Edgar Filing: China Logistics Group Inc

chlo3q_10-q.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q /A

(Amendment No. 1)

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

FOR THE QUARTERLY PERIOD ENDED: September 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 December 19, 2008.

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page No.

EXPLANATORY PARAGRAPH

PART I. - FINANCIAL INFORMATION

Item 1.	Financial Statements.	1

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	19

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.	31

Item 3.	Defaults Upon Senior Securities.	31

Item 4.	Submission of Matters to a Vote of Security Holders.	31

Item 5.	Other Information.	31

Item 6.	Exhibits.	31

OTHER PERTINENT INFORMATION

All share and per share information contained in this report gives retro-active 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. 1 to amend its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008 as filed on December 22, 2008. This amendment is being made to correct the accounting treatment previously accorded certain transactions and to restate our consolidated balance sheets at September 30, 2008 and December 31, 2007 and our consolidate statement of operations, consolidated statements of stockholders' equity and consolidated statements of cash flows for the three month and nine month period ended September 30, 2008 and 2007.

The December 31, 2007 financial statements included in the Company's Form 10-Q filed on December 22, 2008, Form 10-K filed on April 15, 2008, and 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 and 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 from fair value of equity interests initially recorded in our statement of operations to costs related to our acquisition of a 51% interest in Shandong Jiajia;
•	the correction of the accounting treatment accorded a convertible note payable to a related party and principal stockholder, Mr. David Aubel;
•	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 an amendment to September 31, 2008 financial statements and further amendments to the December 31, 2007 financial statements included in the Company's Form 10-Q filed on December 22, 2008 were necessary including:

At December 31, 2007:

•	the adjustment to 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 International Freight Forwarding Co., Ltd. accounted for as a capital transaction implemented through a reverse acquisition
•	the recognition of $87,221 in non-operating bad debt resulting from a cash advance in the second quarter 2008, to a related party, subsequently deemed uncollectable, and
•	the recognition of an accrual of certain professional fees, totaling $141,800 in expenses, which were erroneously omitted from previous filings.

At September 31, 2008:

•	the recognition of the fair value adjustment of assets and liabilities of MediaReady, Inc. as of December 31, 2008;
•	the correction of the classification in the consolidated statements of cash flows of $75,169 in advances to related parties from cash flows from operating activities to cash flows from investing activities, and
•	the correction of the classification of $397,309 in recovery of bad debt in the consolidated statements of operations from a component of other income (expense) to a component of operating income.
•	the recognition of an accrued loss of $1,597,000 due under the registration payment agreement entered into in connection with the Company's financing completed in April 2008.

As a result of these corrections to our financial statements for the three and nine months ended September 30, 2008 and the year ended December 31, 2007, we are filing this amendment to our Form 10-Q for the period ended September 30, 2008.

The items of this Form 10-Q/A (Amendment No. 1) 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 consist of all other Items originally contained in our Form 10-Q for the period ended September 31, 2008. This filing supersedes in its entirety our original Form 10-Q for the period ended September 30, 2008.

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PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30, 2008			December 31, 2007
	Restated (Unaudited)			Restated
ASSETS
Current assets:
Cash	$	3,871,973		$	1,121,605
Accounts receivable, net of allowance for doubtful accounts of $451,848 and $794,715 at September 30, 2008 and December 31, 2007, respectively		3,784,505			3,131,831
Accounts receivable - related party	__				7,000
Due from related parties		484,915			511,435
Prepayments and other current assets		737,401			328,065
Total current assets		8,878,794			5,099,936
Property and equipment, net		49,927			42,336
Total assets	$	8,928,721		$	5,142,272

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Cash overdraft	$	—		$	12,633
Accounts payable - trade		1,877,707			3,608,885
Accrued registration agreement penalty		1,597,000			-
Accrued compensation - related party		—			446,985
Other accruals and current liabilities		667,827			485,101
Convertible note payable - related party		—			2,373,179
Advances from customers		1,600,592			683,436
Due to related parties		154,083			229,252
Foreign tax payable		173,053			36,117
Total current liabilities		6,070,262			7,875,588
Minority interest		1,269,338			601,028
Stockholders' equity (deficit):
Series A convertible preferred stock - $.001 par value, 10,000,000 and 5,000,000 shares authorized at September 30, 2008 and December 31, 2007, respectively ; -0- shares and 1,000,000 shares issued and outstanding at September 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 September 30, 2008 and December 31, 2007, respectively		450			1,295
Common stock - $.001 par value, 500,000,000 and 200,000,000 shares authorized at September 30, 2008 and December 31, 2007, respectively; 34,508,203 and 4,999,350 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively		34,508			4,999
Additional paid-in capital (deficit)		3,572,042			(2,729,846	)
Accumulated retained earnings (deficit)		(1,864,728	)		(385,402	)
Accumulated other comprehensive loss		(153,151	)		(226,390	)
Total stockholders' equity (deficit)		1,589,121			(3,334,344	)
Total liabilities and stockholders' equity (deficit)	$	8,928,721		$	5,142,272

