SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549





FORM
10-K




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





For the
fiscal year ended December 31, 2009





o 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: Common Stock, par value
$0.001 per share




Securities
registered pursuant to Section 12(g) of the
Act:  None.





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No  þ





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 o No  þ





Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes  þNo   ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes o No  þ





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 o No  þ





As of
March 22, 2010, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was $26,944,000 based on the closing price
as reported on the NASDAQ.





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 22,
    2010Common
      Stock, $.001 par value per share
              
              18,100,000
      shares










PART
I





Item 1.
            Business.




Introduction





On
November 10, 2008 (the “Closing”), China Auto
Logistics Inc. (formerly known as 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, 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 Zhengji.





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 approximately 98% 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.at160.com
(formerly 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.







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% is 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 effective January 1, 2007.  The remainder of
Zhengji’s equity interests are owned by Yang Bin (a Senior Vice President and
director nominee of the Company), Qian Shuqing and Zhou Shanglan.




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.”




On July
23, 2009, Shisheng entered into Share Transfer Agreements to acquire additional
ownership interests from other noncontrolling interest shareholders to increase
its ownership interests in Ganghui, Hengjia and Zhengji to 98% each for an
aggregate purchase price of $444,120.





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





The
global economic downturn that began in the second half of 2008 had a significant
negative impact on the automotive industry. After reaching a trough in early
2009, the automotive industry began to show signs of a slow recovery during the
remainder of the year. While global economy is still moving difficultly towards
recovery, China has become a major auto consumption market in the
world.





According
to the China Association of Automobile Manufacturers (CAAM), China's auto sales
reached 13.64 million units in 2009, rising 46% over the previous year.
According to Autodata, US auto sales fell 21.12% in 2009 to 10.43 million units
in 2009 as compared to 2008. China surpassed the US to become the world’s
largest auto market for the first time.





China
auto industry growth has been driven by rising domestic demand stemming from
rising incomes and expanding middle and upper-middle classes. For middle and
upper-middle classes, automobiles serve not only as modes of transportation but
also as status symbols.   As a result, imported automobiles,
particularly luxury automobiles like Mercedes Benz, BMW, Lexus and Land Rover,
are in high demand.  In addition, China continues to focus on the
expansion of its road system, highlighted by the programme in China’s 11th
Five-Year Plan for an extension of the country’s National Trunk Highway System
from around 41,000 km in 2005 to 65,000 km in 2010. The highway network is
targeted to reach 3 million km by 2020, up from 2 million km in 2008. The
expansion of China roads and highway network, coupled with the expanding middle
and upper-middle classes, are expected to benefit robust auto sales in the years
to come.





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 CAAM, a total of 420,800
imported automobiles were sold in China in 2009, representing a 2.62% increase
from the 410,000 imported automobiles sold in China in 2008. The value of
imported automobiles was approximately $15.34 billion, representing a 1.46%
year-on-year increase.








The
Chinese automobile market is highly competitive for both imported and
domestically manufactured automobiles.  Currently, China has five
enterprises with annual sales exceeding 1,000,000 units, namely Shanghai
Automotive Industry Corp (SAIC), the First Automotive Works Group (FAW),
Dongfreng Motor, Chang'an and Beijing Auto Industry. The five made a combined
sale of over 9,660,000 units, accounting for 71% of the total sales of vehicles,
and up 9 percentage points over the previous year, indicating further increase
of concentration.





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:





o
            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.




o
            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.




o
            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.




o
            We
      maintain close relationships with many major commercial banks in the PRC,
      including China Agriculture Bank, China Construction Bank, Pudong
      Development Bank and China Merchants Bank, which gives us a competitive
      advantage over our competitors in providing Financing
      Services.  As of March 5, 2010, the Company had an aggregate
      credit line of $38,809,642 with its
banks.




o
              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.




o
            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:





o
              Geographic
      Expansion.We intend to utilize our existing websites to help
      expand our offerings and geographical reach into more cities in
      China.o
              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 and auto mall management
      service.





o
            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.





o
            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.




o
            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





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 over
400 agents and general dealers that sell automobiles to consumers.  We
lease a showroom with 2,190 square meters and sell between 2,500 and 3,000
automobiles annually. In 2009, the Company sold 2,744 imported automobiles at an
average unit price of $76,474, an increase of 3.64% from 2008’s average
price.





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), $186.3 million for fiscal
year 2008, (98.21% of all revenues), and $209.8 million for fiscal year 2009
(97.52% of all revenues), representing a 12.61% increase from the prior fiscal
year.




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, Pudong Development Bank and China Merchants
Bank.  As of March 5, 2010, the Company had a credit line of
$38,809,642.   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. 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),
$899,538 for fiscal year 2008 (0.47% of all revenues), and $1,217,727 for fiscal
year 2009 (0.57% of all revenues), representing an increase of 35.37% from the
prior fiscal year.





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).





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), $731,600 for
fiscal year 2008 (0.39% of all revenues), and $667,565 for fiscal year 2009
(0.31% of all revenues), representing a decrease of 8.75% from the prior fiscal
year. The decrease was due to the worldwide economic downturn, which adversely
impacted the Company in early 2009. 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
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.at160.com(formerly
www.1365car.tj.cn) – Domestic Automobiles




To
provide real-time price comparison and sales and trading information directly to
this huge domestic automobile market, we launched the website www.at160.com,
formerly 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.at160.com
currently provides real-time price comparison and sales and trading information
in the local and regional Tianjin market with respect to domestically
manufactured automobiles.





www.at160.com 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.  According to www.chinarank.com,
www.at160.com
moved up 100 places to become one of the 100 top most popular websites in China
since September 2009, and climbed to the third place among all auto specific
websites in China. 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), $1,751,660 for fiscal
year 2008 (0.92% of all revenues), and $3,459,098 for fiscal year 2009 (1.61% of
all revenues), representing an increase of 97.48% 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.





The
Company is looking to expand its domestic automobile website to a total of 50
cities in China from the 15 cities it currently serves. The national website
focuses 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.





In the
coming years, we continued to shift the business focus of the Company from a
traditional automobile trader to a web-based automobile-related logistics
service provider. We will continue to place additional effort into the
development of websites and value added services, such as online insurance and
online financing. Although the revenue generated thus far through these services
has been minimal, their contribution to the Company’s net income became an
increasing portion in the past few years. We are confident that the Company’s
website development will further benefit the Company in the coming
years.




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.








We have entered a management service
agreement to manage the Tianjin FTZ International Automobile Exhibition an Sales
Center for a 1-year term effective March 1, 2010. We will continue to integrate
our expertise in the auto industry into any business opportunities.




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.





Some of
our top clients are both our customers and suppliers. We maintain close working
relationships with our top customers and suppliers although we also continue to
diversify our revenues and purchases.   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.





Intellectual
Property




Our two
websites, www.at188.com and
www.at160.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
gradually replaced the domain name www.1365car.com with
www.at160.com
after it achieved target penetration with 15 city-level
websites.





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 99 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.




Risk
Factors





Item
1A





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 2009,
we derived approximately 49% of our income from operations from the sale of
imported automobiles, approximately 11% of our income from operations from
Financing Services, approximately 6% of our income from operations from
Automobile Import Value Added Services, and approximately 34% 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.





We
derive a significant amount of our revenue from a limited number of customers
and purchase a significant portion of our inventories 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.  Some of our larger customers are also our largest
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 2009, the Chinese automobile market recorded a 2.62%
volume increase in the number of imported cars sold and most of these imported
automobiles sold are directly purchased by authorized agents and the Chinese
government. 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 5, 2010, the Company had a credit line of $38,809,642. 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.








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
and www.at160.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.





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.





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:




o
              reduce our investments in
      research and development;
 o
              limit our marketing efforts;
      and
 o
              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.





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.at160.com)
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.





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.





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:





o
            structure;o
            level
      of government involvement;o
            level
      of development;o
            level
      of capital reinvestment;o
            growth
      rate;o
            control
      of foreign exchange; ando
            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.





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 precedent.  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 (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.





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 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 slowing the industry’s
growth in China.





We
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 US
federal securities laws or applicable state securities
laws.  Moreover, our Chinese counsel has advised us that China does
not have treaties with the US 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 US
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.





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, 2009, we have approximately $6.6 million in cash and other
bank deposits, such as time deposits and bank notes, with fourteen different
banks in China, which constitute substantially all of our total cash and cash
equivalents as of December 31, 2009. 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 WTO, foreign banks have been gradually
permitted to operate in China and have been 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
six month 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 one 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.








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 US 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 (the “Board”) 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.





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
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
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.





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
9-year term which expires on March 31, 2012.  The annual rent for the
office is approximately $15,000 (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 $146,000 (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





As of the date of this filing, neither
the Registrant nor any of its subsidiaries are a party to any legal proceeding
that could reasonably be expected to have material impact on its operations or
finances.





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





None.


PART
II




Item 5.
            Market
      For Registrant’s Common Equity, Related Stockholder Matters and Issuer
      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. On June 30, 2009, the Company’s common
stock was listed on NASDAQ Capital Market. As of January 8, 2010, the Company’s
common stock has been listed on NASDAQ Global Market. 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, 2009:





Fiscal
      Year Ended
                
                Common
      StockHigh
                
                
                LowDecember
      31, 2009First
      Quarter
                
                $
                3.88
                
                
                $
                3.66Second
      Quarter
                
                $
                3.82
                
                
                $
                3.56Third
      Quarter
                
                $
                4.16
                
                
                $
                3.86Fourth
      Quarter
                
                $
                4.98
                
                
                $
                4.62December
      31, 2008First
      Quarter
                
                $
                N/A
                
                
                $
                N/ASecond
      Quarter
                
                $
                N/A
                
                
                $
                N/AThird
      Quarter
                
                $
                N/A
                
                
                $
                N/AFourth
      Quarter
                
                $
                3.33
                
                
                $
                3.09





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 22, 2010, we had approximately 17 stockholders of our common stock of
record, and our common stock had a closing bid price of $4.21 per
share.








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





As of
December 31, 2009, 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, in their discretion,
and will depend on our financial condition, operating results, capital
requirements and other factors that the Board considers
significant.





Securities Authorized for Issuance
Under Equity Compensation Plans.





As of
December 31, 2009, 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.





Recent Sales of Unregistered
Securities.





None.





Purchases
of Equity Securities by the Issuer and Affiliated Purchasers.





None.




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”).





In
connection with the consummation of the 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.at160.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.





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 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.





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. 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.





