our primary
market for the foreseeable future.To date, no trademark
filings have been made.  Therefore, the measures we take to protect
our proprietary rights may be inadequate and we cannot give you any assurance
that our competitors will not independently develop formulations and processes
(including websites similar to www.at188.com and
www.1365car.tj.cn)
that are substantially equivalent or superior to our own or copy our
products.




Intellectual
property related laws in China may not be effective in protecting our
intellectual property rights, and litigation to protect our intellectual
property rights may be costly.




We strive
to strengthen and differentiate our product portfolio by developing new and
innovative products and product improvements.  As a result, we believe
that the protection of our intellectual property will become increasingly
important to our business.  Implementation and enforcement of
intellectual property-related laws in China has historically been lacking due
primarily to ambiguities in PRC intellectual property
law.  Accordingly, protection of intellectual property and proprietary
rights in China may not be as effective as in the United States or other
countries.  As a result, third parties may use the technologies and
proprietary processes that we have developed and compete with us, which could
negatively affect any competitive advantage we enjoy, dilute our brand and harm
our operating results.




In
addition, policing the unauthorized use of our proprietary technology can be
difficult and expensive.  Litigation may be necessary to enforce our
intellectual property rights, and given the relative unpredictability of China’s
legal system and potential difficulties enforcing a court judgment in China,
there is no guarantee litigation would result in an outcome favorable to
us.  Furthermore, any such litigation may be costly and may divert
management attention away from our core business.  An adverse
determination in any lawsuit involving our intellectual property is likely to
jeopardize our business prospects and reputation.  We have no
insurance coverage against litigation costs so we would be forced to bear all
litigation costs if we cannot recover them from other parties. All of the
foregoing factors could harm our business and financial condition.




We
may be exposed to infringement claims by third parties, which, if successful,
could cause us to pay significant damage awards.




Third
parties may initiate litigation against us alleging infringement of their
proprietary rights. In the event of a successful claim of infringement and our
failure or inability to develop non-infringing technology or license the
infringed or similar technology on a timely basis, our business could be harmed.
In addition, even if we are able to license the infringed or similar technology,
license fees could be substantial and may adversely affect our results of
operations.




High
cost of Internet access may limit the growth of the Internet in China and impede
our growth.




Access to
the Internet in China remains relatively expensive, and may make it less likely
for users to access and transact business over the
Internet.  Unfavorable rate developments could further decrease our
visitor traffic and our ability to derive revenues from transactions over the
Internet.  This could have a material adverse effect on our business,
financial condition and results of operations.


17


The
acceptance of the Internet as a commercial platform in China depends on the
resolution of problems relating to fulfillment and electronic
payment.  Our future growth of revenues depends in part on the
anticipated expansion of e-commerce activities in China.  As China
currently does not have a reliable nationwide product distribution network, the
fulfillment of goods purchased over the Internet will continue to be a factor
constraining the growth of e-commerce.




An
additional barrier to the development of e-commerce in China is the lack of
reliable payment systems. In particular, the use of credit cards and other
viable means of electronic payment in sales transactions are not as well
developed in China as in some other countries, such as the United
States.  Various government entities and businesses are working to
resolve these fulfillment and payment problems, but these problems are expected
to continue to hinder the acceptance and growth of the Internet as a commercial
platform in China, which could in turn adversely affect our business, financial
condition and results of operations.




Our
growth within the Internet market in China depends on the establishment of an
adequate telecommunications infrastructure.




The
telecommunications infrastructure in China is not well developed. In addition,
access to the Internet is accomplished primarily by means of the Internet
backbones of separate national interconnecting networks that connect through
several international gateways to the Internet outside of China.  The
Internet backbones and international gateways are all owned and operated by the
Chinese government and are the only channels through which the domestic Chinese
Internet network can connect to the international Internet
network.  Although private sector Internet service providers exist in
China, almost all access to the Internet is accomplished through ChinaNet,
China’s primary commercial network, which is owned and operated by the Chinese
government.  As a result, we will continue to depend on the Chinese
government and state-owned enterprises to establish and maintain a reliable
Internet and telecommunications infrastructure to reach a broader base of
Internet users in China.  In addition, we will have no means of
getting access to alternative networks and services, on a timely basis or at
all, in the event of any disruption or failure of the network.  We
cannot assure you that the Internet infrastructure in China will support the
demands associated with continued growth.  If the necessary
infrastructure standards or protocols or complementary products, services or
facilities are not developed by the Chinese government and state-owned
enterprises, our business, financial condition and results of operations could
be materially and adversely affected.




Unexpected
network interruptions caused by system failures may result in reduced visitor
traffic, reduced revenue and harm to our reputation.




As the
number of Chinese websites and the amount of Chinese Internet traffic increases,
we cannot assure you that we will be able to increase the scale of our systems
proportionately.  We are also dependent upon web browsers, Internet
service providers, content providers and other website operators in China, which
have experienced significant system failures and system outages in the
past.  Any system failure or inadequacy that causes interruptions in
the availability of our services, or increases the response time of our
services, as a result of increased traffic or otherwise, could reduce our user
satisfaction, future traffic and our attractiveness to users and
advertisers.


18


In
addition, we have limited backup systems and redundancy and we have experienced
system failures and electrical outages from time to time in the past which have
disrupted our operations.  We do not have a disaster recovery plan in
the event of damage from fire, floods, typhoons, earthquakes, power loss,
telecommunications failures, break-ins and similar events.  If any of
the foregoing occur, we may experience a complete system
shut-down.  We do not carry any business interruption
insurance.  To improve the performance and to prevent disruption of
our services, we may have to make substantial investments to deploy additional
servers or one or more copies of our websites to mirror our online
resources.  To the extent we do not address the capacity restraints
and redundancy described above, such constraints could have a material adverse
effect on our business, financial condition and results of
operations.




RISKS
RELATING TO THE PEOPLE’S REPUBLIC OF CHINA




Political
and economic policies of the PRC government could affect our business; PRC
economic reform policies or nationalization could result in a total investment
loss in our common stock.




All of
our business, assets and operations are located in China, and all of our
revenues are derived from our operations in China.  Accordingly, our
business, financial condition and results of operations are affected to a
significant degree by economic, political and legal developments in
China.  Changes in political, economic and social conditions in China,
adjustments in PRC government policies or changes in laws and regulations could
adversely affect our business, financial condition and results of
operations.  The economy of China differs from the economies of most
countries belonging to the Organization for Economic Cooperation and Development
in a number of respects, including:




·
            structure;




·
            level
      of government involvement;




·
            level
      of development;




·
            level
      of capital reinvestment;




·
            growth
      rate;




·
            control
      of foreign exchange; and




·
            methods
      of allocating resources.




Since
1949, China has primarily been a planned economy subject to a system of
macroeconomic management.  Although the Chinese government still owns
the majority of productive assets in China, economic reform policies since the
late 1970s have emphasized decentralization, autonomous enterprises and the
utilization of market mechanisms.  Because many reforms are
unprecedented or experimental, they are expected to be refined and
improved.  Other political, economic and social factors, such as
political changes, changes in the rates of economic growth, unemployment or
inflation, or in the disparities in per capita wealth between regions within
China, could lead to further readjustment of the reform
measures.  This refining and readjustment process may negatively
affect our operations.


19


If
the PRC imposes restrictions to reduce inflation, future economic growth in the
PRC could be severely affected.




Over the
last few years, China’s economy has registered a high growth
rate.  Recently, there have been indications that rates of inflation
have increased.  In order to control inflation, the Chinese government
may take similar measures as it has done in the past, including restrictions on
the availability of domestic credit, reductions of the purchasing capability of
certain of our customers, and limited re-centralization of the approval process
for purchases of some foreign products.  If similar restrictions are
imposed, it may lead to a slowing of economic growth and reduce credit to
finance the purchase of vehicles.




The
PRC government exerts substantial influence over the manner in which we must
conduct our business activities.




The PRC
government has exercised and continues to exercise substantial control over
virtually every sector of the Chinese economy through regulation and state
ownership.  Our ability to operate in China may be harmed by changes
in its laws and regulations, including those relating to taxation, import and
export tariffs, land use rights, property and other matters.  We
believe that our operations in China are in material compliance with all
applicable legal and regulatory requirements.  However, the central or
local governments of the jurisdictions in which we operate may impose new,
stricter regulations or interpretations of existing regulations that would
require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations.




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 China or
particular regions thereof and could require us to divest ourselves of any
interest we then hold in Chinese properties or joint ventures.




The recent nature and uncertain
application of many PRC laws applicable to us create an uncertain environment for
business operations and they could have a negative effect on
us.




The PRC
legal system is a civil law system.  Unlike the common law system, the
civil law system is based on written statutes in which decided legal cases have
little value as precedents.  In 1979, the PRC began to promulgate a
comprehensive system of laws and has since introduced many laws and regulations
to provide general guidance on economic and business practices in the PRC and to
regulate foreign investment.  Progress has been made in the
promulgation of laws and regulations dealing with economic matters such as
corporate organization and governance, foreign investment, commerce, taxation
and trade.  The promulgation of new laws, changes of existing laws and
the abrogation of local regulations by national laws could have a negative
impact on our business and business prospects.  In addition, as these
laws, regulations and legal requirements are relatively recent, their
interpretation and enforcement involve significant uncertainty.




Currency
conversion and exchange rate volatility could adversely affect our financial
condition.




The PRC
government imposes control over the conversion of Renminbi (“RMB”) into foreign
currencies.  Under the current unified floating exchange rate system,
the People’s Bank of China publishes an exchange rate, which we refer to as the
PBOC exchange rate, based on the previous day’s dealings in the inter-bank
foreign exchange market.  Financial institutions authorized to deal in
foreign currency may enter into foreign exchange transactions at exchange rates
within an authorized range above or below the PBOC exchange rate according to
market conditions.


20


Enterprises
in the PRC which require foreign exchange for transactions relating to current
account items, may, without approval of the State Administration of Foreign
Exchange (“SAFE”),
effect payment from their foreign exchange account or convert and pay at the
designated foreign exchange banks by providing valid receipts and
proofs.




Convertibility
of foreign exchange in respect of capital account items, such as direct
investment and capital contribution, is still subject to certain restrictions,
and prior approval from the SAFE or its relevant branches must be
sought.




Since
1994, the exchange rate for RMB against the United States dollar has remained
relatively stable, most of the time in the region of approximately RMB 8.28 to
US$1.00.  However, in 2005, the Chinese government announced that they
would begin pegging the exchange rate of the RMB against a number of currencies,
rather than just the United States dollar.  Under the new policy, RMB
has fluctuated within a narrow and managed band against a basket of certain
foreign currencies. As a result of this policy change, RMB appreciated
approximately 2.49%, 3.24%, 6.46% and 6.45% against the United States dollar in
2005, 2006, 2007 and 2008 respectively. As our operations are primarily in
China, any significant revaluation of the RMB may materially and adversely
affect our cash flows, revenues and financial condition.  For example,
to the extent that we need to convert United States dollars into RMB for our
operations, appreciation of this currency against the United States dollar could
have a material adverse effect on our business, financial condition and results
of operations.  Conversely, if we decide to convert RMB into United
States dollars for other business purposes and the United States dollar
appreciates against this currency, the United States dollar equivalent of the
RMB we convert would be reduced.




Laws
and regulations applicable to the Internet in China remain unsettled and could
have a material adverse effect on Internet’s growth and thereby have a material
adverse effect on our business.




Growth of
the Internet in China could be materially and adversely affected by governmental
regulation of the industry.  Due to the increasing popularity and use
of the Internet and other online services, it is possible that regulations may
be adopted with respect to the Internet or other services covering issues such
as user privacy, pricing, content, copyrights, distribution, antitrust and
characteristics and quality of products and services.  Furthermore,
the growth and development of the market for electronic commerce may prompt
calls for more stringent consumer protection laws that may impose additional
burdens on companies conducting business online.  The adoption of
additional laws or regulations may slow the growth of the Internet or other
services, which could in turn lead to reduced Internet traffic and increase our
cost of doing business.  While we are not aware of any existing or
proposed regulations that have a significant direct adverse effect on our
business, a restrictive regulatory policy regarding the Chinese Internet
industry would have a material adverse effect on us by retarding the industry’s
growth in China.


21


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 against us.




We
conduct our operations in China and all of our assets are located in China. In
addition, most of our directors and executive officers reside within China, and
substantially all of the assets of these persons are located within
China.  As a result, it may not be possible to effect service of
process within the United States or elsewhere outside China upon those directors
or executive officers, including with respect to matters arising under U.S.
federal securities laws or applicable state securities
laws.  Moreover, our Chinese counsel has advised us that China does
not have treaties with the U.S. and many other countries that provide for the
reciprocal recognition and enforcement of judgment of courts.  As a
result, recognition and enforcement in China of judgments of a court of the U.S.
or any other jurisdiction in relation to any matter may be difficult or
impossible.




Future
outbreaks of Severe Acute Respiratory Syndrome (“SARS”), Avian flu or other
widespread public health problems could adversely affect our
business.




Future
outbreaks of SARS, Avian flu or other widespread public health problems in
China, where all of our employees work, could negatively impact our business in
ways that are hard to predict.  Prior experience with the SARS virus
suggests that a future outbreak of SARS, Avian flu or other widespread public
health problems may lead public health authorities to enforce quarantines, which
could result in closures of some of our offices and other disruptions of our
operations.  A future outbreak of SARS, Avian flu or other widespread
public health problems could result in reduction of our advertising and
fee-based revenues.




Restrictions
on paying dividends or making other payments to us bind our subsidiaries in
China.




We are a
holding company and do not have any assets or conduct any business operations in
China other than our investments in our subsidiaries in China.  As a
result, we depend on dividend payments from our subsidiaries in China for our
revenues.  The dividend tax rate is 20%. In addition, under Chinese
law, our subsidiaries are only allowed to pay dividends to us out of their
distributable earnings, if any, as determined in accordance with Chinese
accounting standards and regulations.  Moreover, our Chinese
subsidiaries are required to set aside at least 10% of their respective
after-tax profit, if any, and up to 50% of their registered capital to fund
certain mandated reserve funds that are not payable or distributable as cash
dividends.




The
Chinese government also imposes controls on the convertibility of RMB into
foreign currencies and, in certain cases, the remittance of currency out of
China.  We may experience difficulties in completing the
administrative procedures necessary to obtain and remit foreign
currency.  If we or any of our subsidiaries are unable to receive all
of the revenues from our operations through these arrangements, we may be unable
to effectively finance our operations or pay dividends on our common
stock.


22


Our
significant amount of deposits in certain banks in China may be at risk if these
banks go bankrupt during our deposit period, and the risk of bankruptcy of the
banks with which we have lines of credit may adversely affect our ability to
provide financial services to our customers.




As of
December 31, 2008, we have approximately $1.7 million in cash and other
bank deposits, such as time deposits and bank notes, with sixteen different
banks in China, which constitute substantially all of our total cash and cash
equivalents as of December 31, 2008. The terms of these deposits are, in
general, up to twelve months.  Historically, deposits in Chinese banks
are secure due to the state policy on protecting depositors’
interests.  However, China promulgated a new Bankruptcy Law in August
2006, which came into effect on June 1, 2007, which contains a separate
article expressly stating that the State Council may promulgate implementation
measures for the bankruptcy of Chinese banks based on the Bankruptcy
Law.  Under the new Bankruptcy Law, a Chinese bank may go bankrupt. In
addition, since China’s accession to the World Trade Organization, foreign banks
have been gradually permitted to operate in China and have been severe
competitors against Chinese banks in many aspects, especially since the opening
of Chinese business to foreign banks in late 2006.  Therefore, the
risk of bankruptcy of those banks in which we have deposits has increased. In
the event of bankruptcy of one of the banks which holds our deposits, we are
unlikely to claim our deposits back in full since we are unlikely to be
classified as a secured creditor based on PRC laws.  In the event that
one or more of our banks files for bankruptcy protection, our ability to offer
Financing Services to our customers may be materially and adversely impacted,
thereby having a material adverse effect on our operations and
profitability.




RISKS
RELATING TO OUR COMMON STOCK




The
market price for shares of our common stock could be volatile; the sale of
material amounts of our common stock could reduce the price of our common stock
and encourage short sales.




The
market price for the shares of our common stock may fluctuate in response to a
number of factors, many of which are beyond our control.  Such factors
may include, without limitation, the general economic and monetary environment,
quarter-to-quarter variations in our anticipated and actual operating results,
future financing activities and the open-market trading of our shares in
particular.




From time
to time, certain of our stockholders may be eligible to sell all or some of
their shares of common stock by means of ordinary brokerage transactions in the
open market pursuant to Rule 144, promulgated under the Securities Act of
1933, as amended, subject to certain limitations.  In general,
pursuant to Rule 144, a stockholder (or stockholders whose shares are
aggregated) who has satisfied a one-year holding period may, under certain
circumstances, sell within any three-month period a number of securities which
does not exceed the greater of 1% of the then outstanding shares of common stock
or the average weekly trading volume of the class during the four calendar weeks
prior to such sale.  Rule 144 also permits, under certain
circumstances, the sale of securities, without any limitations, by a
non-affiliate of our Company that has satisfied a two-year holding
period.  Any substantial sale of common stock pursuant to
Rule 144 may have an adverse effect on the market price of our common
stock.


23


The
trading market in our common stock is limited and illiquid and may cause
volatility in the market price.




Our
common stock is currently traded on the Over-The-Counter Bulletin Board under
the symbol “CALG.OB”.  The Over-The-Counter Bulletin Board is an
inter-dealer, over-the-counter market that provides significantly less liquidity
than the NASD’s automated quotation system, or the NASDAQ Stock
Market.  Quotes for stocks included on the OTC Bulletin Board are not
listed in the financial sections of newspapers as are those for the NASDAQ Stock
Market.  Therefore, prices for securities traded solely on the OTC
Bulletin Board may be difficult to obtain.




The
quotation of our common stock on the OTC Bulletin Board does not assure that a
meaningful, consistent and liquid trading market currently exists, and in recent
years such market has experienced extreme price and volume fluctuations that
have particularly affected the market prices of many smaller companies like
us.  Thus, the market price for our common stock is subject to
volatility and holders of our common stock may be unable to resell their shares
at or near their original purchase price or at any price.  In the
absence of an active trading market:




investors
      may have difficulty buying and selling or obtaining market
      quotations;




market
      visibility for our common stock may be limited;
  and




a
      lack of visibility for our common stock may have a depressive effect on
      the market for our common stock.




Our
common stock is considered a “penny stock” and as a result, related
broker-dealer requirements affect its trading and liquidity.




Our
common stock is considered to be a “penny stock” since it meets one or more of
the definitions in Rules 15g-2 through 15g-6 promulgated under
Section 15(g) of the Securities Exchange Act of 1934, as
amended.  These include but are not limited to the
following:  (i) the common stock trades at a price less than
$5.00 per share; (ii) the common stock is not traded on a “recognized”
national exchange; (iii) the common stock is not quoted on the NASDAQ Stock
Market, or (iv) the common stock is issued by a company with average
revenues of less than $6.0 million for the past three years.  The
principal result or effect of being designated a “penny stock” is that
securities broker-dealers cannot recommend our common stock to investors, thus
hampering its liquidity.