See notes to unaudited consolidated financial statements.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended					Nine Months Ended
	September 30, 2008			September 30, 2007		September 30, 2008			September 30, 2007
	Restated					Restated
Sales	$	12,961,259		$	10,781,536	$	27,753,459		$	24,575,206
Cost of sales		12,072,099			9,681,560		26,149,830			23,584,744
Gross profit		889,160			1,099,976		1,603,629			990,462
Operating expenses:
Selling, general and administrative		528,769			155,153		956,618			438,343
Depreciation and amortization		4,814			4,563		12,974			13,690
Recovery of bad debts, net		4,434			-		(397,309	)		-
Total operating expenses		538,017			159,716		572,283			452,033
Operating Income		351,143			940,260		1,031,346			538,429
Other income (expense)
Realized exchange gain		37,648			-		25,241			-
Non-operating bad debt		-			-		(87,221	)		-
Registration agreement penalty		(1,597,000	)		-		(1,597,000	)		-
Interest income (expense)		(43,608	)		(8,443)		(44,275	)		10,580
Total other income (expense)		(1,602,960	)		(8,443)		(1,703,255	)		10,580

Income (loss) before income taxes and minority interests		(1,251,817	)		931,817		(671,909	)		549,009
Foreign tax		131,816			17,311		209,474			47,036
Income (loss) before minority interest		(1,383,633	)		914,506		(881,383	)		501,973
Minority interest in income of consolidated subsidiaries		238,720					597,943			-
Net income (loss)		(1,622,353	)		914,506		(1,479,326	)		501,973
Other comprehensive income:
Foreign currency translation adjustment		25,392			1,850		73,239			5,549
Comprehensive income (loss)	$	(1,596,961	)	$	916,356	$	(1,406,087	)	$	507,522
Earnings (losses) per share:
Basic	$	(0.05	)	$	0.23	$	(0.06)		$	0.16
Diluted	$	(0.05	)	$	0.09	$	(0.06)		$	0.06
Basic weighted average shares outstanding		34,508,203			3,989,874		24,242,855			3,228,230
Diluted weighted average shares outstanding		34,508,203			9,689,874		24,242,855			8,928,230

See notes to unaudited consolidated financial statements.

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CHINA LOGISTICS GROUP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE NINE MONTHS ENDED SEPTEMBER 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 stock to common stock		(1,000,000	)		(1,000	)		-			-			2,500,000		2,500		(1,500	)		-			-			-
Conversion of Series B preferred stock 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
2008 Unit Offering		-			-			-			-			15,113,000		15,113		3,344,074			-			-			3,359,187
Foreign currency translation adjustment		-			-			-			-			-		-		-			-			73,239			73,239
Net loss for the period		-			-			-			-			-		-		-			(1,479,326	)		-			(1,479,326	)
Balance September 30, 2008		-		$	-			450,000		$	450			34,508,203	$	34,508	$	3,572,042		$	(1,864,728	)	$	(153,151	)	$	1,589,121

See notes to unaudited consolidated financial statements.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended
	September 30,			September 30,
	2008			2007
Cash flows from operating activities:	Restated
Net (loss) income	$	(1,479,326	)	$	501,973
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		12,974			13,690
Minority interest in income of consolidated subsidiaries		597,943			-
Bad debt expense (recovery of bad debt)		(397,309)			67,584
Change in assets and liabilities
Increase in accounts receivable		(255,365)			(598,560)
Decrease in accounts receivable - related party		7,000			--
Increase in prepayments and other current assets		(409,336)			(54,258)
Decrease in deposit		-			2,700
Increase in accrued registration agreement penalty		1,597,000			--
Decrease in accounts payable		(1,731,178)			(599,948)
Increase in accrued advances from customers		917,156			625,669
Increase in foreign tax payable		136,936			12,818
Increase in other accruals and current liabilities		181,726			(3,232)
Net cash used in operating activities		(821,779)			(31,564)
Cash flows from investing activities:
Purchases of property, plant and equipment		(25,646)			(7,301)
Decrease in due from related parties		26,520			--
Decrease in due to related parties		(75,169)			(53,060)
Net cash used in investing activities		(74,295)			(60,361)
Cash flows from financing activities:
Proceeds from convertible note payable - related party		148,200			--
Proceeds from 2008 unit offering private placement		3,778,250			--
2008 unit offering private placement expenses		(420,863	)		--
Repayment of short-term debt		(12,633	)		--
Net cash provided by financing activities		3,492,954			--
Net increase (decrease) in cash		2,596,880			(91,925)
Foreign currency translation adjustment		153,488			6,791
Cash at beginning of year		1,121,605			822,908
Cash at end of period	$	3,871,973		$	737,774
Supplemental disclosure of cash flow information:
Cash paid during the period for foreign taxes	$	34,524		$	13,058
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 SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated)

