China Logistics Group Inc - FORM 10-K/A

Attached files

file	filename
EX-32 - SECTION 1350 CERTIFICATION - China Logistics Group Inc	ex32.htm
EX-31.2 - RULE 13A-14(A)/15D-14(A) CERTIFICATION - China Logistics Group Inc	ex31-2.htm
EX-31.1 - RULE 13A-14(A)/15D-14(A) CERTIFICATION - China Logistics Group Inc	ex31-1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K/A (AMENDMENT NO. 4 )

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(Mark One)

ý ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934

For the fiscal year ended December 31, 2007

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934

For the transition period from ____ to _____

Commission file number: 000-31497

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CHINA LOGISTICS GROUP, INC.

(Name of registrant as specified in its charter)

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Florida	65-1001686
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7300 Alondra Boulevard, Suite 108, Paramount, California	90723
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (562) 408-3888

Securities registered under Section 12(b) of the Exchange Act:


Title of each class		Name of each exchange on which registered
None		Not applicable

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

Common stock, par value $0.001 per share

(Title of class)

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

¨ Yes ý No

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

¨ Yes ý No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ¨ Yes ý No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form, or any amendment to this Form. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:


Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer (Do not check if smaller reporting company)	¨	Smaller reporting company	ý

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. $7,647,905 on June 29, 2007.

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 19,395,203 shares of common stock are issued and outstanding as of March 31, 2008.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. None.

EXPLANATORY PARAGRAPH

China Logistics Group, Inc. (“we”, “us”, “our” or the “Company”) is filing this Amendment No. 4 to amend our Annual Report on Form 10-K for the year ended December 31, 2007 filed on December 24, 2008 to correct the accounting treatment previously accorded certain transactions and to restate our consolidated balance sheet at December 31, 2007 and our consolidated statement of operations, consolidated statements of stockholders' deficit and consolidated statements of cash flows for the year ended December 31, 2007 (the “December 31, 2007 Financial Statements”).

Our Form 10-K filed on April 15, 2008, and Form 10-K/A (Amendment No.1) filed on May 19, 2008 contained errors and, accordingly, were restated on Form 10-K/A (Amendment No. 2) filed on December 24, 2008, to correct the accounting treatment previously accorded certain transactions including:

•	the recognition of an agreement to issue 450,000 shares of Series B preferred stock with a fair value of $3,780,000;
•	the recognition of the Company’s acquisition of a 51% interest in Shandong Jiajia as a capital transaction implemented through reverse acquisition accounting;
•	the reclassification of costs totaling $10,418,000 from fair value of equity interests initially recorded in our statement of operations to costs related to our acquisition of a 51% interest in Shandong Jiajia;
•	the correction of the accounting treatment accorded a convertible note payable to a related party and principal stockholder, Mr. David Aubel; and
•	the restatement of historical balance sheets and related disclosures to give retroactive effect to a 1 for 40 reverse stock split completed on March 11, 2008.

Following comments from the staff of the Securities and Exchange Commission and upon further review, the Company determined that further amendments were necessary, and accordingly, we have restated our financial statements and related disclosures in this Form 10-K/A (Amendment No. 3) to:

•	adjust the fair value of assets and liabilities of the accounting acquiree (formerly MediaReady, Inc.) recognized in connection with the acquisition of a 51% interest in Shandong Jiajia completed on December 31, 2007 accounted for as a capital transaction implemented through a reverse acquisition; and
•	recognize the accrual of certain professional fees, totaling $141,800 in expense, which were erroneously omitted from previous filings.

Following further comments from the staff of the Securities and Exchange Commission and upon further review, the Company determined that further amendments were necessary, and accordingly, we have restated our financial statements and related disclosures in this Form 10-K/A (Amendment No. 4) to:

•	reclassify 2,000,000 warrants issued to Mr. Chen as additional consideration valued at $480,000 from equity to derivative liability as there was insufficient authorized common shares to settle the contract as of 12/31/2007
•	further adjust the method of recording the reverse recapitalization transaction with Shandong Jiajia completed on December 31, 2007

Additional information on the effect of the correction in our financial statements as a result of this most recent restatement is contained in Note 2 – Restatement of Financial Statements and Basis of Presentation appearing elsewhere in this report.

As a result of these additional corrections to our financial statements and related disclosures for the year ended December 31, 2007, we are filing this Amendment No. 4 to our Form 10-K/A to reflect additional changes to our financial statements necessitated by these restatements. We have also made certain changes in the disclosure in response to comments from the staff of the Securities and Exchange Commission.

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The items in the Form 10-K/A (Amendment No. 3) which are amended and restated as a result of the foregoing are:

Part I Part II	• Item 2.	Properties.
	• Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations,
	• Item 8.	Financial Statements and Supplementary Data including consolidated balance sheets, consolidated statements of operations, consolidated statements of stockholders’ deficit, consolidated statements of cash flows and notes to consolidated audited financial statements, and
	• Item 9A (T)	Controls and Procedures.

This Form 10-K/A (Amendment No. 4 ) also contains currently dated certifications as Exhibits 31.1, 31.2 and 32.1 hereof. The remaining Items in this Form 10-K/A (Amendment No. 4 ) consist of all other items originally contained in our Form 10-K for the year ended December 31, 2007 as filed on April 15, 2008, our Form 10-K/A (Amendment No. 1) as filed on May 19, 2008, Form 10-K/A (Amendment No. 2) as filed on December 24, 2008, and Form 10-K/A (Amendment No. 3) as filed on June 9, 2009 . This Form 10-K/A (Amendment No. 4 ) supersedes in its entirety our Annual Report on Form 10-K for the year ended December 31, 2007 filed on April 15, 2008, our Form 10-K/A (Amendment No. 1) filed on May 19, 2008, our Form 10-K/A (Amendment No. 2) filed December 24, 2008, and our Form 10-K/A (Amendment No. 3) filed June 9, 2009 .

Subsequent to the filing of our Form 10-K/A on May 19, 2008, Mr. V. Jeffrey Harrell resigned as our sole officer and director in July 2008 and Messrs. Wei Chen and Hui Lu were appointed executive officers and directors of the Company. Accordingly, this Form 10-K/A (Amendment No. 4 ) does not reflect the change in our management or other events occurring after the filing of the Form 10-K/A, except as may be specifically required as a result of the restatement of the financials described above. This Form 10-K/A (Amendment No. 4 ) also does not disclose the action against the Company by the Securities and Exchange Commission as described in its Current Reports on Form 8-K filed on October 1, 2008, October 15, 2008 and March 11, 2009. Readers are cautioned to review all of the Company’s filings made with the Securities and Exchange Commission for additional information about the Company which occurred subsequent to the date of the original filing of the Form 10-K for the year ended December 31, 2007 filed on April 15, 2008.