Receivables
Related to Financing Services





The
Company records a receivable related to Financing Services when cash is loaned
to the customers to finance their purchases of automobiles. Upon repayments by
the customers, the Company records the amounts as reductions of receivables
related to Financing Services. Receivables related to Financing Services
represent the aggregate outstanding balance of loans from customers related to
their purchases of automobiles and are considered receivables held for
investment. The Company charges a fee for providing loan service and such fee is
prepaid by the customers. The Company amortizes these fees over the receivable
term, which is typically 90 days, using the straight-line method. The Company
records such amortized amounts as financing fee income and the unamortized
amount is classified as deferred revenue on the Company’s consolidated balance
sheets.





The
Company evaluates the collectibility of outstanding receivables at the end of
each of the reporting periods and makes estimates for potential credit losses.
The Company has not experienced any losses on its accounts receivable
historically and accordingly did not record any allowance of credit losses as of
December 31, 2009 and 2008.





Inventories





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.





The FASB
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. The Company did not incur any interest or penalties
related to potential underpaid income tax expenses.








Recently
Adopted Accounting Standards





Effective
January 1, 2009, the Company adopted authoritative guidance issued by the
Financial Accounting Standards Board (“FASB”) regarding business combinations,
which is now part of the Accounting Standards Codification (“ASC”) 805 “Business
Combination”. This guidance addresses the accounting and disclosure for
identifiable assets acquired, liabilities assumed, and noncontrolling interests
in a business combination. Also, the Company adopted guidance issued by the FASB
regarding accounting for assets acquired and liabilities assumed in a business
combination that arise from contingencies. This guidance amended certain
provisions of business combinations guidance related to the recognition,
measurement, and disclosure of assets acquired and liabilities assumed in a
business combination that arise from contingencies. The Company believes the
adoption of this guidance did not have a material impact on its consolidated
financial statements.





Effective
January 1, 2009, the Company adopted authoritative guidance issued by the FASB
regarding the accounting and reporting framework for noncontrolling interests by
a parent company, which is now part of ASC 810 “Consolidation”, and also the
disclosure requirements to distinguish between interests of the parent and
interests of the noncontrolling owners of a subsidiary. The guidance requires
noncontrolling interests to be separately presented as a component of equity in
the Company’s consolidated balance sheets and below income tax expense in its
consolidated statements of income. In addition, the guidance requires that
minority interests be renamed noncontrolling interests and that a company
presents a consolidated net income measure that includes the amount attributable
to such noncontrolling interests for all periods presented.  The
Company retrospectively applied the presentation to the prior year balances in
its consolidated financial statements upon the adoption of this pronouncement
effective January 1, 2009.  As a result, the Company reclassified the
minority interests in consolidated subsidiaries of $1,315,978 and accumulated
other comprehensive income of $191,691 to non-controlling interests under the
equity section in its consolidated balance sheet as of December 31,
2008.





Effective
April 1, 2009, the Company adopted authoritative guidance issued by the FASB,
which is now codified in ASC 815 “Derivatives and Hedging” regarding the
disclosures for derivative and hedging activities. The Company believes the
adoption of this guidance did not have a material impact on its consolidated
financial statements.





Effective
April 1, 2009, the Company adopted authoritative guidance codified as ASC 855
“Subsequent Events”, which establishes general standards for the accounting and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. In particular,
ASC 855 sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements; the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The Company believes the adoption of this
guidance did not have any significant impact on its financial condition or
results of operations.





Effective
July 1, 2009, the Company adopted the amended authoritative guidance issued by
the FASB regarding interim disclosures about fair value of financial
instruments, which is now codified in ASC 805. The guidance requires disclosures
about fair value of financial instruments for interim reporting periods as well
as in annual financial statements of publicly traded companies. The guidance
also requires those disclosures in summarized financial information at interim
reporting periods. The Company believes the adoption of this guidance did not
have any significant impact on its financial condition or results of
operations.





Effective
July 1, 2009, the Company adopted the new guidance as issued by the FASB, which
is now part of ASC 105 “Generally Accepted Accounting Principles”. ASC 105 has
become the source of authoritative US GAAP recognized by the FASB to be applied
by nongovernmental entities and provides that all such guidance carries an equal
level of authority. The ASC is not intended to change or alter existing GAAP.
ASC 105 is effective for interim and annual periods ending after September 15,
2009. The Company believes the adoption of ASC 105 did not have any significant
impact on its financial condition or results of operations.





New
Accounting Pronouncements Not Yet Adopted





In June
2009, the FASB issued Statement of Financial Accounting Standards(“SFAS”) No. 167
“Amendments to FASB Interpretation No. 46(R)” codified in ASC 810 which amends
the evaluation criteria to identify the primary beneficiary of a variable
interest entity (“VIE”) and requires ongoing reassessment of whether an
enterprise is the primary beneficiary of the VIE. The new guidance significantly
changes the consolidation rules for VIEs including the consolidation of common
structures, such as joint ventures, equity method investments and collaboration
arrangements. The guidance is applicable to all new and existing VIEs. The
provisions of this new accounting guidance are effective for interim and annual
reporting periods ending after November 15, 2009 and will become effective for
us beginning in the first quarter of 2010. The Company does not expect the
adoption of this guidance to have a significant effect on its consolidated
financial position or results of operations.





In
September 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13
“Revenue Recognition (Topic 605): Multiple Deliverable Revenue Element
Arrangements – a consensus of the FASB Emerging Issues Task Force” (“ASU
2009-13”). The new guidance states that if vendor specific objective evidence or
third party evidence for deliverables in an arrangement cannot be determined,
companies will be required to develop a best estimate of the selling price to
separate deliverables and allocate arrangement consideration using the relative
selling price method. ASU 2009-13 will be applied prospectively and will become
effective during the first quarter of 2011. Early adoption is allowed. The
Company does not expect the adoption of this guidance to have a significant
effect on its consolidated financial position or results of
operations.








Results
of Operations for the Fiscal Year Ended December 31, 2009 Compared To the Fiscal
Year Ended December 31, 2008





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:





Year
      ended December 31,
                
                
                Change
      in2009
                
                
                2008
                
                
                %Net
      revenue
                
                $
                215,188,081
                
                
                
                100.00
                %
                
                $
                189,725,878
                
                
                
                100.00
                %
                
                
                13.42
                %Cost
      of revenue
                
                
                204,953,584
                
                
                
                95.24
                %
                
                
                181,372,628
                
                
                
                95.60
                %
                
                
                13.00
                %Gross
      profit
                
                
                10,234,497
                
                
                
                4.76
                %
                
                
                8,353,250
                
                
                
                4.40
                %
                
                
                22.52
                %Operating
      expenses
                
                
                1,983,219
                
                
                
                0.92
                %
                
                
                2,199,388
                
                
                
                1.16
                %
                
                
                (9.83
                )%Income
      from operations
                
                
                8,251,278
                
                
                
                3.84
                %
                
                
                6,153,862
                
                
                
                3.24
                %
                
                
                34.08
                %Other
      expenses
                
                
                187,530
                
                
                
                0.09
                %
                
                
                209,489
                
                
                
                0.11
                %
                
                
                (10.48
                )%Income
      before income taxes and noncontrolling interests
                
                
                8,063,748
                
                
                
                3.75
                %
                
                
                5,944,373
                
                
                
                3.13
                %
                
                
                35.65
                %Net
      income
                
                $
                5,548,686
                
                
                
                2.58
                %
                
                $
                3,987,363
                
                
                
                2.10
                %
                
                
                39.16
                %





Net
revenue was $215,188,081 in 2009, a 13.42% increase from the $189,725,878 in
2008. Our cost of revenue increased 13.00% from $181,372,628 in 2008 to
$204,953,584 in 2009. The increase in net revenue was primarily attributable to
the increase in sales of automobile as a result of the continuing demand for
automobiles in China.





Gross
profit increased 22.52% from $8,353,250 in 2008 to $10,234,497 in 2009;
and income from operations increased 34.08% to $8,251,278 in 2009 from
$6,153,862 in 2008, which is primarily attributable to the growth in net
revenue. Net income increased 39.16% from $3,987,363 in 2008 to $5,548,686 in
2009.





In
2009, the Company’s gross margins improved to 4.76%, compared to a gross margin
of 4.40% in 2008. While being approximately 2% of net revenues, the Company’s
website and auto-related services business contributed 38.92% of the gross
margin. The increase in profit margin is primarily attributable to the 71.10%
increase in gross profit on web-based advertising services and auto-related
services business, from $2,327,820 in 2008 to $3,982,868 in 2009. In future
years, the Company expects that the margins on its website and services business
will become an increased proportion of gross margin.





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:





Year
      ended December 31,
                
                
                Change
      in2009
                
                
                2008
                
                
                %Net
      revenue
                
                $
                215,188,081
                
                
                
                100.00
                %
                
                $
                189,725,878
                
                
                
                100.00
                %
                
                
                13.42
                %-Sales
      of Automobiles
                
                
                209,843,691
                
                
                
                97.52
                %
                
                
                186,343,080
                
                
                
                98.22
                %
                
                
                12.61
                %-Financing
      Services
                
                
                1,217,727
                
                
                
                0.57
                %
                
                
                899,538
                
                
                
                0.47
                %
                
                
                35.37
                %-
      Web-based Advertising Services
                
                
                3,459,098
                
                
                
                1.61
                %
                
                
                1,751,660
                
                
                
                0.92
                %
                
                
                97.48
                %-Automobile
      Import Value Added Services
                
                
                667,565
                
                
                
                0.30
                %
                
                
                731,600
                
                
                
                0.39
                %
                
                
                (8.75
                )%





General




Net
revenues were generated from imported automobile sales, financing services,
web-based advertising services and automobile import value added services. In
2009 and 2008, net revenue was $215,188,081 and $189,725,878 respectively,
representing a 13.42% growth rate from 2008 to 2009.





Sales of
Automobiles




Net
revenue was generated primarily from sales of automobiles, which increased
12.61%, from $186,343,080 in 2008 to $209,843,691 in 2009. Although the industry
was negatively impacted by the global economic crisis in early 2009, the Company
sold 2,744 automobiles in 2009 and 2,523 automobiles in 2008, representing an
increase of 8.76% in the volume. However, the average unit selling price per
automobile increased only 3.64%, from $73,786 in 2008 to $76,474 in 2009. The
Company will continue its focus on marketing of luxury high-end
automobiles.








Our top
five customers generated approximately 35.21% and 25.90% of our total net
revenue in 2009 and 2008, respectively.  The Company will continue to
maintain close working relationships with its top customers while reducing the
concentration of revenues among these top customers.





While
transforming from an automobile trader to a modernized web-based
automobile-related logistics service provider, the Company’s rate of growth in
automobiles sales is expected to lower. In future years, we do not foresee our
leading position as the imported automobile trader in Tianjin to change and plan
to consistently enhance our profitability.





