Edgar Filing: China Logistics Group Inc

chloq2_10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 2 )

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

FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2008
or

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

FOR THE TRANSITION PERIOD FROM: _____________ TO _____________

COMMISSION FILE NUMBER: 000-31497

CHINA LOGISTICS GROUP, INC.

(Exact name of registrant as specified in its charter)

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

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

562-408-3888

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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. o Yes þ No

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

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

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 34,508,203 shares of common stock are issued and outstanding as of August 12, 2008.

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

TABLE OF CONTENTS

		Page No.

PART I. - FINANCIAL INFORMATION

Item 1.	Financial Statements.	1

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	28

Item 4T.	Controls and Procedures.	28

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.	30

Item 1A.	Risk Factors.	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	30

Item 3.	Defaults Upon Senior Securities.	30

Item 4.	Submission of Matters to a Vote of Security Holders.	30

Item 5.	Other Information.	30

Item 6.	Exhibits.	30

OTHER PERTINENT INFORMATION

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

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EXPLANATORY PARAGRAPH

China Logistics Group, Inc. ("we", "us", "our" or the "Company") is filing this Amendment No. 2 to amend its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008 as filed on January 12, 2009 to correct the accounting treatment previously accorded certain transactions and to restate our consolidated balance sheets at June 30, 2008 and December 31, 2007 and our consolidated statement of operations, consolidated statements of stockholders' equity and consolidated statements of cash flows for the three month and six month periods ended June 30, 2008 and 2007.

The June 30, 2008 and December 31, 2007 financial statements included in the Company's Form 10-Q filed on August 19, 2008, Form 10-Q/A filed January 12, 2009, Form 10-K filed on April 15, 2008, Form 10-K/A filed on May 19, 2008 and Form 10-K/A filed on December 24, 2008 contained errors and, accordingly, were restated to correct the accounting treatment previously accorded 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 reclassification of costs totaling $10,418,000, initially incorrectly classified as an expense, fair value of equity instruments, in the consolidated statement of operations, to costs directly associated with 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;
•	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 were necessary including:

At December 31, 2007:

•	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 International Freight Forwarding Co., Ltd. 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.

At June 30, 2008:

•	recognize the fair value adjustment of assets and liabilities of MediaReady, Inc. as of December 31, 2008;
•	correct the classification of $401,743 in recovery of bad debt in the consolidated statements of operations from a component of other income (expense) to a component of operating income.
•	recognize $87,221 in non-operating bad debt resulting from a cash advance made in the second quarter of 2008, to a related party and significant shareholder, Mr. David Aubel, subsequently deemed uncollectable.

As a result of these corrections to our financial statements for the three and six months period ended June 30, 2008 and year ended December 31, 2007, we are filing this Amendment No. 2 to our Form 10-Q for the period ended June 30, 2008 to reflect the fair valuing of the historical financial statements at December 31, 2007 and the additional changes to our financial statements necessitated by these restatements.

The items of this Form 10-Q/A (Amendment No. 2 ) which are amended and restated as a result of the foregoing are:

•	Part I. Financial Information
•	Item 1. Financial Statements, including consolidated balance sheets, consolidated statement of operations, consolidated cash flows, and Notes to Unaudited Consolidated Financial Statements, as well as the inclusion of a consolidated statement of stockholders' deficit,
•	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, and
•	Item 4(T). Controls and Procedures.

This Form 10-Q/A also contains currently dated certifications as Exhibits 31.1, 31.2 and 32.1. The remaining Items in this Form 10-Q/A (Amendment No. 2) consist of all other Items originally contained in our Form 10-Q for the period ended June 30, 2008. This filing supersedes in its entirety our original Form 10-Q and Form 10-Q/A (Amendment No. 1) for the period ended June 30, 2008.

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PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	June 30, 2008			December 31, 2007
	Restated (Unaudited)			Restated
ASSETS
Current assets:
Cash	$	3,435,950		$	1,121,605
Accounts receivable, net of allowance for doubtful accounts of $451,848 and $794,715 at June 30, 2008 and December 31, 2007, respectively		2,342,814			3,131,831
Accounts receivable - related party	__				7,000
Due from related parties		453,636			511,435
Prepayments and other current assets		967,304			328,065
Total current assets		7,199,704			5,099,936
Property and equipment, net		40,000			42,336
Total assets	$	7,239,704		$	5,142,272

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Cash overdraft	$	—		$	12,633
Accounts payable - trade		900,556			3,608,885
Accrued consulting fees		50,082			—
Accrued compensation - related party		—			446,985
Other accruals and other current liabilities		233,230			485,101
Convertible note payable - related party		—			2,373,179
Advances from customers		1,610,211			683,436
Due to related parties		174,075			229,252
Foreign tax payable		79,247			36,117
Total current liabilities		3,047,401			7,875,588
Minority interest		1,006,221			601,028
Stockholders' equity (deficit):
Series A convertible Preferred stock - $.001 par value; 10,000,000 shares and 5,000,000 shares authorized at June 30, 2008 and December 31, 2007; -0- shares and 1,000,000 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively		—			1,000
Series B convertible Preferred stock- $.001 par value, 1,295,000 shares authorized; 450,000 shares and 1,295,000 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively		450			1,295
Common stock - $.001 par value; 500,000,000 shares and 200,000,000 shares authorized at June 30, 2008 and December 31, 2007; 34,508,203 and 4,999,350 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively		34,508			4,999
Additional paid-in capital (deficit)		3,572,042			(2,729,846	)
Retained earnings (deficit)		(242,375	)		(385,402)
Accumulated other comprehensive loss		(178,543	)		(226,390	)
Total stockholders' equity (deficit)		3,186,082			(3,334,344	)
Total liabilities and stockholders' equity (deficit)	$	7,239,704		$	5,142,272

See notes to unaudited consolidated financial statements.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30, 2008			June 30, 2007			June 30, 2008			June 30, 2007
	Restated						Restated
Sales	$	8,018,987		$	7,575,454		$	14,792,200		$	13,793,670
Cost of sales		7,562,001			7,523,179			14,077,731			13,903,184
Gross profit		456,986			52,275			714,469			(109,514	)
Operating expenses:
Selling, general and administrative		144,644			139,176			427,849			283,190
Depreciation and amortization		3,935			4,563			8,160			9,127
Recovery of bad debt, net		(20,765	)		-			(401,743	)		-
Total operating expenses		127,814			143,739			34,266			292,317
Operating income (loss)		329,172			(91,464	)		680,203			(401,831)
Other income (expense)
Realized exchange gain (loss)		4,135			-			(12,407	)		-
Non-operating bad debt		(87,221	)		-			(87,221	)		-
Interest expense - related party		(1,504	)		(476	)		(667	)		(2,137	)
Total other income (expense)		(84,590	)		(476)			(100,295	)		(2,137)

Income (loss) before income taxes and minority interests		244,582			(91,940	)		579,908			(403,968	)
Foreign tax		69,870			8,045			77,658			8,565

Income (loss) before minority interest		174,712			(99,985)			502,250			(412,533	)
Minority interest in income of consolidated subsidiary		131,811			-			359,223			-
Net income (loss)		42,901			(99,985)			143,027			(412,533	)
Other comprehensive income:
Foreign currency translation adjustment		35,954			43,380			47,847			66,701
Comprehensive income (loss)	$	78,855		$	(56,605	)	$	190,874		$	(345,832)
Earnings (loss) per share:
Basic	$	0.00		$	(0.03)		$	0.01		$	(0.14	)
Diluted	$	0.00		$	(0.03)		$	0.00		$	(0.14	)
Basic weighted average shares outstanding		31,931,829			3,326,263			19,053,778			3,051,170
Diluted weighted average shares outstanding		47,635,943			3,326,263			34,596,664			3,051,170

See notes to unaudited consolidated financial statements.