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CHINA LOGISTICS GROUP, INC.

AND SUBSIDIARY

TABLE OF CONTENTS

		Page No.

PART I.
Item 1.	Business.	1
Item 1A.	Risk Factors.	7
Item 1B.	Unresolved Staff Comments.	12
Item 2.	Properties.	12
Item 3.	Legal Proceedings.	13
Item 4	Submission Of Matters To A Vote Of Security Holders.	13

PART II
Item 5.	Market For Registrant's Common Equity; Related Stockholder Matters And Issuer Purchase Of Equity Securities.	13
Item 6.	Selected Financial Data.	14
Item 7.	Management's Discussion And Analysis Of Financial Condition And Results Of Operations.	14
Item 7A.	Quantitative And Qualitative Disclosures About Market Risk.	23
Item 8.	Financial Statements And Supplementary Data.	24
Item 9.	Changes in and Disagreements with Accountants on Accounting Financial Disclosure.	24
Item 9A(T).	Controls And Procedures.	24
Item 9B.	Other Information.	26

Part III
Item 10	Directors, Executive Officers And Corporate Governance.	27
Item 11	Executive Compensation.	29
Item 12	Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters.	30
Item 13	Certain Relationships And Related Transactions, And Director Independence.	32
Item 14	Principal Accountant Fees And Services.	32

Part IV
Item 15.	Exhibits, Financial Statement Schedules.	33

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OTHER PERTINENT INFORMATION

All share and per share information contained in this annual report, as amended, gives retroactive effect to the 1 for 40 reverse stock split of our outstanding common stock effective at close of business on March 11, 2008.

When used in this report the terms "China Logistics," "we," "us," "our," the "Company," and similar terms refer to China Logistics Group, Inc., a Florida corporation formerly known as MediaReady, Inc., and its subsidiary Shandong Jiajia International Freight and Forwarding Co., Ltd., a Chinese company (“Shandong Jiajia”). When used herein “Shandong Jiajia” includes its wholly-owned subsidiaries.

AVAILABLE INFORMATION

Our principal executive offices are located at 7300 Alondra Boulevard, Suite 108, Paramount, California 90723, and our telephone number at this location is (562) 408-3888. We file annual, quarterly and other reports and other information with the Securities and Exchange Commission. You may read and copy any materials we file with the Commission at the Securities and Exchange Commission's Public Reference Room at 100 Fifth Street N.E., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. You may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding us that we file electronically with the Commission. We maintain a website with the address www.chinalogisticsinc.com. We are not including information contained on our website as part of, nor incorporating it by reference into, this Annual Report on Form 10-K/A (Amendment No. 3). We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with or furnish such material to the Securities and Exchange Commission.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements in this report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our ability to successfully transition the internal operations of a privately held Chinese company to a subsidiary of a U.S. publicly held company, our ability to continue as a going concern due to our weak financial condition, continuing weaknesses in our disclosure controls and procedures and internal control over financial reporting which may lead to additional restatements of our financial condition, our dependence on third parties for equipment and services essential to operate our business, our reliance on overseas cargo agents to provide services to us and our customers, the impact of credit risks in the operation of our business and our operating profits, intense competition in the freight forwarding and logistics industries, the impact of a worldwide economic downturn and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this annual report in its entirety, including the risks described in "Item 1A. - Risk Factors." Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

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PART I

ITEM 1. BUSINESS.

Historically, since 2003 we provided products and services in the home entertainment media-on-demand marketplace to produce and distribute interactive consumer electronics equipment to provide streaming digital media and video on demand (VOD) services. While we devoted significant time and resources to the development of our business model, our success was limited due in part to the significant competition in our target segment. Like many small public companies, we encountered significant difficulties in raising adequate capital and the professional fees associated with our reporting obligations under Federal securities laws continued to increase.

On December 31, 2007 we entered into a transaction with the owners of Shandong Jiajia, whereby we acquired a 51% interests in that entity in exchange for a combination of cash and equity. For accounting purposes, the transaction, which is described in greater detail later in this section under “History of our Company,” was treated as a reverse acquisition with Shandong Jiajia being the accounting acquirer and our company the legal survivor. Shandong Jiajia, operating since 1999, is a non-asset based international freight forwarder and logistics manager located in the People’s Republic of China (the “PRC”). Shandong Jiajia’s operations now constitute all the operations of our company. The decision to enter into the transaction with Shandong Jiajia was heavily influenced on its geographic location. Our management believed that a freight forwarder based in China would be in a position to take advantage of economic growth while our status as a U.S. public company could provide access to the capital markets for funds to expand its operations and enable it to compete more effectively. There are no assurances, however, that these assumptions will prove correct.

Overview

Shandong Jiajia acts as an agent for international freight and shipping companies. It sells cargo space and arranges land, maritime, and air international transportation for clients seeking primarily to export goods from China. Since inception, Shandong Jiajia estimates it has processed the delivery of approximately 80,000 standard International Standards Organization, or ISO, shipping containers totaling approximately 500,000 metric tons. While it can also arrange for the logistics for importing goods into China, historically less than 1% of its revenues are derived from these services. Shandong Jiajia does not own any containers, trucks, aircraft or ships. It contracts with companies owning these assets to provide transportation services required for shipping freight on behalf of its customers.

Headquartered in Qingdao, China, Shandong Jiajia has branches in Shanghai, Xiamen and TianJin with two additional offices in Lianyungang and Rizhao. Shandong Jiajia has 87 employees and partners with agents in North America, Europe, Australia, Asia, and Africa. Typically approximately 60% of Shandong Jiajia's revenues are generated from existing, repeat customers and the remaining 40% are from new customers. Of the new customers, Shandong Jiajia salesmen generate approximately 20%, the remaining 20% are referrals from third party agents.