Section 15(g)
and Rule 15g-2 require broker-dealers dealing in penny stocks to provide
potential investors with documentation disclosing the risks of penny stocks and
to obtain a manually signed and dated written receipt of the documents before
effecting any transaction in a penny stock for the investor’s
account.  Potential investors in our common stock are urged to obtain
and read such disclosure carefully before purchasing any of our
shares.




Moreover,
Rule 15g-9 requires broker-dealers in penny stocks to approve the account
of any investor for transactions in such stocks before selling any penny stock
to that investor.  This procedure requires the broker-dealer to
(i) obtain from the investor information concerning his or her financial
situation, investment experience and investment objectives; (ii) reasonably
determine, based on that information, that transactions in penny stocks are
suitable for the investor and that the investor has sufficient knowledge and
experience as to be reasonably capable of evaluating the risks of penny stock
transactions; (iii) provide the investor with a written statement setting
forth the basis on which the broker-dealer made the determination
in (ii) above; and (iv) receive a signed and dated copy of such
statement from the investor, confirming that it accurately reflects the
investor’s financial situation, investment experience and investment
objectives.


24


Compliance
with these requirements may make it more difficult for holders of our common
stock to resell their shares to third parties or to otherwise dispose of them in
the market or otherwise.




One
stockholder exercises significant control over matters requiring stockholder
approval.




Bright
Praise Enterprises Limited has voting power equal to approximately 64.64% of our
voting securities.  As a result, Bright Praise Enterprises Limited,
through such stock ownership, exercises significant control over all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions.  This concentration of
ownership in Bright Praise Enterprises Limited may also have the effect of
delaying or preventing a change in control of us that may be otherwise viewed as
beneficial by stockholders other than Bright Praise Enterprises
Limited.




We
may incur significant costs to ensure compliance with U.S. corporate governance
and accounting requirements.




We may
incur significant costs associated with our public company reporting
requirements, costs associated with newly applicable corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002 and
other rules implemented by the SEC.  We expect all of these applicable
rules and regulations to increase our legal and financial compliance costs and
to make some activities more time-consuming and costly.  We also
expect that these applicable rules and regulations may make it more difficult
and more expensive for us to obtain director and officer liability insurance and
we may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage.  As
a result, it may be more difficult for us to attract and retain qualified
individuals to serve on our board of directors or as executive
officers.  We are currently evaluating and monitoring developments
with respect to these newly applicable rules, and we cannot predict or estimate
the amount of additional costs we may incur or the timing of such
costs.




Standards
for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are uncertain,
and if we fail to comply in a timely manner, our business could be harmed and
our stock price could decline.




Rules
adopted by the SEC, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
require annual assessment of our internal control over financial reporting, and
attestation of our assessment by our independent registered public
accountants.  The standards that must be met for management to assess
the internal control over financial reporting as effective are new and complex,
require significant documentation, testing and possible remediation to meet the
detailed standards, and will impose significant additional expenses on
us.  We may encounter problems or delays in completing activities
necessary to make an assessment of our internal control over financial
reporting.  In addition, the attestation process by our independent
registered public accountants is new and we may encounter problems or delays in
completing the implementation of any requested improvements and receiving an
attestation of our assessment by our independent registered public
accountants.  If we cannot assess our internal control over financial
reporting as effective, or our independent registered public accountants are
unable to provide an unqualified attestation report on such assessment, investor
confidence and share value may be negatively impacted.


25


We
may be required to raise additional financing by issuing new securities with
terms or rights superior to those of our shares of common stock, which could
adversely affect the market price of our shares of common stock.




We may
require additional financing to fund future operations, including expansion in
current and new markets, programming development and acquisition, capital costs
and the costs of any necessary implementation of technological innovations or
alternative technologies.  We may not be able to obtain financing on
favorable terms, if at all.  If we raise additional funds by issuing
equity securities, the percentage ownership of our current stockholders will be
reduced, and the holders of the new equity securities may have rights superior
to those of the holders of shares of our common stock, which could adversely
affect the market price and the voting power of shares of our common
stock.  If we raise additional funds by issuing debt securities, the
holders of these debt securities would similarly have some rights senior to
those of the holders of shares of common stock, and the terms of these debt
securities could impose restrictions on operations and create a significant
interest expense for us.




We
may have difficulty raising necessary capital to fund operations as a result of
market price volatility for our shares of common stock.




In recent
years, the securities markets in the United States have experienced a high level
of price and volume volatility, and the market price of securities of many
companies have experienced wide fluctuations that have not necessarily been
related to the operations, performances, underlying asset values or prospects of
such companies.  For these reasons, our shares of common stock can
also be expected to be subject to volatility resulting from purely market forces
over which we will have no control.  If our business development plans
are successful, we may require additional financing to continue to develop and
exploit existing and new technologies and to expand into new
markets.  The exploitation of our technologies may, therefore, be
dependent upon our ability to obtain financing through debt and equity or other
means.




We
do not foresee paying cash dividends in the foreseeable future.




We have
not paid cash dividends on our stock, and we do not plan to pay cash dividends
on our stock in the foreseeable future.




We
are responsible for the indemnification of our officers and directors which
could result in substantial expenditures, which we may be unable to
recoup.




Our
Articles of Incorporation and Bylaws provide for the indemnification of our
directors and officers, under certain circumstances, against attorney’s fees and
other expenses incurred by them in any litigation to which they become a party
arising from their association with or activities on behalf of
us.  This indemnification policy could result in substantial
expenditures, which we may be unable to recoup.




Item 1B.
            Unresolved
      Staff Comments.





Not
applicable.


26


Item 2.
            Properties.





Our main
offices are located at No. 87 No. 8 Coastal Way, Floor 2 Construction Bank, FTZ,
Tianjin Province, PRC.  This office space consists of approximately
1,521 square meters.  The lease relating to our main offices has a
7-year term which expires on April 1, 2010.  The annual rent for the
office is approximately $14,440 (RMB 100,000).




In
addition, we have a showroom located at the Tianjin Port International Car
Exhibition Center, No. 8 Huanhe Xi Road, FTZ, Tianjin Province, PRC, and
consists of approximately 2,190 square meters.  The lease for the
showroom has a 5-year
term and expires on December 31, 2011.  The annual rent for the
showroom is approximately $144,398 (RMB 1,000,000).




We
believe that all our properties and equipment have been adequately maintained,
are generally in good condition, and are suitable and adequate for our
business.





Item 3.
            Legal
      Proceedings





We are
party to certain litigation/arbitration with regards to amounts payable to
suppliers forwhich
the Company was not satisfied with the quality and timing of the goods
supplied. However, the amount in question is not material to the Company
and we believe that such litigation/arbitration will not have a material adverse
effect on us or our business and that we will be able to resolve these issues
through further business negotiations.




Item 4.
            Submission
      of Matters to a Vote of Security
Holders





On
November 10, 2008, the holders of a majority of the Company’s outstanding shares
of Common Stock voted to enter into the Exchange Agreement, as described
above.





On
November 26, 2008, the holders of a majority of the outstanding shares of Common
Stock voted to amend the Company’s Articles of Incorporation to change the name
of the Company to “China Auto Logistics Inc.” Also, on November 26, 2008,
holders of a majority of the outstanding shares of Common Stock voted to amend
and restate the Company’s Bylaws in their entirety.





PART
II




Item 5.
            Market
      For Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.





Shares of
our common stock have been listed for trading on the OTCBB under the ticker
symbol “CALG.OB” since January 29, 2009. The following table sets forth the
quarterly average high and low bid prices per share for our common stock for the
two most recently completed fiscal years in the period that ended on December
31, 2008:


27





Fiscal
      Year Ended
                  
                  Common
      StockHigh
                  
                  
                  LowDecember
      31, 2008First
      Quarter
                  
                  
                  N/A
                  
                  
                  
                  N/ASecond
      Quarter
                  
                  
                  N/A
                  
                  
                  
                  N/AThird
      Quarter
                  
                  
                  N/A
                  
                  
                  
                  N/AFourth
      Quarter
                  
                  $
                  3.33
                  
                  
                  $
                  3.09December
      31, 2007First
      Quarter
                  
                  
                  N/A
                  
                  
                  
                  N/ASecond
      Quarter
                  
                  
                  N/A
                  
                  
                  
                  N/AThird
      Quarter
                  
                  
                  N/A
                  
                  
                  
                  N/AFourth
      Quarter
                  
                  
                  N/A
                  
                  
                  
                  N/A





The
source for the high and low closing bids quotations is the Google Finance
website and does not reflect inter-dealer prices. Such quotations are without
retail mark-ups, mark-downs or commissions, and may not represent actual
transactions.





Holders.





As of
March 24, 2009, we had approximately 27 stockholders of our Common Stock of
record, and our common stock had a closing bid price of $3.50 per
share.





Outstanding Options, Conversions, and
Planned Issuance of Common Stock.





As of
December 31, 2008, there were no warrants or options outstanding to acquire any
shares of our Common Stock.





Dividends and Related
Policy.





We do not
expect to declare or pay any cash dividends on our Common Stock in the
foreseeable future, and we currently intend to retain future earnings, if any,
to finance the expansion of our business. The decision whether to pay cash
dividends on our Common Stock will be made by our board of directors, in their
discretion, and will depend on our financial condition, operating results,
capital requirements and other factors that the board of directors considers
significant.





Securities Authorized for Issuance
Under Equity Compensation Plans.





As of
December 31, 2008, we have no compensation plans (including individual
compensation arrangements) under which the Company’s equity securities are
authorized for issuance.





Transfer
Agent and Registrar.





Our
transfer agent is Corporate Stock Transfer, located at 3200 Cherry Creek Drive
South, Suite 430, Denver, Colorado 80209.  Their telephone number is
(303) 282-4800.


28


Recent Sales of Unregistered
Securities.





Each
issuance set forth below was made in reliance upon the exemptions from
registration requirements of the Securities Act of 1933, as amended, contained
in Section 4(2) on the basis that such transactions did not involve a public
offering.  When appropriate, we determined that the purchasers of
securities described below were sophisticated investors who had the financial
ability to assume the risk of their investment in our securities and acquired
such securities for their own account and not with a view to any distribution
thereof to the public.  Where required by applicable law, the
certificates evidencing the securities bear legends stating that the securities
are not to be offered, sold or transferred other than pursuant to an effective
registration statement under the Securities Act or an exemption from such
registration requirements.





In
February 2005, the Company issued 300,000 shares of common stock to Phillip E.
Ray for $1,500.




On
February 25, 2005, the Company issued 300,000 shares of common stock to Ms. Ruth
Daily for services performed in connection with the organization of the
Company.  The Company valued the services at $1,500 or $0.005 per
share.




In
November 2005, the Company issued 22,000 shares of our common stock to Mr. Darin
Ray for $1,100, or $0.05 per share.




In
November 2005, the Company issued 22,000 shares of our common stock to Mr. Brian
Ray for $1,100, or $0.05 per share.




In
November 2005, the Company issued 16,000 shares of our common stock to Ms. Raine
Thomson (Daily) for $800, or $0.05 per share.




In
November 2005, the Company issued 16,000 shares of our common stock to Mr. Mike
Hixon for $800, or $0.05 per share.




In
November 2005, the Company issued 16,000 shares of our common stock to Mr.
Patrick Dunda for $800, or $0.05 per share.




In
November 2005, the Company issued 16,000 shares of our common stock to Ms. W.
Fay Starr for $800, or $0.05 per share.




On April
24, 2007, the Company issued 60,000shares of common stock
to VentureVest Capital Corporation for $6,000, or $0.10 per share.




On May
23, 2007, the Company issued 50,000 shares of common stock to American Business
Services, Inc. for $6,000, or $0.10 per share.




Pursuant
to the terms of the Exchange Agreement, the Stockholder acquired 11,700,000
newly-issued shares of the Company’s common stock, representing approximately
64.64% of the Company’s issued and outstanding common stock.





Purchases
of Equity Securities by the Issuer and Affiliated Purchasers.





None.


29


Item 6.
            Selected
      Financial Data.





Not
applicable.




Item
      7.
            Management
      Discussion and Analysis of Financial Conditions and Results of
      Operations





Forward
Looking Statements




The
following is management’s discussion and analysis of certain significant factors
which have affected our financial position and operating results during the
periods included in the accompanying consolidated financial statements, as well
as information relating to the plans of our current management and should be
read in conjunction with the accompanying financial statements and their related
notes included in this Report. References in this section to “we,” “us,” “our,”
or the “Company” are to the consolidated business of China Auto Logistics Inc.
and its wholly owned and majority owned subsidiaries.




This
Report contains forward-looking statements. Generally, the words “believes,”
“anticipates,” “may,” “will,” “should,” “expects,” “intends,” “estimates,”
“continues,” and similar expressions or the negative thereof or comparable
terminology are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, including the matters set forth
in this Report or other reports or documents we file with the SEC from time to
time, which could cause actual results or outcomes to differ materially from
those projected. Undue reliance should not be placed on these forward-looking
statements which speak only as of the date hereof. We undertake no obligation to
update these forward-looking statements.





Business
Overview




Prior
Operations of China Auto Logistics Inc.




China
Auto Logistics Inc., formerly Fresh Ideas Media, Inc., was incorporated in the
State of Nevada on February 22, 2005. Fresh Ideas Media, Inc. was engaged in the
advertising and consulting business. In February 2005, Fresh Ideas Media, Inc.
formed its wholly-owned subsidiary, Community Alliance, Inc. (“Community Alliance”), an
entity which markets sub-licenses for take home school folders. Fresh Ideas
Media, Inc. had only commenced limited operations and had not yet generated
significant revenues, and was therefore considered a development stage
company.




The
Exchange and the Spin-Off





On
November 10, 2008, Fresh Ideas Media, Inc. entered into the Exchange Agreement
(“Exchange”) with a Hong Kong corporation, Ever Auspicious International Limited
(“HKCo”), whereby Fresh Ideas Media, Inc. acquired all of the issued and
outstanding securities of the HKCo in exchange for the issuance by Fresh Ideas
Media, Inc. of 11,700,000 newly-issued shares of our common stock. The closing
of the Exchange (“Closing”) occurred on the same day, immediately following the
cancellation of an aggregate of 1,135,000 shares of Fresh Ideas Media, Inc.’s
common stock held by Phillip E. Ray and Ruth Daily, Fresh Ideas Media, Inc.’s
principal stockholders immediately prior to the Closing.  Prior to the
Exchange, Phillip E. Ray and Ruth Daily owned approximately 23.89% and 16.58% of
the issued and outstanding common stock of Fresh Ideas Media, Inc.,
respectively.  As of the Closing, HKCo beneficially owns
approximately 64.64% of the voting capital stock of Fresh Ideas Media,
Inc.  As a result of the Exchange, HKCo became a wholly owned
subsidiary of Fresh Ideas Media, Inc. and Fresh Ideas Media, Inc.’s primary
business operations are those of HKCo.  Shortly after the Closing,
Fresh Ideas Media, Inc. changed its name from Fresh Ideas Media, Inc. to China
Auto Logistics Inc. (the “Company”).


30





In
connection with the consummation of the share exchange, Fresh Ideas Media, Inc.
agreed to consummate the spin-off of Community Alliance through a dividend
of all of the issued and outstanding capital stock of Community Alliance to
holders of Fresh Ideas Media, Inc.’s common stock as of September 9, 2008. The
spin-off was approved by the Board of Directors of Fresh Ideas Media, Inc. on
September 9, 2008 and would be consummated upon the satisfactory resolution of
all of the SEC’s comments to the Form 10 registration statement relating to
Community Alliance’s common stock and such registration statement’s
effectiveness. Upon the consummation of the spin-off, the business and
operations of HKCo will be the sole business and operations of Fresh Ideas
Media, Inc..





The HKCo
was incorporated in Hong Kong on October 17, 2007.  Prior to December
25, 2007, HKCo had minimal assets and no operations. On December 25, 2007,
Tianjin Seashore New District Shisheng Business Trading Group Co. Ltd.
(“Shisheng”) a company established under the laws of the People’s Republic of
China (“PRC”), became a wholly-owned foreign enterprise of HKCo and this
arrangement was approved by relevant ministries of the PRC
government.





Upon the
completion of the transactions on December 25, 2007 and November 10, 2008, the
Company owned 100% of HKCo which owned 100% of Shisheng, the operating entity of
HKCo.  For financial reporting purposes, these transactions are
classified as a recapitalization of Shisheng and the historical financial
statements of Shisheng are reported as the Company’s historical financial
statements.




Current
Business of the Company




The
Company, through its website, www.at188.com,
engages in automobile sales, custom clearance services, storage services and
national transportation. We are also the only one-stop service provider in
Tianjin, also providing dealer financing to our customers. Additionally, the
Company’s website www.1365car.com,
currently running in 11 cities, targets domestic manufactured automobile dealers
and traders in an effective and efficient quoting platform, with a user-friendly
interface for the customers to identity the best quotes and packages. We aim to
launch a consolidated national website soon.


31


Critical
Accounting Policies, Estimates and Assumptions




Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements. These financial statements are
prepared in accordance with generally accepted accounting principles in the
United States (“U.S. GAAP”), which requires us to make estimates and assumptions
that affect the reported amounts of our assets and liabilities and revenues and
expenses, to disclose contingent assets and liabilities on the date of the
financial statements, and to disclose the reported amounts of revenues and
expenses incurred during the financial reporting period. The most significant
estimates and assumptions include revenues recognition, valuation of inventories
and provisions for income taxes. We continue to evaluate these estimates and
assumptions that we believe to be reasonable under the circumstances. We rely on
these evaluations as the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Since
the use of estimates is an integral component of the financial reporting
process, actual results could differ from those estimates. Some of our
accounting policies require higher degrees of judgment than others in their
application. We believe critical accounting policies as disclosed in this Form
10-K reflect the more significant judgments and estimates used in preparation of
our financial statements. We believe there have been no material changes to our
critical accounting policies and estimates.




The
following critical accounting policies rely upon assumptions and estimates and
were used in the preparation of our consolidated financial
statements:




Revenue
Recognition




The
Company’s main source of income was generated through (1) sales of automobiles,
(2) service fees for financing services, (3) web-based advertising service fees,
including fees from (i) displaying graphical advertisements on the Company
websites and (ii) web-based listing services that allow customers to place
automobile related information on the Company’s websites, and (4) automobile
import value added services. The financing services are provided to customers on
automobiles not sold by the Company. The Company recognizes revenue when there
is persuasive evidence of an arrangement, delivery has occurred upon shipment or
services being rendered, the seller’s price to the buyer is fixed or
determinable, and collectibility is reasonably assured.




The
Company recognizes the sales of automobiles upon delivery and acceptance by the
customers and where collectibility is reasonably assured.




Service
revenue related to financing services is recognized ratably over the financing
period.




Service
fees for graphical advertisements on the Company’s websites are charged on a
fixed fee basis. The Company recognizes the advertising revenue when the service
is performed over the service term.





The
Company charges a monthly fee for listing services and recognizes the revenue
when services are performed.




The
Company recognizes revenue from automobile import value added services when such
services are performed.


32


Inventory




Inventory
is stated at the lower of cost (using the first-in, first-out method) or market.
We continually evaluate the composition of our inventory assessing slow-moving
and ongoing products. Our products are comprised of the purchase cost of
automobiles which declines in value over time. We continuously evaluate our
inventory  to determine the reserve amount for slow-moving
inventory.