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CHINA LOGISTICS GROUP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2008 (UNAUDITED)

																							Accumulated
																	Additional						Other
	Preferred A Stock						Preferred B Stock						Common Stock				Paid-In			Accumulated			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, 2007		1,000,000		$	1,000			1,295,000		$	1,295			4,999,350	$	4,999	$	(2,729,846	)	$	(385,402	)	$	(226,390	)	$	(3,334,344	)
Convertible note payable to related party converted to capital		-			-			-			-			2,864,606		2,865		2,518,515			-			-			2,521,380
Conversion of Series A Preferred to common stock		(1,000,000	)		(1,000	)					-			2,500,000		2,500		(1,500	)		-			-			-
Conversion of Series B Preferred to common stock		-			-			(845,000	)		(845	)		8,450,000		8,450		(7,605	)		-			-			-
Accrued salary for president converted to stock		-			-			-			-			581,247		581		448,404			-			-			448,985
Private placement		-			-			-			-			15,113,000		15,113		3,344,074			-			-			3,359,187
Foreign currency translation adjustment		-			-			-			-			-		-		-			-			47,847			47,847
Net income for the period		-			-			-			-			-		-		-			143,027			-			143,027
Balance June 30, 2008		-		$	-			450,000		$	450			34,508,203	$	34,508	$	3,572,042		$	(242,375	)	$	(178,543	)	$	3,186,082

See notes to unaudited consolidated financial statements.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	June 30,			June 30,
	2008			2007
Cash flows from operating activities:	Restated
Net income (loss)	$	143,027		$	(412,533	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		8,160			9,127
Minority interest in income of consolidated subsidiary		359,223			-
Bad debt recovery		(401,743	)		-
Amortization of deferred cost		5,450			-
Change in assets and liabilities
Decrease in accounts receivable		1,190,760			310,519
Decrease in accounts receivable - related party		7,000			282,559
Increase in inventories		-			(10,210)
(Increase) in prepayments and other current assets		(639,239	)		(346,231)
Increase (decrease) in accounts payable		(2,708,329	)		(95,284)
Increase in accrued consulting fee		50,082			-
Increase in advances from customers		926,775			-
Increase in foreign tax payable		43,131			(2,911)
Decrease in other accruals and other current liabilities		(251,871	)		134,792
Net cash used in operating activities		(1,267,574	)		(130,172	)

Cash flows from investing activities:
Purchases of property, plant and equipment		(5,824	)		(918	)
Net cash used in investing activities		(5,824	)		(918	)

Cash flows from financing activities:
Proceeds from convertible note payable - related party		148,200			-
Proceeds from loans payable - shareholder		2,622			-
Proceeds from 2008 unit offering private placement		3,778,250			-
2008 unit offering expenses		(419,063	)		-
Repayment of short-term debt		(12,633	)		-
Net cash provided by financing activities		3,497,376			-
Net increase (decrease) in cash		2,223,978			(131,090	)
Foreign currency translation adjustment		90,367			16,669
Cash at beginning of year		1,121,605			822,908
Cash at end of period	$	3,435,950		$	708,487
Supplemental disclosure of cash flow information:
Cash paid during the period for foreign taxes	$	34,524		$	11,476
Non-cash movements affecting investing and financing transactions:
Convertible note payable converted to common stock - related party	$	2,521,380		$	--
Accrued compensation converted to common stock - related party	$	448,985		$	--

See notes to unaudited consolidated financial statements.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated)

June 30, 2008

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 $2,521,379 due to Mr. David Aubel under a convertible note and a loan. Effective on the close of business on March 11, 2008 we amended our articles of incorporation to increase our authorized capital which provided sufficient shares to permit these conversions.

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

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

As of the settlement date in March 2008, Mr. Aubel was owed $2,521,379 by us, an increase in the amount owed from September 30, 2007 resulting from additional advances made by Mr. Aubel, reduced by the issuance of 10,000,000 shares during the interim period. The final conversion price of Mr. Aubel’s note was $0.88 per share, resulting from the final note balance of $2,521,380 divided by an agreed upon fixed number of shares of 2,864,606 ($2,521,379/2,864,606 =$0.88 per share). The fair market value of our common stock on March 31, 2008 was $0.85 per share. We are evaluating any rights we may have to seek damages against Mr. Aubel as a result of the uncertainty as to the validity of the amount of his note.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

June 30, 2008

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

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

The accompanying consolidated financial statements including the audited balance sheet at December 31, 2007, the consolidated statement of operations, statement of stockholders' equity (deficit) and statements of cash flows 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 for 2007 presented, including the consolidated statements of operations, statement of stockholders' equity (deficit) and statements of cash flows, are those of Shandong Jiajia.

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

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

NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS

•	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 reclassification of costs totaling $10,418,000, initially incorrectly classified as an expense, fair value of equity instruments, in the consolidated statement of operations, to costs directly associated with 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;
•	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 were necessary including:

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

June 30, 2008

At December 31, 2007:

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

At June 30, 2008:

•	recognize the fair value adjustment of assets and liabilities of MediaReady, Inc. as of December 31, 2008;
•	correct the classification of $401,743 in recovery of bad debt in the consolidated statements of operations from a component of other income (expense) to a component of operating income.
•	recognize $87,221 in non-operating bad debt resulting from a cash advance made in the second quarter of 2008, to a related party and significant shareholder, Mr. David Aubel, subsequently deemed uncollectable.

In connection with the recording of our acquisition of a 51% interest in Shandong Jiajia on December 31, 2007, the Company failed to adequately recognize all adjustments necessary to properly reflect the fair value of the accounting acquiree (then named MediaReady, Inc.) as of the effective date of the transactions as provided under the provisions of Statement of Financial Accounting Standards No. 141, Business Combinations. As a result of this re-evaluation, several assets and liabilities were adjusted to fair value as of the transaction date including $764,200 initially recorded as forgiveness of debt in the second quarter 2008. This correction resulted in an amendment to our balance sheets as of December 31, 2007. While the revaluation did not affect our statements of operations or earnings per share as of December 31, 2007; the $764,200 gain on forgiveness of debt previously recognized in our interim reports for the quarters ending June 30, 2008 and September 30, 2008 will not be reflected in those amended filings.

Components of this restatement 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	)			-
Prepaids and other current assets		338,895			(10,830	)			328,065
Property and equipment, net		46,622			(4,286	)			42,336
Deposits		12,000			(12,000	)			-
	$	563,317		$	(185,916	)		$	377,401

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

(a)	Reflects fair value adjustment to accounts receivable balance due from a single customer subsequently deemed uncollectible.
(b)	Reflects fair value adjustment including of $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.
(d)	Reflects the effect on minority interest of $141,800 in professional fees recognized by Shandong Jiajia.

For the year ended December 31, 2007, the Company had erroneously failed to accrue for certain professional fees totaling $141,800. The financial statements for the year ended December 31, 2007 have been restated to recognize this expense.

- 7 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

June 30, 2008

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
Other accruals and current liabilities	$	343,301		$	141,800		$	485,101

Accumulated deficit	$	(313,084	)	$	(141,800	)	$	(454,884	)
Minority interest component					69,482			69,482
	$	(313,084	)	$	(72,318	)	$	(385,402	)

Balance sheet data as of June 30, 2008:

			Adjustment
	As Filed		To Restate			Restated
Retained earnings (deficit)	$	519,766	$	157,332	(a)	$	677,098
Depreciation and amortization				4,286	(b)		4,286
Recovery of bad debt, net				401,743	(c)		401,743
Recovery of bad debt, net				(401,743)	(c)		(401,743)
Forgiveness of debt				(764,220)	(d)		(764,220)
Non-operating bad debt				(87,221)	(e)		(87,221)
Adjustment at December 31, 2007				(72,318)	(f)		(72,318)
	$	519,766	$	(762,141)		$	(242,375)

(a)	To recognize reduction in bad debt expense initially recognized in the second quarter of 2008, subsequently restated and recognized as part of the fair value adjustments to the assets of the accounting acquiree at December 31, 2007.
(b)	To record reduction in amortization of deferred costs and depreciation expense initially recorded due to fair value adjustment of related assets at December 31, 2007.
(c)	To restate classification of the recovery of bad debt from other income (expense) to operating expenses.
(d)	To eliminate income from forgiveness of debt initially recognized in the second quarter of 2008, subsequently restated and recognized as part of the fair value adjustment of the accounting acquiree at December 31, 2007.
(e)	To record $87,221 in non-operating bad debt resulting from a cash advance made in the second quarter of 2008 to a significant share holder and related party, Mr. David Aubel, subsequently deemed uncollectable.
(f)	To record adjustment at December 31, 2007, net of minority interest component, as detailed above.