The Chinese Freight Forwarding Industry

In China, the freight forwarding industry began to develop in the early 1980s following the China Reform policy. In 1983, Sinotrans Ltd. was the only international freight forwarder registered with the China Ministry of Foreign Trade and Economic Cooperation. By 2006, China had approximately 6,000 international freight forwarders registered with China Ministry of Commerce and approximately 30,000 unregistered freight forwarders operated by individuals or small businesses. The industry boom is attributed to increasing international trade and relaxed regulation by the Chinese government. China surpassed the United States as the world's second-largest exporter in the middle of 2006, according to figures released by the World Trade Organization. [1] For the full year of 2007, the international trade has hit $2,173.8 billion in 2007 an increase of 23.5% from 2006 [2] , which finished above the US in the 2007 totals. The value of exports was US $1,218 billion up by 25.7%, while that of imports went up by 20.8% to touch US $955.8 billion [3] . Since it joined the WTO in 2002, China has enjoyed an annual increase rate above 20% for the successively six years [4]. At current growth rates, China is projected to overtake Germany as the world's biggest exporter in 2008 [5] .

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[1] http://www.chinadaily.com.cn/china/2007-04/12/content_849420.htm

[2] http://www.igovernment.in/site/china%E2%80%99s-gdp-growth-swings-up-by-114/

[3] http://www.igovernment.in/site/china%E2%80%99s-gdp-growth-swings-up-by-114/

[4] http://www.igovernment.in/site/china%E2%80%99s-gdp-growth-swings-up-by-114/

[5] http://www.chinadaily.com.cn/china/2007-04/12/content_849420.htm

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Shandong Jiajia's services

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

To accommodate Shandong Jiajia's customers shipping needs, it can either facilitate the shipment of a full container or, if the shipment is less than a full container-load, it will co-load a customer's merchandise with other customers or freight forwarders to create a full container. Containers are in sizes of either 20 foot or 40 foot, each are used for ocean freight, and a 20 foot container can carry 17.5 metric tons of merchandise while a 40 foot container can carry 22 metric tons of merchandise. For full container loads, as part of its normal services, Shandong Jiajia will deliver the empty container to a customer’s factory and the customer loads the merchandise. Shandong Jiajia then transports the container to the port of departure for customs clearance. Once the clearance is obtained, Shandong Jiajia loads the containers on to the ship and issues the bill of lading and service invoice to its customer.

For shipment of less than full container loads merchandise which will be co-loaded with merchandise from other customers or freight forwarders, Shandong Jiajia's customers may either request that the merchandise be picked up at its factory or deliver the merchandise directly to a warehouse in Shanghai. Upon receipt at the warehouse, Shandong Jiajia will store the merchandise until a sufficient quantity of other merchandise is received to fill the particular container. Generally, the merchandise is in storage for 30 days or less. An unrelated third party owns the warehouse and Shandong Jiajia pays for space on an as-used basis depending upon the size, quantity and duration. The cost is included in the amount charged the customer for the shipment. Thereafter, the procedure for completing the shipment is similar to that which is described above for full container load shipments from a customer.

Shandong Jiajia does not insure its customers' merchandise while it is in Shandong Jiajia's possession. As part of its normal and customary terms Shandong Jiajia requires its customers to purchase insurance coverage. Prior to 2007 Shandong Jiajia offered its customers in-house customs brokerage services, which included the preparation of all documentation required for the clearance of merchandise through customs and the collection and payment of import duties to the appropriate government agencies in the country of destination. Shandong Jiajia subsequently determined that the costs associated with in-house customs brokerage services are prohibitive and it began outsourcing all customs brokerage services to local customs brokers. .

Once the ship departs port, Shandong Jiajia tracks the status utilizing web-based tracking software provided by each particular shipping agency and provides periodic updates to customers on both the shipping and receiving end of the transaction. Typically payment is delineated in the initial order. Shandong Jiajia will either collect payment for its services from:

•	the shipper when the merchandise departs if the trade pricing term is on a CIF (cost, insurance and freight) or CFR (cost and freight cost) basis, or
•	from the recipient when merchandise arrives at destination port if the trade pricing term is on a FOB (free on board) basis.

Airfreight shipments represent less than 10% of Shandong Jiajia revenues and the procedure for airfreight shipments is similar to ocean freight.

Shandong Jiajia is a designated agent of cargo carriers including Nippon Yusen Kaisha (NYK Line), P&O Nedlloyd, CMA CGM Group, Safmarine Container Lines, and Regional Container Lines (RCL). Shandong Jiajia is also a member in the China Cargo Alliance (CCA), an independent network of air and sea freight forwarders serving international trade of China. Currently CCA has 113 members including 67 overseas forwarders operating in 53 countries and 46 Chinese forwarders. In this alliance, all members are free to trade their services with peer members. Overseas agents forward orders to Shandong Jiajia for the services of handling and/or space purchase. If agents only request procedural handling, Shandong Jiajia usually charges $30 to $40 per order for service fee. If agents choose to purchase the shipping spaces reserved by Shandong Jiajia, the profits from the order are shared in proportion to space utilized between agents and Shandong Jiajia.

Shandong Jiajia generally receives 30 days terms from the airlines and shipping lines with which it transacts business. For the shipping lines to North America, Shandong Jiajia enters into annual sales contracts with various shipping companies in order to ensure a sufficient amount of shipping and air cargo space is available at pre-determined prices. In these contracts, Shandong Jiajia is assigned a certain amount of cargo space but it is not required to either pre-purchase the cargo space or otherwise required to provide a deposit. The number of available spaces is determined based on negotiation between Shandong Jiajia and the shipping company. If Shandong Jiajia does not re-sell the cargo space, Shandong Jiajia would be required to pay a penalty, which is approximately $400 per container; however, it has never failed to resell the reserved cargo space. Shandong Jiajia usually reserves a relatively small amount of cargo space in order to avoid overbooking. Because of the long-term relationships with the various shipping companies it uses, Shandong Jiajia, however, has never experienced any difficulties in obtaining sufficient cargo space to meet its customer’s needs in excess of the amount reserved.

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Shandong Jiajia is committed to providing competitive pricing and efficient, reliable service to its customers. Shandong Jiajia believes that it has good relationships with its customers, major airlines, shipping lines and its network of overseas agents. Shandong Jiajia's sales persons are responsible for marketing its services to a diversified customer base and for establishing new customer relationships. Shandong Jiajia employs 13 full time sales persons. These sales persons solicit business through a variety of means including personal visits, sales calls, and faxes. Shandong Jiajia's customers sign annual or project-based contracts with the company and the terms of the contract determine the merchandise, price, and delivery instructions. Sales persons are compensated with base salary and earn a sales commission based on net profit generated in excess of predetermined benchmarks. Sales persons are required to meet monthly profit benchmarks established by the company, and the base salaries, profit benchmarks, and commission percentages paid to the sales persons vary across the company's branches.