Financing
Services




Our
revenue from Financing Services increased 35.37%, from $899,538 in 2008 to
$1,217,727 in 2009. Our revenue growth from financing services is heavily
dependent on overall industry growth and the economic conditions of the market
in the PRC. 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. The Company has expanded its line of credit by approximately 28% from
$28 million as of December 31, 2008 to $36 million as of December 31, 2009 to
support its Financing Services. We do not foresee any difficulty at this time in
obtaining credit lines and loan facilities from our banks.




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, China
Merchants Bank and Pudong Development 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. 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 5, 2010, the Company had a credit line of $38,809,642 (RMB
265,000,000). 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.





Following
the Company’s focus on promotion and advertising of its web-based services in
2008, revenue generated by our websites increased 97.48%, from $1,751,660 in
2008 to $3,459,098 in 2009. Currently, our websites had over 160 paid
subscribers and over 1,000 advertisers, and cover 15 cities in
China.  In 2009 and 2008, all of our revenue from our websites is
generated by subscription fees and advertisements. We aim to generate 50% of our
revenues from our websites from subscription fees and advertisements, and 50%
from automobile import value added services sold over the Internet.




We are
experiencing rapid development in our websites and expected to a continuous
growth in revenue from our website through growing from 15 cities currently to
60 cities throughout China reaching 70% of the auto buying pubic in future
years. 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 8.75%, from $731,600 in
2008 to 667,565, primarily due to the world wide economic decline in November
2008, which adversely impacted the Company in the first half of
2009.





Cost
of Revenue





Year
      ended December 31,
                
                
                Change
      in2009
                
                
                2008
                
                
                %Net
      revenue
                
                $
                215,188,081
                
                
                
                100.00
                %
                
                $
                189,725,878
                
                
                
                100.00
                %
                
                
                13.42
                %Cost
      of revenue
                
                $
                204,953,584
                
                
                
                95.24
                %
                
                $
                181,372,628
                
                
                
                95.60
                %
                
                
                13.00
                %Gross
      profit
                
                $
                10,234,497
                
                
                
                4.76
                %
                
                $
                8,353,250
                
                
                
                4.40
                %
                
                
                22.52
                %








Our cost
of revenue in 2009 consisted primarily of the cost of automobiles imported from
foreign automobile manufacturers and certain direct labor and overhead costs
related to our Financing Services, web-based advertising services and Automobile
Import Value Added Services. Our cost of revenue increased 13.00%, from
$181,372,628 in 2008 to $204,953,584 in 2009. The increase was primarily due to
the increase in the purchase price of imported automobiles and the number of
auto sold in the year, which is consistent with our net revenue growth
rate.





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.





Gross
profits increased by 22.52% from $8,353,250 in 2008 to $10,234,497 in 2009, due
to an increase in net revenues of 13.42% from $189,725,878 to
$215,188,081.




Operating
Expenses





Year
      ended December 31,
                      
                      
                      Change
      in2009
                      
                      
                      2008
                      
                      
                      %Operating
      Expenses-Selling
      and Marketing
                      
                      $
                      630,021
                      
                      
                      
                      31.77
                      %
                      
                      $
                      881,038
                      
                      
                      
                      40.06
                      %
                      
                      
                      (28.49
                      )%-General
      and Administrative
                      
                      
                      1,353,198
                      
                      
                      
                      68.23
                      %
                      
                      
                      1,318,350
                      
                      
                      
                      59.94
                      %
                      
                      
                      2.64
                      %Total
                      
                      $
                      1,983,219
                      
                      
                      
                      100.00
                      %
                      
                      $
                      2,199,388
                      
                      
                      
                      100.00
                      %
                      
                      
                      (9.83
                      )%





Operating
expenses decreased 9.83%, from $2,199,388 in 2008 to $1,983,219 in 2009. This
decrease was a combination of a 28.49% decrease in selling and marketing
expenses from $881,038 in 2008 to $630,021 in 2009, and a 2.64% increase in
general and administrative expenses (“G&A”) from $1,318,350 in 2008 to
$1,353,198 in 2009.





Selling
and marketing expenses decreased 28.49% in 2009. The following table sets forth
a breakdown of the primary selling and marketing expenses of the
Company:




For
      the Year Ended December, 31
                  
                  
                  Change
in2009
                  
                  
                  2008
                  
                  
                  %Primary
      selling and marketing expenses-Payroll
                  
                  $
                  107,736
                  
                  
                  $
                  154,453
                  
                  
                  
                  (30.25
                  )%-Advertising
                  
                  
                  20,855
                  
                  
                  
                  97,183
                  
                  
                  
                  (78.54
                  )%-Entertainment
                  
                  
                  39,239
                  
                  
                  
                  90,824
                  
                  
                  
                  (56.80
                  )%-Auto
      insurance, maintenance and fees
                  
                  
                  69,530
                  
                  
                  
                  81,815
                  
                  
                  
                  (15.02
                  )%-Rent
                  
                  
                  172,412
                  
                  
                  
                  159,993
                  
                  
                  
                  7.76
                  %





Payroll
expenses decreased 30.25%, from $154,453 in 2009 to $107,736 in 2008 due to the
redundancy of certain marketing staff as result of the Company’s continuous
staff review in late 2009. Advertising and entertainment expenses in 2009
decreased 78.54% and 43.20%, which is primarily due to the contraction of these
spendings in 2009 after the successful marketing activities related to our
websites in 2008. In 2009, auto insurance, maintenance and fees decreased 27.24%
primarily due to the Company’s policy to encourage Internet meeting with
customers instead of face-to-face meeting.





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




For
      the Year Ended December, 31
                  
                  
                  Change
in2009
                  
                  
                  2008
                  
                  
                  %Primary
      general and advertisement expenses-Depreciation
                  
                  $
                  193,046
                  
                  
                  $
                  185,638
                  
                  
                  
                  3.99
                  %-Entertainment
                  
                  
                  73,973
                  
                  
                  
                  35,877
                  
                  
                  
                  106.19
                  %-Payroll
                  
                  
                  321,762
                  
                  
                  
                  324,772
                  
                  
                  
                  (0.93
                  )%-Travelling
                  
                  
                  39,949
                  
                  
                  
                  55,225
                  
                  
                  
                  (27.66
                  )%-Legal
      and professional fees
                  
                  
                  467,575
                  
                  
                  
                  549,900
                  
                  
                  
                  (15.00
                  )%





Depreciation
increased 3.99% in 2009 to $193,046 from $185,638 in 2008 due to the Company’s
purchase of office equipment and furniture and the upgrade of its computers and
server in 2008. Entertainment increased by approximate 100% compared to that in
2008, which was primarily due to the increased corporate activities relating to
the Company’s listing on NASDAQ. Our travelling expenses decreased 27.66% from
$55,225 in 2008 to $39,949 as a result of the decrease in such expenses after
the Company’s marketing activities in 2008 relating to our efforts in setting up
our website operations for domestic manufactured automobiles in 11 additional
cities.







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 $200,701 in 2008 to $211,398 in 2009. As of December 31, 2009, 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 34.08%, to $8,251,278 in 2009 from $6,153,862 in 2008,
which is primarily attributable to the growth in the Company’s websites
operations. In 2009, operating income generated by our website sector increased
142.80% to $3,074,510, as compared to $1,266,271 generated in 2008. Our
Financing Services sector also reported a 60.91% increase and contributed
$1,016,880 to operating income.





We expect
to increase the sales of SUV’s and high-end vehicles in the coming year to
continuously improve our gross margin within our imported automobiles
sector.





We also
expect further growth in our high-margin business, like automobile websites,
Financing Services and auto related valued-added services. In 2010, the Company
expects to expand its domestic manufacturing automobile website, www.at160.com., to a
total of 35 cities. The Company’s website, www.at188.com, the
only website in China focusing on imported automobile trading information, we
expect to attract more customers.




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 the low interest environment in
2009.





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.





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, 2009 and 2008.




For the Year Ended December, 312009
                  
                  
                  2008Net
      cash provided by (used for) operating activities
                  
                  $
                  6,038,474
                  
                  
                  $
                  (6,834,781
                  )Net
      cash (used for) provided by investing activities
                  
                  
                  (4,721,522
                  )
                  
                  
                  6,387,350Net
      cash used for financing activities
                  
                  
                  (662,650
                  )
                  
                  
                  (3,990,186
                  )Effect
      on exchange rate change on cash
                  
                  
                  1,975
                  
                  
                  
                  333,290Cash
      and cash equivalents at beginning of year
                  
                  
                  1,598,781
                  
                  
                  
                  5,703,108Cash
      and cash equivalents at end of year
                  
                  $
                  2,255,058
                  
                  
                  $
                  1,598,781





Operating
Activities





During
fiscal year 2009, net cash provided by operating activities was $6,038,474, as
compared to net cash used for operating activities of $6,834,781 in 2008. Net
cash provided by operating activities in 2009 was primarily attributable to the
increase of advances to suppliers for $1,125,075 and the decrease of customer
deposits for $1,117,055, which was partially offset by the increase of
receivables related to Financing Services for $572,379 and the increase of value
added tax receivable for $834,564.








During
fiscal year 2008, net cash used for operating activities was primarily caused by
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.





Investing
Activities





During
fiscal year 2009, we generated net cash flows used for investing activities of
$4,721,522, as compared to $6,387,350 of net cash inflows from investing
activities in 2008. The decrease was primarily attributable to the increase of
restricted cash for $4,201,185.





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 2009, net cash used for financing activities was $662,650, as
compared to $3,990,186 of net cash used for financing activities in
2008.





Our total
cash and cash equivalents increased to $2,255,058 as of December 31, 2009, as
compared to $1,598,781 as of December 31, 2008.




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 2009 and 2008.





Capital
Expenditures




We had
property and equipment, net of $487,933 as of December 31, 2009 and $622,604 as
of December 31, 2008. The following table sets forth a summary of our property
and equipment for the fiscal years ended December 31, 2009 and
2008.




For
      the Year Ended December, 31
                          
                          
                          Change
      in2009
                          
                          
                          2008
                          
                          
                          %Computer
                          
                          $
                          210,448
                          
                          
                          $
                          208,772
                          
                          
                          
                          0.80
                          %Office
      equipment, furniture and fixtures
                          
                          
                          125,676
                          
                          
                          
                          107,121
                          
                          
                          
                          17.32
                          %Automobiles
                          
                          
                          1,029,631
                          
                          
                          
                          972,397
                          
                          
                          
                          5.89
                          %Total
                          
                          
                          1,365,755
                          
                          
                          
                          1,288,290
                          
                          
                          
                          6.01
                          %Accumulated
      depreciation
                          
                          
                          877,822
                          
                          
                          
                          665,686
                          
                          
                          
                          31.87
                          %Net
                          
                          
                          487,933
                          
                          
                          
                          622,604
                          
                          
                          
                          (21.63
                          )%





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.