Currency
Reporting




Amounts
reported are stated in U.S. Dollars, unless stated otherwise. Our functional
currency is Renminibi (“RMB”). Foreign currency transactions (outside the PRC)
are translated into RMB according to the prevailing exchange rate at the
transaction dates. Assets and liabilities denominated in foreign currencies at
the balance sheet dates are translated into RMB at period-end exchange rates.
For the purpose of preparing the consolidated financial statements, the
consolidated balance sheets of our Company have been translated into U.S.
dollars at the current rates as of the end of the respective periods and the
consolidated statements of income have been translated into U.S. dollars at the
weighted average rates during the periods the transactions were recognized. The
resulting translation gain adjustments are recorded as other comprehensive
income in the consolidated statements of income and comprehensive income and as
a separate component of consolidated statements of shareholders’
equity.




Income
taxes




Deferred
income taxes are recognized for temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements,
net operating loss carry forwards and credits by applying enacted statutory tax
rates applicable to future years. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Current
income taxes are provided for in accordance with the laws of the relevant taxing
authorities.




In June
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109”. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48 is effective for fiscal years beginning after December 15, 2006, with early
adoption permitted. The Company adopted FIN 48 on January 1, 2007. The adoption
of FIN 48 did not result in a cumulative adjustment on January 1, 2007 and had
no significant impact on the Company’s accounting for income taxes for the years
ended December 31, 2008 and 2007. The Company did not incur any interest or
penalties related to potential underpaid income tax expenses.





Results
of Operations for the Fiscal Year Ended December 31, 2008 Compared To the Fiscal
Year Ended December 31, 2007





The
following table sets forth certain information relating to our results of
operations, and our consolidated statements of operations as a percentage of net
revenue, for the periods indicated:


33





For
      the Year Ended December 31,2008
                    
                    
                    2007
                    
                    
                    Change
      in
                      %Net
      revenue
                    
                    $
                    189,737,077
                    
                    
                    
                    100.00
                    %
                    
                    $
                    152,430,674
                    
                    
                    
                    100.00
                    %
                    
                    
                    24.47
                    %Cost
      of revenue
                    
                    $
                    181,065,563
                    
                    
                    
                    95.43
                    %
                    
                    $
                    147,270,951
                    
                    
                    
                    96.62
                    %
                    
                    
                    22.95
                    %Gross
      profit
                    
                    $
                    8,671,514
                    
                    
                    
                    4.57
                    %
                    
                    $
                    5,159,723
                    
                    
                    
                    3.38
                    %
                    
                    
                    68.06
                    %Operating
      expenses
                    
                    $
                    2,517,652
                    
                    
                    
                    1.33
                    %
                    
                    $
                    1,425,022
                    
                    
                    
                    0.93
                    %
                    
                    
                    76.67
                    %Income
      from operations
                    
                    $
                    6,153,862
                    
                    
                    
                    3.24
                    %
                    
                    $
                    3,734,701
                    
                    
                    
                    2.45
                    %
                    
                    
                    64.78
                    %Other
      expenses
                    
                    $
                    (209,489
                    )
                    
                    
                    (0.11
                    %)
                    
                    $
                    (47,891
                    )
                    
                    
                    (0.03
                    %)
                    
                    
                    337.43
                    %Income
      before income taxes, minority interests and extraordinary
    item
                    
                    $
                    5,944,373
                    
                    
                    
                    3.13
                    %
                    
                    $
                    3,686,810
                    
                    
                    
                    2.42
                    %
                    
                    
                    61.23
                    %Net
      Income
                    
                    $
                    3,987,363
                    
                    
                    
                    2.10
                    %
                    
                    $
                    3,173,375
                    
                    
                    
                    2.08
                    %
                    
                    
                    25.65
                    %




For the
year ended December 31, 2008, our net revenue increased 24.47% to $189,737,077,
from our net revenue of $152,430,674 in 2007, and our cost of revenue increased
22.95% from $147,270,951 in 2007 to $181,065,563 in 2008. Gross profit increased
68.06% from $5,159,723 in 2007 to $8,671,514 in 2008.  Income from
operations increased 64.78% to $6,153,862 in 2008 from $3,734,701 in 2007, which
is primarily attributable to the growth in net revenue. Net income increased
25.65% from $3,173,375 to $3,987,363 from 2007 to 2008. In 2008, the Company’s
gross margins improved substantially to 4.57%, compared to a gross margin of
3.38% in 2007. While less than 2% of net revenues, the Company’s website and
auto-related services business contributed 1.74% of the margin, while the margin
on automobile sales was 2.83%. The increase in gross margin in 2008 was
attributable primarily to a more than doubling of the margin on auto sales. In
future years, the Company expects that the margins on its website and services
business will become an increased proportion of gross margin. In 2008, income
taxes increased substantially, as all of the Company’s subsidiaries incurred
taxes as compared with only one subsidiary in 2007.





Net
Revenue





The
following table sets forth a summary of our net revenue by categories for years
indicated, in dollars and as a percentage of total net revenue:


For
      the Year Ended December 31,2008
                    
                    
                    2007
                    
                    
                    Chang in%Net
      Revenue
                    
                    $
                    189,737,077
                    
                    
                    
                    100.00
                    %
                    
                    $
                    152,430,674
                    
                    
                    
                    100.00
                    %
                    
                    
                    24.47
                    %-
      Sales of Automobiles
                    
                    $
                    186,343,080
                    
                    
                    
                    98.21
                    %
                    
                    $
                    149,156,996
                    
                    
                    
                    97.85
                    %
                    
                    
                    24.93
                    %-
      Financing Services
                    
                    $
                    899,538
                    
                    
                    
                    0.47
                    %
                    
                    $
                    736,590
                    
                    
                    
                    0.48
                    %
                    
                    
                    22.12
                    %-
      Web-based Advertising Services
                    
                    $
                    1,762,859
                    
                    
                    
                    0.93
                    %
                    
                    $
                    1,459,948
                    
                    
                    
                    0.96
                    %
                    
                    
                    20.75
                    %-
      Automobile Import  Value Added Services
                    
                    $
                    731,600
                    
                    
                    
                    0.39
                    %
                    
                    $
                    1,077,140
                    
                    
                    
                    0.71
                    %
                    
                    
                    (32.08
                    %)




34





General




Our
revenues are derived from sales of automobiles, financing services, web-based
advertising services and automobile import value added services. For the years
ended December 31, 2008 and 2007, net revenue was $189,737,077 and $152,430,674
respectively, representing a 24.47% growth rate from 2007 to 2008.





Sales of
Automobiles




Net
revenue was generated primarily from sales of automobiles, which increased
24.93%, from $149,156,996 in 2007 to $186,343,080 in 2008. The Company sold
2,523 automobiles in 2008 and 2,464 automobiles in 2007, representing an
increase of 2.39% in the volume. The average unit selling price increased 21.89%
from $60,535 in 2007 to $73,786 in 2008 due to the increasing unit price
primarily due to the market’s favor of big engine cars, particularly SUVs. The
Company will focus more on the sales of luxury high-end automobiles than
increasing unit sales.





Our top
three customers generated approximately 22% of our total revenue in 2008 and 27%
of our total revenue in 2007.  The Company has historically maintained
close working relationships with its top customers. We aim to maintain these
relationships while reducing the concentration of our revenues among these top
customers.





Transforming from an automobile trader
to a modernized web-based automobile-related logistics service provider, the
rate of growth in automobiles sales is expected to decline. We do not foresee
our leading position as the imported automobile trader in Tianjin to change in
the near future. In the future, we plan to consistently enhance our
profitability.





Financing
Services




Our
revenue from financing services increased 22.12%, from $736,590 in 2007 to
$899,538 in 2008. Our revenue growth from financing services is heavily
dependent on overall industry growth and the economic conditions of the market
in the PRC. As of December 31, 2008, the Bank of China determined the exchange
rate of RMB to U.S. dollars to be 6.8346, which constitutes an appreciation of
6.43% from the exchange rate of 7.3046 as of December 31, 2007.  The
appreciation of the RMB is one of the factors in the increase of our revenue in
2008 from 2007. Another factor that affects our revenue from financing services
is our relationship with major commercial banks. Our Company established
reputable credit with most major commercial banks and although the enormous
decrease or the simultaneous expiration of credit lines or other bank facilities
may reduce our capacity to provide financing services and to affect our purchase
power, we had not experienced formidable difficulties in the access of credit
lines and any other bank facility. We do not foresee any difficulty at this time
in obtaining credit lines and loan facilities from our banks.




35


We
provide financing services to our customers with our lines of credit with major
commercial banks in the PRC, including the Agriculture Bank of China and China
Merchants Bank. We continue to strengthen our relationship with these banks and
aim to negotiate with more banks for higher lines of credit at more favorable
terms. As of December 31, 2008, our total amount of facility lines of credit was
approximately $27,799,725 (RMB 190,000,000). Based on the Company’s business
relationships with some financial institutions, we are able to obtain financing
on an “as-needed” basis and we are in negotiations for a number of new credit
lines. As of March 15, 2009, the Company had a credit line of $41,406,959 (RMB
283,000,000). Although all of our lines of credit have maturities of less than
one year and may not be renewed on the same terms, if at all, we do not expect
that the expiration of our lines of credit with any one of our existing banks
will have a material adverse effect on our ability to provide financing
services. However, if the automobile market in the PRC, and in particular the
market for imported automobiles, slows down in the future, our revenue from
financing services would be materially and adversely affected by a decreased
number of transactions.




We view
the business of financing services and automobile import value added services as
closely related, and both are heavily dependent upon market conditions. In
particular, a tightening of the credit market in the PRC, to the extent it
impacts our ability to obtain lines of credit from our banks or other additional
financing, will also limit our ability to provide financing services to our
customers.





Web-based Advertising
Services




Revenue
generated from advertisements on our websites has experienced continuous growth
in recent years.





Revenue
generated by our websites increased 20.75%, from $1,459,948 in 2007 to
$1,762,859 in 2008. As of December 31, 2008, www.at188.com had
over 130 subscribers and generates revenue mainly from advertisements.
Currently, all of our revenue from our websites is generated by subscription
fees and advertisements. We generate 90% of our revenues from our websites from
subscription fees and advertisements, and 10% from automobile import value added
services sold over the Internet.




We are
experiencing rapid development in our websites. The revenue growth rate from our
websites has been lower because we have been providing discounts to our
customers as a way of attracting business while the websites are still in an
expansion phase. We also provide subscription-exemptions, discounted prices or
even free advertisements to attract repeat customers.




Automobile Import Value
Added Services




Our
automobile import value added services revenue decreased 32.08%, from $
1,077,140 in 2007 to $ 731,600 in 2008, primarily due to the slow down of
Tianjin Port for the 2008 Beijing Olympic Games, which affected the general
import business for over 40 days. Another negative impact on our automobile
import value added services revenue occurred in November 2008 with the world
wide economic decline, which induced a slowdown in the imported automobile sales
for several weeks. In the first two months of 2009, the economic situation has
improved. In February, automobile sales in China increased more than
25%.


36




Cost
of Revenue




For
      the Year Ended December 31,2008
                  
                  
                  2007
                  
                  
                  Change in
                    %Net
      revenue
                  
                  $
                  189,737,077
                  
                  
                  
                  100.00
                  %
                  
                  $
                  152,430,674
                  
                  
                  
                  100.00
                  %
                  
                  
                  24.47
                  %Cost
      of revenue
                  
                  $
                  181,065,563
                  
                  
                  
                  95.43
                  %
                  
                  $
                  147,270,951
                  
                  
                  
                  96.62
                  %
                  
                  
                  22.95
                  %





Our cost
of revenue in 2008 consisted primarily of the cost of automobiles imported from
foreign automobile manufacturers. Our cost of revenue increased 22.95%, from $
147,270,951 in 2007 to $ 181,065,563 in 2008. The increase was due primarily to
the increase in the purchase price of imported automobiles, which is consistent
with our net revenue growth rate. The amount of direct cost of revenue related
to the automobile import value services, financing services and web-based
advertising services was de
minimis.





As our
cost of revenue consists primarily of the purchase price of imported
automobiles, we have limited influence on such costs. The prices of imported
automobiles are determined solely by suppliers and are dependent upon market
conditions. We will continue to work on obtaining more favorable terms and
discounts by strengthening our relationship with suppliers and placing more
batch orders.




Operating
Expenses




For
      the Year Ended December 31,2008
                  
                  
                  2007
                  
                  
                  Change in
                    %Operating
      expenses-
      Selling & Marketing
                  
                  $
                  1,118,442
                  
                  
                  
                  44.42
                  %
                  
                  $
                  949,219
                  
                  
                  
                  66.61
                  %
                  
                  
                  17.83
                  %-
      General & Administrative
                  
                  $
                  1,399,210
                  
                  
                  
                  55.58
                  %
                  
                  $
                  475,803
                  
                  
                  
                  33.39
                  %
                  
                  
                  194.07
                  %Total
                  
                  $
                  2,517,652
                  
                  
                  
                  100.00
                  %
                  
                  $
                  1,425,022
                  
                  
                  
                  100.00
                  %
                  
                  
                  76.67
                  %





Operating
expenses increased 76.67%, from $1,425,022 in 2007 to $2,517,652 in 2008. This
increase was a combination of a 17.83% increase in selling and marketing
expenses from $949,219 in 2007 to $1,118,442 in 2008, and a 194.07% increase in
general and administrative expenses (“G&A”) from $475,803 in 2007 to
$1,399,210 in 2008.


37


Selling
and marketing expenses increased 17.83% in 2008. The following table sets forth
a breakdown of the primary selling and marketing expenses of the
Company:




For the Year Ended December
    31,2008
                      
                      
                      2007
                      
                      
                      Change in %Primary
      selling & marketing expenses-
      Entertainment
                      
                      $
                      90,824
                      
                      
                      $
                      86,178
                      
                      
                      
                      5.39
                      %-
      Auto insurance, maintenance and fees
                      
                      $
                      93,143
                      
                      
                      $
                      59,557
                      
                      
                      
                      56.39
                      %-
      Payroll
                      
                      $
                      252,894
                      
                      
                      $
                      190,463
                      
                      
                      
                      32.78
                      %-
      Advertisement expenses
                      
                      $
                      97,183
                      
                      
                      $
                      60,059
                      
                      
                      
                      61.81
                      %-
      Rent
                      
                      $
                      159,993
                      
                      
                      $
                      144,989
                      
                      
                      
                      10.35
                      %





Payroll
expenses increased 32.78%, from $190,463 in 2007 to $252,894 in 2008 due to an
increasing number of full-time selling and marketing personnel and the rising
costs of remuneration packages used to recruit and maintain skilled employees.
In 2008, auto insurance, maintenance and fees increased 56.39% primarily due to
the increase of overall auto toll fee in the PRC, as well as the increase of
auto insurance and license plate fees. Because of these cost increases, the
Company’s vehicle related expenses in association with the nationwide expansion
of www.1365car.tj.cn
increased sharply. Advertising expenses increased 61.81%, from $60,059 in 2007
to $97,183 in 2008 primarily due to the marketing of the two websites www.1365car.tj.cn and
www.at188.com.
The 10.35% increase in rent expenses in 2008 from 2007 is primarily due to RMB
appreciation.





The
following table sets forth a breakdown of the primary G&A expenses of the
Company:




For the Year Ended December
    31,2008
                  
                  
                  2007
                  
                  
                  Change in %Primary
      G&A expenses-
      Depreciation
                  
                  $
                  200,701
                  
                  
                  $
                  151,156
                  
                  
                  
                  32.78
                  %-
      Entertainment
                  
                  $
                  35,877
                  
                  
                  $
                  34,785
                  
                  
                  
                  3.14
                  %-
      Payroll
                  
                  $
                  410,437
                  
                  
                  $
                  157,633
                  
                  
                  
                  160.38
                  %-
      Travel
                  
                  $
                  55,225
                  
                  
                  $
                  17,707
                  
                  
                  
                  211.88
                  %-
      Professional fees
                  
                  $
                  547,085
                  
                  
                  $
                  -
                  
                  
                  
                  N/A





Our total
general and administrative expenses increased 194.07% to $1,399,210 in 2008 from
$475,803 in 2007. This was partly a result of professional fees incurred in
connection with the Company becoming a public company, which totaled $547,085.
Excluding such fees, the G&A expenses increased 79.09% to $852,125. Our
travel expenses increased 211.88% from $17,707 in 2007 to $55,225 in 2008 as a
result of market research activities relating to our efforts in setting up our
website operations for domestic manufactured automobiles in 11 additional
cities. Payroll expenses also increased 160.38% to $410,437 in 2008 compared
$157,633 in 2007. This was a result of an increase in the Company’s number of
full-time employees from December 31, 2007 to December 31, 2008. In 2008, the
Company also provided a more competitive remuneration package to attract and
retain qualified personnel.


38


Depreciation
increased 32.78% in 2008 to $200,701 from $151,156 in 2007. This increase in
depreciation is due to the Company’s purchase of office equipment and furniture
and the upgrade of its computers and server.




Depreciation
and Amortization




In order
to meet the needs of the expansion of its operations, the Company steadily
purchased office equipment and updated computer and server hardware and software
in 2008. These purchases led to an increase in depreciation and amortization
from $164,336 in 2007 to $200,701 in 2008, an increase of 22.13%. As of December
31, 2008, the Company does not own any real property.




We
depreciate our property and equipment under the straight-line method over the
economic useful lives of the assets.




Income
from Operations





Income
from operations increased 64.78%, to $6,153,862 in 2008 from $3,734,701 in 2007,
which is primarily attributable to the growth in revenue and gross
profit.





Gross
profits increased by 68.06%, from $5,159,723 in 2007 to $8,671,514 in 2008, due
to an increase in net revenues of 24.47% from $152,430,674 to
$189,737,077.





In the
future, in our automobiles sales business, we plan to improve profitability. We
expect to strengthen relationships with our major suppliers to obtain more
favorable terms such as freight exemptions and discounts. We also expect profit
expansion from continued growth in our website services and auto-related
services business.




Other
Income and Expenses




Other
income and expenses consists primarily of interest income and interest expenses.
The Company’s interest income is generated by interest earned through bank
deposits while interest expenses are amounts paid with respect to interest by
the Company with respect to its borrowings from the banks. The decrease in
interest income was primarily as a result of a decrease in the amount of the
Company’s restricted cash held by the banks.




Liquidity
and Capital Resources




We
generally finance our operations through a combination of operating profit and
short-term borrowings from banks. During the reporting periods, we arranged a
number of bank loans to satisfy our financing needs. As of the date of this Form
10-K, we have not experienced any difficulty in raising funds through bank
loans, and we have not experienced any liquidity problems in settling our
payables in the normal course of business and repaying our bank loans when they
come due.


39


We
believe that the level of financial resources is a significant factor for our
future development and accordingly, we may determine from time to time to raise
capital through private debt or equity financings to strengthen the Company’s
financial position, to expand our facilities and to provide us with additional
flexibility to take advantage of business opportunities.  No
assurances can be given that we will be successful in raising such additional
capital on terms acceptable to us.





The
following table sets forth a summary of our cash flows for the fiscal years
ended December 31, 2008 and 2007.