Consolidated statements of operations for the three months ended June 30, 2008

			Adjustment
	As Filed		To Restate			Restated
Operating expenses:
Selling, General and Administrative expenses	$	184,135	$	(39,491)		$	144,644
Depreciation and Amortization				(2,472)	(b)		3,935
Recovery of bad debt, net		6,407		(20,765)	(c)		(20,765)
Total operating expenses	$	190,542	$	(62,728)		$	127,814

Other Income (expense)
Realized exchange gain (loss)	$	4,135	$	-		$	4,135
Forgiveness of debt		764,220		(764,220)	(d)		-
Recovery of bad debt		20,765		(20,765)	(c)		-
Non-operating bad debt				(87,221)	(e)		(87,221)
Interest expenses- related party		(1,504)					(1,504)
Total other income (expense)	$	787,616	$	(872,206)		$	(84,590)

Earnings Per Share:
Basic	$	0.05	$	(0.05)		$	0.00
Diluted	$	0.02	$	(0.02)		$	0.00

- 8 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

June 30, 2008

Consolidated statements of operations for the six months ended June 30, 2008

			Adjustment
	As Filed		To Restate			Restated
Operating expenses:
Selling, General and Administrative expenses	$	585,181	$	(157,332)	(a)	$	427,849
Depreciation and Amortization		12,446		(4,286)	(b)		8,160
Recovery of bad debt, net		-		(401,743)	(c)		(401,743)
Total operating expenses	$	597,627	$	(563,361)		$	34,266

Other Income (expense)
Realized exchange gain (loss)	$	(12,407)	$	-		$	(12,407)
Forgiveness of debt		764,220		(764,220)	(d)		_
Recovery of bad debt		401,743		(401,743)	(c)
Non-operating bad debt		_		(87,221)	(e)		(87,221)
Interest expenses- related party	$	(667)	$				(667)
Total other income (expense)	$	1,152,889	$	(1,253,184)		$	(100,295)

Earnings Per Share:
Basic	$	0.04	$	(0.03)		$	0.01
Diluted	$	0.03	$	(0.03)		$	0.00

(a)	To recognize reduction in bad debt expense initially recognized in the second quarter of 2008, subsequently restated as part of the fair value adjustments to the assets of the accounting acquiree at December 31, 2007.
(b)	To record reduction in amortization of deferred costs and depreciation expense initially recorded due to fair value adjustment of related assets at December 31, 2007.
(c)	To restate classification of the recovery of bad debt from other income (expense) to operating expenses.
(d)	To eliminate income from forgiveness of debt initially recognized in the second quarter of 2008, subsequently restated and recognized as part of the fair value adjustment of the accounting acquiree at December 31, 2007.
(e)	To record $87,221 in non-operating bad debt resulting from a cash advance made in the second quarter of 2008 to a significant share holder and related party, Mr. David Aubel, subsequently deemed uncollectable.

At June 30, 2008, the Company had erroneously classified $20,765 and $401,743 for three months ended and six months ended June 30, 2008, respectively, in recovery of bad debts as a non-operating item under other income (expense). This figure, as may be adjusted for current bad debt provisions and recoveries, is now classified as a component of operating expenses. As a result of this reclassification, total operating expense now totals $127,814 and $34,266 for the three months and six months ended June 30, 2008. This restatement had no impact on our consolidated balance sheets, net income or earnings per share for the three month or six month periods ended June 30, 2008.

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.

NOTE 3 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited financial statements for the three-month and six-month periods ended June 30, 2008 and 2007, as amended, have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. The financial information as of December 31, 2007 is derived from the Company's Form 10-K/A, (Amendment No. 3 ), for the year ended December 31, 2007. Certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

- 9 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

June 30, 2008

All share and per share information contained in this report gives retroactive effect to a 1 for 40 reverse stock split of our outstanding common stock effective March 11, 2008.

The presentation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, the accompanying financial statements include all adjustments necessary (which are of a normal and recurring nature) for the fair presentation of the results of the interim periods presented. While the Company believes that the disclosures presented are adequate to keep the information from being misleading, it is suggested that these accompanying financial statements be read in conjunction with the Company's audited financial statements and notes for the year ended December 31, 2007, included in the Company's Form 10-K/A, (Amendment No. 3 ), as amended, for the year then ended.

Operating results for the three month and six month periods ended June 30, 2008 are not necessarily indicative of the results that may be expected for the remainder of the fiscal year ending December 31, 2008. It should be noted, six month period ended June 30, 2008 include s a one-time item, specifically the recovery of bad debts previously considered uncollectable, which materially improved the Company's earnings for the six months ended June 30, 2008 and eliminated what would have been an operating loss for that period .

The accompanying consolidated financial statements include the accounts of the Company and its 51% owned subsidiary, Shandong Jiajia. Inter-company transactions and balances have been eliminated in consolidation.

Shandong Jiajia maintains its records and prepares its financial statements in accordance with accounting principles generally accepted in China. Certain adjustments and reclassifications have been incorporated in the accompanying financial statements to conform to accounting principles generally accepted in the United States of America.

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 C&F (cost and freight), 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.

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 a recovery of bad debt of $401,743 for the period ended June 30, 2008. 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 of our Form 10-K 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.

- 10 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

June 30, 2008

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 their fair value.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and accounts receivable. The Company places its cash with high quality financial institutions in the United States and China. As of June 30, 2008, bank deposits in the United States exceeded federally insured limits by $453,307. At June 30, 2008, the Company had deposits of $2,882,643 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 June 30, 2008.

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. As of June 30, 2008, management estimated a 100% allowance for all accounts receivable over two years old.

Earnings (Losses) Per Share

Basic per share results for all periods presented were computed based on the net earnings (loss) for the periods presented. The weighted average number of common shares outstanding during the period was used in the calculation of basic earnings per share. Diluted earnings per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in our income subject to anti-dilution limitation as defined by Standard Financial Accounting Standard ("SFAS") No. 128 "Earnings per share ".

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.

Advances from Customers

Advances from customers consist of prepayments to 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 the contracted services are provided or as customers take delivery of goods, in compliance with the related contract and our revenue recognition policy. Advances from customers totaled $1,610,211 and $683,436, at June 30, 2008 and December 31, 2007, respectively.

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. 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 risks involved. Long-lived assets to be disposed of other than by sale are considered held and used until disposed. There was no impairment recognized for the three months or six months periods ended June 30, 2007 or 2008.

Foreign Currency Translation

The accompanying unaudited consolidated financial statements are presented in United States dollars. The functional currency of Shandong Jiajia is the Renminbi ("RMB"), the official currency of the People's Republic of China. Capital accounts of the unaudited consolidated financial statements, subject to the reverse acquisition completed December 31, 2007, are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of the balance sheet date. Income and expenditures are translated at the average exchange rate for the periods presented.

- 11 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

June 30, 2008

A summary of the exchange rates used for the periods presented is as follows:

	June 30,
	2008		2007
June 30, 2008 and 2007 RMB : U.S. Dollar exchange rate		6.8718		7.7409
Average RMB : U.S. Dollar exchange rate		7.0726		7.7714

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through PRC authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation.