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.





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-22 comprising a portion of this annual
report on Form 10-K.





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




None.




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.




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, 2009, 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, 2009, 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, 2009.
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.





(b)  Changes in
Internal Control Over Financial Reporting.




During
our fiscal year 2009, 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, 2009, our current directors and executive officers were as
follows:





Name
            
            Age
            
            Position Held
            
            ExperienceTong,
      Shiping
            
            49
            
            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
      Bachelor degree in computer science from the China Air Force Engineering
      University.   Mr. Tong is also a director of the Tianjin Car
      Logistics Association. The Board believes that Mr Tong has the experience,
      qualifications, attributes and skills necessary to serve on the Board
      because of his over 16 years of experience in the China auto industry, his
      having provided leadership and strategic direction to the Company as its
      founder, and his unparalleled understanding of the Company’s operations
      and products.Li,
      Yangqian
            
            43
            
            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 Master 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. The Board believes that Mr Li has the experience,
      qualifications, attributes and skills necessary to serve on the Board
      because of his extensive executive leadership and management experience as
      COO and VP of the Company.Wang,
      Xinwei
            
            52
            
            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 Bachelor degree in industry accounting from Tianjin Radio and
      TV University.  Ms. Wang is a qualified Chinese certified public
      accountant. The Board believes that Ms Wang has the experience,
      qualifications, attributes and skills necessary to serve on the Board
      because of her extensive executive leadership and financial expertise as
      CFO, Treasurer and VP of the Company.Cheng,
      Weihong
            
            47
            
            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 Bachelor 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. The Board
      believes that Mr Cheng has the experience, qualifications, attributes and
      skills necessary to serve on the Board because of his over 16 years of
      experience in the China auto industry as Secretary and Senior VP of the
      Company.




Yang,
      Bin
            
            37
            
            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
      Bachelor 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. The Board
      believes that Mr Yang has the experience, qualifications, attributes and
      skills necessary to serve on the Board because of his extensive executive
      leadership and management experience as Senior VP of the
      Company.







Name
            
            Age
            
            Position Held
            
            ExperienceBarth,
      Howard S.
            
            57
            
            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. The Board believes that Mr. Barth
      has the experience, qualifications, attributes and skills necessary to
      serve on the Board because of his extensive experience and financial
      expertise in public companies.Gao,
      Yang
            
            36
            
            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. The Board believes that Mr Gao has the experience,
      qualifications, attributes and skills necessary to serve on the Board
      because of his extensive experience and financial expertise in the
      financial services industry.Qu,
      Zhong
            
            47
            
            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. The Board believes that Ms Qu has the
      experience, qualifications, attributes and skills necessary to serve on
      the Board because of her extensive executive leadership and management
      experience.Kong,
      Xiaoyan
            
            42
            
            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. The Board believes that Mr Kong has the experience,
      qualifications, attributes and skills necessary to serve on the Board
      because of his extensive experience and governance
    expertise.









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.





Involvement
in Legal Proceedings




None of
our directors, persons nominated to become a director, executive officers or
control persons have been involved in any of the following events during the
past 10 years:





l
            Any
      bankruptcy petition filed by or against any business of which such person
      was a general partner or executive officer either at the time of
      bankruptcy or within two years prior to that time;
  or





l
            Any
      conviction in a criminal proceeding or being subject to a pending criminal
      proceeding (excluding traffic violations and other minor offences);
      or





l
            Being
      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





l
            Being
      found by a court of competent jurisdiction (in a civil violation), the SEC
      or the Commodity Future Trading Commission to have violated a federal or
      state securities or commodity law, and the judgment has not been reversed,
      suspended, or vacated; or





l
            Being
      the subject of, or a party to, any Federal or State judicial or
      administrative order, judgment, decree, or finding, not subsequently
      reversed, suspended or vacated, relating to an alleged violation of: any
      Federal or State securities or commodities law or regulation; or any law
      or regulation respecting financial institutions or insurance companies
      including, but not limited to, a temporary or permanent injunction, order
      of disgorgement or restitution, civil money penalty or temporary or
      permanent cease-and-desist order, or removal or prohibition order; or any
      law or regulation prohibiting mail or wire fraud or fraud in connection
      with any business entity. This violation does not apply to any settlement
      of a civil proceeding among private litigants;
  or





l
            Being
      the subject of, or a party to, any sanction or order, not subsequently
      reversed, suspended or vacated, of any self-regulatory organization (as
      defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))),
      any registered entity (as defined in Section 1(a)(29) of the Commodity
      Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange,
      association, entity or organization that has disciplinary authority over
      its members or persons associated with a
member.





Board
of Directors Meetings and Committees





The Board
held 8 meetings during the fiscal year ended December 31, 2009.  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 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 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.





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 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. The Nominating Committee submits the list of
candidates to the Board who determines which candidates will be nominated to
serve on the Board. The names of nominees are then submitted for election at our
Annual Meeting of Stockholders. The Nominating Committee also submits to the
entire Board a list of nominees to fill any interim vacancies on the Board
resulting from the departure of a member of the Board for any reason prior to
the expiration of his term. In recommending nominees to the Board, 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
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 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.





During
the fiscal year ended December 31, 2009, there were no changes to the procedures
by which holders of our common stock may recommend nominees to the
Board.





Compensation
Committee





The Board
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’s 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.
The Compensation Committee operates under the written Compensation Committee
Charter adopted by the Board 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 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.





Code
of Ethics





On
December 12, 2008, the Board 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,
                                        
                                        2009
                                        
                                        
                                        15,886
                                        
                                        
                                        
                                        36,593
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        (1)
                                        
                                        
                                        52,479CEO
      and President
                                        
                                        2008
                                        
                                        
                                        16,373
                                        
                                        
                                        
                                        36,100
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        52,473Wang,
      Xinwei,
                                        
                                        2009
                                        
                                        
                                        12,373
                                        
                                        
                                        
                                        22,834
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        (2)
                                        
                                        
                                        35,207CFO,
      Treasurer and VP
                                        
                                        2008
                                        
                                        
                                        12,649
                                        
                                        
                                        
                                        22,382
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        35,031Yang,
      Bin, Senior VP
                                        
                                        2009
                                        
                                        
                                        12,434
                                        
                                        
                                        
                                        24,151
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        (3)
                                        
                                        
                                        36,585(GM,
      Head of Sales)
                                        
                                        2008
                                        
                                        
                                        14,485
                                        
                                        
                                        
                                        22,382
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        36,867Cheng,
      Weihong,
                                        
                                        2009
                                        
                                        
                                        12,352
                                        
                                        
                                        
                                        22,834
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        (4)
                                        
                                        
                                        35,186Secretary,
      Senior VP (Head of HR and Admin)
                                        
                                        2008
                                        
                                        
                                        12,649
                                        
                                        
                                        
                                        22,382
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        35,031Li,
      Yangqian,
                                        
                                        2009
                                        
                                        
                                        12,373
                                        
                                        
                                        
                                        22,834
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        (5)
                                        
                                        
                                        35,207COO
      and VP
                                        
                                        2008
                                        
                                        
                                        12,649
                                        
                                        
                                        
                                        22,382
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        -0-
                                        
                                        
                                        
                                        35,031





(1)
            Mr.
      Tong Shiping’s total compensation for the fiscal year ending December 31,
      2009 is $52,479 (RMB 358,533) (based on the weighted average rate of RMB
      to U.S. dollars during the year
2009).


(2)
            Ms.
      Wang Xinwei’s total compensation for the fiscal year ending December 31,
      2009 is $35,207(RMB 240,533)
      (based on the weighted average rate of RMB to U.S. dollars during the year
      2009).


(3)
            Mr.
      Yang Bin’s total compensation for the fiscal year ending December 31, 2009
      is $36,585 (RMB 249,949) (based on the weighted average rate of RMB to
      U.S. dollars during the year 2009).


(4)
            Ms.
      Cheng Weihong’s total compensation for the fiscal year ending December 31,
      2009 is $35,186(RMB 240,391)
      (based on the weighted average rate of RMB to U.S. dollars during the year
      2009).


(5)
            Ms.
      Li Yangqian total compensation for the fiscal year ending December 31,
      2009 is $35,207 (RMB 240,533) (based on the weighted average rate of RMB
      to U.S. dollars during the year
2009).





As of
December 31, 2009, 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 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, 2009.  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 22, 2010 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.





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 5,
2010.  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.





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, 2009 and 2008,
the Company made aggregate borrowings from Cheng Weihong of $9,198 and
$73,249,961, respectively, and made aggregate repayments to Cheng Weihong of $0
and $73,562,626, respectively.  As of December 31, 2009 and 2008, the
outstanding balances due to Cheng Weihong were $19,391 and $10,188,
respectively.





The
Company’s shareholder, Sino Peace Limited, paid accrued expenses of $482,367 on
behalf of the Company during the year ended December 31, 2009.  The
amount of $975,920 was outstanding as due to the shareholder as of December 31,
2009.





Director
Independence





All
members of the Company’s Board, excluding Tong Shiping, Cheng Weihong and Yang
Bin, 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, 2009 and 2008.





Audit
Fees





During
the fiscal year ended December 31, 2009 and 2008, the fees for Stonefield
Josephson, Inc. were $195,000 and $28,000, respectively.  During the
period beginning January 1, 2008 through November 23, 2008, the fees for our
former principal accountant were $5,500.





Audit
Related Fees





During
the fiscal years ended December 31, 2009 and December 31, 2008, 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, 2009 and December 31, 2008, 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, 2009 and December 31, 2008, 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.





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





The
policy of the Audit Committee, and the Board 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 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 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, 2009 and 2008,
under the categories Audit-Related and All Other fees described above were
approved by the Audit Committee, and the Board 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 Company







Exhibit
                Number
              
              Exhibit Description3.2
      (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.







CHINA
AUTO LOGISTICS INC.





INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS


YEAR
ENDED DECEMBER 31, 2009





PageReport
      of Independent Registered Public Accounting Firm
                    F-2Consolidated
      Balance Sheets
                    F-3Consolidated
      Statements of Income
                    F-4Consolidated
      Statements of Comprehensive Income
                    F-5Consolidated
      Statements of Shareholders’ Equity
                    F-6Consolidated
      Statements of Cash Flows
                    F-7
      – F-8Notes
      to Consolidated Financial Statements
                    F-9
      – 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, 2009 and 2008 and the related
consolidated statements of income, comprehensive income, shareholders’ equity
and cash flows for each of the two years in the period ended December 31, 2009.
China Auto Logistics Inc.’s management is responsible for these financial
statements. 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. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting.  Our audits included consideration
of internal 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, 2009 and 2008, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 2009 in conformity with accounting principles generally accepted in
the United States of America.





/s/
Stonefield Josephson, Inc.





Wanchai,
Hong Kong


March 29,
2010


F-2


CHINA
AUTO LOGISTICS INC.


CONSOLIDATED
BALANCE SHEETS





December
      31,2009
                  
                  
                  2008ASSETS:Current
      assets:Cash
      and cash equivalents
                  
                  $
                  2,255,058
                  
                  
                  $
                  1,598,781Restricted
      cash
                  
                  
                  4,296,368
                  
                  
                  
                  92,819Accounts
      receivable – trade
                  
                  
                  -
                  
                  
                  
                  11,077Receivables
      related to financing services
                  
                  
                  9,499,219
                  
                  
                  
                  6,945,088Inventories,
      net of reserve of $0 for 2009 and $146,314 for 2008
                  
                  
                  16,617,641
                  
                  
                  
                  16,434,391Advances
      to suppliers
                  
                  
                  18,151,077
                  
                  
                  
                  14,083,163Prepaid
      expenses
                  
                  
                  36,516
                  
                  
                  
                  22,230Value
      added tax receivable
                  
                  
                  368,272
                  
                  
                  
                  1,202,161Deferred
      taxes
                  
                  
                  -
                  
                  
                  
                  36,579Total
      current assets
                  
                  
                  51,224,151
                  
                  
                  
                  40,426,289Property
      and equipment, net
                  
                  
                  487,933
                  
                  
                  
                  622,604Other
      assets
                  
                  
                  -
                  
                  
                  
                  3,658Total
      Assets
                  
                  $
                  51,712,084
                  
                  
                  $
                  41,052,551LIABILITIES
      AND SHAREHOLDERS’ EQUITY:Current
      liabilities:Line
      of credit related to financing services
                  
                  $
                  7,766,981
                  
                  
                  $
                  4,642,320Line
      of credit related to automobile purchases
                  
                  
                  -
                  
                  
                  
                  662,452Bank
      loans payable
                  
                  
                  3,221,933
                  
                  
                  
                  3,218,916Draft
      notes payable
                  
                  
                  2,929,030
                  
                  
                  
                  -Accrued
      expenses
                  
                  
                  455,276
                  
                  
                  
                  656,119Customer
      deposits
                  
                  
                  5,857,640
                  
                  
                  
                  6,968,769Deferred
      revenue
                  
                  
                  82,185
                  
                  
                  
                  13,678Due
      to shareholder
                  
                  
                  975,920
                  
                  
                  
                  492,829Due
      to director
                  
                  
                  19,391
                  
                  
                  
                  10,188Income
      tax payable
                  
                  
                  2,132,891
                  
                  
                  
                  1,615,442Total
      current liabilities
                  
                  
                  23,441,247
                  
                  
                  
                  18,280,713Commitments
      and contingencies (Note 10)Equity:China
      Auto Logistics Inc. 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,18,100,000
      shares issued and outstanding
                  
                  
                  18,100
                  
                  
                  
                  18,100Additional
      paid-in capital
                  
                  
                  13,273,530
                  
                  
                  
                  12,101,321Accumulated
      other comprehensive income
                  
                  
                  2,278,788
                  
                  
                  
                  2,293,367Retained
      earnings
                  
                  
                  12,400,067
                  
                  
                  
                  6,851,381Total
      China Auto Logistics Inc. shareholders’ equity
                  
                  
                  27,970,485
                  
                  
                  
                  21,264,169Noncontrolling
      interests
                  
                  
                  300,352
                  
                  
                  
                  1,507,669Total
      equity
                  
                  
                  28,270,837
                  
                  
                  
                  22,771,838Total
      liabilities and shareholders’ equity
                  
                  $
                  51,712,084
                  
                  
                  $
                  41,052,551





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


F-3


CHINA
AUTO LOGISTICS INC.


CONSOLIDATED
STATEMENTS OF INCOME





Year
      Ended December 31,2009
                
                
                2008Net
      revenue
                
                $
                215,188,081
                
                
                $
                189,725,878Cost
      of revenue
                
                
                204,953,584
                
                
                
                181,372,628Gross
      profit
                
                
                10,234,497
                
                
                
                8,353,250Operating
      expenses:Selling
      and marketing
                
                
                630,021
                
                
                
                881,038General
      and administrative
                
                
                1,353,198
                
                
                
                1,318,350Total
      operating expenses
                
                
                1,983,219
                
                
                
                2,199,388Income
      from operations
                
                
                8,251,278
                
                
                
                6,153,862Other
      income (expenses):Interest
      income
                
                
                10,776
                
                
                
                85,100Interest
      expenses
                
                
                (198,306
                )
                
                
                (294,589
                )Total
      other expenses
                
                
                (187,530
                )
                
                
                (209,489
                )Income
      before income taxes
                
                
                8,063,748
                
                
                
                5,944,373Income
      taxes
                
                
                2,145,073
                
                
                
                1,530,386Net
      income
                
                
                5,918,675
                
                
                
                4,413,987Less:
      Net income attributable to noncontrolling interests
                
                
                369,989
                
                
                
                426,624Net
      income attributable to shareholders of China Auto Logistics
      Inc.
                
                $
                5,548,686
                
                
                $
                3,987,363Earnings
      per share attributable to shareholders of China Auto Logistics
      Inc.–
      basic and diluted
                
                $
                0.31
                
                
                $
                0.32Weighted
      average number of common share outstanding–
      basic and diluted
                
                
                18,100,000
                
                
                
                12,629,315





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


F-4


CHINA
AUTO LOGISTICS INC.


CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME





Year
      Ended December 31,2009
                        
                        
                        2008Net
      income
                        
                        $
                        5,918,675
                        
                        
                        $
                        4,413,987Other
      comprehensive income-       Foreign
      currency translation adjustments
                        
                        
                        24,444
                        
                        
                        
                        1,248,146Comprehensive
      income
                        
                        
                        5,943,119
                        
                        
                        
                        5,662,133Less:
      Comprehensive income attributable to noncontrolling
    interests
                        
                        
                        370,928
                        
                        
                        
                        522,911Comprehensive
      income attributable to shareholders of China Auto Logistics
      Inc.
                        
                        $
                        5,572,191
                        
                        
                        $
                        5,139,222





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


F-5


CHINA
AUTO LOGISTICS INC.


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY




China
      Auto Logistics Inc.’s Shareholders EquityCommon
      Stock
                                                      
                                                      
                                                      Additional
      Paid-in
                                                      
                                                      
                                                      Accumulated
                                                        Other
      Comprehensive
                                                      
                                                      
                                                      Retained
                                                      
                                                      
                                                      Non-
                                                        controlling
                                                      
                                                      
                                                      TotalShares
                                                      
                                                      
                                                      Amount
                                                      
                                                      
                                                      Capital
                                                      
                                                      
                                                      Income
                                                      
                                                      
                                                      Earnings
                                                      
                                                      
                                                      Interests
                                                      
                                                      
                                                      EquityBalance
      as of January1, 2008
                                                      
                                                      
                                                      11,700,000
                                                      
                                                      
                                                      $
                                                      11,700
                                                      
                                                      
                                                      $
                                                      12,107,076
                                                      
                                                      
                                                      $
                                                      1,141,508
                                                      
                                                      
                                                      $
                                                      2,864,018
                                                      
                                                      
                                                      $
                                                      984,758
                                                      
                                                      
                                                      $
                                                      17,109,060Capital
      contribution
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      645
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      645Reverse
      acquisition of Ever AuspiciousInternational
      Limited
                                                      
                                                      
                                                      6,400,000
                                                      
                                                      
                                                      
                                                      6,400
                                                      
                                                      
                                                      
                                                      (6,400
                                                      )
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -Foreign
      currencytranslation adjustments
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,151,859
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      -
                                                      96,287
                                                      
                                                      
                                                      
                                                      1,248,146Net
      income
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      3,987,363
                                                      
                                                      
                                                      
                                                      426,624
                                                      
                                                      
                                                      
                                                      4,413,987Balance
      as of December31, 2008
                                                      
                                                      
                                                      18,100,000
                                                      
                                                      
                                                      
                                                      18,100
                                                      
                                                      
                                                      
                                                      12,101,321
                                                      
                                                      
                                                      
                                                      2,293,367
                                                      
                                                      
                                                      
                                                      6,851,381
                                                      
                                                      
                                                      
                                                      1,507,669
                                                      
                                                      
                                                      
                                                      22,771,838Purchases
      ofnoncontrollingInterests
      (Note 3)
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,172,209
                                                      
                                                      
                                                      
                                                      (38,084
                                                      )
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (1,578,245
                                                      )
                                                      
                                                      
                                                      (444,120
                                                      )Foreign
      currency translation adjustments
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      23,505
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      939
                                                      
                                                      
                                                      
                                                      24,444Net
      income
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      5,548,686
                                                      
                                                      
                                                      
                                                      369,989
                                                      
                                                      
                                                      
                                                      5,918,675Balance
      as of December 31, 2009
                                                      
                                                      
                                                      18,100,000
                                                      
                                                      
                                                      $
                                                      18,100
                                                      
                                                      
                                                      $
                                                      13,273,530
                                                      
                                                      
                                                      $
                                                      2,278,788
                                                      
                                                      
                                                      $
                                                      12,400,067
                                                      
                                                      
                                                      $
                                                      300,352
                                                      
                                                      
                                                      $
                                                      28,270,837





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


F-6


CHINA
AUTO LOGISTICS INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS





Year
      Ended December 31,2009
                        
                        
                        2008Cash
      flows from operating activities:Net
      income
                        
                        $
                        5,918,675
                        
                        
                        $
                        4,413,987Adjustments
      to reconcile net income to net cash provided by (used for) operating
      activitiesDepreciation
      and amortization
                        
                        
                        211,398
                        
                        
                        
                        200,701Change
      of inventory reserve
                        
                        
                        (146,372
                        )
                        
                        
                        (15,884
                        )Changes
      in operating assets and liabilities:Accounts
      receivable – trade
                        
                        
                        11,081
                        
                        
                        
                        (5,300
                        )Receivables
      related to financing services
                        
                        
                        572,379
                        
                        
                        