2008
                        
                        
                        2007Net
      cash provided by (used for) operating activities
                        
                        $
                        (6,834,781
                        )
                        
                        $
                        7,005,231Net
      cash provided by investing activities
                        
                        $
                        6,387,350
                        
                        
                        $
                        2,474,550Net
      cash used for financing activities
                        
                        $
                        (3,990,186
                        )
                        
                        $
                        (6,786,047
                        )Effect
      of exchange rate change on cash
                        
                        $
                        333,290
                        
                        
                        $
                        348,228Cash
      and cash equivalents at beginning of year
                        
                        $
                        5,703,108
                        
                        
                        $
                        2,661,146Cash
      and cash equivalents at end of year
                        
                        $
                        1,598,781
                        
                        
                        $
                        5,703,108





Operating
Activities




During
fiscal year 2008, net cash used for operating activities was $6,834,781, as
compared to net cash provided by operating activities of $7,005,231 in 2007, an
increase of $13,840,012 in net cash used for operating
activities.  The increase was a result of several factors, including
an increase of net inventory for $7,923,367, and a decrease of customer deposits
for $14,012,217, which was partially offset by a decrease of advances to
suppliers for $12,432,446. During the fiscal year 2007, net cash provided by
operating activities in the amount of $7,005,231 was primarily caused by an
increase of customer deposits for $10,458,326, which was partially offset by an
increase of advances to suppliers for $6,854,490.





Investing
Activities




During
fiscal year 2008, we generated net cash from investing activities of $6,387,350,
as compared to $2,474,550 of net cash provided by investing activities in 2007.
The increase was mainly due to a decrease in the amount of the Company’s
restricted cash of $6,574,124 for 2008 compared to that of $2,547,499 for 2007.
During 2008, we provided most of our financing service through China Merchants
Bank, which has a much lower deposit ratio than what we used in 2007. As a
result of that, the balance of the restricted cash had a significant
decline.




Financing
Activities




During
fiscal year 2008, net cash used for financing activities was $3,990,186, as
compared to $6,786,047 of net cash used for financing activities in 2007, a
decrease of $2,795,861. During the year ended December 31, 2007, the Company
repaid a net amount of $10,729,108 for advances due to a director which was
partially offset by additional capital contributions of $8,498,065 by our
majority shareholder.





Our total
cash and cash equivalents increased to $1,598,781 as of December 31, 2008, as
compared to $5,703,108 as of December 31, 2007.


40





Working
Capital




Our
management reviews accounts receivable on a regular basis to determine if the
allowance for doubtful accounts is adequate.  An estimate for doubtful
accounts is recorded when collection of the full amount is no longer probable.
We have minimal accounts receivable from our automobile sales and trading
operations for fiscal years 2008 and 2007.




During
fiscal year 2008, our net inventory increased to $16,434,391, as compared to
$7,849,957 of inventory held by the Company as of December 31, 2007. The
increase of net inventory from 106 units as of December 31, 2007 to 211 units as
of December 31, 2008 was primarily due to the management’s optimistic estimate
on the import automobile market in 2009. During the last several months in 2008,
most of the import automobile dealers reduced inventory as a result of the world
wide economic decline, but we still keep substantial inventory as we believe
that the economic downturn will have a limited impact on the Chinese high-end
automobile market.





Capital
Expenditures




We had
property and equipment, net of $622,604 as of December 31, 2008 and $595,748 as
of December 31, 2007. The increase of net fixed assets is mainly due to an
increase in automobile expenditures.





The
following table sets forth a summary of our property and equipment for the
fiscal years ended December 31, 2008 and 2007.




For
      the Year Ended December 31,2008
                  
                  
                  2007
                  
                  
                  Change
      in %Computer
                  
                  $
                  208,772
                  
                  
                  $
                  154,822
                  
                  
                  
                  34.85
                  %Office
      equipment, furniture and fixtures
                  
                  $
                  107,121
                  
                  
                  $
                  86,445
                  
                  
                  
                  23.92
                  %Automobiles
                  
                  $
                  972,397
                  
                  
                  $
                  787,055
                  
                  
                  
                  23.55
                  %Total
                  
                  $
                  1,288,290
                  
                  
                  $
                  1,028,322
                  
                  
                  
                  25.28
                  %Accumulated
      depreciation
                  
                  $
                  665,686
                  
                  
                  $
                  432,574
                  
                  
                  
                  53.89
                  %Net
                  
                  $
                  622,604
                  
                  
                  $
                  595,748
                  
                  
                  
                  4.51
                  %





Trend Information





Other
than as disclosed elsewhere in this Form 10-K, we are not aware of any trends,
uncertainties, demands, commitments or events for the periods discussed in this
section that are reasonably likely to have a material adverse effect on our net
revenues, income, profitability, liquidity or capital resources, nor any that
caused the disclosed financial information to not necessarily be indicative of
future operating results or financial conditions.


41





Off-Balance
Sheet Arrangements





We do not
have any outstanding derivative financial instruments, off-balance sheet
guarantees, interest rate swap transactions or foreign currency forward
contracts. Furthermore, we do not have any retained or contingent interest in
assets transferred to an unconsolidated entity that serves as credit, liquidity
or market risk support to such entity. We do not have any variable interest in
an unconsolidated entity that provides financing, liquidity, market risk or
credit support to us or that engages in leasing, hedging or research and
development services with us.





New
Accounting Pronouncements





In
December 2007, the FASB issued SFAS No. 141R, "Business Combination", to improve
reporting creating greater consistency in the accounting and financial reporting
of business combinations.  The standard requires the acquiring entity
in a business combination to recognize all (and only) the assets acquired and
liabilities assumed in the transaction; establishes the acquisition-date fair
value as the measurement objective for all assets acquired and liabilities
assumed; and requires the acquirer to disclose to investors and other users all
of the information they need to evaluate and understand the nature and financial
effect of the business combination.  It is not expected to have a
material impact on the Company’s financial position, results of operations and
cash flows.





In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements" to improve the relevance, comparability, and
transparency of financial information provided to investors by requiring all
entities to report noncontrolling (minority) interests in subsidiaries in the
same way as required in the consolidated financial
statements.  Moreover, SFAS No. 160 eliminates the diversity that
currently exists in accounting for transactions between an entity and
noncontrolling interests by requiring they be treated as equity
transactions.  SFAS No. 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008.  It is not expected to have a material impact on the Company’s
financial position, results of operations and cash flows.





In March
2008, the FASB issued FASB Statement 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. The Company has not yet begun the process of assessing the potential
impact the adoption of FASB No. 161 may have on its consolidated financial
position or results of operations.





In April
2008, the FASB issued FSP SFAS 142-3, “Determination of the Useful Life of
Intangible Assets”(“FSP SFAS 142-3”).This FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, “Goodwill and Other
Intangible Assets”. This FSP is effective for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. The
guidance for determining the useful life of a recognized intangible asset in
this FSP shall be applied prospectively to intangible assets acquired after the
effective date. The Company is evaluating the impact, if any, of the adoption of
FSP SFAS 142-3. It is not expected to have a material impact on the Company’s
financial position, results of operations and cash flows.


42





In May
2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles ("SFAS 162"). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of non-governmental entities that are
presented in conformity with U.S. GAAP. SFAS 162 directs the U.S. GAAP hierarchy
to the entity, not the independent auditors, as the entity is responsible for
selecting accounting principles for financial statements that are presented in
conformity with U.S. GAAP. SFAS 162 is effective 60 days following the
Securities and Exchange Commission’s approval of the Public Company Accounting
Oversight Board amendments to remove the U.S. GAAP hierarchy from the auditing
standards. The Company is currently evaluating the impact of adopting
SFAS No. 162.





In June
2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities”.This FSP gives guidance on the computation of earnings per share and the
impact of share-based instruments that contain certain non forfeitable rights to
dividends or dividend equivalents. The FSP is effective for fiscal years
beginning after December 31, 2008. The Company is evaluating the impact, if any,
of the adoption of FSP EITF 03-6-1. It is not expected to have a material impact
on the Company’s financial position, results of operations and cash
flows.





In
November 2008, the FASB ratifies the consensus reached by the Task Force in EITF
Issue 08-7, “Accounting for
Defensive Intangible Assets”(“EITF 08-7”). EITF 08-7 requires entities
that will acquire a defensive intangible asset after the effective date of SFAS
141R, to account for the acquired intangible asset as a separate unit of
accounting and amortize the acquired intangible asset over the period during
which the asset would diminish in value. EITF 08-7 is effective for defensive
intangible assets acquired in fiscal years beginning on or after December 15,
2008. The Company is evaluating the impact, if any, of the adoption of EITF
08-7. It is not expected to have a material impact on the Company’s financial
position, results of operations and cash flows.





Item 7A.
            Quantitative
      and Qualitative Disclosures About Market
Risk.





Not
applicable.





Item 8.
            Financial
      Statements and Supplementary Data.




Reference
is made to pages F-1 through F-23 comprising a portion of this annual
report on Form 10-K.




Item
      9.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.




On
November 24, 2008, the Board of Directors of the Company dismissed Ronald R.
Chadwick, P.C. as the independent auditors of the Company and appointed
Stonefield Josephson, Inc. an Independent Registered Public Accounting Firm, to
serve as the Company’s independent auditors.


43




Ronald R.
Chadwick, P.C. had been the independent accountants of the Company since January
25, 2007. Their report dated January 18, 2008 on the Company’s audited financial
statements for the Company’s fiscal year ended November 30, 2007 did not contain
an adverse opinion or a disclaimer of opinion nor was it modified as to
uncertainty, audit scope or accounting principles, except for a “going concern”
uncertainty.  During the Company’s two most recent fiscal years and
the subsequent interim period through the date Ronald R. Chadwick, P.C. was
dismissed, there were no disagreements between the Company and Ronald R.
Chadwick, P.C. on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to Ronald R. Chadwick, P.C.’s satisfaction, would have caused them
to make reference to the subject matter of the disagreement in connection with
their reports.  During the Company’s two most recent fiscal years and
through the subsequent interim period through the date Ronald R. Chadwick, P.C.
was dismissed, Ronald R. Chadwick, P.C. did not advise the Company as to any
reportable events as set forth in Item 304(a)(1)(v)(A) through (D) of Regulation
S-K.




Stonefield
Josephson, Inc. has been the independent accountants for Shisheng since January
8, 2008 to present. The Board of Directors determined that because the financial
statements of the Company are tantamount to the financial statements of its new
wholly-owned subsidiary HKCo’s wholly-owned operating subsidiary Shisheng, for
reasons of continuity, Stonefield Josephson, Inc. should become the independent
accountants of the Company.




During
the Company’s two most recent fiscal years and through the subsequent interim
period through the date Ronald R. Chadwick, P.C. was dismissed, the Company has
not consulted with Stonefield Josephson, Inc. regarding the application of
accounting principles to a specified transaction, either completed or proposed,
or any of the matters or events set forth in Item 304(a)(2) of Regulation
S-K.  In addition, prior to the Exchange, neither HKCo nor Shisheng
consulted with Ronald R. Chadwick, P.C. as to any accounting or auditing
matter.




Item 9A(T).
            Controls
      and Procedures.




Disclosure
Controls and Procedures





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and our Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosures.  Our management, including
our Chief Executive Officer and our Chief Financial Officer, does not expect
that our disclosure controls or procedures 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 benefits of controls must be
considered relative to their costs.  Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues are instances of fraud, if any,
within the Company have been detected.  These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or
mistake.  Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control.  The design of any system of controls is also
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions.  Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.


44





We
carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2008, the end of the annual period
covered by this report.  The evaluation of our disclosure controls and
procedures included a review of the disclosure controls’ and procedures’
objectives, design, implementation and the effect of the controls and procedures
on the information generated for use in this report.  In the course of
our evaluation, we sought to identify errors, control problems or acts of fraud
and to confirm the appropriate corrective actions, including process
improvements, were being undertaken.





Based on
the foregoing, our Chief Executive Officer and our Chief Financial Officer
concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective and were operating at the
reasonable assurance level. The Company will continue to evaluate the
effectiveness of its disclosure controls and procedures, as the Company’s
disclosure controls and procedures have not been periodically tested by the
demands of being a public company for a long period of time.





Internal
Control Over Financial Reporting





(a)  Management’s
Annual Report on Internal Control Over Financial Reporting.





The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f) and 15d-15(f).  Under the supervision and with the
participation of the Company’s management, including the Company’s Chief
Executive Officer and Chief Financial Officer, the Company has conducted an
evaluation of the effectiveness of its internal control over financial reporting
as of December 31, 2008, based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.  Based on management’s evaluation under the framework in
Internal Control – Integrated Framework, management concluded that the Company’s
internal control over financial reporting was effective as of December 31, 2008.
Similar to the Company’s evaluation of its disclosure controls and procedures,
the Company will continue to evaluate its internal control over financial
reporting, as the Company’s internal control over financial reporting has not
been periodically tested by the demands of being a public company for a long
period of time.





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


45





(b)  Changes
in Internal Control Over Financial Reporting.





During
our fiscal year 2008, there were no significant changes in our internal controls
over financial reporting that have materially affected, or are reasonably likely
to materially affect our internal controls over
financial  reporting.





Item 9B.
            Other
      Information.




Not
applicable.




PART
III




Item 10.
            Directors,
      Executive Officers and Corporate
Governance.





As of
December 31, 2008, our current directors and executive officers were as
follows:





Name
                      
                      Age
                      
                      Position
      Held
                      
                      ExperienceTong
      Shiping
                      
                      48
                      
                      Chief
      Executive
                        Officer,
      President
                        and
      Chairman of
                        the
      Board
                      
                      Mr.
      Tong has served as President and Chief Executive Officer of the
      Company since 1995, when Shisheng was founded.  He earned his
      Bachelors degree in computer science from the China Air Force Engineering
      University.  From Mr. Tong is also director of the Tianjin Car
      Logistics Association.Li
      Yangqian
                      
                      42
                      
                      Chief
      Operating
                        Officer
      and Vice
                        President
                      
                      Mr.
      Li has served as Vice President and Chief Operating Officer of the Company
      since 2003.  He earned his Masters degree in engineering from
      Tianjin University.  From 2001 to 2003, Mr. Li served as the
      regional manager for Tianjin OTIS Elevator.  Mr. Li is also the
      deputy chairman of the China Automobile Dealers Association – Marketing
      Division.Wang
      Xinwei
                      
                      51
                      
                      Chief
      Financial
                        Officer,
      Treasurer
                        and
      Vice President
                      
                      Ms.
      Wang has served as the Chief Financial Officer, Treasurer and Vice
      President of the Company since joining Shisheng in 2001.  She
      earned her Bachelors degree in industry accounting from Tianjin Radio and
      TV University.  Ms. Wang is a qualified Chinese certified public
      accountant.Cheng
      Weihong
                      
                      46
                      
                      Secretary,
      Senior
                        Vice
      President
                        (Head
      of Human
                        Resources
      and
                        General
                        Administration)
                        and
      Director
                      
                      Ms.
      Cheng has served as Secretary and Senior Vice President (Head of Human
      Resources and General Administration) of the Company since
      1995.  She earned her Bachelors degree from Shijazhuang Military
      Medical University.  Ms. Cheng is also a co-founder of Shisheng
      and has served as the Chairwoman of Shisheng since
  1995.




46





Name
                      
                      Age
                      
                      Position
      Held
                      
                      ExperienceYang
      Bin
                      
                      36
                      
                      Senior
      Vice
                        President
      (General
                        Manager,
      Head of
                        Sales)
      and Director
                      
                      Mr.
      Yang has served as the Senior Vice President (General Manager, Head of
      Sales) since 2003, when he joined Shisheng.  He earned his
      Bachelors degree from Foreign Trade Nankai University and an Executive
      M.B.A. from Tsing Hua University.  Prior to joining Shisheng,
      Mr. Yang served as the general manager of Tianjin Yingzhijie Car Trading
      Corp. from 1999 to 2003.  Mr. Yang also serves with the Expert
      Division of the China Association of Imported
  Automobiles.Howard
      S. Barth
                      
                      56
                      
                      Director
                      
                      Mr.
      Barth has operated his own public accounting firm in Toronto, Canada since
      1985, and has over 26 years of experience as a certified
      accountant.  He has served as a director of Yukon Gold
      Corporation, Inc. (dual listed on OTCBB and TSX) since May 2005 (and has
      served previously as chairman of its audit committee) and was its chief
      executive officer and president in 2006.  He is also currently a
      member of the Board of Directors and chairman of the audit committee for
      Nuinsco Resources Limited (a TSX listed exploration company), New Oriental
      Energy & Chemical Corp. (a NASDAQ listed company) and Orsus Xelent
      Technologies, Inc. (an AMEX-listed company).  He is also
      currently a director for Uranium Hunter Corporation (an OTC BB
      company).  He is a member of the Canadian Institute of Chartered
      Accountants and the Ontario Institute of Chartered Accountants. He earned
      his B.A. and M.B.A. at York
University.




47





Name
                      
                      Age
                      
                      Position
      Held
                      
                      ExperienceGao
      Yang
                      
                      35
                      
                      Director
                      
                      Mr.
      Gao worked for the Bank of China from 1994-2002 and was responsible for
      its institution monetary credit business.  Since 2002, he has
      served as the Institution Sales Manager at the Tianjin Branch of Shanghai
      Pudong Development Bank.  Mr. Gao has rich experience in
      evaluating and controlling credit risk, as well as experience in
      investment, M&A and re-organizations.  He received a
      bachelor’s degree in Economics from Tianjin University of Finance and
      Economics.Qu
      Zhong
                      
                      46
                      
                      Director
                      
                      Ms.
      Qu joined Tianjin Jinma Property Development Corp. in 1992 as assistant
      manager and was later promoted to vice General Manager.  Since
      1995, Ms. Qu has served as the sales manager for Tianjin Guotai Anju
      Property Development and Management Corp.  Ms. Qu received her
      bachelor’s degree in Engineering from Xi’An Telecommunication Engineering
      University, and in 2004, she received an Executive MBA from Tianjin
      University of Finance and Economics.Kong
      Xiaoyan
                      
                      41
                      
                      Director
                      
                      Ms.
      Kong started her career in 1993 with the Tianjin Foreign Trade Law Firm,
      practicing foreign economic law.  She worked as a China Legal
      Consular for Livasari & Co. from 1997-1999. From 1999-2004, she worked
      for Jiade Attorneys of Law as partner and senior partner.  Since
      May 2004, she has practiced with Tianjin Jiade Hengshi Attorneys of Law as
      senior partner.  Ms. Kong received her master’s degree in Law at
      Zhongshan
University.




Certain
Significant Employees




None.




Family
Relationships




Ms. Cheng
Weihong, our Secretary, Senior Vice President (Head of Human Resources and
General Administration) and a director nominee, is the wife of Mr. Tong Shiping,
our President and Chief Executive Officer.


48




Involvement
in Legal Proceedings




During
the past five years, no officer or director of the Company has:




(1)
Petitioned for bankruptcy or had a bankruptcy petition filed by or against any
business of which such person was a general partner or executive officer either
at the time of the bankruptcy or within two years prior to that
time;




(2) Been
convicted in a criminal proceeding or is currently subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses);




(3) Been
subject to any order, judgment or decree, not subsequently reversed, suspended
or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type
of business, securities or banking activities; or




(4) Been
found by a court of competent jurisdiction (in a civil action), the SEC or the
Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed, suspended
or vacated.