Customers, transaction currencies and credit terms

Shandong Jiajia generates revenues through sales to existing customers as well as new customers. Existing customers initiate historically approximately 60% of its revenues, 20% are to new customers generated by Shandong Jiajia salesmen, and the remaining 20% are referrals from third party agents. The focus of products shipped by Shandong Jiajia's customers varies across the branches. In Qingdao area, the major export is agricultural products to Australian-Zelanian line and Southeast Asia line. Clothing and electronics products to Europe and U.S. are the focus of Shanghai branch and the Xiamen branch carries daily merchandise and hardware products to Europe and Africa. The rate Shandong Jiajia charges its customers fluctuates with market price. Shandong Jiajia may elect to lower the rates on the occasions that the particular order involves a large quantity of freight, customers have good credit rating, and/or the customer has a record of prompt payment.

Shandong Jiajia does not require a deposit to engage its services. Sales of its freight forwarding services are generally made on credit. Fees are denominated in the Chinese Reminbi, the functional currency of the PRC, and shipping costs charged by the various shipping companies are denominated in U.S. dollars. Historically, Shandong Jiajia's existing customers generally settle their accounts receivable within 30 days after they receive a commercial invoice. In the pricing terms of CIF and CFR, new customers are required to make the payment in order to obtain one original copy of bill of lading from Shandong Jiajia. The customer submits the bill of lading to the bank to settle the foreign exchange in its account. In FOB pricing term, Shandong Jiajia issues a delivery order to its agent at the port of destination.

Competition

Shandong Jiajia is one of approximately 6,000 registered cargo companies in China. Only registered companies can purchase cargo space and establish foreign currency accounts. There are also an estimated 30,000 unregistered forwarding companies and individual agents. These smaller competitors generally do not have the financial wherewithal to meet the minimum registered capital requirements to permit the formation as an independent international freight forwarding company. The industry is dominated by a few state-owned and/or large public companies. Shandong Jiajia’s primary competitors are state owned Tianjin Zhenhua Logistics Group, foreign joint ventures Qingdao Ocean & Great Asia Transportation, and Air Sea Transport. These competitors have each developed a service network nationwide and internationally and have proprietary warehouses and transportation departments.

While the requirement to register as a cargo company in China was amended in 2004 to provide that approval from the Ministry of Commerce is no longer necessary to obtain a business license, Shangdong Jiajia believes its ability to market itself as a registered cargo company provides certain competitive advantages. Shandong Jiajia has been operating since 1999 and it believes that its experience is a competitive advantage for the company and serves as a benefit to exporters as well to shipping agencies seeking to sell cargo space. Shandong Jiajia has developed stable shipping volume since 1999, which allows it to make a commitment to shipping agencies for cargo space, which in turn permits it to receive advantageous pricing.

A significant number of Shandong Jiajia's competitors have more capital, longer operating histories, greater brand recognition, larger customer bases and significantly greater financial and marketing resources than the company does. These competitors may also offer a more comprehensive package of freight forwarding services than Shandong Jiajia does, or may provide value added services such as customs brokerage, distribution, warehousing and pick and pack services. For these and other reasons, Shandong Jiajia's competitors' services may achieve greater acceptance in the marketplace than the company, limiting our ability to gain market share and customer loyalty and increase our revenues.

Government Regulation

Shandong Jiajia is required to comply with the Customs Law established by the People's Republic of China, which establishes regulations related to import/export of merchandise from or to China. The regulations define the criteria of supervision and monitoring in the transport of merchandise to and from China.

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Previously, each year Shandong Jiajia was required to pass an annual inspection by the local government agency of foreign trade and commerce to maintain the qualification. Effective April 1, 2005 an annual inspection is no longer required for approval and an international freight forwarding company, such as Shandong Jiajia, is only required to file an annual renewal form with the local government agency of foreign trade and commerce. Shandong Jiajia completed the required registrations since enactment of the new regulation.

We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the PRC. We can make no assurance, however, that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations and could cause our company to cease operations.

Employees

As of March 31, 2008 we had 89 full time employees, including our President, V. Jeffrey Harrell and an executive administrator in the United States and 87 full-time, salaried employees at Shangdong Jiajia.

Our employees in China are organized into a union under the labor laws of China and receive labor insurance. These employees can bargain collectively with Shandong Jiajia. Shandong Jiajia believes it maintains good relations with its employees.

Shandong Jiajia is required to contribute a portion of its employees’ total salaries to the Chinese government’s social insurance funds, including medical insurance, unemployment insurance and job injuries insurance, and a housing assistance fund, in accordance with relevant regulations. We expect the amount of our contributions to the government’s social insurance funds to increase in the future as we expand our workforce and operations.

History Of Our Company

We were incorporated in the State of Florida on March 19, 1999 originally under the name ValuSALES, Inc. to create a single-source Internet solutions company providing internet and technology products and services to various sized customers. We had no operations until July 20, 1999 when we purchased assets consisting of property and equipment and inventory for an aggregate purchase price of $75,000. On December 1, 1999, we sold shares of our common stock and used the proceeds to acquire September Project II Corp., an inactive entity. For accounting purposes, the acquisition was treated as a capital transaction rather than a business combination. In conjunction therewith, we merged with September Project II Corp. with that entity as the surviving entity named ValuSALES.com, Inc. Following this transaction, we provided Internet and technology products and services for clients ranging from small to medium sized customers looking for a solution to develop and integrate a web site, advertising and marketing, technology products, and streaming video into their business. Our divisions included e-business solutions, marketing and advertising, streaming video technology, and Internet mortgage banking. In November 2001 we changed our name to Video Without Boundaries, Inc.

In 2001 we began operating in only one segment. During 2002 we discontinued our previous operations and began to reposition our company within the home entertainment media-on-demand marketplace to become a producer and distributor of interactive consumer electronics equipment to provide streaming digital media and video on demand (VOD) services.

On August 11, 2004 (with an effective date of June 1, 2004) we entered into a stock purchase agreement with Mr. James Joachimczyk, the sole shareholder of Graphics Distribution, Inc., a privately held company engaged in the business of selling and distributing electronic products. The principal terms of the agreement provided that we would acquire all of the issued and outstanding shares of Graphics Distribution, Inc. for a purchase price of $1,500,000 plus the issuance of 25,000 shares of our common stock. Additional consideration included in this stock purchase agreement required our company to collateralize an existing line of credit in the amount of $2,500,000 as well as retain the services of the selling shareholder, pursuant to a consulting agreement dated August 11, 2004, for a term consistent with the fulfillment of the payment terms under the stock purchase agreement. At closing, we tendered our initial deposit of $350,000, but thereafter we defaulted on the remaining balance due and as well as the collateralization provision.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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ITEM 1A. RISK FACTORS

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

Risks Relating to Overall Business Operations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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RISKS RELATED TO DOING BUSINESS IN CHINA

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

RISKS RELATED TO HOLDING OUR SECURITIES

OUR CORPORATE ACTIONS ARE SUBSTANTIALLY CONTROLLED BY OUR MANAGEMENT.