                        (2,272,609
                        )Inventories
                        
                        
                        (21,383
                        )
                        
                        
                        (7,923,367
                        )Advances
      to suppliers
                        
                        
                        (1,125,075
                        )
                        
                        
                        12,432,446Prepaid
      expenses, other current assets and other assets
                        
                        
                        (10,597
                        )
                        
                        
                        41,730Value
      added tax receivable
                        
                        
                        834,564
                        
                        
                        
                        (455,163
                        )Deferred
      tax assets
                        
                        
                        36,593
                        
                        
                        
                        16,793Accounts
      payable
                        
                        
                        -
                        
                        
                        
                        (433,151
                        )Accrued
      expenses
                        
                        
                        290,153
                        
                        
                        
                        1,018,815Customer
      deposits
                        
                        
                        (1,117,055
                        )
                        
                        
                        (14,012,217
                        )Deferred
      revenue
                        
                        
                        68,457
                        
                        
                        
                        (469,995
                        )Income
      tax payable
                        
                        
                        515,656
                        
                        
                        
                        628,433Net
      cash provided by (used for) operating activities
                        
                        
                        6,038,474
                        
                        
                        
                        (6,834,781
                        )Cash
      flows from investing activities:(Increase)
      decrease in restriction cash
                        
                        
                        (4,201,185
                        )
                        
                        
                        6,574,124Payments
      to acquire noncontrolling interests
                        
                        
                        (444,120
                        )
                        
                        
                        -Purchase
      of property and equipment
                        
                        
                        (76,217
                        )
                        
                        
                        (186,774
                        )Net
      cash (used for) provided by investing activities
                        
                        
                        (4,721,522
                        )
                        
                        
                        6,387,350Cash
      flows from financing activities:Proceeds
      from short-term bank loans
                        
                        
                        4,537,537
                        
                        
                        
                        3,176,758Repayments
      of short-term bank loans
                        
                        
                        (4,537,537
                        )
                        
                        
                        (3,176,758
                        )Repayments
      of notes payable
                        
                        
                        -
                        
                        
                        
                        (4,331,942
                        )Proceeds
      from lines of credit related to automobile purchases
                        
                        
                        -
                        
                        
                        
                        653,776Repayments
      of lines of credit related to automobile purchases
                        
                        
                        (662,714
                        )
                        
                        
                        -Proceeds
      from loans from director
                        
                        
                        64
                        
                        
                        
                        73,249,961Repayments
      of loans from director
                        
                        
                        -
                        
                        
                        
                        (73,562,626
                        )Capital
      contribution from shareholders
                        
                        
                        -
                        
                        
                        
                        645Net
      cash flows used for financing activities
                        
                        
                        (662,650
                        )
                        
                        
                        (3,990,186
                        )Effect
      of exchange rate change on cash
                        
                        
                        1,975
                        
                        
                        
                        333,290Net
      increase (decrease) in cash and cash equivalents
                        
                        
                        656,277
                        
                        
                        
                        (4,104,327
                        )Cash
      and cash equivalents at the beginning of year
                        
                        
                        1,598,781
                        
                        
                        
                        5,703,108Cash and cash equivalents at the end of
      year
                        
                        $
                        2,255,058
                        
                        
                        $
                        1,598,781


F-7


CHINA
AUTO LOGISTICS INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Continued)





Year
      Ended December 31,2009
                          
                          
                          2008Supplemental
      disclosure of cash flow information:Interest
      paid
                          
                          $
                          210,202
                          
                          
                          $
                          260,418Income
      taxes paid
                          
                          $
                          1,592,824
                          
                          
                          $
                          872,231Non-cash
      activitiesIncrease
      (Decrease) of borrowings on lines of credit for loans extended to(repaid
      by) the Company’s customers
                          
                          $
                          3,124,661
                          
                          
                          $
                          (21,423,333
                          )Increase
      in note payable for advances to suppliers
                          
                          $
                          2,927,443
                          
                          
                          $
                          -Increase
      in balance due to shareholders for accrued expenses paid by
      shareholder
                          
                          $
                          482,367
                          
                          
                          $
                          486,375





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


F-8


CHINA
AUTO LOGISTICS INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





(1)       Organization,
Nature of Business and Basis of Presentation





The
consolidated financial statements consist of the financial statements of China
Auto Logistics Inc. (the “Company” or “China Auto”), and its subsidiaries, Ever
Auspicious International Limited ( “HKCo”), Tianjin Seashore New District
Shisheng Business Trading Group Co. Ltd. (“Shisheng”), Tianjin Ganghui
Information Technology Corp. (Ganghui”), Tianjin Hengjia Port Logistics Corp.
(“Hengjia”) and Zhengji International Trading Corp. (“Zhengji”).





On
November 10, 2008, China Auto, formerly Fresh Ideas Media, Inc.,
incorporated on February 22, 2005 in the State of Nevada, entered into a Share
Exchange Agreement with 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.





HKCo was
incorporated in Hong Kong on October 17, 2007.  Prior to December 25,
2007, HKCo had minimal assets and no operations. On November 1, 2007, HKCo
entered into a share exchange agreement with Cheng Weihong, Xia Qiming and Qian
Yuxi (the “Seller”), pursuant to which the Sellers transferred their interests
in Shisheng to HKCo for an aggregate purchase price of $12,067,254
(RMB95,000,000) which was paid via issuance of equity interests of HKCo. Upon
the completion of this transaction 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. As a result of this
transaction, the owners and management of Shisheng end up controlling HKCo and
thus this transaction was classified as a recapitalization of Shisheng using the
purchase method of accounting.





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.





Shisheng
was incorporated in the People’s Republic of China (“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 Ganghui to provide web-based, real-time information on
imported automobiles. Ganghui was 80% owned by Shisheng.





In
September 2003, Shisheng formed Hengjia to provide automobile import value added
services to wholesalers and distributors in the imported vehicle trading
industry.  Hengjia was 80% owned by Shisheng.





In
February 2005, Shisheng and three other founders formed 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%.





On July
23, 2009, Shisheng entered into Share Transfer Agreements to acquire additional
ownership interests from other noncontrolling interest shareholders to increase
its ownership interests in its Ganghui, Hengjia and Zhengji to 98% each, as
disclosed in note 3, for an aggregate amount of $444,120.


F-9


CHINA
AUTO LOGISTICS INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





(2)         Summary
of Significant Accounting Policies





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





Basis
of Consolidation





The
consolidated financial statements include the financial statements of China Auto
and its wholly-owned and majority-owned subsidiaries (collectively, the
“Company”).  All inter-company transactions and balances have been
eliminated in preparation of the consolidated financial statements.





Use
of Estimates





The
preparation of financial statements in conformity with US 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.





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.





Cash
and Cash Equivalents





Cash and
cash equivalents consist of cash at bank and 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
$2,929,030 and $0, as of December 31, 2009 and 2008, 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 $1,367,338 and $92,819 as of December 31, 2009 and 2008,
respectively.


F-10


CHINA
AUTO LOGISTICS INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





(2)         Summary
of Significant Accounting Policies - Continued





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 loans payable, draft notes payable, accrued
expenses, customer deposits, deferred revenue, due to shareholder, due to
director, and income tax payable as of December 31, 2009 and 2008 approximate
fair value.





Comprehensive
Income





Comprehensive
income consists of net income and other gains and losses affecting
shareholders’ equity that, under US GAAP, are excluded from net income. The
changes in other comprehensive income of $24,444 and $1,248,146 for the years
ended December 31, 2009 and 2008, respectively, are foreign currency translation
adjustments.





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, 2009, there was one customer accounted for 10% or
more of our net revenue, which accounts for 21% of our net revenue. There was no
accounts receivable from this customer as of December 31, 2009.





There was
no customer accounted for 10% or more of our net revenue in 2008.





Major
Suppliers





During
the years ended December 31, 2009 and 2008, the following suppliers accounted
for more than 10% of our total net purchases.





Percentage
      of Total
                        Purchases for the year
                        ended
      December 31,2009
                      
                      
                      2008Supplier
      A
                      
                      
                      16
                      %
                      
                      
                      13
                      %Supplier
      B
                      
                      
                      20
                      %
                      
                      
                      11
                      %Supplier
      C
                      
                      
                      19
                      %
                      
                      
                      *





* less
than 10%





The
Company had no outstanding accounts payable to these suppliers as of December
31, 2009 and 2008.


F-11


CHINA
AUTO LOGISTICS INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





(2)         Summary
of Significant Accounting Policies - Continued





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.





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. 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.





Receivables
Related to Financing Services





The
Company records a receivable related to financing services when cash is loaned
to the customers to finance their purchases of automobiles. Upon repayments by
the customers, the Company records the amounts as reductions of receivables
related to financing services. Receivables related to financing services
represents the aggregate outstanding balance of loans from customers related to
their purchases of automobiles and are considered receivables held for
investment. The Company charges a fee for providing loan service and such fee is
prepaid by the customers. The Company amortizes these fees over the receivable
term, which is typically 90 days, using the straight-line method. The Company
records such amortized amounts as financing fee income and the unamortized
amount is classified as deferred revenue on the Company’s consolidated balance
sheets.





The
Company evaluates the collectibility of outstanding receivables at the end of
each of the reporting periods and makes estimates for potential credit losses.
The Company has not experienced any losses on its accounts receivable
historically and accordingly did not record any allowance of credit losses as of
December 31, 2009 and 2008.


F-12


CHINA
AUTO LOGISTICS INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





(2)         Summary
of Significant Accounting Policies - Continued





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 Revenue





Cost of
revenue 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 revenue.





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
consist primarily of the purchase cost of automobiles valued at the lower of
cost (first-in, first-out) or market. As of December 31, 2009 and 2008, the
reserve for obsolescence was $0 and $146,314, respectively. Reserves for
obsolescence were decreased by $146,372 and $15,884 for 2009 and 2008,
respectively.





Property
and Equipment, net





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





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





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 fully recoverable or that the useful lives of those assets are no longer
appropriate. 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, 2009 and 2008.


F-13


CHINA
AUTO LOGISTICS INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





(2)         Summary
of Significant Accounting Policies - Continued





Noncontrolling
Interests





Noncontrolling
interests represent the noncontrolling interest stockholders’ proportionate
share of the equity of Hengjia, Zhengji and Ganghui.  The
noncontrolling interests in 2009 and 2008 are summarized as below:





As
      of December 31,2009
                
                
                2008Hengjia
                
                
                2.0
                %
                
                
                20.0
                %Ganghui
                
                
                2.0
                %
                
                
                20.0
                %Zhengji
                
                
                2.0
                %
                
                
                13.6
                %





The
noncontrolling interests in Hengjia, Zhengji and Ganghui that are not owned by
the Company are shown as “noncontrolling interests” in the consolidated balance
sheets as of December 31, 2009 and 2008 and “net income attributable to
noncontrolling interests” in the consolidated statements of income for the years
ended December 31, 2009 and 2008.