Board
of Directors Meetings and Committees




The Board
of Directors held 8 meetings during the fiscal year ended December 31,
2008.  Each Directors member attended, either in person or
telephonically, at least 75% of the aggregate Board of Directors meetings and
meetings of committees on which he served during his tenure as a director or
committee member.





On
December 12, 2008, the Board approved and authorized the establishment of three
new committees: the Audit Committee, the Compensation Committee and the
Nominating and Corporate Governance Committee.  Howard S. Barth
(Chair, Financial Expert), Gao Yang and Kong Xiaoyan were appointed to the Audit
Committee. Kong Xiaoyan (Chair), Qu Zhong and Gao Yang were appointed to the
Compensation Committee. Gao Yang (Chair), Kong Xiaoyan and Qu Zhong were
appointed to the Nominating and Corporate Governance Committee. The charter of
each committee is also available in print to any stockholder who requests
it.





Audit
Committee





The Audit
Committee is currently comprised of Howard S. Barth (Chair), Gao Yang and Kong
Xiaoyan, each of whom are “independent” as independence is currently defined in
applicable Securities and Exchange Commission’s (the “SEC”) rules.  The
Board of Directors has determined that Howard S. Barth qualifies as an “audit
committee financial expert,” as defined in applicable SEC rules implementing
Section 407 of the Sarbanes-Oxley Act of 2002. The Board of Directors made a
qualitative assessment of Mr. Barth’s level of knowledge and experience based on
a number of factors, including his formal education and
experience.


49


The Audit
Committee is responsible for overseeing the Company’s corporate accounting,
financial reporting practices, audits of financial statements and the quality
and integrity of the Company’s financial statements and reports. In addition,
the Audit Committee oversees the qualifications, independence and performance of
the Company’s independent auditors. In furtherance of these responsibilities,
the Audit Committee’s duties include the following: evaluating the performance
of and assessing the qualifications of the independent auditors; determining and
approving the engagement of the independent auditors to perform audit, reviewing
and attesting to services and performing any proposed permissible non-audit
services; evaluating employment by the Company of individuals formerly employed
by the independent auditors and engaged on the Company’s account and any
conflicts or disagreements between the independent auditors and management
regarding financial reporting, accounting practices or policies; discussing with
management and the independent auditors the results of the annual audit;
reviewing the financial statements proposed to be included in the Company’s
annual report on Form 10-K; discussing with management and the independent
auditors the results of the auditors’ review of the Company’s quarterly
financial statements; conferring with management and the independent auditors
regarding the scope, adequacy and effectiveness of internal auditing and
financial reporting controls and procedures; and establishing procedures for the
receipt, retention and treatment of complaints regarding accounting, internal
accounting control and auditing matters and the confidential and anonymous
submission by employees of concerns regarding questionable accounting or
auditing matters. The Audit Committee operates under the written Audit Committee
Charter adopted by the Board of Directors in December of 2007, a copy of which
may be obtained by writing the Secretary of the Company at No. 87 No. 8 Coastal
Way, Floor 2, Construction Bank, FTZ Tianjin Province, The People’s Republic of
China  300461.





Nominating/Corporate
Governance Committee





The
Nominating and Corporate Governance Committee (the “Nominating Committee”) is
responsible for preparing a list of candidates to fill the expiring terms of
directors serving on our Board of Directors. The Nominating Committee submits
the list of candidates to the Board of Directors who determines which candidates
will be nominated to serve on the Board of Directors. The names of nominees are
then submitted for election at our Annual Meeting of Stockholders. The
Nominating Committee also submits to the entire Board of Directors a list of
nominees to fill any interim vacancies on the Board of Directors resulting from
the departure of a member of the Board of Directors for any reason prior to the
expiration of his term. In recommending nominees to the Board of Directors, the
Nominating Committee keeps in mind the functions of this body. The Nominating
Committee considers various criteria, including general business experience,
general financial experience, knowledge of the Company’s industry (including
past industry experience), education, and demonstrated character and judgment.
The Nominating Committee will consider director nominees recommended by a
stockholder if the stockholder mails timely notice to the Secretary of the
Company at its principal offices, which notice includes (i) the name, age and
business address of such nominee, (ii) the principal occupation of such nominee,
(iii) a brief statement as to such nominee’s qualifications, (iv) a statement
that such nominee consents to his or her nomination and will serve as a director
if elected, (v) whether such nominee meets the definition of an “independent”
director under the applicable SEC rules and (vi) the name, address, class and
number of shares of capital stock of the Company held by the nominating
stockholder. Any person nominated by a stockholder for election to the Board of
Directors will be evaluated based on the same criteria as all other nominees.
The Nominating Committee also oversees our adherence to our corporate governance
standards. The members of the Nominating Committee are Gao Yang (Chair), Kong
Xiaoyan and Qu Zhong, each of whom is “independent” as defined by the Company
Guide of the American Stock Exchange.  The Nominating Committee
operates under the written Nominating Committee Charter adopted by the Board of
Directors in December of 2008, a copy of which may be obtained by writing the
Secretary of the Company at No. 87 No. 8 Coastal Way, Floor 2, Construction
Bank, FTZ Tianjin Province, The People’s Republic of
China  300461.


50





During
the fiscal year ended December 31, 2008, there were no changes to the procedures
by which holders of our common stock may recommend nominees to the Board of
Directors.





Compensation
Committee





The Board
of Directors established the Compensation Committee in December 2008. The
Compensation Committee is currently comprised of the following Directors of the
Company: Kong Xiaoyan (Chair), Qu Zhong and Gao Yang, each of whom is
“independent” as defined by the applicable SEC rules. The Compensation Committee
reviews and, as it deems appropriate, recommends to the Board of Directors’
policies, practices and procedures relating to the compensation of the officers
and other managerial employees and the establishment and administration of
employee benefit plans. It advises and consults with the officers of the Company
as may be requested regarding managerial personnel policies. The Compensation
Committee also has such additional powers as may be conferred upon it from time
to time by the Board of Directors. The Compensation Committee operates under the
written Compensation Committee Charter adopted by the Board of Directors in
December of 2008, a copy of which may be obtained by writing the Secretary of
the Company at No. 87 No. 8 Coastal Way, Floor 2, Construction Bank, FTZ
Tianjin Province, The People’s Republic of
China  300461.





Compensation
Committee Interlocks and Insider Participation in Compensation
Decisions





During
the last fiscal year, none of the Company’s executive officers served on the
board of directors or compensation committee of any other entity whose executive
officers served either the Company’s Board of Directors or Compensation
Committee.





Section
16(a) Beneficial Ownership Reporting Compliance




Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires the Company’s
directors, executive officers and persons who own more than 10% of a registered
class of the Company’s equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of common stock and other
equity securities of the Company. Directors, officers and greater than 10%
shareholders are required to furnish the Company with copies of all
Section 16(a) forms they file.




To the
Company’s knowledge, based solely on a review of the copies of such reports
furnished to the Company, with respect to the fiscal year ended
December 31, 2008, the officers, directors and beneficial owners of more
than 10% of our common stock have filed their initial statements of ownership on
Form 3 on a timely basis, and the officers, directors and beneficial owners of
more than 10% of our common stock have also filed the required Forms 4 or 5 on a
timely basis.


51


Code
of Ethics





On
December 12, 2008, the Board of Directors approved a Code of Business Conduct
and Ethics (the “Code). This Code applies to all directors, officers and
employees.





Item
11.         Executive
Compensation.




Name
      and
                                        Principal
                                        Position
                                      
                                      Year
                                      
                                      Salary ($)
                                      
                                      
                                      Bonus
                                        ($)
                                      
                                      
                                      Stock
                                        Awards
                                        ($)
                                      
                                      
                                      Option
                                        Awards
                                        ($)
                                      
                                      
                                      Non-Equity
                                        Incentive Plan
                                        Compensation
                                        ($)
                                      
                                      
                                      Nonqualified
                                        Deferred
                                        Compensation
                                        Earnings ($)
                                      
                                      
                                      All Other
                                        Compen-
                                        sation
                                        ($)
                                      
                                      
                                      Total
                                        ($)Tong Shiping,
                                      
                                      2008
                                      
                                      $
                                      52,473
                                      (1)
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      $
                                      52,473CEO
      and President
                                      
                                      2007
                                      
                                      $
                                      12,654
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      $
                                      12,654Wang
      Xinwei,
                                      
                                      2008
                                      
                                      $
                                      35,031
                                      (2)
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      $
                                      35,031CFO,
      Treasurer and VP
                                      
                                      2007
                                      
                                      $
                                      3,269
                                      
                                      
                                      $
                                      2,373
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      $
                                      5,642Yang
      Bin, Senior VP
                                      
                                      2008
                                      
                                      $
                                      36,867
                                      (3)
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      $
                                      36,867(GM,
      Head of Sales)
                                      
                                      2007
                                      
                                      $
                                      3,886
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      $
                                      57,128
                                      (6)
                                      
                                      $
                                      61,014Cheng
      Weihong,
                                      
                                      2008
                                      
                                      $
                                      35,031
                                      (4)
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      $
                                      35,031Secretary,
      Senior VP (Head of HR and Admin)
                                      
                                      2007
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      $
                                      1,080,935
                                      (7)
                                      
                                      $
                                      1,080,935Li
      Yangqian,
                                      
                                      2008
                                      
                                      $
                                      35,031
                                      (5)
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      $
                                      35,031COO
      and VP
                                      
                                      2007
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-







(1) Mr.
Tong Shiping’s salary for the fiscal year ending December 31, 2008 is $52,473
(RMB 358,000) (based on the exchange rate of RMB to U.S. dollars on December 31,
2008).


(2) Ms.
Wang Xinwei’s salary for the fiscal year ending December 31, 2008 is
$35,031(RMB
239,000) (based on the exchange rate of RMB to U.S. dollars on December 31,
2008).


(3) Mr.
Yang Bin’s salary for the fiscal year ending December 31, 2008 is $36,867 (RMB
251,530) (based on the exchange rate of RMB to U.S. dollars on December 31,
2008).


(4) Ms.
Cheng Weihong’s salary for the fiscal year ending December 31, 2008 is
$35,031(RMB
239,000) (based on the exchange rate of RMB to U.S. dollars on December 31,
2008).


(5) Ms.
Li Yangqian salary for the fiscal year ending December 31, 2008 is $35,031 (RMB
239,000) (based on the exchange rate of RMB to U.S. dollars on December 31,
2008).


(6) Mr.
Yang Bin received dividend payments of $57,128 (RMB 422,802.03) in connection
with his 3.81% ownership of Zhengji.


(7) Ms.
Cheng Weihong received dividend payments of $1,080,935 (RMB 8,000,000) in
connection with her 40% ownership of Shisheng prior to the
Reorganization.


52


As of
December 31, 2008, the Company did not have any “Grants of Plan-Based Awards”,
“Outstanding Equity Awards”, “Option Exercises and Stock Vested”, “Pension
Benefits”, “Nonqualified Defined Contribution and Other Nonqualified Deferred
Compensation Plans”, or “Potential Payments Upon Termination or Change in
Control” to report.




Each of
the executive officers of the Company have entered into standard employment
contracts with Shisheng, a form of which is attached as an exhibit to this
Report.  The contracts have one-year terms and are otherwise
consistent with the standard form prescribed by the Tianjin Labor and Social
Security Administration.  None of the employment contracts provide for
annual total compensation payments in excess of $100,000.  The amounts
listed in the table above were paid by Shisheng.   We have no
stock option, retirement, pension or profit-sharing programs for the benefit of
directors, officers or other employees, but our Board of Directors may recommend
adoption of one or more such programs in the future.




Compensation
Discussion and Analysis




The
Company’s compensation program is designed to provide our executive officers
with competitive remuneration and to reward their efforts and contributions to
the Company.  Elements of compensation for our executive officers
include base salary and cash bonuses.




Before we
set the base salary for our executive officers each year, we research the market
compensation in Tianjin for executives in similar positions with similar
qualifications and relevant experience, and add a 10%-15% premium as an
incentive to attract high-level employees.  Company performance does
not play a significant role in the determination of base salary.




Cash
bonuses may also be awarded to our executives on a discretionary basis at any
time.  Cash bonuses are also awarded to executive officers upon the
achievement of specified performance targets, including annual revenue targets
for the Company.




Director
Compensation




The
Company did not provide any compensation to its directors in the fiscal year
ended December 31, 2008.  The Company may establish certain
compensation plans (e.g. options, cash for attending meetings, etc.) with
respect to directors in the future.





Item
12.         Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters.





The
following table sets forth information regarding the beneficial ownership of our
common stock as of March 26, 2009 for each person known by us to be the
beneficial owner of more than 5% of our outstanding shares of common
stock.  Unless otherwise indicated, we believe that all persons named
in the table have sole voting and investment power with respect to all shares of
common stock beneficially owned by them.


53





Name
      and Address of Beneficial Owner*
                              
                              Amount of Beneficial
                                Ownership
                              
                              
                              Percentage of ClassBright Praise
      Enterprises Limited
                              
                              
                              11,700,000
                              
                              
                              
                              64.64
                              %Choi
      Chun Leung Robert**
                              
                              
                              11,700,000
                              
                              
                              
                              64.64
                              %Phillip
      E. Ray***
                                4890
      Silver Pine Drive
                                Castle
      Rock, Colorado 80108
                              
                              
                              1,232,500
                              
                              
                              
                              6.81
                              %


*Unless otherwise noted, the
address is that of the Company’s.


**Choi Chun Leung Robert is
the beneficial owner of 11,700,000 shares of our common stock through his 100%
ownership of Bright Praise Enterprises Limited and through his position as the
sole director of Bright Praise Enterprises Limited.


***
Phillip E. Ray is the beneficial owner of 1,232,500 shares of our common stock
through his direct ownership of 682,500 shares of our common stock and through
his positions as the sole officer, director and shareholder of American Business
Services, Inc., which owns 250,000 shares of our common stock, and the majority
shareholder and sole officer and director of VentureVest Capital Corporation,
which owns 300,000 shares of our common stock.




Security
Ownership of Management Directors and Officers




The
following table sets forth the ownership interest in our common stock of all
directors and officers individually and as a group as of March 26,
2009.  Unless otherwise indicated, we believe that all persons named
in the table have sole voting and investment power with respect to all shares of
common stock beneficially owned by them.




Name
      and Address of Beneficial Owner*
                                            
                                            Amount of Beneficial
                                              Ownership
                                            
                                            
                                            Percentage of ClassTong Shiping,
      Chief Executive Officer, President and Chairman of the
    Board
                                            
                                            
                                            -0-
                                            
                                            
                                            
                                            0
                                            %Li
      Yangqian, Chief Operating Officer and Vice President
                                            
                                            
                                            -0-
                                            
                                            
                                            
                                            0
                                            %Wang
      Xinwei, Chief Financial Officer, Treasurer and Vice
    President
                                            
                                            
                                            -0-
                                            
                                            
                                            
                                            0
                                            %Cheng
      Weihong, Secretary and Senior Vice President (Head of Human Resources and
      General Administration) and Director
                                            
                                            
                                            -0-
                                            
                                            
                                            
                                            0
                                            %Yang
      Bin, Senior Vice President (General Manager, Head of Sales) and
      Director
                                            
                                            
                                            -0-
                                            
                                            
                                            
                                            0
                                            %Howard
      S. Barth, Director
                                            
                                            
                                            -0-
                                            
                                            
                                            
                                            0
                                            %Gao
      Yang, Director
                                            
                                            
                                            -0-
                                            
                                            
                                            
                                            0
                                            %Qu
      Zhong, Director
                                            
                                            
                                            -0-
                                            
                                            
                                            
                                            0
                                            %Kong
      Xiaoyan, Director
                                            
                                            
                                            -0-
                                            
                                            
                                            
                                            0
                                            %All
      Directors and Officers as a Group(10
      persons)
                                            
                                            
                                            -0-
                                            
                                            
                                            
                                            0
                                            %


*    Unless
otherwise noted, the address is that of the Company’s.


54


Securities Authorized for Issuance
Under Equity Compensation Plans.





None.





Item
13.        Certain Relationships and
Related Transactions, and Director Independence.





Cheng
Weihong (the Secretary, Senior Vice President and Chairwoman of Shisheng and
wife of China Auto’s President and Chief Executive Officer, Mr. Tong Shiping)
made non-interest bearing loans to the Company from time to time to meet working
capital needs of the Company. For the years ended December 31, 2008 and 2007,
the Company made aggregate borrowings from Cheng Weihong of $73,249,961 and
$114,514,111, respectively, and made aggregate repayments to Cheng Weihong of
$73,562,626 and $125,243,219, respectively.  As of December 31, 2008
and 2007, the outstanding balances due to Cheng Weihong were $10,188 and
$306,088, respectively.





The
Company’s shareholder, Sino Peace Limited, paid accrued expenses of $486,375 on
behalf of the Company during the year ended December 31, 2008.  The
amount of $492,829 was outstanding as due to the shareholder as of December 31,
2008.





On
December 1, 2007, Shisheng declared and paid dividends in the amount of
$2,636,158 (RMB 20,000,000) to its stockholders.





On
December 1, 2007, Shisheng’s three majority owned subsidiaries declared and paid
dividends to its stockholders, of which $600,767 (RMB 4,557,901) was disbursed
to their minority stockholders.





On
November 1, 2007, the Company entered into a Share Exchange Agreement with Cheng
Weihong, Xia Qiming, and Qian Yuxi (collectively, the “Sellers”), pursuant to which
the Sellers transferred their interest in Shisheng to the Company for an
aggregate purchase price of $12,067,254 (RMB 95,000,000).  As a result
of this transaction (the “Reorganization”), the Company
owns all of the capital stock of Shisheng.  As Shisheng was not a
party to the Reorganization, the Reorganization was not approved by the Board of
Directors of Shisheng.  However, the Reorganization was approved by
all of the stockholders of Shisheng, as well as by the Tianjin Economic
Development Zone Administration and the Tianjin Administrative Committee, two
Chinese governmental authorities with jurisdiction over
Shisheng.   The Company does not otherwise have a policy with
respect to the approval or ratification of “related-party transactions” other
than general compliance with PRC law applicable to PRC
companies.


55


Director
Independence





All
members of the Company’s Board of Directors, excluding Tong Shiping, are
independent directors of the Company, and as such, they satisfy the definition
of independence in accordance with SEC rules and NASDAQ listing
standards.





Item
14.        Principal Accounting Fees and
Services.




Our
independent accountant is Stonefield Josephson, Inc. As reported in our Form 8K
filed on November 26, 2008, the Company appointed Stonefield Josephson, Inc. as
its independent accountant effective as of November 24, 2008. Our previous
independent accountant was Ronald R. Chadwick, P.C. Set below are aggregate fees
billed by Stonefield Josephson, Inc. and Ronald R. Chadwick, P.C. for
professional services rendered for the audit of the Company’s annual financial
statements for the year ended December 31, 2008 and 2007.





Audit
Fees





During
the fiscal year ended December 31, 2008, the fees for our principal accountant,
from November 24, 2008 through December 31, 2008 were $28,000. During the period
beginning January 1, 2008 through November 23, 2008, the fees for our former
principal accountant were $5,500. During the fiscal year ended December 31,
2007, the fees for our former principal accountant were $7,700.