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 minority interest since there is no obligation of the minority interest to make good on such losses. The Company, therefore, would absorb all losses applicable to a minority interest where applicable. If future earnings were then to materialize, the Company would be credited to the extent of such losses previously absorbed.

Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board ("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. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We have adopted SFAS 159 and determined that it had no impact as of June 30, 2008, and we will continue to evaluate the impact, if any, of SFAS 159 on our financial statements.

In December 2007, the FASB issued SFAS 141 (revised 2007), Business Combinations ("SFAS 141R"). SFAS 141R is a revision to SFAS 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 141R retains the fundamental requirement of SFAS 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 141R is effective for periods beginning on or after December 15, 2008, and will apply to all business combinations occurring after the effective date. We are currently evaluating the requirements of SFAS 141R and the impact of adoption on our consolidated financial statements.

In December 2007, the FASB issued SFAS 160, Non-controlling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51, Consolidated Financial Statements. This Statement amends ARB 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. A 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 160 is effective for periods beginning after December 15, 2008. We are currently evaluating the requirements of SFAS 160 and the impact of adoption on our consolidated financial statements.

- 12 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

June 30, 2008

In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities. SFAS 161 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 requirements of SFAS 161 and the impact of adoption on our consolidated financial statements.

In May 2008, the FASB issued FASB Staff Position ("FSP") APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon either mandatory or optional conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants . Additionally, FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We will adopt FSP APB 14-1 beginning in the first quarter of fiscal 2009, and this standard must be applied on a retrospective basis. We are evaluating the impact the adoption of FSP APB 14-1 will have on our consolidated financial position and results of operations.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. This standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with generally accepted accounting principles in the United States for non-governmental entities. SFAS No. 162 is effective 60 days following approval by the U.S. Securities and Exchange Commission ("SEC") of the Public Company Accounting Oversight Board’s amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. We do not expect SFAS No. 162 to have a material impact on the preparation of our consolidated financial statements.

On June 16, 2008, the FASB issued final Staff Position (FSP) No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities , to address the question of whether instruments granted in share-based payment transactions are participating securities prior to vesting. The FSP determines that unvested share-based payment awards that contain rights to dividend payments should be included in earnings per share calculations. The guidance will be effective for fiscal years beginning after December 15, 2008. We are currently evaluating the requirements of (FSP) No. EITF 03 -6-1 as well as the impact of the adoption on our consolidated financial statements.

NOTE 4 – GOING CONCERN

The accompanying financial statements have been prepared on a going concern basis. It should be noted that while our operations reflected profit for the three month and six month periods ended June 30, 2008 the entire amount of profit resulted from a one-time transaction, the recovery of $401,743 in bad debts previously recognized as uncollectable. Additionally, the Company had working capital totaling $ 4,152,303 at June 30, 2008, and cash used in operating activities for the six month period ending June 30, 2008 of $1,267,574 . Our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our 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 ability of the Company 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.

- 13 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

June 30, 2008

NOTE 5 – EARNINGS (LOSS) 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.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
Numerator:	Restated				Restated
Net income (loss) applicable to common stockholders (A)	$	42,901	$	(99,985)	$	143,027	$	(412,533)

Denominators:
Denominator for basic earnings per share
Weighted average shares outstanding (B)		31,931,829		3,326,263		19,053,778		3,051,170
Denominator for diluted earnings per share
Treasury Stock Method
Options		1,182,116		-		568,387		-
Warrants		10,021,998		-		5,300,323		-
Series B Preferred - unconverted		4,500,000		-		4,500,000		-
Series A and B Preferred		-		-		5,174,176		-
		15,704,114		-		15,542,886		-
Denominator for diluted
earnings per share-
adjusted weighted average shares outstanding (C)		47,635,943		3,326,263		34,596,664		3,051,170
Basic and Diluted Earnings Per Common Share:
Earnings per share- basic (A)/(B)	$	0.00	$	(0.03)	$	0.01	$	(0.14	)
Earnings per share- diluted (A)/(C)	$	0.00	$	(0.03)	$	0.00	$	(0.14	)

For all periods presented there were 117,500 common stock purchase warrants outstanding which could potentially dilute future earnings but were not reflected as they are anti-dilutive. In addition the presentation for the three months and six month periods ended June 30, 2007 do not include 2,000,000 shares issuable upon the exercise of warrants, 1,000,000 shares of Series A Convertible Preferred Stock, convertible into 2,500,000 shares of common stock, and 120,000 shares of Series B Convertible Preferred Stock, convertible into 1,200,000 shares of common stock issued to the owners of Shandong Jiajia at December 31, 2007 in connection with the acquisition of 51% interest in Shandong Jiajia as their inclusion would be anti-dilutive.

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.

- 14 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

June 30, 2008

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

•	For the first and second quarters of 2005 at $0.01 per share;
•	For the third quarter 2005 at 20% of the closing price on the date of conversion; and
•	For the fourth quarter 2005 and beyond at 40% of the closing price on the date of conversion.

Under the provision of Emerging Issue Task Force ("EITF") 98-5 and EITF 00-27, the Company determined that the agreement with Mr. Aubel contained an embedded conversion feature which should be valued separately at issuance. Further, as Mr. Aubel's December 3, 2005 agreement with the Company contained no stated redemption date (due on demand) and the notes were convertible at the option of investor, the resulting discount from market was recognized immediately.

As summary of the intrinsic value, the difference between Mr. Aubel's conversion price and the fair value of the Company's common stock subsequent to the commitment date, December 3, 2005, is as follows:

Funds advanced by Mr. Aubel:

	Funds		Intrinsic
Year	Advanced		Value
2005	$	160,000	$	240,000
2006		1,730,168		2,595,251
2007		874,164		1,311,246
2008		148,200		222,300
	$	2,912,532	$	4,368,797

A summary of the intrinsic value of shares actually paid to Mr. Aubel against his note for three years ended December 31, 2007and six month period ended June 30, 2008 is as follows:

Year	Number of Shares Converted		Amount of Note Reduction		Intrinsic Value
2005		802,500	$	698,000	$	14,829,000
2006		592,500		1,445,000		2,319,000
2007		1,795,000		1,751,720		2,821,280
2008		2,864,606		2,521,380		(659,432	)
Total		6,054,606	$	6,416,100	$	19,309,848

Based on the Company's review of the facts and circumstances surrounding the agreements with Mr. Aubel and in connection with the restatement of the Company's financial statements, the Company believed the appropriate accounting treatment was to record a receivable due from Mr. Aubel for the intrinsic value of the shares tendered due to uncertainty as to the validity of the amount of the note payable and the potential for a lack of consideration for the issuance of such shares. The receivable recorded was subsequently expensed as impaired as collection was not reasonably assured.

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

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

June 30, 2008

NOTE 7 – STOCKHOLDERS' EQUITY

2008 Unit Offering

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

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

We agreed to file a registration statement with the Securities and Exchange Commission covering the shares of common stock underlying the warrants so as to permit the public resale thereof. We have filed a registration statement covering the resale of all shares of our common stock issuable upon the exercise of the Class A and Class B Warrants included in the units sold in the offering, together with all shares of our common stock issuable upon exercise of the Class A warrants issued to the selling agent, finders and consultants in the offering. We will pay all costs associated with the filing of this registration statement. In the event the registration statement was not filed within 60 days of the closing or is not declared effective within 180 days following the closing date, we will be required to pay liquidated damages in an amount equal to 2% for each 30 days (or such lesser pro rata amount for any period of less than 30 days) of the purchase aggregate exercise price of the warrants, but not to exceed in the aggregate 12% of the aggregate exercise price of the warrants, for a total of $1,597,000 which would be payable to the investors of the April 2008 Unit Offering on a pro-rata basis based on their individual investment . While we filed the registration statement prior to 60 days from the closing date, we are unable to predict if the registration statement will be declared effective within 180 days of the closing date, April 24, 2008. The transaction documents also provide for the payment of liquidated damages to the investors if we should fail to be a current reporting issuer and/or to maintain an effective registration statement covering the resale of the common shares issued or issuable upon exercise of the Class A and B warrants.