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

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

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

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

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

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

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

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

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

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

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

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

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not applicable to a smaller reporting company.

ITEM 2. PROPERTIES.

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

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

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

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

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

ITEM 3. LEGAL PROCEEDINGS.

We are not a party to any pending legal proceedings.

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

None.

PART II

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

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

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

	High		Low
2006
First quarter ended March 31, 2006	$	12.00	$	8.00
Second quarter ended June 30, 2006	$	8.80	$	4.80
Third quarter ended September 30, 2006	$	7.60	$	4.40
Fourth quarter ended December 31, 2006	$	4.80	$	2.40

2007
First quarter ended March 31, 2007	$	6.80	$	2.40
Second quarter ended June 30, 2007	$	3.60	$	1.60
Third quarter ended September 30, 2007	$	2.80	$	.80
Fourth quarter ended December 31, 2007	$	2.00	$	.40

2008
First quarter ended March 31, 2008	$	1.20	$	.40

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

Dividend Policy

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

Recent Sales of Unregistered Securities

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

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

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

•

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

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

ITEM 6. SELECTED FINANCIAL DATA.

Not applicable to a smaller reporting company.

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

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

Overview

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Recent Accounting Pronouncements

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

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

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

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

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

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

Critical Accounting Policies and Estimates

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

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

Revenue Recognition

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

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

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

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

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

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Use of Estimates

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

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

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

Stock Based Compensation

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

Earnings (Losses) Per Share

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

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

Accounts Receivable

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

Property and Equipment

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

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

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Income Taxes

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

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

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

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

Cash and Cash Equivalents

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

Long-Lived Assets

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

Derivative liability

On January 28, 2008 the acquisition agreement was amended to provide that as additional consideration we issued Mr. Chen 120,000 shares of our Series B Convertible Preferred Stock with a fair value of $960,000 and three year purchase warrants to purchase an additional 2,000,000 shares of our common stock at an exercise price of $0.30 per share with a fair value of $480,000. A t 12/31/2007 there was insufficient authorized common shares to settle the warrant contract. As such, the $480,000 is classified as a liability and will be reclassified to equity upon a) the exercise of the warrants, or b) shareholder approval for the increase in authorized shares. Proper shareholder approval was obtained to amend the Company’s articles of incorporation to increase in the number of shares of authorized common stock and a reverse stock split, among other things, on February 11, 2008, which such action was effective on March 11, 2008. This amendment allowed the Company to deliver the shares provided for in the additional warrants issued to Mr. Chen and the derivative liability was reclassified to equity during the first quarter of fiscal 2008.

We have adopted the “Black Scholes” pricing model to book the estimated fair value of the purchase warrants totaling $480,000 under the provisions of SFAS No. 123(R).

The following assumptions were made in estimating fair value:

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

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Customer Advances

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

Foreign Currencies

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

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

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

Comprehensive Income

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

Minority Interest

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

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

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

Results of Operations

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

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

Other Key Indicators

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

Sales

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

Cost of sales and Gross profit (loss)

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

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

Total operating expenses

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

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Total other income

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

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

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

Other comprehensive income and comprehensive income (loss)

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

Liquidity and Capital Resources

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

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

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

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

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

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

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

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

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

•	satisfied $448,985 of accrued compensation due our then president and CEO, Mr. Jeffrey Harrell, through the issuance of 581,247 shares of our common stock, and
•	converted a $2,521,380 note payable due a principal shareholder of our company, Mr. David Aubel, into 2,864,606 shares of our common stock.

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

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

Statement of Cash Flows

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

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

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Off Balance Sheet Arrangements

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

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

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

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

Not applicable to smaller reporting companies.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

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

None.

ITEM 9A(T). CONTROLS AND PROCEDURES.

DISCLOSURE CONTROLS AND PROCEDURES

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

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MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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

As of December 31, 2007, we did not have appropriate policies and procedures in place to ensure that the number of shares of common stock issued and outstanding would not exceed the number of common stock shares authorized. This material weakness was reported in our December 31, 2007 Form 10-K. Also, as of December 31, 2007, we did not have appropriate policies and procedures in place to ensure that the recognition of the fair value of 450,000 shares of our Series B Convertible preferred stock to be issued for consulting services rendered during the year ended December 31, 2007 would be accounted for in 2007. This material weakness was not discovered until May 14, 2008, subsequent to the filing of our December 31, 2007 Form 10-K/A. Further, on January 8, 2010 we determined that 2,000,000 common stock purchase warrants originally accounted for as equity would require reclassification to a derivative liability as there were insufficient authorized shares to settle to contract at December 31, 2007.

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

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

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

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

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

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

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

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

ITEM 9B. OTHER INFORMATION.

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

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

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

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

Key Employees

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

Name	Age		Positions
Hui Liu		45	Chief Executive Officer
Wei Chen		37	General Manager, Shanghai Branch

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

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

Compliance with Section 16(a) of the Exchange Act

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

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Code of Ethics

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

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

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

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

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

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

Committees of the Board of Directors

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

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

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

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

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

ITEM 11. EXECUTIVE COMPENSATION.

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

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

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

	SUMMARY COMPENSATION TABLE
Name and Principal Position (a)	Year (b)	Salary ($) (c)		Bonus ($) (d)		Stock Awards ($) (e)		Option Awards ($) (f)		Non-Equity Incentive Plan Compensation ($) (g)		Nonqualified Deferred Compensation Earnings ($) (h)		All Other Compensation ($) (i)		Total ($) (j)
V. Jeffrey Harrell (1)	2007		200,000		-		-		-		-		-		-		200,000
	2006		200,000		-		-		-		-		-		-		200,000

Hui Liu (2)	2007		3,732		14,785		-		-		-		-		11,500		30,017

Wei Chen	2007		26,642		-		-		-		-		-		-		26,642

(1)

During 2007 Mr. Harrell converted $193,500 of accrued but unpaid compensation into 135,000 shares of our common stock. At December 31, 2007 we owed Mr. Harrell an aggregate of approximately $419,000 of accrued but unpaid compensation. Pursuant to the terms of the Share Exchange Agreement, on March 20, 2008 he converted all amounts due him into 581,247 shares of our common stock in full satisfaction of those obligations.