Advertising





The
Company expenses advertising costs when incurred. The Company incurred
approximately $21,000 and $97,000 of advertising expenses for the years ended
December 31, 2009 and 2008, respectively.





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.





The FASB
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. The Company did not incur any interest or penalties
related to potential underpaid income tax expenses.





Basic
and Diluted Earnings Per Share





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, 2009 and 2008, the Company
did not have any common stock equivalents, therefore, the basic earnings per
share is the same as the diluted earnings per share.





Subsequent
Events





The
Company evaluated subsequent events through March 29, 2010, the date this Annual
Report on Form 10-K was filed with the Securities and Exchange
Commission.


F-14


CHINA
AUTO LOGISTICS INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





(2)         Summary
of Significant Accounting Policies - Continued





Reclassifications





Certain
prior year amounts included in selling and marketing expenses and general and
administrative expenses have been reclassified to cost of revenue to conform to
the current year presentation.





Recently
Adopted Accounting Standards





Effective
January 1, 2009, the Company adopted authoritative guidance issued by the
Financial Accounting Standards Board (“FASB”) regarding business combinations,
which is now part of the Accounting Standards Codification
(“ASC”)  805 “Business Combination”. This guidance addresses the
accounting and disclosure for identifiable assets acquired, liabilities assumed,
and noncontrolling interests in a business combination. Also, the Company
adopted guidance issued by the FASB regarding accounting for assets acquired and
liabilities assumed in a business combination that arise from contingencies.
This guidance amended certain provisions of business combinations guidance
related to the recognition, measurement, and disclosure of assets acquired and
liabilities assumed in a business combination that arise from contingencies. The
Company believes the adoption of this guidance did not have a material impact on
its consolidated financial statements.





Effective
January 1, 2009, the Company adopted authoritative guidance issued by the FASB
regarding the accounting and reporting framework for noncontrolling interests by
a parent company, which is now part of ASC 810 “Consolidation”, and also the
disclosure requirements to distinguish between interests of the parent and
interests of the noncontrolling owners of a subsidiary. The guidance requires
noncontrolling interests to be separately presented as a component of equity in
the Company’s consolidated balance sheets and below income tax expense in its
consolidated statements of income. In addition, the guidance requires that
minority interests be renamed noncontrolling interests and that a company
presents a consolidated net income measure that includes the amount attributable
to such noncontrolling interests for all periods presented.  The
Company retrospectively applied the presentation to the prior year balances in
its consolidated financial statements upon the adoption of this pronouncement
effective January 1, 2009.  As a result, the Company reclassified the
minority interests in consolidated subsidiaries of $1,315,978 and accumulated
other comprehensive income of $191,691 to non-controlling interests under the
equity section in its consolidated balance sheet as of December 31,
2008.





Effective
April 1, 2009, the Company adopted authoritative guidance issued by the FASB,
which is now codified in ASC 815 “Derivatives and Hedging” regarding the
disclosures for derivative and hedging activities. The Company believes the
adoption of this guidance did not have a material impact on its consolidated
financial statements.





Effective
April 1, 2009, the Company adopted authoritative guidance codified as ASC 855
“Subsequent Events”, which establishes general standards for the accounting and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. In particular,
ASC 855 sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements; the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The Company believes the adoption of this
guidance did not have any significant impact on its financial condition or
results of operations.





Effective
July 1, 2009, the Company adopted the amended authoritative guidance issued by
the FASB regarding interim disclosures about fair value of financial
instruments, which is now codified in ASC 805. The guidance requires disclosures
about fair value of financial instruments for interim reporting periods as well
as in annual financial statements of publicly traded companies. The guidance
also requires those disclosures in summarized financial information at interim
reporting periods. The Company believes the adoption of this guidance did not
have any significant impact on its financial condition or results of
operations.


F-15


CHINA
AUTO LOGISTICS INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





(2)         Summary
of Significant Accounting Policies - Continued





Recently
Adopted Accounting Standards - Continued





Effective
July 1, 2009, the Company adopted the new guidance as issued by the FASB, which
is now part of ASC 105 “Generally Accepted Accounting Principles”. ASC 105 has
become the source of authoritative US GAAP recognized by the FASB to be applied
by nongovernmental entities and provides that all such guidance carries an equal
level of authority. The ASC is not intended to change or alter existing GAAP.
ASC 105 is effective for interim and annual periods ending after September 15,
2009. The Company believes the adoption of ASC 105 did not have any significant
impact on its financial condition or results of operations.





New
Accounting Pronouncements Not Yet Adopted





In June
2009, the FASB issued SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”
codified in ASC 810 which amends the evaluation criteria to identify the primary
beneficiary of a variable interest entity (“VIE”) and requires ongoing
reassessment of whether an enterprise is the primary beneficiary of the VIE. The
new guidance significantly changes the consolidation rules for VIEs including
the consolidation of common structures, such as joint ventures, equity method
investments and collaboration arrangements. The guidance is applicable to all
new and existing VIEs. The provisions of this new accounting guidance are
effective for interim and annual reporting periods ending after November 15,
2009 and will become effective for us beginning in the first quarter of 2010.
The Company does not expect the adoption of this guidance to have a significant
effect on its consolidated financial position or results of
operations.





In
September 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13
“Revenue Recognition (Topic 605): Multiple Deliverable Revenue Element
Arrangements – a consensus of the FASB Emerging Issues Task Force” (“ASU
2009-13”). The new guidance states that if vendor specific objective evidence or
third party evidence for deliverables in an arrangement cannot be determined,
companies will be required to develop a best estimate of the selling price to
separate deliverables and allocate arrangement consideration using the relative
selling price method. ASU 2009-13 will be applied prospectively and will become
effective during the first quarter of 2011. Early adoption is allowed. The
Company does not expect the adoption of this guidance to have a significant
effect on its consolidated financial position or results of
operations.





(3)         Change
in China Auto’s Ownership Interest in Consolidated Subsidiaries





On July
23, 2009, Shisheng entered into Share Transfer Agreements (the “Agreements”) to
acquire addition ownership interests from noncontrolling interest shareholders
to increase its ownership interests in its three consolidated subsidiaries to
98% each. Shisheng purchased such additional interests for an aggregate amount
of $444,120. Prior to these purchases of additional ownership interests,
Shisheng owned 80% of Hengjia, 80% of Ganghui and 86% of Zhengji.





The
Company’s acquisition of additional ownership interests in these three
consolidated subsidiaries was accounted for as equity transactions. The carrying
amount of the noncontrolling interests was adjusted to reflect the change in its
ownership interests in these consolidated subsidiaries. The difference of
$1,172,209 between cash paid and the amount the noncontrolling interests were
adjusted was recognized in additional paid-in capital.


F-16


CHINA
AUTO LOGISTICS INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





(3)         Change
in China Auto’s Ownership Interest in Consolidated Subsidiaries -
Continued





The
effect of change in the Company’s ownership interests in its subsidiaries on
China Auto’s equity are summarized as follows.





Year
      ended December 31,2009
                    
                    
                    2008Net
      income attributable to Shareholders of China Auto Logistics
      Inc.
                    
                    $
                    5,548,686
                    
                    
                    $
                    3,987,363Increase
      in China Auto’s additional paid-in capital for purchases
ofnoncontrolling
      interests
                    
                    
                    1,172,209
                    
                    
                    
                    -Change
      in equity from net income attributable to China Auto and
      transferfrom
      noncontrolling interests
                    
                    $
                    6,720,895
                    
                    
                    $
                    3,987,363





(4)         Property
and Equipment





A summary
of property and equipment is as follows:





As
      of December 31,2009
                
                
                2008Computer
                
                $
                210,448
                
                
                $
                208,772Office
      equipment, furniture and fixtures
                
                
                125,676
                
                
                
                107,121Automobiles
                
                
                1,029,631
                
                
                
                972,3971,365,755
                
                
                
                1,288,290Less:
      Accumulated depreciation
                
                
                877,822
                
                
                
                665,686$
                487,933
                
                
                $
                622,604





Depreciation
and amortization expense was $211,398 and $200,701 for the years ended December
31, 2009 and 2008, respectively.





(5)         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.





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. The Company had no outstanding balance related to
this arrangement as of December 31, 2009.





China Merchants
Bank





In May
2009, 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 $13,180,633 (RMB 90,000,000) at December 31, 2009. The Company had an
outstanding balance of $3,739,100 as of December 31, 2009. This facility line of
credit matures in May 2010 and is guaranteed by a director and a non-related
entity.


F-17


CHINA
AUTO LOGISTICS INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





(5)
            Lines
      of Credit Related to Financing Services and Lines of Credit Related to
      Automobile Purchases - Continued





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
expired in May 2009 and was guaranteed by a non-related entity.





Agricultural Bank of
China





In
January and February 2009, the Company entered into two facility lines of credit
with Agricultural Bank of China to its financing services. Under the terms of
the agreements, the Company could borrow a maximum amount of $13,619,988
(RMB93,000,000) at December 31, 2009 to facilitate its financing business. The
Company had an outstanding balance of 99,635 as of December 31,
2009.


These
facility lines of credit expired in December 2009 and were guaranteed by
non-related entities.





In
January 2010, the Company entered into a new facility line of credit with
Agricultural Bank of China to its financing services. Under the terms of the
agreement, the Company could borrow a maximum amount of $16,841,920
(RMB115,000,000) through January 2012 to facilitate its financing business. This
facility line is guaranteed by three non-related entities.





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 was
guaranteed by a non-related entity.  This facility line was cancelled
and all the borrowings were drawn on lines entered in January and February 2009,
which are discussed in paragraph above.





PuDong Development
Bank





In June
2009, 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 $8,787,089 (RMB 60,000,000) at December
31, 2009. The Company had an outstanding balance of $3,928,246 as of December
31, 2009. This facility line of credit expired in May 2010 and is guaranteed by
a non-related entity.