Audit
Related Fees





During
the fiscal years ended December 31, 2008 and December 31, 2007, our principal
accountants did not render assurance and related services reasonably related to
the performance of the audit or review of financial statements.





Tax
Fees





During
the fiscal year ended December 31, 2008 and December 31, 2007, our principal
accountant did not render services to us for tax compliance, tax advice and tax
planning.





All
Other Fees





During
the fiscal years ended December 31, 2008 and December 31, 2007, there were no
fees billed for products and services provided by the principal accountants
other than those set forth above.





The Audit
Committee has reviewed the above fees for non-audit services and believes such
fees are compatible with the independent registered public accountants’
independence.





56




Policy
on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent
Accountant





The
policy of the Audit Committee, and the Board of Directors acting as a whole
prior to the establishment of the Audit Committee, is to pre-approve all audit
and non-audit services provided by the independent accountants. These services
may include audit services, audit-related services, tax fees, and other
services. Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or category of services
and is subject to a specific budget. The Audit Committee, and the Board of
Directors acting as a whole prior to the establishment of the Audit Committee,
has delegated pre-approval authority to certain committee members when
expedition of services is necessary. The independent accountants and management
are required to periodically report to the full Audit Committee, and the Board
of Directors acting as a whole prior to the establishment of the Audit
Committee, regarding the extent of services provided by the independent
accountants in accordance with this pre-approval delegation, and the fees for
the services performed to date. None of the fees paid to the independent
accountants during fiscal years ended December 31, 2008 and 2007, under the
categories Audit-Related and All Other fees described above were approved by the
Audit Committee, and the Board of Directors acting as a whole prior to the
establishment of the Audit Committee, after services were rendered pursuant to
the de minimis exception established by the SEC.





PART IV




Item
15.        Exhibits and Financial
Statement Schedules




(a)
                Financial
      Statements.




Our
financial statements as set forth in the Index to Financial Statements attached
hereto commencing on page F-1 are hereby incorporated by
reference.




(b)
                Exhibits.




The
following exhibits, which are numbered in accordance with Item 601 of
Regulation S-K, are filed herewith or, as noted, incorporated by reference
herein:




Exhibit
                    Number
                  
                  Exhibit Description2.1
      (1)
                  
                  Share
      Exchange Agreement dated as of November 10, 2008, between USCo, the
      Company and Stockholder.2.2
      (1)
                  
                  Share
      Exchange Agreement dated as of November 1, 2007, among Ever Auspicious
      International Limited, Cheng Weihong, Xia Qiming, and Qian
      Yuxi.2.3
      (1)
                  
                  Supplementary
      Agreement to Share Exchange Agreement dated as of November 1, 2007, among
      Ever Auspicious International Limited, Cheng Weihong, Xia Qiming, and Qian
      Yuxi.3.1
      (2)
                  
                  Amended
      Articles of Incorporation of the Company3.2
      (2)
                  
                  Amended
      and Restated Bylaws of the Company10.1
      (1)
                  
                  Lease
      Agreement, effective as of March 31, 2003, between China Construction Bank
      Tianjin Tariff-free Zone Branch and Tianjin Shisheng Investment Group
      Ltd.10.2
      (1)
                  
                  Lease
      Agreement, effective as of January 1, 2007, between Tianjin Port
      International Car Exhibit Centre and Tianjin Shisheng Investment Group
      Ltd.




57




Exhibit
                                      Number
                                    
                                    Exhibit
      Description10.3
      (1)
                                    
                                    Supplementary
      Agreement, dated as of December 8, 2007, between Tianjin Port
      International Car Exhibit Centre and Tianjin Shisheng Investment Group
      Ltd.10.4
      (1)
                                    
                                    Form
      of Employment Contract10.5
      (3)
                                    
                                    Audit
      Committee Charter10.6
      (3)
                                    
                                    Compensation
      Committee Charter10.7
      (3)
                                    
                                    Corporate
      Governance and Nominating Committee Charter14.1
      (3)
                                    
                                    Code
      of Business Conduct and Ethics17.1
      (1)
                                    
                                    Resignation
      Notice of Phillip E. Ray, dated as of November 10,
2008.17.2
      (1)
                                    
                                    Resignation
      Notice of Alice T. Ray, dated as of November 10, 2008.21.1
      (1)
                                    
                                    Subsidiaries31.1*
                                    
                                    Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2*
                                    
                                    Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232.1*
                                    
                                    Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002




*Filed
herewith


(1)
Incorporated by reference to the Company’s Form 8-K, filed with the Securities
and Exchange Commission on November 10, 2008.


(2)
Incorporated by reference to the Company’s Definitive Schedule 14C Information
Statement, filed with the Securities and Exchange Commission on December 5,
2008.


(3)
Incorporated by reference to the Company’s Form 8-K, filed with the Securities
and Exchange Commission on December 24, 2008.


58


China
Auto Logistics, Inc.





Index
to Consolidated Financial Statements


Year
ended December 31, 2008








PageReport
      of Independent Registered Public Accounting Firm
                                    
                                    F-2Consolidated
      Balance Sheets
                                    
                                    F-3Consolidated
      Statements of Income and Comprehensive Income
                                    
                                    F-4Consolidated
      Statements of Shareholders’ Equity
                                    
                                    F-5Consolidated
      Statements of Cash Flows
                                    
                                    F-6Notes
      to Consolidated Financial Statements
                                    
                                    F-8 – F-22


F-1


REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM





To Board
of Directors and Shareholders


of
China Auto Logistics Inc.:





We have
audited the accompanying consolidated balance sheets of China Auto Logistics
Inc. and subsidiaries as of December 31, 2008 and 2007 and the related
consolidated statements of income and comprehensive income, shareholders’ equity
and cash flows for each of the two years in the period ended December 31, 2008.
These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based
on our 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, 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 consolidated financial statements referred to above present fairly,
in all material respects, the financial position of China Auto Logistics Inc.
and subsidiaries as of December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 2008 in conformity with accounting principles generally accepted in
the United States of America.





/s/
      Stonefield Josephson, Inc.


Wanchai,
Hong Kong


March 30,
2009


F-2





CHINA
AUTO LOGISTICS INC.


CONSOLIDATED
BALANCE SHEETS





December 31,2008
                      
                      
                      2007ASSETS:Current
      assets:Cash
      and cash equivalents
                      
                      $
                      1,598,781
                      
                      
                      $
                      5,703,108Restricted
      cash
                      
                      
                      92,819
                      
                      
                      
                      6,319,602Accounts
      receivable-trade
                      
                      
                      11,077
                      
                      
                      
                      5,339Receivable
      related to financing services
                      
                      
                      6,945,088
                      
                      
                      
                      24,654,520Inventories,
      net of reserve of $146,314 for 2008 and $151,959 for 2007
                      
                      
                      16,434,391
                      
                      
                      
                      7,849,957Advances
      to suppliers
                      
                      
                      14,083,163
                      
                      
                      
                      24,963,886Prepaid
      expenses
                      
                      
                      22,230
                      
                      
                      
                      26,163Value
      added tax receivable
                      
                      
                      1,202,161
                      
                      
                      
                      693,282Deferred
      taxes
                      
                      
                      36,579
                      
                      
                      
                      50,146Other
      current assets
                      
                      
                      -
                      
                      
                      
                      8,293Total
      current assets
                      
                      
                      40,426,289
                      
                      
                      
                      70,274,296Property
      and equipment, net
                      
                      
                      622,604
                      
                      
                      
                      595,748Other
      assets
                      
                      
                      3,658
                      
                      
                      
                      17,113Total
      Assets
                      
                      $
                      41,052,551
                      
                      
                      $
                      70,887,157LIABILITIES
      AND SHAREHOLDERS' EQUITY:Current
      liabilities:Lines
      of credit related to financing services
                      
                      $
                      4,642,320
                      
                      
                      $
                      24,654,520Lines
      of credit related to automobile purchases
                      
                      
                      662,452
                      
                      
                      
                      -Bank
      loan payable
                      
                      
                      3,218,916
                      
                      
                      
                      3,011,801Notes
      payable
                      
                      
                      -
                      
                      
                      
                      4,107,001Accounts
      payable
                      
                      
                      -
                      
                      
                      
                      410,659Accrued
      expense
                      
                      
                      656,119
                      
                      
                      
                      108,949Customer
      deposits
                      
                      
                      6,968,769
                      
                      
                      
                      19,804,993Deferred
      revenue
                      
                      
                      13,678
                      
                      
                      
                      458,388Due
      to shareholder
                      
                      
                      492,829
                      
                      
                      
                      -Due
      to director
                      
                      
                      10,188
                      
                      
                      
                      306,088Income
      tax payable
                      
                      
                      1,615,442
                      
                      
                      
                      915,698Total
      current liabilities
                      
                      
                      18,280,713
                      
                      
                      
                      53,778,097Minority
      interests in consolidated subsidiaries
                      
                      
                      1,315,978
                      
                      
                      
                      889,354Commitments
      and contingencies
                      
                      
                      -
                      
                      
                      
                      -Shareholders'
      equity:Preferred
      stock, $0.001 par value, 5,000,000 shares authorized, none issued and
      outstanding
                      
                      
                      -
                      
                      
                      
                      -Common
      stock, $0.001 par value, 95,000,000 shares authorized, shares issued and
      outstanding - 18,100,000 shares for 2008 and 11,700,000 shares for
      2007
                      
                      
                      18,100
                      
                      
                      
                      11,700Additional
      paid in capital
                      
                      
                      12,101,321
                      
                      
                      
                      12,107,076Accumulated
      other comprehensive income
                      
                      
                      2,485,058
                      
                      
                      
                      1,236,912Retained
      earnings
                      
                      
                      6,851,381
                      
                      
                      
                      2,864,018Total
      shareholders' equity
                      
                      
                      21,455,860
                      
                      
                      
                      16,219,706Total
      liabilities and shareholders' equity
                      
                      $
                      41,052,551
                      
                      
                      $
                      70,887,157




The
accompanying notes form an integral part of these consolidated financial
statements


F-3





CHINA
AUTO LOGISTICS INC.


CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME





Year Ended December 31,2008
                            
                            
                            2007Net
      revenue
                            
                            $
                            189,737,077
                            
                            
                            $
                            152,430,674Cost
      of revenue
                            
                            
                            181,065,563
                            
                            
                            
                            147,270,951Gross
      profit
                            
                            
                            8,671,514
                            
                            
                            
                            5,159,723Operating
      expenses:Selling
      and marketing
                            
                            
                            1,118,442
                            
                            
                            
                            949,219General
      and administrative
                            
                            
                            1,399,210
                            
                            
                            
                            475,803Total
      operating expenses
                            
                            
                            2,517,652
                            
                            
                            
                            1,425,022Income
      from operations
                            
                            
                            6,153,862
                            
                            
                            
                            3,734,701Other
      income (expenses):Interest
      income
                            
                            
                            85,100
                            
                            
                            
                            154,437Interest
      expense
                            
                            
                            (294,589
                            )
                            
                            
                            (207,271
                            )Investment
      income (loss)
                            
                            
                            -
                            
                            
                            
                            4,943Total
      other expenses
                            
                            
                            (209,489
                            )
                            
                            
                            (47,891
                            )Income
      before provision for income taxes, minority interests and extraordinary
      item
                            
                            
                            5,944,373
                            
                            
                            
                            3,686,810Provision
      for income taxes
                            
                            
                            1,530,386
                            
                            
                            
                            244,911Income
      before earnings in minority interests and extraordinary
    item
                            
                            
                            4,413,987
                            
                            
                            
                            3,441,899Minority
      interests in net income of consolidated subsidiaries
                            
                            
                            (426,624
                            )
                            
                            
                            (520,335
                            )Income
      before extraordinary item
                            
                            
                            3,987,363
                            
                            
                            
                            2,921,564Extraordinary
      item - gain on acquisition of controlling interest in Zhengji (less
      applicable income tax expense of $0)
                            
                            
                            -
                            
                            
                            
                            251,811Net
      income
                            
                            
                            3,987,363
                            
                            
                            
                            3,173,375Other
      comprehensive income
                            
                            
                            1,248,146
                            
                            
                            
                            887,391Comprehensive
      income
                            
                            $
                            5,235,509
                            
                            
                            $
                            4,060,766Earnings
      per share of common stock - basic and diluted:Income
      from continuing operations
                            
                            $
                            0.32
                            
                            
                            $
                            0.25Extraordinary
      item
                            
                            
                            -
                            
                            
                            
                            0.02Net
      income
                            
                            $
                            0.32
                            
                            
                            $
                            0.27Weighted
      average number of common shares outstanding - basic and
      diluted
                            
                            
                            12,629,315
                            
                            
                            
                            11,700,000





The
accompanying notes form an integral part of these consolidated financial
statements


F-4





CHINA
AUTO LOGISTICS INC.


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY





Common
      Stock
                  
                  
                  Additional
                    Paid
      in
                  
                  
                  Accumulated
                    Other
                    Comprehensive
                  
                  
                  Retained
                  
                  
                  Total
                    Shareholders'Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Income
                  
                  
                  Earnings
                  
                  
                  EquityBalance
      as of January 1, 2007
                  
                  
                  11,700,000
                  
                  
                  $
                  11,700
                  
                  
                  $
                  3,609,011
                  
                  
                  $
                  349,521
                  
                  
                  $
                  2,326,801
                  
                  
                  $
                  6,297,033Capital
      contributions
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,498,065
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,498,065Unrealized
      loss on available-for-sale securities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (18,671
                  )
                  
                  
                  -
                  
                  
                  
                  (18,671
                  )Foreign
      currency translation adjustments
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  906,062
                  
                  
                  
                  -
                  
                  
                  
                  906,062Dividend
      paid
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,636,158
                  )
                  
                  
                  (2,636,158
                  )Net
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,173,375
                  
                  
                  
                  3,173,375Balance
      as of December 31, 2007
                  
                  
                  11,700,000
                  
                  
                  
                  11,700
                  
                  
                  
                  12,107,076
                  
                  
                  
                  1,236,912
                  
                  
                  
                  2,864,018
                  
                  
                  
                  16,219,706Capital
      contributions
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  645
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  645Reverse
      acquisition of Ever Auspicious International Limited
    Company
                  
                  
                  6,400,000
                  
                  
                  
                  6,400
                  
                  
                  
                  (6,400
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Foreign
      currency translation adjustments
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,248,146
                  
                  
                  
                  -
                  
                  
                  
                  1,248,146Net
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,987,363
                  
                  
                  
                  3,987,363Balance
      as of December 31, 2008
                  
                  
                  18,100,000
                  
                  
                  $
                  18,100
                  
                  
                  $
                  12,101,321
                  
                  
                  $
                  2,485,058
                  
                  
                  $
                  6,851,381
                  
                  
                  $
                  21,455,860





The
accompanying notes form an integral part of these consolidated financial
statements


F-5





CHINA
      AUTO LOGISTICS INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSIncrease
      (Decrease) in Cash and Cash EquivalentsYear Ended December 31,2008
                
                
                2007Cash
      flows from operating activities:Net
      Income
                
                $
                3,987,363
                
                
                $
                3,173,375Adjustments
      to reconcile net income to net cash provided by (used for) operating
      activitiesDepreciation
      and amortization
                
                
                200,701
                
                
                
                164,336Minority
      interests in income of consolidated subsidiaries
                
                
                426,624
                
                
                
                520,335Gain
      on short term investments
                
                
                -
                
                
                
                (4,943
                )Extraordinary
      gain on acquisition of controlling interest in Zhengji
                
                
                -
                
                
                
                (251,811
                )Change
      of inventory reserve
                
                
                (15,884
                )
                
                
                172,668Changes
      in operating assets and liabilities:(Increase)
      decrease in assets:Accounts
      receivable - trade
                
                
                (5,300
                )
                
                
                139,967Accounts
      receivable - financing
                
                
                (2,272,609
                )
                
                
                -Inventories
                
                
                (7,923,367
                )
                
                
                (1,241,120
                )Advances
      to suppliers
                
                
                12,432,446
                
                
                
                (6,854,490
                )Prepaid
      expenses, other current assets and other assets
                
                
                41,730
                
                
                
                32,862Value
      added tax receivable
                
                
                (455,163
                )
                
                
                154,807Deferred
      taxes
                
                
                16,793
                
                
                
                40,887Increase
      (decrease) in liabilities:Accounts
      payable
                
                
                (433,151
                )
                
                
                (194,785
                )Accrued
      expenses
                
                
                1,018,815
                
                
                
                78,668Customer
      deposits
                
                
                (14,012,217
                )
                
                
                10,458,326Deferred
      revenue
                
                
                (469,995
                )
                
                
                425,537Income
      tax payable
                
                
                628,433
                
                
                
                190,612Net
      cash provided by (used for) operating activities
                
                
                (6,834,781
                )
                
                
                7,005,231Cash
      flows from investing activities:Cash
      on hand at Zhengji on acquisition date
                
                
                -
                
                
                
                19,653Decrease
      (increase) in restricted cash
                
                
                6,574,124
                
                
                
                2,547,499Proceeds
      from sales of short-term investments
                
                
                -
                
                
                
                136,751Purchase
      of property and equipment
                
                
                (186,774
                )
                
                
                (229,353
                )Net
      cash provided by investing activities
                
                
                6,387,350
                
                
                
                2,474,550Cash
      flows from financing activities:Proceeds
      from short-term bank loans
                
                
                3,176,758
                
                
                
                2,899,773Repayments
      of short-term bank loans
                
                
                (3,176,758
                )
                
                
                (2,899,773
                )Repayments
      of notes payable
                
                
                (4,331,942
                )
                
                
                (1,318,079
                )Proceeds
      from lines of credit related to automobile purchases
                
                
                653,776
                
                
                
                -Proceeds
      from loans from director
                
                
                73,249,961
                
                
                
                114,514,111Repayment
      of loans from director
                
                
                (73,562,626
                )
                
                
                (125,243,219
                )Dividend
      paid to minority shareholders of consolidated subsidiaries
                
                
                -
                
                
                
                (600,767
                )Dividend
      paid
                
                
                -
                
                
                
                (2,636,158
                )Contributed
      capital from shareholders
                
                
                645
                
                
                
                8,498,065Net
      cash used for financing activities
                
                
                (3,990,186
                )
                
                
                (6,786,047
                )Effect
      of exchange rate change on cash
                
                
                333,290
                
                
                
                348,228Net
      increase (decrease) in cash
                
                
                (4,104,327
                )
                
                
                3,041,962Cash
      and cash equivalents, beginning of year
                
                
                5,703,108
                
                
                
                2,661,146Cash
      and cash equivalents, end of year
                
                $
                1,598,781
                
                
                $
                5,703,108Supplemental
      disclosure of cash flow information:Interest
      paid
                
                $
                260,418
                
                
                $
                207,271Income
      taxes paid
                
                $
                872,231
                
                
                $
                25,172Non-cash
      activities:Decrease
      of lines of credit and receivable related to the financing
      services
                
                $
                21,423,333
                
                
                $
                17,263,042Increase
      in due to shareholder for accrued expenses paid by the
      shareholder
                
                $
                486,375
                
                
                $
                -





The
accompanying notes form an integral part of these consolidated financial
statements


F-6





CHINA
AUTO LOGISTICS INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





(1)
Summary of Significant Accounting Policies:





Organization,
Nature of Business and Basis of Presentation





China
Auto Logistics Inc. (“the Company” or “China Auto”), formerly Fresh Ideas Media,
Inc., operates through its wholly-owned subsidiary Ever Auspicious International
Limited, a Hong Kong corporation (“HKCo”) and its wholly-owned subsidiary
Tianjin Seashore New District Shisheng Business Trading Group Co. Ltd.,
(“Shisheng”), a company established under the laws of the People’s Republic of
China (“PRC”).