(2)

In 2007 Mr. Liu received a $14,785 bonus and $10,958 for travel allowance and $542 for a car allowance.

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

- 29 -

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

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

Outstanding Equity Awards at Year End

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

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

Director Compensation

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

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

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

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

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

- 30 -

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

	Amount and Nature of Beneficial Ownership(1)
Name	No. of Shares		% of Class
V. Jeffrey Harrell		731,336	3.8%
Wei Chen (2)		4,762,500	22.3%
Hui Liu (3)		312,500	1.6%
All named executive officers and directors as a group (three persons)		5,806,336	27.1%

China Direct, Inc. (4)		9,312,500	39.0%
Dragon Venture (Shanghai) Capital Management Co., Ltd. (5)		1,400,000	7.2%
David J. Aubel (6)		2,864,608	14.8%
Lili Gong (7)		1,000,000	5.2%

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

- 31 -

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

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

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

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

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

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

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

Director Independence

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

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

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

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

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

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

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

- 32 -

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

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

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

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

———————

* previously filed

** filed herewith

- 33 -

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

- 34 -

SIGNATURES

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


	CHINA LOGISTICS GROUP, INC.


Date: February 11, 2010	By:	/s/ Wei Chen
		Wei Chen
		Chairman, Chief Executive Officer and President (Principal Executive Officer)

Date: February 11, 2010	By:	/s/ Yuan Huang
		Yuan Huang
		Chief Financial Officer (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Wei Chen	Chief Executive Officer, and director	February 11, 2010
Wei Chen

Yuan Huang	Principal Financial and Accounting Officer	February 11, 2010
Yuan Huang


/s/ Hui Liu	Director	February 11, 2010
Hui Liu

CHINA LOGISTICS GROUP, INC.

AND SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Directors

China Logistics Group, Inc.

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

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

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

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

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


/s/ Sherb & Co., LLP
Certified Public Accountants

Boca Raton, Florida

March 31, 2008, except for Note 2, as to which the date is February 12, 2010 .

F- 2

CHINA LOGISTICS GROUP, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2007 AND 2006

	2007			2006
ASSETS	Restated
Current assets:
Cash	$	1,121,605		$	822,908
Accounts receivable, net of allowance for doubtful accounts of $794,715 and $1,262,902 at December 31, 2007 and 2006, respectively		3,131,831			1,903,884
Accounts receivable - related party		7,000			-
Other receivables		-			181,060
Due from related parties		511,435			282,559
Prepayments and other current assets		328,065			14,828
Total current assets		5,099,936			3,205,239
Property and equipment, net		42,336			50,309
Deposits		-			4,683
Total assets	$	5,142,272		$	3,260,231
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Cash overdraft	$	12,633		$	-
Accounts payable – trade		3,608,885			2,733,055
Accrued compensation – related party		446,985			-
Other accruals and current liabilities		485,101			319,237
Convertible note payable/related party		2,373,179			-
Advances from customers		683,436			110,559
Due to related parties		229,252			214,211
Foreign tax payable		36,117			8,872
Total current liabilities		7,875,588			3,385,934

Derivative liability		480,000			-

Total liabilities		8,355,588			3,385,934

Minority interest		601,028			-
Stockholders' deficit:
Preferred stock - $.001 par value, 5,000,000 shares authorized
Series A preferred stock - 1,000,000 shares issued and outstanding at December 31, 2007 and 2006, respectively		1,000			1,000
Series B preferred stock - 1,295,000 and 120,000 shares issued and outstanding at December 31, 2007 and 2006, respectively		1,295			120
Common stock - $.001 par value, 200,000,000 shares authorized, 4,999,350 and 0 shares issued and outstanding at December 31, 2007 and 2006, respectively		4,999			-
Additional paid-in capital		12,447,625			3,058,800
Accumulated deficit		(16,042,873	)		(3,188,209	)
Accumulated other comprehensive (loss) income		(226,390	)		2,586

Total stockholders' deficit		(3,814,344	)		(125,703)
Total liabilities and stockholders' deficit	$	5,142,272		$	3,260,231

The accompanying notes are an integral part of these financial statements

F- 3

CHINA LOGISTICS GROUP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

	2007			2006
	Restated
Sales	$	35,298,453		$	30,311,924
Cost of sales		34,036,196			30,884,771
Gross profit (loss)		1,262,257			(572,847	)

Operating expenses:
Selling expenses		37,546			35,350
General and administrative expenses		583,564			617,432
Bad debt expense		57,067			259,494
Total operating expenses		678,177			912,276
Income (loss) from operations		584,080			(1,485,123	)

Other income:
Other income		13,575			18,588
Interest income		-			224
Total other income		13,575			18,812
Income (loss) before income taxes and minority interest		597,655			(1,466,311	)
Foreign taxes		(57,205	)		(10,389	)
Income (loss) before minority interest		540,450			(1,476,700	)
Minority interest in income of consolidated income		264,820			-
Net income (loss)		275,630			(1,476,700	)
Other comprehensive income (loss):
Foreign currency translation adjustments		(228,976	)		12,754
Comprehensive income (loss)	$	46,654		$	(1,463,946	)
Earnings (loss) per share:
Basic	$	20.12		$	N/A
Diluted	$	0.05		$	N/A
Weighted-average number of shares outstanding
Basic		13,697			-
Diluted		5,617,314			-

The accompanying notes are an integral part of these financial statements

F- 4

CHINA LOGISTICS GROUP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

															Accumulated			Accumulated
	Series A				Series B								Additional		Retained			Other
	Preferred Stock				Preferred Stock				Common Stock				Paid-In		Earnings			Comprehensive
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		(Deficit)			Income/Loss			Total
	Restated		Restated		Restated		Restated		Restated		Restated		Restated		Restated			Restated			Restated
Balance December 31, 2005		1,000,000	$	1,000		120,000	$	120		-	$	-	$	3,058,800	$	(1,711,509	)	$	(10,168	)	$	1,338,243
Net loss for the year		-		-		-		-		-		-		-		(1,476,700	)		-			(1,476,700	)
Foreign currency translation adjustments		-		-		-		-		-		-		-		-			12,754			12,754