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

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

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

June 30, 2008

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

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

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

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

Preferred Stock

China Logistics has 10,000,000 shares of preferred stock, par value $.001, authorized of which we designated 1,000,000 as our Series A Convertible Preferred Stock in December 2007 which were issued as partial consideration in our acquisition of a 51% interest in Shandong Jiajia. On March 28, 2008 all 1,000,000 shares of our Series A Convertible Preferred Stock were converted into 2,500,000 shares of our common stock.

In December 2007 we designated 1,295,000 shares of Series B Convertible Preferred Stock, these shares were issued as partial consideration in our acquisition of a 51% interest in Shandong Jiajia as well as to finders and consultants in the transaction. On March 28, 2008, 845,000 shares of Series B Convertible Preferred Stock were converted into 8,450,000 shares of common stock.

Common Stock

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

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

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

June 30, 2008

A summary of common shares issued during the six month period ended June 30, 2008 is as follows:

	Shares

Settlement of obligation to former President and CEO		581,247
Settlement (conversion) of note payable to principal shareholder		2,864,606
Conversion 1,000,000 shares of Series A convertible preferred stock		2,500,000
Conversion of 845,000 shares of Series B convertible preferred stock		8,450,000
2008 Unit offering		15,113,000
		29,508,853

Common Stock Options

A summary of our stock options activity during the six month period ended June 30, 2008 is as follows:

	Shares Underlying options		Weighted Average Exercise Price		Weighted Average Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2007		2,000,000 *	$	0.30		2.5	$	400,000
Granted		-		-
Exercised		-		-
Outstanding at June 30, 2008		2,000,000	$	0.30		2.5	$	400,000

* Issued January 28, 2008, deemed effective December 31, 2007, with a fair value of $480,000 as partial consideration in the acquisition of a 51% interest in Shandong Jiajia. The options are exercisable for three years from grant at $0.30 per share.

Common Stock Purchase Warrants

A summary of our common stock warrant activity during the six month period ended June 30, 2008 is as follows:

	Shares Underlying Warrants		Weighted Average Exercise Price
Outstanding at December 31, 2007 (1)		117,500	$	9.69
Granted (2)		31,558,500		0.42
Exercised		—		—
Outstanding at June 30, 2008		31,676,000	$	0.46

(1)	Includes 110,000 common share purchase warrants, with a fair value of $396,000 expensed in 2006, issued to Trilogy Partners, Inc. for marketing and public relations services which expire May 31, 2009.
(2)	Issued in connection with our 2008 Unit Offering completed in April, 2008.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

June 30, 2008

NOTE 8 – RELATED PARTIES

On March 20, 2008, our then president and CEO, V. Jeffrey Harrell, converted the full amount due him in accrued compensation into 581,247 shares of common stock, at 0.77 per share, totaling $448,985. The fair value of shares issued totaled $377,811 or $0.65 per share. The difference of $71,174 was treated as a contribution to capital.

On March 20, 2008 a principal shareholder of our Company, David Aubel, converted the full amount of his $ 2,521,380 convertible note payable into 2,864,606 shares of common stock at $0.88 per share. The fair value of the conversion totaled $1,861,994 or $0.65 per share and the excess value was treated as a capital contribution totaling $659,385.

On June 1, 2008, Shandong Jiajia entered into a lease with Mr. Chen, our Chief Executive Officer, for a term of one year for office space for its Shanghai Branch in the PRC. Shandong Jiajia will pay Mr. Chen base annual rent of approximately $43,700 for the use of such office space plus a management fee of approximately $20,440.

At June 30, 2008, the Company was due $453,636 from Shandong Huibo Import & Export Co., Ltd., a 24.3% shareholder in Shandong Jiajia. The loan is unsecured, non-interest bearing and payable on demand. At June 30, 2008, our unaudited consolidated balance sheet reflects $174,075 due to Xiangfen Chen, general manager of the Xiamen branch of Shandong Jiajia. The loan is unsecured, non-interest bearing and repayable on demand. In addition, the Company leases its branch office in Xiamen City, China from Mr. Chen under a lease agreement at $1,459 per year.

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.

NOTE 9 – FOREIGN OPERATIONS

The table below presents information by operating region for the six months ended June 30, 2008.

	Revenues		Assets
			Restated
United States	$	—	$	558,745
People's Republic of China		14,792,200		6,680,959
	$	14,792,200	$	7,239,704

NOTE 10 – 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 a 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 shares of the Company’s restricted common stock. Additional consideration included in the stock purchase agreement required 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 the 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. The Company has expensed the initial deposit of $350,000 and is in discussions with the seller regarding a possible settlement of its claim in connection with the termination of this agreement. The Company is also seeking indemnification from Mr. David Aubel in connection with his agreement to guarantee any and all liabilities resulting from this transaction. The Company anticipates, but cannot be assured that a settlement will be forthcoming and is unable to ascertain its potential loss exposure at this time.

In connection with our April 2008 Unit Offering, we agreed to file a registration statement with the Securities and Exchange Commission covering the shares of common stock underlying the warrants so as to permit the public resale thereof. We have filed a registration statement covering the resale of all shares of our common stock issuable upon the exercise of the Class A and Class B Warrants included in the units sold in the offering, together with all shares of our common stock issuable upon exercise of the Class A warrants issued to the selling agent, finders and consultants in the offering. We will pay all costs associated with the filing of this registration statement. In the event the registration statement was not filed within 60 days of the closing or is not declared effective within 180 days following the closing date, we will be required to pay liquidated damages in an amount equal to 2% for each 30 days (or such lesser pro rata amount for any period of less than 30 days) of the purchase aggregate exercise price of the warrants, but not to exceed in the aggregate 12% of the aggregate exercise price of the warrants, for a total of $1,597,000 which would be payable to the investors of the April 2008 Unit Offering on a pro-rata basis based on their individual investment. While we filed the registration statement prior to 60 days from the closing date, we are unable to predict if the registration statement will be declared effective within 180 days of the closing date, April 24, 2008.

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.

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

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with the information contained in the unaudited consolidated financial statements of the Company and the notes thereto appearing elsewhere herein and in conjunction with the Management's Discussion and Analysis set forth in the Company's Annual Report on Form 10-K/A (amendment No. 3), for the year ended December 31, 2007.

China Logistics is on a calendar year; as such the three months period ending June 30, 2008 is our second quarter. The year ended December 31, 2007 is referred to as "2007" and the year ended December 31, 2008 is referred to as "2008".

OVERVIEW

Beginning in 2003, we attempted to position ourselves 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. Due to the Company's inability to successfully penetrate these markets a diversification plan was implemented with the acquisition of Shandong Jiajia International Freight & Forwarding Co., Ltd. ("Shandong Jiajia"). Our MediaREADY product line has been suspended.

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 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.

- 20 -

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.

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

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

For accounting purposes, the transaction with Shandong Jiajia was treated as a reverse acquisition with Shandong Jiajia being the accounting acquirer. As the company, then named MediaReady, Inc. was a public shell company as of December 31, 2007, the transaction date, the transaction was recorded as a capital transaction with no intangibles being recognized. All revenue and expense items reflected in this report in 2007 are those of Shandong Jiajia.

Established in November 1999, Shandong Jiajia is a non-asset based international freight forwarder and logistics manager located in the PRC. Shandong Jiajia acts as an agent for international freight and shipping companies. It sells cargo space and arranges land, maritime, and air international transportation for clients seeking primarily to export goods from China. Since inception, Shandong Jiajia estimates it has processed the delivery of approximately 80,000 standard International 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.