China
Auto was incorporated on February 22, 2005 in the State of Nevada. The Company
was in the development stage and its intent was to conduct business as an
advertising and consulting company.





On
November 10, 2008, China Auto entered into a Share Exchange Agreement with
the HKCo. Under the Share Exchange Agreement, China Auto issued 11,700,000
shares of its common stock to acquire all the issued and outstanding capital
stock of HKCo. The closing of the Share Exchange Agreement occurred on the same
day, immediately following the cancellation of an aggregate of 1,135,000 shares
of the Company’s common stock held by Phillip E. Ray and Ruth Daily, the
Company’s principal stockholders immediately prior to the Closing, which was a
condition of the Closing.  Prior to the closing of the Share Exchange
and the cancellation of shares stated above, the Company had a total of
7,535,000 shares of common stock issued and outstanding.  As a result
of the Exchange, HKCo became the Company’s wholly-owned
subsidiary.  Upon the closing of this transaction, the Company’s
primary business operations are those of HKCo.  Shortly after the
closing, the Company changed its name to China Auto Logistics Inc.





The HKCo
was incorporated in Hong Kong on October 17, 2007.  Prior to December
25, 2007, HKCo had minimal assets and no operations. On December 25, 2007,
Shisheng became a wholly-owned foreign enterprise (“WFOE”) of HKCo and this
arrangement was approved by the relevant ministries of the PRC
government.





Upon the
completion of the transactions on December 25, 2007 and November 10, 2008, the
Company owned 100% of HKCo which owned 100% of Shisheng, the operating entity of
the Company.  For financial reporting purposes, these transactions are
classified as a recapitalization of Shisheng and the historical financial
statements of Shisheng are reported as China Auto’s historical financial
statements.


F-7


Shisheng
was incorporated in PRC on September 1, 1995.  Shisheng’s business
includes sales of both domestically manufactured automobiles and imported
automobiles, providing financing services related to imported automobiles, and
providing logistic services relating to the automobile importing process and
other automobile import value added services such as assistance with customs
clearance, storage and nationwide delivery services (such services, “Automobile
Import Value Added Services”).





In August
2001, Shisheng formed Tianjin Ganghui Information Technology Corp. (“Ganghui”),
to provide web-based, real-time information on imported automobiles. Ganghui is
80%; owned by Shisheng.




In
September 2003, Shisheng formed Tianjin Hengjia Port Logistics Corp. (“Hengjia”)
to provide automobile import value added services to wholesalers and
distributors in the imported vehicle trading industry.  Hengjia is 80%
owned by Shisheng.





In
February 2005, Shisheng and three other founders formed Zhengji International
Trading Corp. (“Zhengji”) to enhance the imported automobile trading industry.
Zhengji was 32% owned by Shisheng since 2005.  In January 2007,
Shisheng injected additional capital of $1,024,498 (equivalent to RMB 8,000,000)
into Zhengji. Consequently, Shisheng's equity interest in Zhengji increased from
32% to 86.4%.





The
consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("U.S. GAAP").





Basis
of Consolidation





The
consolidated financial statements include the financial statements of China Auto
and its wholly-owned and majority owned subsidiaries.  All
inter-company transactions and balances have been eliminated in preparation of
the consolidated financial statements.





Currency
Reporting





The
Company’s operations in China use the local currency - Renminbi (“RMB”) as their
functional currency, whereas amounts reported in the accompanying consolidated
financial statements and disclosures are stated in U.S. dollars, the reporting
currency of the Company, unless stated otherwise. As such, the consolidated
balance sheets of the Company has been translated into U.S. dollars at the
current rates as of December 31, 2008 and 2007, and the consolidated statements
of income have been translated into U.S. dollars at the weighted average rates
during the periods the transactions were recognized.





The
resulting translation gain adjustments are recorded as other comprehensive
income in the consolidated statements of income and comprehensive income and as
a separate component of consolidated statements of shareholders’
equity.


F-8





Use
of Estimates





The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, revenue and expenses in the financial statements and
accompanying notes. Significant accounting estimates reflected in the Company's
financial statements include collectibility of accounts receivable, useful lives
and impairment of property and equipment.  Actual results could differ
from those estimates.





Cash
and Cash Equivalents





Cash and
cash equivalents consist of cash on hand and highly liquid investments which are
unrestricted as to withdrawal or use, and which have remaining maturities of
three months or less when purchased.





Restricted
Cash





The
Company had certain outstanding notes payable to suppliers which allow the
suppliers to draw the draft amounts upon maturity dates at its banks. The
Company is required to maintain a portion of these outstanding draft amounts in
its banks as restricted cash. Cash restricted for this purpose amounted to $0
and $2,053,501, as of December 31, 2008 and 2007, respectively.





The
Company had certain outstanding lines of credit to its banks related to its
financing services. The Company is required to maintain certain amounts of cash
in its banks to secure these borrowings. Restricted cash to secure these bank
lines totaled $92,819 and $4,266,101 as of December 31, 2008 and 2007,
respectively.





Fair
Value Disclosures of Financial Instruments





The
Company has estimated the fair value amounts of its financial instruments using
the available market information and valuation methodologies considered to be
appropriate and has determined that the book value of the Company’s accounts
receivable, value added tax receivable, inventories, prepaid expenses, advances
to suppliers, lines of credit, bank loan payable, notes payable, accounts
payable and accrued expenses, customer deposits, deferred revenue, due to
shareholder, due to director, and income tax payable at December 31, 2008 and
2007 approximate fair value.





Comprehensive
Income





Comprehensive
incomeconsists of
net income and other gains and losses affecting shareholders’ equity that, under
U.S. GAAP, are excluded from net income. For the Company, such items consist
primarily of unrealized gains and losses on marketable equity investments and
foreign currency translation gains and losses. The changes in the components of
other comprehensive income (loss) are as follows:


F-9





Year Ended December 31,2008
                      
                      
                      2007Unrealized
      gain (loss) on available-for-sale securities
                      
                      $
                      -
                      
                      
                      $
                      (18,671
                      )Foreign
      currency translation adjustments
                      
                      
                      1,248,146
                      
                      
                      
                      906,062Total
      other comprehensive income
                      
                      $
                      1,248,146
                      
                      
                      $
                      887,391





Concentrations
of Credit Risk




Financial
instruments that potentially expose the Company to concentrations of credit risk
consist primarily of cash, cash equivalents, accounts receivable, and receivable
related to financing services.  The Company places its cash and cash
equivalents with reputable financial institutions with high credit
ratings.





The
Company conducts credit evaluations of customers and generally does not require
collateral or other security from customers. The Company establishes an
allowance for doubtful accounts primarily based upon the age of the receivables
and factors relevant to determining the credit risk of specific customers.
The amount of receivables ultimately not collected by the Company has generally
been consistent with management's expectations and the allowance established for
doubtful accounts.





Major
Customers





During
the years ended December 31, 2008 and 2007, the Company’s three largest
customers together accounted for 22% and 27%, respectively, of the Company’s net
revenue. The Company had no outstanding accounts receivable from these customers
as of December 31, 2008 and 2007.




Major
Suppliers





During
the years ended December 31, 2008 and 2007, automobiles purchased from the
Company’s two largest suppliers together accounted for approximately 24% and 18%
of the Company’s total purchases respectively. The Company had no outstanding
accounts payable to these suppliers as of December 31, 2008 and
2007.





Short
Term Investments





The
Company determines the appropriate classification of its investments in equity
securities at the time of purchase and reevaluates such determinations at each
balance-sheet date. Debt securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to maturity.
Debt securities for which the Company does not have the intent or ability to
hold to maturity are classified as available-for-sale. Held-to-maturity
securities are recorded as either short-term or long-term on the balance sheet
based on contractual maturity date and are stated at amortized cost. Marketable
securities that are bought and held principally for the purpose of selling them
in the near term are classified as trading securities and are reported at fair
value, with unrealized gains and losses recognized in earnings. Debt and
marketable equity securities not classified as held-to-maturity or as
trading, are classified as available-for-sale, and are carried at fair market
value, with the unrealized gains and losses, net of tax, included in the
determination of other comprehensive income and reported in shareholders’
equity. The fair value of substantially all securities is determined by quoted
market prices.


F-10





Proceeds
from the sales of available-for-sale securities were $0 and $136,751 during 2008
and 2007, respectively.





Accounts
Receivable





Accounts
receivable are recognized and carried at the original invoice amount less
allowance for any uncollectible amounts. An estimate for doubtful accounts is
made when collection of the full amount is no longer probable. The Company
historically has not experienced any losses on its accounts
receivable.  As of December 31, 2008 and 2007, the Company had no
allowance for doubtful accounts.





Revenue
Recognition





The
Company’s main source of income was generated through (1) sales of automobiles,
(2) service fees for assisting customers to get bank financing on purchases of
automobiles, (3) web-based advertising service fees, including fees from (i)
displaying graphical advertisements on the Company websites and (ii) web-based
listing services that allow customers to place automobile related information on
the Company’s websites, and (4) automobile import value added services. The
financing services are provided to customers on automobiles not sold by the
Company. The Company recognizes revenue when there is persuasive evidence of an
arrangement, delivery has occurred upon shipment or services have been
rendered, the seller’s price to the buyer is fixed or determinable, and
collectibility is reasonably assured.





The
Company recognizes the sales of automobiles upon delivery and acceptance by the
customers and where collectibility is reasonably assured.





Service
revenue related to financing services is recognized ratably over the financing
period.





Service
fees for graphical advertisements on the Company’s websites are charged on a
fixed fee basis. The Company recognizes the advertising revenue when the service
is performed over the service term.





The
Company charges a monthly fee for listing services and recognizes the revenue
when services are performed.


F-11


The
Company recognizes revenue from automobile import value added services when such
services are performed.





Value
Added Taxes represent amounts collected on behalf of specific regulatory
agencies that require remittance by a specified date. These amounts are
collected at the time of sales and are detailed on invoices provided to
customers. In compliance with the Emerging Issues Task Force consensus on issue
number 06-03 (EITF 06-03), “How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (That Is,
Gross versus Net Presentation)”, the Company accounts for value added taxes on a
net basis. The Company recorded and paid business taxes based on a percentage of
the net service revenues and reported the service revenue net of the business
taxes and other sales related taxes.





Deferred
Revenue





Deferred
revenue includes amounts received from customers for which services revenue
recognition is not yet appropriate. All deferred revenue is recognized within
the next 12 months from the balance sheet dates.





Cost
of Sales





Cost of
sales includes the purchase cost of the automobiles, change of reserve for
inventory obsolescence, freight and all the direct costs related to the sales of
the automobiles. All costs related to the Company’s distribution network are
included in the cost of sales.





Operating
Expenses





Selling
and marketing expenses include salaries and employee benefits, advertising,
travel and entertainment and insurance.





General
and administrative expenses include management and office salaries and employee
benefits, depreciation for office facilities, office equipment and automobiles,
travel and entertainment, insurance, legal and accounting, consulting fees,
workers’ compensation insurance, and other office expenses.





Inventories





Inventories
are primarily comprised of the purchase cost of automobiles valued at the lower
of cost (first-in, first-out) or market. At December 31, 2008 and 2007, the
reserve for obsolescence was $146,314 and $151,959, respectively. Reserves for
obsolescence were decreased by $15,884 for 2008 and increased by $172,668 for
2007.


F-12





Property
and Equipment, net





Property
and equipment, net are carried at cost less accumulated depreciation.
Depreciation is calculated on a straight-line basis over the following estimated
useful lives:





Computer
                5
      yearsOffice
      equipment, furniture and fixtures
                5
      yearsAutomobiles
                5
      years





Long-Lived
Assets





In
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived
assets to be held and used are analyzed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. SFAS No. 144 relates to assets that can be amortized and for
which the life can be determinable. The Company evaluates at each balance
sheet date whether events and circumstances have occurred that indicate possible
impairment. If there are indications of impairment, the Company uses future
undiscounted cash flows of the related assets or asset grouping over the
remaining life in measuring whether the assets are recoverable. In the event
such cash flows are not expected to be sufficient to recover the recorded asset
values, the assets are written down to their estimated fair value. Long-lived
assets to be disposed of are reported at the lower of the carrying amount or
fair value of asset less disposal costs. The Company determined that there was
no impairment of long-lived assets as of December 31, 2008 and
2007.





Minority
Interests





Minority
interests represent the minority stockholders’ proportionate share of the equity
of Hengjia, Zhengji and Ganghui.  The minority ownership interests in
2008 and 2007 are summarized as below:





Hengjia
                  
                  
                  20.0
                  %Zhengji
                  
                  
                  13.6
                  %Ganghui
                  
                  
                  20.0
                  %





The
minority interests in Hengjia, Zhengji and Ganghui that are not owned by the
Company are shown as “minority interests in consolidated subsidiaries” in the
consolidated balance sheets as of December 31, 2008 and 2007 and “minority
interests in net income of consolidated subsidiaries” in the consolidated
statements of income for the years ended December 31, 2008 and
2007.





Advertising





The
Company expenses advertising costs when incurred. The Company incurred
approximately $97,000 and $60,000 of advertising expenses for the years ended
December 31, 2008 and 2007, respectively.


F-13


Income
taxes





Deferred
income taxes are recognized for temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements,
net operating loss carry forwards and credits by applying enacted statutory tax
rates applicable to future years. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
Current income taxes are provided for in accordance with the laws of the
relevant taxing authorities.





In June
2006, the Financial Accounting Standards Board ("FASB") issued Interpretation
No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109". FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48 is effective for fiscal years beginning after December 15, 2006, with early
adoption permitted. The Company adopted FIN 48 on January 1, 2007. The adoption
of FIN 48 did not result in a cumulative adjustment on January 1, 2007 and had
no significant impact on the Company's accounting for income taxes for the years
ended December 31, 2008 and 2007. The Company did not incur any interest or
penalties related to potential underpaid income tax expenses.





Basic
and Diluted Earnings Per Share





In
accordance with SFAS No. 128, “Earnings Per Share,” the basic earnings per
common share is computed by dividing net earnings available to common
stockholders by the weighted average number of common shares
outstanding.  Diluted earnings per common share is computed similarly
to basic earnings per common share, except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common
shares were dilutive.  As of December 31, 2008 and 2007, the Company
did not have any common stock equivalents, therefore, the basic earnings per
share is the same as the diluted earnings per share.





New
Accounting Pronouncements





In
December 2007, the FASB issued SFAS No. 141R, "Business Combination", to improve
reporting creating greater consistency in the accounting and financial reporting
of business combinations.  The standard requires the acquiring entity
in a business combination to recognize all (and only) the assets acquired and
liabilities assumed in the transaction; establishes the acquisition-date fair
value as the measurement objective for all assets acquired and liabilities
assumed; and requires the acquirer to disclose to investors and other users all
of the information they need to evaluate and understand the nature and financial
effect of the business combination.  It is not expected to have a
material impact on the Company’s financial position, results of operations and
cash flows.


F-14


In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements" to improve the relevance, comparability, and
transparency of financial information provided to investors by requiring all
entities to report noncontrolling (minority) interests in subsidiaries in the
same way as required in the consolidated financial
statements.  Moreover, SFAS No. 160 eliminates the diversity that
currently exists in accounting for transactions between an entity and
noncontrolling interests by requiring they be treated as equity
transactions.  SFAS No. 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008.  It is not expected to have a material impact on the Company’s
financial position, results of operations and cash flows.





In March
2008, the FASB issued FASB Statement 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. The Company has not yet begun the process of assessing the potential
impact the adoption of FASB No. 161 may have on its consolidated financial
position or results of operations.





In April
2008, the FASB issued FSP SFAS 142-3, “Determination of the Useful Life of
Intangible Assets”(“FSP SFAS 142-3”).This FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, “Goodwill and Other
Intangible Assets”. This FSP is effective for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. The
guidance for determining the useful life of a recognized intangible asset in
this FSP shall be applied prospectively to intangible assets acquired after the
effective date. The Company is evaluating the impact, if any, of the adoption of
FSP SFAS 142-3. It is not expected to have a material impact on the Company’s
financial position, results of operations and cash flows.





In May
2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles ("SFAS 162"). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of non-governmental entities that are
presented in conformity with U.S. GAAP. SFAS 162 directs the U.S. GAAP hierarchy
to the entity, not the independent auditors, as the entity is responsible for
selecting accounting principles for financial statements that are presented in
conformity with U.S. GAAP. SFAS 162 is effective 60 days following the
Securities and Exchange Commission’s approval of the Public Company Accounting
Oversight Board amendments to remove the U.S. GAAP hierarchy from the auditing
standards. The Company is currently evaluating the impact of adopting
SFAS No. 162.


F-15





In June
2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities”.This FSP gives guidance on the computation of earnings per share and the
impact of share-based instruments that contain certain non forfeitable rights to
dividends or dividend equivalents. The FSP is effective for fiscal years
beginning after December 31, 2008. The Company is evaluating the impact, if any,
of the adoption of FSP EITF 03-6-1. It is not expected to have a material impact
on the Company’s financial position, results of operations and cash
flows.





In
November 2008, the FASB ratifies the consensus reached by the Task Force in EITF
Issue 08-7, “Accounting for
Defensive Intangible Assets”(“EITF 08-7”). EITF 08-7 requires entities
that will acquire a defensive intangible asset after the effective date of SFAS
141R, to account for the acquired intangible asset as a separate unit of
accounting and amortize the acquired intangible asset over the period during
which the asset would diminish in value. EITF 08-7 is effective for defensive
intangible assets acquired in fiscal years beginning on or after December 15,
2008. The Company is evaluating the impact, if any, of the adoption of EITF
08-7. It is not expected to have a material impact on the Company’s financial
position, results of operations and cash flows.





(2)
Property and Equipment:





A summary
of property and equipment is as follows:





Year Ended December 31,2008
                                    
                                    
                                    2007Computer
                                    
                                    $
                                    208,772
                                    
                                    
                                    $
                                    154,822Office
      equipment, furniture and fixtures
                                    
                                    
                                    107,121
                                    
                                    
                                    
                                    86,445Automobiles
                                    
                                    
                                    972,397
                                    
                                    
                                    
                                    787,0551,288,290
                                    
                                    
                                    
                                    1,028,322Less:
      accumulated depreciation
                                    
                                    
                                    665,686
                                    
                                    
                                    
                                    432,574$
                                    622,604
                                    
                                    
                                    $
                                    595,748





Depreciation
and amortization expense for property and equipment amounted to approximately
$200,701 and $164,336 for the years ended December 31, 2008 and 2007
respectively.





(3)
Lines of Credit Related to Financing Services and Lines of Credit Related to
Automobile Purchases:





The
Company provides financing services to its customers using the Company’s bank
facility lines of credit. The Company earns a service fee for drawing its
facility lines related to its customers’ purchases of automobiles and payment of
import taxes. The customers bear all the interest and fees charged by the banks
and prepay those fees upon the execution of their service contracts with the
Company. The customers are also required to make a deposit in the range of 22%
to 30% of the purchase prices of the automobiles. The banks take custody of the
automobiles until the borrowings are fully repaid.