Balance December 31, 2006		1,000,000		1,000		120,000		120		-		-		3,058,800		(3,188,209	)		2,586			(125,703	)
Recapitalization for reverse acquisition		-		-		1,175,000		1,175		4,999,350		4,999		9,388,825		(13,130,294	)		-			(3,735,295	)
Foreign currency translation adjustments		-		-		-		-		-		-		-		-			(228,976	)		(228,976	)
Net income for the year		-		-		-		-		-		-		-		275,630			-			275,630

Balance December 31, 2007		1,000,000	$	1,000		1,295,000	$	1,295		4,999,350	$	4,999	$	12,447,625	$	(16,042,873	)	$	(226,390	)	$	(3, 814 ,344	)

The accompanying notes are an integral part of these financial statements

F- 5

CHINA LOGISTICS GROUP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

	For the Year Ended
	December 31,
	2007			2006
	Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	275,630		$	(1,476,700	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation expense		18,406			1,129
Minority interest		264,820			-
Allowance for doubtful accounts		68,149			341,503
Changes in assets and liabilities:
(Increase) decrease in accounts receivable		(1,227,947	)		148,724
(Increase) decrease in other receivables		114,158			(62,468	)
(Increase) decrease in other assets		(419	)		3,642
(Increase) decrease in prepaid expenses and other current assets		(313,237)			6,014
Increase in accounts payable and accrued expenses		1,054,327			807,279
(Decrease) in other payables		(162,440	)		(37,138	)
Increase in taxes payable		27,245			3,713
Increase in advances from customers		572,877			109,604

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		691,569			(154,698	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(13,504	)		-
Retirement of property and equipment		-			4,743
Advances to related parties		(419,940	)		(44,775	)

NET CASH USED IN INVESTING ACTIVITIES		(433,444	)		(40,032	)

EFFECT OF EXCHANGE RATE ON CASH		40,572			12,754

NET INCREASE (DECREASE) IN CASH		298,697			(181,976	)

CASH - beginning of year		822,908			1,004,884

CASH - end of year	$	1,121,605		$	822,908

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for foreign taxes	$	31,361		$	10,389

The accompanying notes are an integral part of these financial statements

F- 6

NOTE 1 – ORGANIZATION

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

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

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

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

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

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

F- 7

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

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

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

NOTE 2- RESTATEMENT OF FINANCIAL STATEMENTS AND BASIS OF PRESENTATION

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

F- 8

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

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

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

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

Components of this restatement are detailed in the following tables:

Balance sheet data as of December 31, 2007:

				Adjustment
	As Filed			to Restate			Restated
Other Accruals and Current Liabilites	$	343,301		$	141,800		$	485,101


Accumulated Deficit	$	(313,084	)	$	(141,800	)	$	(454,884	)
Minority Interest component (49%)					69,482			69,482
	$	(313,084	)	$	(72,318	)	$	(385,402	)

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

			Adjustment
	As Filed		to Restate			Restated
General and administrative expenses (including bad debt expense)	$	498,831	$	141,800		$	640,631

Net Income (Loss)	$	347,948	$	(141,800	)		206,148
Minority Interest component (49%)		-		69,482			69,482
Net Income (Loss)		347,948		(72,318	)		275,630

Earnings (Loss) Per Share:
Basic	$	0.10	$	(0.02	)	$	0.08
Diluted	$	0.04	$	(0.01	)	$	0.03

F- 9

In connection with the recording of our acquisition of a 51% interest in Shandong Jiajia on December 31, 2007, the Company failed to adequately recognize all adjustments necessary to properly reflect the initial carrying value of the accounting acquiree (then named MediaReady, Inc.) as of the effective date of the transactions. As a result of this re-evaluation, several assets and liabilities were adjusted as of the transaction date. These corrections resulted in the restatement to our balance sheet as of December 31, 2007. This revaluation did not affect our statements of operations or earnings per share as of December 31, 2007, as it was deemed a contribution to capital by the accounting acquirer. These adjustments to the initially carrying values did not affect our consolidated statements of operations or earnings (loss) per share for the periods presented.

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

Balance sheet data as of December 31, 2007:

				Adjustment
	As Filed			To Restate				Restated
Accounts receivable – related party	$	160,350		$	(153,350	)	(a)	$	7,000
Deferred expenses		5,450			(5,450	)			-
Prepaid expenses and other current assets		338,895			(10,830	)			328,065
Property and equipment, net		46,622			(4,286	)			42,336
Intangible assets		821			(821	)			-
Deposits		12,000			(12,000	)			-
	$	564, 138		$	(186,737	)		$	377,401


Accounts payable – trade (b)	$	4,444,825		$	(835,940	)	(b)	$	3,608,885
Other accruals and current liabilities (c)		343,301			141,800		(c)		485,101
Minority Interest (d)		670,510			(69,482	)	(d)		601,028
Additional paid-in capital		(3,379,049	)		649,203				(2,729,846	)
Accumulated deficit		(313,084	)		(72,318	)			(385,402	)
	$	1,766,503		$	(186,737	)		$	1,579,766

(a)	Reflects adjustment to accounts receivable balance due from a single customer subsequently deemed uncollectible.

(b)	Reflects adjustment including $764,220 due to a single vendor, formally forgiven in April 2008, and previously reported as a gain in the second quarter 2008.

(c)	Reflects recording of accrued professional fees at December 31, 2007 by Shandong Jiajia as discussed above.

(d)	Reflects the effect on minority interest (49%) of $141,800 in professional fees recognized by Shandong Jiajia, see adjustment (c).

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

F- 10

Following further comments from the Securities and Exchange Commission and upon further review, the Company determined that further amendments to the December 31, 2007 financial statements included in the Company’s Form 10-K/A (Amendment No. 3) filed on June 9, 2009 were necessary including:

•	reclassification of 2,000,000 warrants issued to Mr. Chen as additional consideration valued at $480,000 from equity to derivative liability as there were insufficient authorized common shares to settle the contract as of 12/31/2007
•	further adjustment to the method of recording the reverse recapitalization transaction with Shandong Jiajia completed on December 31, 2007

Components of this restatement are detailed in the following tables:

Balance sheet data as of December 31, 2007:

				Adjustment
	As Filed			To Restate			Restated
Derivative liability		-			480,000			480,000
Total liabilities		7,875,588			480,000			8,355,588

Additional paid-in capital		(2,729,846	)		15,177,471			12,447,625
Accumulated deficit		(385,402	)		(15,657,471	)		(16,042,873	)
Total stockholders’ deficit	$	(3,334,344	)	$	(480,000	)	$	(3,814,344	)