Even though we are a U.S. company, our primary subsidiary, Shandong Jiajia is located in the PRC. As a result, we face certain risks associated with doing business in that country. These risks include risks associated with the ongoing transition from PRC government business ownership to privatization, operating in a cash based economy, dealing with inconsistent government policies, unexpected changes in regulatory requirements, export restrictions, tariffs and other trade barriers, challenges in staffing and managing operations in a communist country, differences in technology standards, employment laws and business practices, longer payment cycles and problems in collecting accounts receivable, changes in currency exchange rates and currency exchange controls. We are unable to control the vast majority of these risks associated both with our operations and the country in which they are located and these risks could result in significant declines in our revenues and adversely affect our operations.

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Impact of the 2008 Beijing Olympics

Even though we are a U.S. company, the operations of our subsidiary which represents substantially all of our business and operations is located in the PRC. We could be adversely impacted by various policies recently adopted by the PRC which seek to minimize pollution by limiting the operation of polluting agents in advance of the Beijing Olympics to be held during August 2008. While it is not clear how the recently adopted anti-pollution policies some of which go into effect commencing on June 1, 2008 apply to all industries, the policies could cause an interruption in the operations of our clients. Presently we have not been notified of any potential interruption of our operations as a result of these policies.

It should be noted, the report of our independent registered public accounting firm in connection with our annual report on Form 10-K/A (Amendment No. 3 ) for the year ended December 31, 2007 filed by us with the Securities and Exchange Commission contains an explanatory paragraph that raised substantial doubt as to our ability to continue as a going concern based on our recurring losses from operations, net working capital deficiency and accumulated deficit. The accompanying consolidated condensed financial statements do not include any adjustments relating to the recoverability and classification of assets carrying amounts or the amount and classification of liabilities that might result from the outcome of these uncertainties.

RESULTS OF OPERATIONS

The following tables provides certain comparative information based on our consolidated results of operations for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007, and for the three months ended June 30, 2008 compared to the three months ended June 30, 2007:

	Six months ended June 30, 2008			Six months ended June 30, 2007			$ Change			% Change
	Restated
Net Revenues	$	14,792,200		$	13,793,670		$	998,530			7	%
Cost of Sales		14,077,731			13,903,184			174,547			1	%
Gross Profit (Loss)		714,469			(109,514	)		823,983			752	%
Total Operating Expenses		34,266			292,317			(258,051	)		(88	%)
Income (Loss) from Operations		680,203			(401,831	)		1,082,034			269	%
Total Other Income (Expense)		(100,295	)		(2,137	)		102,432			N/M
Net Income (Loss)	$	143,027		$	(412,533	)	$	555,560			(135	%)

	Three months ended June 30, 2008			Three months ended June 30, 2007			$ Change			% Change
	Restated
Net Revenues	$	8,018,987		$	7,575,454		$	443,533			6	%
Cost of Sales		7,562,001			7,523,179			38,822			1	%
Gross Profit		456,986			52,275			404,711			774	%
Total Operating Expenses		127,814			143,739			(15,925	)		(11	%)
Income (Loss) from Operations		329,172			(91,464	)		420,636			459	%
Total Other Income (Expense)		(84,590	)		(476	)		(84,114	)		N/M
Net Income (Loss)	$	42,901		$	(99,985	)	$	142,886			142	%

N/M: Not Meaningful

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OTHER KEY INDICATORS

	Six months ended June 30, 2008			Six months ended June 30, 2007
	Restated
Other Key Indicators:
Cost of Sales as a percentage of Revenues		95	%		101	%
Gross Profit Margin		5	%		(1	%)
Total Operating Expenses as a percentage of Revenues		0	%		2	%

	Three months ended June 30, 2008		Three months ended June 30, 2007
	Restated
Other Key Indicators:
Cost of Sales as a percentage of Revenues		94%		99%
Gross Profit Margin		6%		1%
Total Operating Expenses as a percentage of Revenues		2%		2%

SALES

Our consolidated sales for the six months ended June 30, 2008 increased $998,530 or approximately 7%, increasing from $13,793,670 for the six months ending June 30, 2007 to $14,792,200 for the six months ending June 30, 2008.

Our consolidated sales for the three months ended June 30, 2008 were up $443,533 or approximately 6 %, increasing from $7,575,454 for the three months ending June 30, 2007 to $8,018,987 for the three months ending June 30, 2008.

These increases, for both the six months and three months ended June 30, 2008, are due in large part to an expansion in operations made possible and funded through our 2008 Unit Offering completed in April 2008 with net proceeds of approximately $3,360,000. The 2008 Unit Offering is discussed in more detail in Part II, Item 2.

COST OF SALES AND GROSS PROFIT

Our consolidated cost of sales increased $174,547, or 1%, from $13,903,184 during the six months ended June 30, 2007 to $14,077,731 during the six months ended June 30, 2008. Cost of sales as a percentage of sales decreased between periods, from 101% for the six months ended June 30, 2007 to 95% for the six months ended June 30, 2008. This decrease in cost of sales as a percentage of sales was primarily due to the more efficient purchases and utilization of third party shipping resources coupled with the overall increase in our level of sales activity between the periods and accounted for our positive gross profit during the current year.

Consolidated cost of sales increased $38,822, or 1 %, from $7,523,179 during the three months ended June 30, 2007 to $7,562,001 during the three months ended June 30, 2008. Cost of sales as a percentage of sales decreased between periods, from 99% for the three months ended June 30, 2007 to 94% for the three months ended June 30, 2008. As with the six month figure, this improvement reflects more efficient utilization of contracted third party shipping resources.

Our consolidated gross profit increased $823,983, from a gross loss of $109,514 for the six months ended June 30, 2007 to a gross profit of $714,469 for the six months ended June 30, 2008. Gross profit as a percentage of sales increased from a loss of 1% for the six months ended June 30, 2007 to a profit of 5% for the six months ended June 30, 2008.

Consolidated gross profit increased $404,711, from $52,275 for the three months ended June 30, 2007 to $456,986 for the three months ended June 30, 2008. Gross profit as a percentage of sales increased from 1% for the three months ended June 30, 2007 to 6% for the three months ended June 30, 2008. These positive fluctuations in gross profit and gross profit as a percentage of sales during the current period were primarily due to efficient use of leased cargo capacity. Given the very competitive nature of our business, we believe our gross profit will remain relatively constant between approximate 4.5% and 7.0% for the foreseeable future.

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TOTAL OPERATING EXPENSES

Operating expenses, consisting primarily of selling, general administrative expense, and depreciation expense; and, for the first half of 2008, included a recovery of bad debts of $401,743. Overall, total operating expenses decreased $258,051 for the six months ended June 30, 2008 compared to the same period in 2007 due to the isolated recovery of bad debts of $401,743. Absent this recovery, operating expenses actually increased $143,692 or 49% over the same period of the previous year. All of the increase was attributable to operating costs of $144,946 incurred by the parent company, formerly MediaReady, Inc. not included in the prior year.

Total operating expenses decreased $15,925, or 11% , from $143,739 for the three months ended June 30, 2007 to $ 127,814 for the three months ended June 30, 2008. Operating expense as a percentage of sales remained consistent at 2% for both periods.

The current period's operating expenses for both the three month and six month periods ended June 30, 2008 include expenses of MediaReady and Shandong Jiajia compared to the prior period's operating expenses that only include expenses of Shandong Jiajia. We expect operating expenses from MediaReady to decrease during the current fiscal year and total operating expenses to decrease accordingly. Operating expenses did not fluctuate significantly for the comparative three month periods due in part to the reduction in personnel cost at our MediaReady operations, the remaining operating expenses at our Shandong Jiajia operations remain relatively consistent at 2% of consolidated sales.

TOTAL OTHER EXPENSE

Total other expense increased $98,158 from $2,137 for the six months ended June 30, 2007 to $100,295, for the six months ended June 30, 2008. This increase was attributable to the recognition in the second quarter of a non-operating bad debt of $87,221 resulting from an advance to a major shareholder and related party, Mr. David Aubel, deemed uncollectible.