(6)
            Bank
      Loans Payable





Bank
loans payable as of December 31, 2009 and 2008 consist of the
following:


As
      of December 31,2009
                
                
                2008Loan
      from Agricultural Bank of China, with an interest at a rate of 5.405%
      guaranteed by non-related entities, and matures in March
    2010
                
                $
                1,318,063
                
                
                $
                -Loan
      from Agricultural Bank of China, with an interest at a rate of 5.841%
      guaranteed by non-related entities, and matures in November
      2010
                
                
                1,318,063
                
                
                
                -Loan
      from Agricultural Bank of China, with an interest at a rate of 5.841%
      guaranteed by non-related entities, and matures in November
      2010
                
                
                585,807
                
                
                
                -Loan
      from Agricultural Bank of China, with an interest at a rate of 8.217%
      guaranteed by non-related entities, and matured in March
    2009
                
                
                -
                
                
                
                1,316,829Loan
      from Agricultural Bank of China, with an interest at a rate of 7.326%,
      guaranteed by non-related entities, and matured in November
      2009
                
                
                -
                
                
                
                1,316,829Loan
      from Agricultural Bank of China, with an interest at a rate of 7.326%,
      guaranteed by non-related entities, and matured in November
      2009
                
                
                -
                
                
                
                585,258$
                3,221,933
                
                
                $
                3,218,916





Weighted
average interest rates for these bank loans were 5.663% and 7.690% at December
31, 2009 and 2008, respectively.


F-18


CHINA
AUTO LOGISTICS INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





(7)
            Draft
      Notes Payable





The
Company issued certain notes payable to suppliers which are guaranteed by the
banks. These 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.





As of
December 31, 2009, the Company had a draft note payable in the amount of
$2,929,030 (RMB20,000,000) to a vendor as an advance payment to supplier. This
note is guaranteed by China Zheshang Bank. Upon the maturity of this note in
March 2010, the note holder can present this note to the bank to collect full
amounts of the payable. The Company was required to maintain $2,929,030 as
guaranteed funds, which was classified $2,929,030 as included in restricted cash
as of December 31, 2009. As of December 31, 2008, the Company had no outstanding
draft notes payable.





The
purpose of this arrangement is to provide additional time to the Company to
remit payments while the vendor does not bear any credit risk since the vendor
is guaranteed by the bank for payments.





(8)
            Income
      Taxes





China
Auto and HKCo do not generate any income and therefore are not subject to US 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 25% tax rate in 2009
and 2008.





The
Company’s income tax provision amounted to $2,145,073 and $1,530,386,
respectively, for the years ended December 31, 2009 and 2008 (an effective rate
of 26.6% for 2009 and 25.7% for 2008).  A reconciliation of the
provision for income taxes, with amounts determined by applying the statutory US
federal income tax rate to income before income taxes, is as
follows:





Year
      ended December 31,2009
                
                
                2008Computed
      tax at US federal statutory rate of 34%
                
                $
                2,741,674
                
                
                $
                2,021,087Permanent
      differences:Meal
      and entertainment (non-deductible portion)
                
                
                11,321
                
                
                
                11,685Legal
      and professional fees (non-deductible portion)
                
                
                117,816
                
                
                
                133,522Tax
      rate difference between US and PRC on foreign earnings
                
                
                (725,738
                )
                
                
                (534,994
                )Effect
      of statutory rate change
                
                
                -
                
                
                
                11,552Others
                
                
                -
                
                
                
                (112,466
                )$
                2,145,073
                
                
                $
                1,530,386Details
      of income taxesCurrentUS
      Federal
                
                $
                -
                
                
                $
                -PRC
                
                
                2,117,262
                
                
                
                1,516,819Total
      current
                
                
                2,117,262
                
                
                
                1,516,819DeferredUS
      Federal
                
                
                -
                
                
                
                -PRC
                
                
                27,811
                
                
                
                13,567Total
      deferral
                
                
                27,811
                
                
                
                13,567Total
      income taxes
                
                $
                2,145,073
                
                
                $
                1,530,386


F-19


CHINA
AUTO LOGISTICS INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





(8)
            Income
      Taxes - Continued





As
      of December 31,2009
                
                
                2008Details
      of deferred taxesDeferred
      tax assetsInventory
      reserve
                
                $
                -
                
                
                $
                36,579Total
      deferred tax assets
                
                
                -
                
                
                
                36,579Deferred
      tax liabilities
                
                
                -
                
                
                
                -Net
      deferred tax assets before valuation allowance
                
                
                -
                
                
                
                36,579Less:
      valuation allowance
                
                
                -
                
                
                
                -Net
      deferred tax assets
                
                $
                -
                
                
                $
                36,579





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 $12.40 million
as of December 31, 2009.  Because of the availability of US foreign tax
credits, it is not practicable to determine the US income tax liability that
would be payable if such earnings were not indefinitely reinvested.





(9)
            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, 2009 and 2008,
the Company made aggregate borrowings from Cheng Weihong of $9,198 and
$73,249,961, respectively, and made aggregate repayments to Cheng Weihong of $0
and $73,562,626, respectively.  As of December 31, 2009 and 2008, the
outstanding balances due to Cheng Weihong were $19,391 and $10,188,
respectively.





The
Company’s shareholder, Sino Peace Limited, paid accrued expenses of $482,367 and
$486,375 on behalf of the Company during the year ended December 31, 2009 and
2008.  The amounts of $975,920 and $492,829 were outstanding as due to
shareholder on the consolidated balance sheet as of December 31, 2009 and
2008.





(10)
            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 $170,597 for 2009 and $159,993 for 2008.





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


2010
                
                $
                178,3782011
                
                
                171,3482012
                
                
                11,350$
                361,076


F-20


CHINA
AUTO LOGISTICS INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





(11)
            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.





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:





Sales
      of
                      Automobile
                    
                    
                    Financing
                      Services
                    
                    
                    Web-based
                      Advertising
                      Services
                    
                    
                    Automobile
                      Import
      Value
                      Added
                      Services
                    
                    
                    Corporate
                    
                    
                    Total2009Net
      revenue
                    
                    $
                    209,843,691
                    
                    
                    $
                    1,217,727
                    
                    
                    $
                    3,459,098
                    
                    
                    $
                    667,565
                    
                    
                    $
                    -
                    
                    
                    $
                    215,188,081Cost
      of revenue
                    
                    
                    204,785,790
                    
                    
                    
                    23,999
                    
                    
                    
                    107,000
                    
                    
                    
                    36,795
                    
                    
                    
                    -
                    
                    
                    
                    204,953,584Operating
      expensesSelling
      and marketing
                    
                    
                    295,245
                    
                    
                    
                    93,780
                    
                    
                    
                    204,838
                    
                    
                    
                    36,158
                    
                    
                    
                    -
                    
                    
                    
                    630,021General
      and administrative
                    
                    
                    265,219
                    
                    
                    
                    83,068
                    
                    
                    
                    72,750
                    
                    
                    
                    27,862
                    
                    
                    
                    904,299
                    
                    
                    
                    1,353,198Total
      operating expenses
                    
                    
                    560,464
                    
                    
                    
                    176,848
                    
                    
                    
                    277,588
                    
                    
                    
                    64,020
                    
                    
                    
                    904,299
                    
                    
                    
                    1,983,219Income
      (loss) from operations
                    
                    
                    4,497,437
                    
                    
                    
                    1,016,880
                    
                    
                    
                    3,074,510
                    
                    
                    
                    566,750
                    
                    
                    
                    (904,299
                    )
                    
                    
                    8,251,278Total
      assets
                    
                    $
                    36,248,793
                    
                    
                    $
                    14,212,513
                    
                    
                    $
                    694,877
                    
                    
                    $
                    416,926
                    
                    
                    $
                    138,975
                    
                    
                    $
                    51,712,084




Sales
      of
                    Automobile
                  
                  
                  Financing
                    Services
                  
                  
                  Web-based
                    Advertising
                    Services
                  
                  
                  Automobile
                    Import
      Value
                    Added
                    Services
                  
                  
                  Corporate
                  
                  
                  Total2008Net
      revenue
                  
                  $
                  186,343,080
                  
                  
                  $
                  899,538
                  
                  
                  $
                  1,751,660
                  
                  
                  $
                  731,600
                  
                  
                  $
                  -
                  
                  
                  $
                  189,725,878Cost
      of revenue
                  
                  
                  181,186,396
                  
                  
                  
                  30,792
                  
                  
                  
                  111,834
                  
                  
                  
                  43,606
                  
                  
                  
                  -
                  
                  
                  
                  181,372,628Operating
      expensesSelling
      and marketing
                  
                  
                  401,694
                  
                  
                  
                  157,157
                  
                  
                  
                  297,054
                  
                  
                  
                  25,133
                  
                  
                  
                  -
                  
                  
                  
                  881,038General
      and administrative
                  
                  
                  206,965
                  
                  
                  
                  79,623
                  
                  
                  
                  76,501
                  
                  
                  
                  12,947
                  
                  
                  
                  942,314
                  
                  
                  
                  1,318,350Total
      operating expenses
                  
                  
                  608,659
                  
                  
                  
                  236,780
                  
                  
                  
                  373,555
                  
                  
                  
                  38,080
                  
                  
                  
                  942,314
                  
                  
                  
                  2,199,388Income
      (loss) from operations
                  
                  
                  4,548,025
                  
                  
                  
                  631,966
                  
                  
                  
                  1,266,271
                  
                  
                  
                  649,914
                  
                  
                  
                  (942,314
                  )
                  
                  
                  6,153,862Total
      assets
                  
                  $
                  32,666,070
                  
                  
                  $
                  7,374,920
                  
                  
                  $
                  561,688
                  
                  
                  $
                  337,013
                  
                  
                  $
                  112,860
                  
                  
                  $
                  41,052,551


F-21


CHINA
AUTO LOGISTICS INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





(12)
Subsequent Event





On March
1, 2010, the Company entered into a management service agreement of $1 million
with Tianjin Prominent Hero International Logistics Co., Ltd., the owner of
Tianjin FTZ International Automobile Exhibition and Sales Center (the “Center”),
which is the only imported auto mall in Tianjin, China. Pursuant to the
agreement, which is effective for one year starting from March 1, 2010 and
renewable thereafter, the Company will promote and market the Center to attract
long term and high quality tenants.


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
29, 2010











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 US 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
      29, 2010/s/  Wang Xinwei
            
            Chief
      Financial Officer (PrincipalWang
      Xinwei
            
            Accounting
      Officer)
            
            March
      29, 2010/s/  Gao YangGao
      Yang
            
            Director
            
            March
      29, 2010/s/  Yang BinYang
      Bin
            
            Director
            
            March
      29, 2010/s/  Cheng
WeihongCheng
      Weihong
            
            Director
            
            March
      29, 2010/s/  Qu ZhongQu
      Zhong
            
            Director
            
            March
      29, 2010/s/  Kong XiaoyanKong
      Xiaoyan
            
            Director
            
            March
      29, 2010/s/  Howard BarthHoward
      Barth
            
            Director
            
            March
      29, 2010





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.