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

			Adjustment
	As Filed		to Restate			Restated

Earnings (Loss) Per Share:
Basic	$	0.08	$	20.04	)	$	20.12
Diluted	$	0.03	$	0.02		$	0.05

Weighted-average number of shares outstanding
Basic		3,442,152		(3,428,455	)		13,697
Diluted		9,045,589		(3,428,275	)		5,617,314

NOTE 3 – GOING CONCERN

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

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

NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

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

F- 11

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

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

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

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

Revenue Recognition

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

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

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

Use of Estimates

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

F- 12

Stock Based Compensation

Earnings (Losses) Per Share

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

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

F- 13

	Year ended
	December 31,
	2007		2006
	Restated
Numerator:
Net income (loss) applicable to common stockholders (A)	$	275,630	$	(1,476,700	)

Denominator:
Denominator for basic earnings per share
Weighted average shares outstanding (B)		13,697		-	*
Denominator for diluted earnings per share
Treasury stock method
Options		1,871,245		--
Series A and B preferred stock – unconverted		3,732,192		--

Adjusted weighted average shares outstanding (C)		5,617,314		-	*

Basic and diluted earnings per common share:
Earnings per share- basic (loss)(A)/(B)	$	20.12	$	N/A	*
Earnings per share- diluted (A)/(C)	$	0.05	$	N/A	*

N/A – Not available

* Due to the reverse recapitalization accounting treatment, there are no common shares outstanding during 2006. Dividing net income by zero is mathematically undefined and Earnings per share data for 2006 is not available.

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

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

Accounts Receivable

Property and Equipment

F- 14

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

Income Taxes

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

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

Cash and Cash Equivalents

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

Long-Lived Assets

Derivative liability

On January 28, 2008 the acquisition agreement was amended to provide that as additional consideration we issued Mr. Chen 120,000 shares of our Series B Convertible Preferred Stock with a fair value of $960,000 and three year purchase warrants to purchase an additional 2,000,000 shares of our common stock at an exercise price of $0.30 per share with a fair value of $480,000. A t 12/31/2007 there was insufficient authorized common shares to settle the warrant contract. As such, the $480,000 is classified as a liability and will be reclassified to equity upon a) the exercise of the warrants, or b) shareholder approval for the increase in authorized shares. Proper shareholder approval was obtained to amend the Company’s articles of incorporation to increase in the number of shares of authorized common stock and a reverse stock split, among other things, on February 11, 2008, which such action was effective on March 11, 2008. This amendment allowed the Company to deliver the shares provided for in the additional warrants issued to Mr. Chen and the derivative liability was reclassified to equity during the first quarter of fiscal 2008.

F- 15

We have adopted the “Black Scholes” pricing model to book the estimated fair value of the purchase warrants totaling $480,000 under the provisions of SFAS No. 123(R).

The following assumptions were made in estimating fair value:

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

Customer Advances

Foreign Currencies

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

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

Comprehensive Income

Minority Interest

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

NOTE 5 – ACCOUNTS RECEIVABLE

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

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

F-16

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

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

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

The Convertible Note Payable – David Aubel, Related Party was accounted for as a derivative until it was modified pursuant to Section 4(l) of the December 2007 Acquisition Agreement between the Company and Shandong Jiajia. Section 4(l) of that agreement fixed the conversion price and number of shares to be converted to repay the convertible note. The final obligation to Mr. Aubel of $2,521,380 was settled in full on March 20, 2008 through the issuance of 2,864,606 shares of common stock. No interest was accrued in 2008 as, under the terms of the agreements related to the reverse recapitalization transaction with Shandong Jiajia, Mr. Aubel had agreed to a final settlement of a fixed number of common shares as of December 31, 2007.

The historical financial statements of the legal acquirer, China Logistics Group, Inc. (f/k/a Media Ready, Inc.), were not restated in accounting for this transaction; i.e. the financial statements included on our Form 10-K for the fiscal year ended December 31, 2006 have not been restated which include the derivative treatment. Rather, as of December 31, 2007 our financial statements have been retrospectively restated to present the historical financial statements of Shandong Jiajia, the accounting acquirer of the reverse recapitalization. These restated historical financial statements are included in our Form 10-K/A (Amendment No. 4) for the fiscal year ended December 31, 2007. Based on our accounting for the transaction as a reverse recapitalization, no convertible note or the derivative liability associated with this note is presented on the balance sheet as at December 31, 2006 in the Company’s Form 10-K/A (Amendment No. 4) for fiscal year ended December 31, 2007.

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

NOTE 7 – PROPERTY AND EQUIPMENT

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

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

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

F- 17

NOTE 8 – STOCK OPTIONS

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

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

The following assumptions were made in estimating fair value:

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

At December 31, 2007 no options had been exercised.

NOTE 9 – CONCENTRATION OF CREDIT RISK

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

NOTE 10 – FAIR VALUE OF FINANCIAL INSTRUMENTS

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

NOTE 11 – REVERSE ACQUISITION

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

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

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

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

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

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NOTE 12 – STOCKHOLDERS’ EQUITY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NOTE 13 – RELATED PARTIES

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

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

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

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

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

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NOTE 14 – INCOME TAXES

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

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

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

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

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

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

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

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

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

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

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

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

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

NOTE 15 – COMMON STOCK WARRANTS

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

Risk-free rate			4.45	%
Volatility			96	%

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The following table summarizes the stock warrant activity:

	Number of Shares
2004
Warrants granted (five year term expiring April 2, 2009)		2,500
Warrants exercised		—

2005
Warrants granted (five year term expiring April 2, 2010)		2,500
Warrants exercised		—

2006
Warrants granted (three year term expiring May 31, 2009)		110,000	*
Warrants exercised		—

2006
Warrants granted (five year term expiring April 2, 2011)		2,500
Warrants exercised		—
		117,500

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

NOTE 16 – COMMITMENTS

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

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

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

Period	Total
Period Ended December 31, 2008		62,533
Period Ended December 31, 2009	$	121,000
Period Ended December 31, 2010		48,000
Period Ended December 31, 2011		23,000
Period Ended December 31, 2012		23,000
Thereafter		--
	$	261,000

Rent expense from our office leases for 2007 and 2006 were approximately $63,000 for both periods. We did not have any minimum, contingent, or sublease arrangements in these leases.

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

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

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

NOTE 17 – REGIONS

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

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

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

NOTE 18 – CONTINGENCIES

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

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

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

NOTE 19 – SUBSEQUENT EVENTS

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

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

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

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China Logistics Group Inc - FORM 10-K/A - February 12, 2010

Attached files

China Logistics Group Inc Reports