Total other expense increased $84,114 from $476 for the three months ended June 30, 2007 to $84,590, for the three months ended June 30, 2008. This increase was also primarily attributable to the non-operating bad debt expense discussed above offset by a $4,135 realized foreign currency exchange gain.

NET INCOME (LOSS)

As a result of favorable fluctuations in our gross profit margins for both the six month and three month periods ended June 30, 2008 over the comparable periods of the preceding year and the impact of the significant recovery of bad debts recognized, we recognized net income of $143,027 compared to a net loss of $412,533 for the six month periods ended June 30, 2008 and 2007, respectively. These same factors accounted for the net income of $42,901 recognized for the second quarter 2008 compared to a loss of $99,985 for the second quarter 2007. Absent the isolated recovery of bad debts of $401,743 recognized during 2008, we would have recognized a loss for the six months ended June 30, 2008, net of minority interest, of approximately $62,000.

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 June 30, 2008 our working capital was $ 4,152,303 as compared to a working capital deficit of $ 2,775,652 at December 31, 2007. This significant increase in working capital was attributable primarily to the completion of our private placement of units consisting of common shares and warrants completed in April 2008 with net proceeds of approximately $3.3 million

While in April 2008, we raised approximately $3.3 million in net proceeds from our 2008 unit offering, approximately $2, 5 00,000 was utilized to satisfy our commitments to Shandong Jiajia and approximately $140,000 was used to reduce certain payables. We believe our current level of working capital and cash generated from operations will not be sufficient to meet our cash requirements for the next year without the ability to attain profitable operations and/or obtain additional financing.

The terms of our 2008 unit offering contain certain restrictive covenants which could hinder our ability to raise additional capital. If we are not successful in generating sufficient cash flows from operations or in raising additional capital when required in sufficient amounts and on acceptable terms, these failures would have a material adverse effect on our business, results of operations and financial condition. If additional funds are 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 we will be able to raise the required capital necessary to achieve our targeted growth rates on favorable terms or at all.

Our independent public accountant have included a paragraph in their report on our financial statements included in our annual report on Form 10-K/A (amendment No. 3) for the year ended December 31, 2007, stating that those financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to those financial statements, the Company had a net working capital deficiency, a stockholders' equity deficiency and an accumulated deficit that raises substantial doubt about its ability to continue as a going concern. The financial statements did not include any adjustments that might result from the outcome of this uncertainty.

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As of June 30, 2008, we had $3,435,950 in unrestricted cash and a retained deficit since inception of $ 242,375 .

We maintain cash balances in the United States and China. At June 30, 2008 and December 31, 2007, our cash by geographic area was as follows:

	June 30, 2008			December 31, 2007
United States	$	553,307	16 %	$	215	-- %
China		2,882,643	84 %		1,121,390	100%
	$	3,435,950	100 %	$	1,121,605	100 %

In future periods we anticipate a substantial portion of our cash balances will continue to 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. While the Chinese government introduced regulations which relaxed restrictions on the conversion of the RMB, 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.

Trade accounts payable declined substantially at June 30, 2008 from our year end balances. This decline, totaling approximately $ 2.7 million, was due in large part from satisfaction of obligations using funds made available from our April 2008 unit offering.

Advances from customers totaled approximately $1.6 million at June 30, 2008, an increase of approximately $927,000 over the year-end balance. This sharp increase is due to an increase in our overall level of operations and represents advance payment by our customers for contracted cargo shipments that have not been shipped as of June 30, 2008. Upon shipment of these goods and compliance with the related contract terms, these advances will be taken into income in accordance with our revenue recognition policy.

Typically we recognize revenue when the payment terms are as follows:

•	When the merchandise departs the shipper's destination if the trade pricing term is on a CIF (cost, insurance and freight) or C&F (cost and freight) basis, or
•	When the merchandise arrives at the destination port if the trade pricing term is on a FOB (free on board) basis.

Cash used from operating activities totaled $ 1,267,574 for the six months ended June 30, 2008 compared to cash used in operating activities of $130,172 for the six months ended June 30, 2007. This sharp increase in cash used was facilitated through the April 2008 equity placement and included a sharp reduction in accounts payable of approximately $2. 7 million with an increase in prepayments and other assets of approximately $ 639,000 . The largest sources of cash from operating activities included a $ 1,190,760 decrease in accounts receivable, and a $926,775 from an increase in advances from customers.

We were provided $ 3,497,376 from financing activities during the period; the majority of cash was provided from the proceeds from the 2008 unit offering private placement of $3,778,250 less expenses of $ 419,063 , these proceeds were supplemented by $148,200 which was provided from proceeds from a convertible note payable to Mr. David Aubel, a related party.

Due from/to Related Parties

At June 30, 2008, the Company was due $453,636 from Shandong Huibo Import & Export Co., Ltd., a 24.3% shareholder in Shandong Jiajia. The loan which was provided in 2005 is unsecured, non-interest bearing and payable on demand.

At June 30, 2008, our consolidated balance sheet reflects $174,075 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 repayable on demand. In addition, the Company leases its branch office in Xiamen City, China, from Mr. Chen under a lease agreement at $1,459 per year.

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OFF BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements that we are required to disclose. 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.

CRITICAL ACCOUNTING POLICIES

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 recovery of bad debt of $401,743 for the period ended June 30, 2008. 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.

A summary of significant accounting policies is included in Note 3 to the unaudited consolidated financial statements included in this quarterly 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.

Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of FAS 115. 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. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We have adopted SFAS 159 and determined that it had no impact as of June 30, 2008, and we will continue to evaluate the impact, if any, of SFAS 159 on our financial statements.

In December 2007, the FASB issued SFAS 141 (revised 2007), Business Combinations. SFAS 141R is a revision to SFAS 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 141R retains the fundamental requirement of SFAS 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 141R is effective for periods beginning on or after December 15, 2008, and will apply to all business combinations occurring after the effective date. We are currently evaluating the requirements of SFAS 141R and the impact of adoption on our consolidated financial statements.

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In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities. SFAS 161 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?痵 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 requirements of SFAS 161 and the impact of adoption on our consolidated financial statements.

In May 2008, the FASB issued FASB Staff Position ("FSP") APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement. FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon either mandatory or optional conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants . Additionally, FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We will adopt FSP APB 14-1 beginning in the first quarter of fiscal 2009, and this standard must be applied on a retrospective basis. We are evaluating the impact the adoption of FSP APB 14-1 will have on our consolidated financial position and results of operations.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. This standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with generally accepted accounting principles in the United States for non-governmental entities. SFAS No. 162 is effective 60 days following approval by the U.S. Securities and Exchange Commission ("SEC") of the Public Company Accounting Oversight Board's amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. We do not expect SFAS No. 162 to have a material impact on the preparation of our consolidated financial statements.

On June 16, 2008, the FASB issued final Staff Position (FSP) No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ," to address the question of whether instruments granted in share-based payment transactions are participating securities prior to vesting. The FSP determines that unvested share-based payment awards that contain rights to dividend payments should be included in earnings per share calculations. The guidance will be effective for fiscal years beginning after December 15, 2008. We are currently evaluating the requirements of (FSP) No. EITF 03 -6-1 as well as the impact of the adoption on our consolidated financial statements.

Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results

This report contains forward-looking statements. The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q/A and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management's plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "will" and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. A list of factors that could cause our actual results of operations and financial condition to differ materially includes:

•	the loss of the services of any of our executive officers or the loss of services of any of our key persons responsible for the management, sales, marketing and operations efforts of our subsidiary;
•	our ability to successfully transition the internal operations of companies which we acquired in the PRC from their prior status as privately held Chinese companies to their current status as subsidiaries of a publicly-held U.S. company;
•	our acquisition efforts in the future may result in significant dilution to existing holders of our securities;
•	liabilities related to prior acquisitions,
•	continuing material weaknesses in our disclosure controls and procedures and internal control over financial reporting which may lead to additional restatements of our financial statements,
•	difficulties in raising capital in the future as a result of the terms of our April 2008 financing;
•	our ability to effectively integrate our acquisitions and manage our growth;
•	the lack of various legal protections customary in certain agreements to which we are party and which are material to our operations which are customarily contained in similar contracts prepared in the United States;
•	our dependence upon advisory services provided by a U.S. company due to our management's location in the PRC;
•	intense competition in the freight forwarding and logistics industries;

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•	the impact of economic downturn in the PRC on our revenues from our operations in the PRC;
•	our lack of significant financial reporting experience, which may lead to delays in filing required reports with the Securities and Exchange Commission and suspension of quotation of our securities on the OTCBB, which will make it more difficult for you to sell your securities;
•	the impact of changes in the political and economic policies and reforms of the Chinese government; fluctuations in the exchange rate between the U.S. dollars and Chinese Renminbi;
•	the limitation on our ability to receive and use our revenue effectively as a result of restrictions on currency exchange in China;
•	the impact of changes to the tax structure in the PRC;
•	our inability to enforce our legal rights in China due to policies regarding the regulation of foreign investments; and
•	the existence of extended payment terms which are customary in China; uncertainties related to PRC regulations relating to acquisitions of PRC companies by foreign entities that could restrict or limit our ability to operate, and could negatively affect our acquisition strategy.

These factors are discussed in greater detail under Item 1. Description of Business--Risk Factors in our Annual Report on Form 10-K/A (Amendment No. 3) for the year ended December 31, 2007 and Risk Factors included in our registration statement on Form S-1(File No. 333-151783) filed on June 19, 2008.

We caution that the factors described herein and other factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for a smaller reporting company.

ITEM 4T. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer, who also serves as our principal financial and accounting 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 June 30, 2008, the end of the period covered by this report (the "Evaluation Date"). Our management, solely being our Chief Executive Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

Based on this evaluation, our Chief Executive Officer who also serves as our principal executive officer and principal financial officer concluded that as of June 30, 2008 our disclosure controls and procedures were not effective such that the information relating to our company, including our consolidating subsidiaries, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure. Our management concluded that our disclosure controls and procedures were not effective as described in more detail below. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of our annual or interim financial statements would not be prevented or detected.

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

As of December 31, 2007, we did not have appropriate policies and procedures in place to ensure that the number of shares of common stock issued and outstanding would not exceed the number of common stock shares authorized. This material weakness was reported in our December 31, 2007 Form 10-K, as amended. In addition, as of December 31, 2007, we did not have appropriate policies and procedures in place to ensure that the recognition of the fair value of 450,000 shares of our Series B Convertible preferred stock to be issued for consulting services rendered during the year ended December 31, 2007 would be accounted for in 2007.

Subsequent to the filing of the first amendment to our 2007 Form 10-K (Amendment No. 1) on May 19, 2008, we discovered that, as of December 31, 2007, we did not have appropriate policies and procedures in place to ensure that we: (i) accounted for our acquisition of a 51% interest in Shandong Jiajia as a capital transaction instead of using the purchase method of accounting, (ii) properly determine that we were a public shell company prior to the Shandong Jiajia acquisition, and (iii) account for certain costs related to the Shandong Jiajia acquisition as costs directly associated with the acquisition under the provisions of Statement of Financial Accounting Standard No.141.

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

Further, in our June 30, 2008 interim report, the Company: (i) failed to properly recognize and record $25,060 in professional fees expense attributable to that period, (ii) correctly classify approximately $400,000 in recovery of bad debts in the consolidated statements of operations from a component of other income (expense) to a component of operating income, (iii) failed to recognize an overall accrual of $137,149 in expenses, and failed to recognize a non-operating bad debt to a related party and significant shareholder of $87,222.

We have an inadequate number of personnel with the requisite expertise in generally accepted accounting principles to ensure the proper application thereof. Our Chief Executive Officer who also serves as our principal financial and accounting officer is not an accountant and we have historically relied upon the services of outside accountants. Our internal accounting staff is primarily engaged in ensuring compliance with PRC accounting and reporting requirements and their knowledge of accounting principles generally accepted in the United States of America ("US GAAP") is limited. As a result, a majority of our internal accounting staff is relatively inexperienced with U.S. GAAP and the related internal control procedures required of U.S. public companies. Although our accounting staff is professional and experienced in accounting requirements and procedures generally accepted in the PRC, management has determined that they require additional training and assistance in U.S. GAAP matters. Management has determined that our internal audit function is also significantly deficient due to insufficient qualified resources to perform internal audit functions. Finally, management determined that the lack of an Audit Committee of our Board of Directors also contributed to insufficient oversight of our accounting and audit functions.

These material weaknesses at December 31, 2007 continue at June 30, 2008. To correct these ongoing material weaknesses we plan to implement changes in our disclosure controls and procedures and internal control over financial reporting to correct these material weaknesses. Specifically, for issuances of common stock, management plans to implement improved policies and procedures that will include a review of issuances of common stock by appropriate personnel. For issuances of preferred stock, management plans to implement improved policies and procedures that will include a review of the accounting for preferred stock to be issued for consulting services by appropriate personnel. In addition, we will make sure that we have an adequate number of personnel involved in the preparation of the financial statements and disclosures with the requisite expertise in generally accepted accounting principles to ensure the proper application thereof.

Once fully implemented, management believes that these new policies and procedures will be effective in remediating the identified material weaknesses. We are unable at this time to predict when, if ever, we will remediate these material weaknesses. Until such time as these remediation efforts are complete, there is a likelihood that our financial statements in future periods will contain errors which lead to subsequent restatements.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during our last 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.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS.

Risk factors describing the major risks to our business can be found under Item 1A, "Risk Factors," in our Annual Report on Form 10-K/A (Amendment No. 3) for the fiscal year ended December 31, 2007 and Risk Factors included in our registration statement on Form S-1 (Amendment No. 1) (File No. 333-151783) filed on January 29, 2009 and any amendments to these documents. There has been no material change in our risk factors from those previously discussed in the Annual Report on Form 10-K/A or registration statement on Form S-1/ A .

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Reference is made to the disclosures contained in Item 3.02 of our Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 24, 2008 for information concerning certain unregistered sales of equity securities and the use of proceeds thereof.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

No.	Description
4.3	Form of warrant (incorporated herein by reference to Exhibit 4.3 filed as a part of the Company’s Form 8-K filed with the Commission on April 24, 2008 (Commission File No. 000-31497)).
10.13	Form of Subscription Agreement (incorporated herein by reference to Exhibit 10.11 filed as a part of the Company’s Form 8-K filed with the Commission on April 24, 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 herin by reference to Exhibit 10.14 filed as part of the Company's Form 10-Q filed with the Securities and Exchange 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 herin by reference to Exhibit 10.14 filed as part of the Company's Form 10-Q filed with the Securities and Exchange Commission on December 22, 2008, Commission File No. 000-31497)
10.16	Lease Agreement between Shandong Jiajia International Freight & Forwarding Co., Ltd and Mr. Wei Chen dated June 1, 2008. (Incorporated herein by reference to Exhibit 10.16 filed as part of the Company's Form 10-Q/A (Amendment No. 1) filed with the Securities and Exchange Commission on January 12, 2009, Commission File No. 000-31497)
31.1	Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer**
31.2	Rule 13a-14(a)/ 15d-14(a) Certification of principal financial and accounting officer**
32.1	Section 1350 Certification of Chief Executive Officer and principal financial and accounting officer**

** Filed herewith

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SIGNATURES

Pursuant to the requirements 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.

Date: June 16 , 2009


	CHINA LOGISTICS GROUP, INC.


	By:	/s/ Wei Chen
		Wei Chen
		Chief Executive Officer, principal executive officer, principal financial and accounting officer

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