F-16





Beginning
October 2008, under additional arrangements with China Merchants Bank, the
Company used its bank facility line of credit to finance its own purchases of
automobiles.  According to the terms of these arrangements, the
Company used this line as a revolving line of credit and such borrowings are not
secured by the automobiles.





China Merchants
Bank





In May
2008, the Company entered into a facility line of credit with China Merchants
Bank. Under the terms of the agreement, the Company can borrow a maximum amount
of $13,168,291 at December 31, 2008 (RMB 90,000,000). As of December 31, 2008,
the Company had outstanding balances of $4,642,320 related to the financing
services and $662,452 for its own automobile purchases. This facility line
matures in May 2009 and is guaranteed by a non-related entity.





In
November 2007, the Company entered into a facility line of credit with China
Merchants Bank. Under the terms of the agreement, the Company could borrow a
maximum amount of $8,214,002 at December 31, 2007 (RMB 60,000,000). The Company
had an outstanding balance of $3,699,031 as of December 31, 2007. This facility
line of credit expired in November 2008. This line was guaranteed by a
non-related company.





Agricultural Bank of
China





In July
2008, the Company entered into a facility line of credit with Agricultural Bank
of China. Under the terms of the agreement, the Company can borrow a maximum
amount of $14,631,434 at December 31, 2008 (RMB 100,000,000). The Company had
outstanding balance of $0 as of December 31, 2008. This facility line matures in
January 2010 and is guaranteed by a non-related entity.





In June
2006, the Company entered into a facility line of credit with Agricultural Bank
of China related to its financing services. Under the terms of the agreement,
the Company could borrow a maximum amount of $51,337,513 at December 31, 2007
(RMB 375,000,000) to facilitate the Company’s financing business. The Company
had an outstanding balance of $10,875,973 as of December 31, 2007. This facility
line of credit expired in June 2008 and was guaranteed by a non-related
company.





Industrial and Commercial
Bank of China





In June
2007, the Company entered into a facility line of credit with Industrial and
Commercial Bank of China related to its financing services. Under the terms of
the agreement, the Company could borrow a maximum amount of $13,690,004 at
December 31, 2007 (RMB 100,000,000). The Company had an outstanding balances of
$8,536,127, as of December 31, 2007. This facility line of credit expired in
June 2008 and was guaranteed by a non-related company.


F-17


PuDong Development
Bank





In July
2007, the Company entered into a facility line of credit with PuDong Development
Bank related to its financing services. Under the terms of the agreement, the
Company could borrow a maximum amount of $2,738,001 at December 31, 2007 (RMB
20,000,000). The Company had an outstanding balance of $1,543,389 as of December
31, 2007. This facility line of credit expired in January 2008 and was
guaranteed by a non-related company.





(4)
Short-term Bank Loans





Short-term
bank loans as of December 31, 2008 and 2007 consist of the
following:





Year Ended December 31,2008
                                            
                                            
                                            2007Loan
      from Agricultural Bank of China, with an interest at a rate of 6.426%,
      guaranteed by anon-related entity, matured in March 2008 and was not
      renewed
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            1,232,100Loan
      from Agricultural Bank of China, with an interest at a rate of 8.019%,
      guaranteed by non-related entity, matured in November 2008 and was not
      renewed
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,232,100Loan
      from Agricultural Bank of China, with an interest at a rate of 8.019%,
      guaranteed by unrelated parties, matured in November 2008 and was not
      renewed
                                            
                                            
                                            -
                                            
                                            
                                            
                                            547,601Loan
      from Agricultural Bank of China, with an interest at a rate of 8.217%,
      guaranteed by anon-related entity, and matures in March
    2009
                                            
                                            
                                            1,316,829
                                            
                                            
                                            
                                            -Loan
      from Agricultural Bank of China, with an interest at a rate of 7.326%,
      guaranteed by a non-related entity, and matures in November
      2009
                                            
                                            
                                            1,316,829
                                            
                                            
                                            
                                            -Loan
      from Agricultural Bank of China, with an interest at a rate of 7.326%,
      guaranteed by unrelated parties, and matures in November
    2009
                                            
                                            
                                            585,258
                                            
                                            
                                            
                                            -Total
                                            
                                            $
                                            3,218,916
                                            
                                            
                                            $
                                            3,011,801





Weighted
average interest rates for these bank loans were 7.69% and 7.37% at December 31,
2008 and 2007, respectively.




(5)
Notes Payable:




The
Company issued certain draft notes payable to suppliers which are guaranteed by
the banks. These draft notes payable were issued as replacements of the accounts
payable. The terms of these draft notes payable vary depending on the
negotiations with the suppliers. Typical terms are in the range of three to six
months. On the maturity dates, the note holders present these notes to the
banks to draw cash based on the note amounts. The Company is subject to a bank
fee of 0.05% on notes payable amounts.


F-18





As of
December 31, 2008, the Company had no outstanding notes payable.  As
of December 31, 2007, the Company had a total of five draft notes payable
totaling $4,107,001 with maturity dates in the month of March 2008. The Company
was required to maintain $2,053,501 as guaranteed funds. The Company classified
$2,053,501 as restricted cash as of December 31, 2007.





(6)
Related-Party Balances and Transactions:





Cheng
Weihong (the Secretary, Senior Vice President and Chairwoman of Shisheng and
wife of China Auto’s President and Chief Executive Officer, Mr. Tong Shiping)
made non-interest bearing loans to the Company from time to time to meet working
capital needs of the Company. For the years ended December 31, 2008 and 2007,
the Company made aggregate borrowings from Cheng Weihong of $73,249,961 and
$114,514,111, respectively, and made aggregate repayments to Cheng Weihong of
$73,562,626 and $125,243,219, respectively.  As of December 31,
2008 and 2007, the outstanding balances due to Cheng Weihong were $10,188 and
$306,088, respectively.





The
Company’s shareholder, Sino Peace Limited, paid accrued expenses of $486,375 on
behalf of the Company during the year ended December 31, 2008.  The
amount $492,829 was outstanding as due to shareholder on the consolidated
balance sheets as of December 31, 2008.





On
December 1, 2007, Shisheng declared and paid dividend in the amount of
$2,636,158 (RMB 20,000,000) to its stockholders.





On
December 1, 2007, the Shisheng’s three majority owned subsidiaries declared and
paid dividends to its stockholders of which $600,767 (RMB 4,557,901) was
disbursed to their minority stockholders.





(7)
Income Taxes:




China
Auto and HKCo do not generate any income and therefore are not subject to U.S.
or Hong Kong income taxes.   The Company conducts substantially
all of its business through its PRC operating subsidiaries and they are subject
to PRC income taxes.





Shisheng,
Ganghui, Hengjia, and Zhengji are subject to the standard 33% tax rate in
2007.  Effective January 1, 2008, the PRC federal income tax rate has
been decreased to 25%.





In
accordance with the approval by the tax authority in September 21, 2004, Hengjia
was exempted from PRC income tax for the period from September 1, 2004 to August
31, 2007.  In accordance with the approval by the tax authority in
September 5, 2005, Zhengji is exempted from PRC income tax for the period from
June 1, 2005 to December 31, 2007.


F-19





The
Company’s income tax provision amounted to $1,530,386 and $244,911,
respectively, for the years ended December 31, 2008 and 2007 (an effective rate
of 25.8% for 2008 and 6.6% for 2007).  A reconciliation of the
provision for income taxes, with amounts determined by applying the statutory
U.S. federal income tax rate to income before income taxes, is as
follows:





Year Ended December 31,2008
                                    
                                    
                                    2007Computed
      tax at federal statutory rate of 34%
                                    
                                    $
                                    2,021,087
                                    
                                    
                                    $
                                    1,253,515Permanent
      difference-Meals
      and Entertainment (non-deductible portion)
                                    
                                    
                                    11,685
                                    
                                    
                                    
                                    -Professional
      fees (non-deductible portion)
                                    
                                    
                                    133,522
                                    
                                    
                                    
                                    -Tax
      rate difference between US and PRC on foreign earning
                                    
                                    
                                    (534,994
                                    )
                                    
                                    
                                    (36,868
                                    )Effect
      of tax exemption
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (969,452
                                    )Effect
      of statutory rate change
                                    
                                    
                                    11,552
                                    
                                    
                                    
                                    -Other
                                    
                                    
                                    (112,466
                                    )
                                    
                                    
                                    (2,284
                                    )$
                                    1,530,386
                                    
                                    
                                    $
                                    244,911





Year Ended December 31,2008
                                        
                                        
                                        
                                        2007Current
                                        
                                        $
                                        1,516,819
                                        
                                        
                                        $
                                        202,445Deferred
                                        
                                        
                                        13,567
                                        
                                        
                                        
                                        42,466$
                                        1,530,386
                                        
                                        
                                        $
                                        244,911





Year Ended December 31,2008
                            
                            
                            
                            2007Federal
                            
                            $
                            -
                            
                            
                            $
                            -Foreign
                            
                            
                            1,530,386
                            
                            
                            
                            244,911$
                            1,530,386
                            
                            
                            $
                            244,911





Year Ended December 31,2008
                  
                  
                  2007Deferred
      tax assets:Inventory
      reserve
                  
                  $
                  36,579
                  
                  
                  $
                  50,146Total
      deferred tax assets
                  
                  
                  36,579
                  
                  
                  
                  50,146Deferred
      tax liabilities:
                  
                  
                  -
                  
                  
                  
                  -Net
      deferred tax assets (liabilities) before valuation
    allowance
                  
                  
                  36,579
                  
                  
                  
                  50,146Less:
      valuation allowance
                  
                  
                  -
                  
                  
                  
                  -Net
      deferred tax assets
                  
                  $
                  36,579
                  
                  
                  $
                  50,146


F-20





The
Company has not provided deferred taxes on unremitted earnings attributable to
its international subsidiaries as they are to be reinvested indefinitely. 
These earnings relate to ongoing operations and are approximately $6.85 million
as of December 31, 2008.  Because of the availability of U.S. foreign tax
credits, it is not practicable to determine the U.S. income tax liability that
would be payable if such earnings were not indefinitely reinvested.





(8)
Commitments:




The
Company leases certain office and marketing premises under non-cancelable
leases. These office leases begin to expire in 2010. Rent expense under
operating leases were $159,993 for 2008 and $144,989 for 2007.





Future
minimum lease payments under non-cancelable operating leases were as
follows:





2009
                          
                          $
                          164,6142010
                          
                          
                          148,0082011
                          
                          
                          144,398$
                          457,020





(9)
Segment Information:





The
Company has four principal operating segments: (1) sales of automobiles, (2)
financing services, (3) web-based advertising, and (4) automobile import value
added services. These operating segments were determined based on the nature of
the services offered. Operating segments are defined as components of an
enterprise about which separate financial information is available and that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The Company's chief executive
officer and chief operating officer have been identified as the chief operating
decision makers. The Company's chief operating decision makers direct the
allocation of resources to operating segments based on the profitability and
cash flows of each respective segment. Direct cost of revenue related to
financing services, web-based advertising and automobile import value added
services was de
minimis.




The
Company evaluates performance based on several factors, including net revenue,
cost of revenue, operating expenses, and income from operations. The following
tables show the operations of the Company's operating segments:


F-21





Sales of
                            Automobiles
                          
                          
                          Financing
                            Services
                          
                          
                          Web-based
                            Advertising
                            Services
                          
                          
                          Automobile
                            Import
                            Value
                            Added
                            Services
                          
                          
                          Corporate
                          
                          
                          Total2008Net
      revenue
                          
                          $
                          186,343,080
                          
                          
                          $
                          899,538
                          
                          
                          $
                          1,762,859
                          
                          
                          $
                          731,600
                          
                          
                          $
                          -
                          
                          
                          $
                          189,737,077Cost
      of revenue
                          
                          
                          181,065,563
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          181,065,563Operating
      expensesSelling
      and marketing
                          
                          
                          519,990
                          
                          
                          
                          201,782
                          
                          
                          
                          367,126
                          
                          
                          
                          29,544
                          
                          
                          
                          -
                          
                          
                          
                          1,118,442General
      and administrative
                          
                          
                          215,288
                          
                          
                          
                          80,484
                          
                          
                          
                          106,826
                          
                          
                          
                          13,868
                          
                          
                          
                          982,744
                          
                          
                          
                          1,399,210Total
      operating expenses
                          
                          
                          735,278
                          
                          
                          
                          282,266
                          
                          
                          
                          473,952
                          
                          
                          
                          43,412
                          
                          
                          
                          982,744
                          
                          
                          
                          2,517,652Income
      (loss) from operations
                          
                          
                          4,542,239
                          
                          
                          
                          617,272
                          
                          
                          
                          1,288,907
                          
                          
                          
                          688,188
                          
                          
                          
                          (982,744
                          )
                          
                          
                          6,153,862Total
      assets
                          
                          $
                          32,666,070
                          
                          
                          $
                          7,374,920
                          
                          
                          $
                          561,688
                          
                          
                          $
                          337,013
                          
                          
                          $
                          112,860
                          
                          
                          $
                          41,052,551





Sales of
                              Automobiles
                            
                            
                            Financing
                              Services
                            
                            
                            Web-based
                              Advertising
                              Services
                            
                            
                            Automobile
                              Import
                              Value
                              Added
                              Services
                            
                            
                            Corporate
                            
                            
                            Total2007Net
      revenue
                            
                            $
                            149,156,996
                            
                            
                            $
                            736,590
                            
                            
                            $
                            1,459,948
                            
                            
                            $
                            1,077,140
                            
                            
                            $
                            -
                            
                            
                            $
                            152,430,674Cost
      of revenue
                            
                            
                            147,270,951
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            147,270,951Operating
      expensesSelling
      and marketing
                            
                            
                            324,325
                            
                            
                            
                            197,789
                            
                            
                            
                            284,538
                            
                            
                            
                            142,567
                            
                            
                            
                            -
                            
                            
                            
                            949,219General
      and administrative
                            
                            
                            112,804
                            
                            
                            
                            30,460
                            
                            
                            
                            73,337
                            
                            
                            
                            21,302
                            
                            
                            
                            237,900
                            
                            
                            
                            475,803Total
      operating expenses
                            
                            
                            437,129
                            
                            
                            
                            228,249
                            
                            
                            
                            357,875
                            
                            
                            
                            163,869
                            
                            
                            
                            237,900
                            
                            
                            
                            1,425,022Income
      (loss) from operations
                            
                            
                            1,448,916
                            
                            
                            
                            508,341
                            
                            
                            
                            1,102,073
                            
                            
                            
                            913,271
                            
                            
                            
                            (237,900
                            )
                            
                            
                            3,734,701Total
      assets
                            
                            $
                            33,851,852
                            
                            
                            $
                            30,179,967
                            
                            
                            $
                            2,098,908
                            
                            
                            $
                            1,259,345
                            
                            
                            $
                            3,497,085
                            
                            
                            $
                            70,887,157


F-22




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
      AUTO LOGISTICS INC.By:
                /s/ Tong ShipingTong
      ShipingChief
      Executive Officer





Dated:  March
30, 2009





____________________




POWER
OF ATTORNEY





The
registrant and each person whose signature appears below hereby appoint Tong
Shiping as attorney-in-fact with full power of substitution, severally, to
execute in the name and on behalf of the registrant and each such person,
individually and in each capacity stated below, one or more amendments to the
annual report which amendments may make such changes in the report as the
attorney-in-fact acting deems appropriate and to file any such amendment to the
report with the U. S. Securities and Exchange Commission.





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/  Tong
      Shiping
                                              
                                              Chief
      Executive OfficerTong
      Shiping
                                              
                                              (Principal
      Executive Officer) and
                                                Director
                                              
                                              March
      30, 2009/s/  Wang
      Xinwei
                                              
                                              Chief
      Financial Officer (PrincipalWang
      Xinwei
                                              
                                              Accounting
      Officer)
                                              
                                              March
      30, 2009/s/  Gao
      YangGao
      Yang
                                              
                                              Director
                                              
                                              March
      30, 2009/s/  Yang
      BinYang
      Bin
                                              
                                              Director
                                              
                                              March
      30, 2009/s/  Cheng
      WeihongCheng
      Weihong
                                              
                                              Director
                                              
                                              March
      30, 2009/s/  Qu
      ZhongQu
      Zhong
                                              
                                              Director
                                              
                                              March
      30, 2009/s/  Kong
      XiaoyanKong
      Xiaoyan
                                              
                                              Director
                                              
                                              March
      30, 2009/s/  Howard
      BarthHoward
      Barth
                                              
                                              Director
                                              
                                              March
      30,
2009





Index
to Exhibits




Exhibit
                                                  Number
                                                
                                                Exhibit Description2.1
      (1)
                                                
                                                Share
      Exchange Agreement dated as of November 10, 2008, between USCo, the
      Company and Stockholder.2.2
      (1)
                                                
                                                Share
      Exchange Agreement dated as of November 1, 2007, among Ever Auspicious
      International Limited, Cheng Weihong, Xia Qiming, and Qian
      Yuxi.2.3
      (1)
                                                
                                                Supplementary
      Agreement to Share Exchange Agreement dated as of November 1, 2007, among
      Ever Auspicious International Limited, Cheng Weihong, Xia Qiming, and Qian
      Yuxi.3.1
      (2)
                                                
                                                Amended
      Articles of Incorporation of the Company3.2
      (2)
                                                
                                                Amended
      and Restated Bylaws of the Company10.1
      (1)
                                                
                                                Lease
      Agreement, effective as of March 31, 2003, between China Construction Bank
      Tianjin Tariff-free Zone Branch and Tianjin Shisheng Investment Group
      Ltd.10.2
      (1)
                                                
                                                Lease
      Agreement, effective as of January 1, 2007, between Tianjin Port
      International Car Exhibit Centre and Tianjin Shisheng Investment Group
      Ltd.10.3
      (1)
                                                
                                                Supplementary
      Agreement, dated as of December 8, 2007, between Tianjin Port
      International Car Exhibit Centre and Tianjin Shisheng Investment Group
      Ltd.10.4
      (1)
                                                
                                                Form
      of Employment Contract10.5
      (3)
                                                
                                                Audit
      Committee Charter10.6
      (3)
                                                
                                                Compensation
      Committee Charter10.7
      (3)
                                                
                                                Corporate
      Governance and Nominating Committee Charter14.1
      (3)
                                                
                                                Code
      of Business Conduct and Ethics17.1
      (1)
                                                
                                                Resignation
      Notice of Phillip E. Ray, dated as of November 10,
2008.17.2
      (1)
                                                
                                                Resignation
      Notice of Alice T. Ray, dated as of November 10, 2008.21.1
      (1)
                                                
                                                Subsidiaries31.1*
                                                
                                                Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2*
                                                
                                                Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232.1*
                                                
                                                Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002










*Filed
herewith


(1)
Incorporated by reference to the Company’s Form 8-K, filed with the Securities
and Exchange Commission on November 10, 2008.


(2)
Incorporated by reference to the Company’s Definitive Schedule 14C Information
Statement, filed with the Securities and Exchange Commission on December 5,
2008.


(3)
Incorporated by reference to the Company’s Form 8-K, filed with the Securities
and Exchange Commission on December 24, 2008.