September 30, 2008

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

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. We changed our name to Video Without Boundaries, Inc. on November 16, 2001. On August 31, 2006 we changed our name from Video Without Boundaries, Inc. to MediaREADY, Inc. and on February 14, 2008, we changed our 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 $2,521,379 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 $2,521,379 divided by an agreed upon fixed number of shares of 2,864,606 ($2,521,379/2,864,606 =$0.88 per share). The fair market value of our common stock on March 31, 2008 was $0.85 per share. We are evaluating any rights we may have to seek damages against Mr. Aubel as a result of the uncertainty as to the validity of the amount of his note. See "Legal Proceedings" appearing elsewhere in this report.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

September 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 unaudited consolidated financial statements including the audited balance sheet at December 31, 2007, statement of operations and statements of stockholders' equity (deficit) up through June 30, 2008 have been restated to account for the acquisition of a 51% interest in Shandong Jiajia as a capital transaction, implemented through a reverse acquisition. Accordingly, the historical cost basis of the assets and liabilities of Shandong Jiajia have been carried forward and the historical information presented, including the statements of operation, statement of stockholders' equity (deficit) and statements of cash flows, are those of Shandong Jiajia.

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

The accompanying unaudited consolidated financial statements include our accounts and our 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 our outstanding common stock effective at the close of business on March 11, 2008.

NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS AND BASIS OF PRESENTATION

The December 31, 2007 financial statements included in the Company's Form 10-Q for the quarter ended September 30, 2008 filed on December 22, 2008, 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 and 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 from fair value of equity interests initially recorded in our statement of operations to costs related to our acquisition of a 51% interest in Shandong Jiajia;
•	the correction of the accounting treatment accorded a convertible note payable to a related party and principal stockholder, Mr. David Aubel;
•	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;

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

September 30, 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:

•	the adjustment to 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;
•	the recognition of the accrual of certain professional fees, totaling $141,800 in expenses, which were erroneously omitted from previous filings.

At September 30, 2008:

•	the recognition the fair value adjustment of assets and liabilities of MediaReady, Inc. as of December 31, 2008;
•	the correction of the classification in the consolidated statements of cash flows of $75,169 in advances to related parties from cash flows from operating activities to cash flows from investing activities, and
•	the correction of the classification of $397,309 in recovery of bad debts, in the consolidated statements of operations from a component of other income (expense) to a component of operating income.
•	the recognition of an accrued loss of $1,597,000 due under the registration payment agreement entered into in connection with the Company's financing completed in April 2008.

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.

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 acquirer (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 re-statement are detailed in the following tables:

Balance sheet data as of December 31, 2007:

				Adjustment
	As Filed			To Restate				Restated
Accounts receivable – related party	$	160,350		$	(153,350	)	(a)	$	7,000
Deferred Expenses		5,450			(5,450	)			-
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 – trade	$	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

- 7 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

September 30, 2008

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

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)

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

				Adjustment
	As Filed			To Restate			Restated
Operating expenses:
Selling, General and Administrative expenses	$	544,034		$	(15,265)		$	528,769
Depreciation and Amortization		4,814			-	(b)		4,814
Recovery of bad debt, net		-			4,434	(c)		4,434
Total operating expenses	$	548,848		$	(10,831)		$	538,017

Other Income (expense)
Realized exchange gain (loss)	$	37,648		$	-		$	37,648
Forgiveness of debt		-			-	(d)		-
Recovery of bad debt		(4,434)			4,434	(c)		-
Non-operating bad debt		-			-	(e)		-
Registration agreement penalty		-			(1,597,000)	(f)		(1,597,000)
Interest expenses- related party		(43,608)			-			(43,608)
Total other income (expense)	$	(10,394	)	$	(1,592,566)		$	(1,602,960)

Earnings (loss) per share:
Basic	$	(0.01	)	$	(0.04)		$	(0.05)
Diluted	$	(0.01	)	$	(0.04)		$	(0.05)

- 8 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

September 30, 2008

Consolidated statements of operations for the nine months ended September 30, 2008

			Adjustment
	As Filed		To Restate			Restated
Operating expenses:
Selling, General and Administrative expenses	$	1,129,215	$	(172,597)	(a)	$	956,618
Depreciation and Amortization		17,260		(4,286)	(b)		12,974
Recovery of bad debt, net		--		(397,309)	(c)		(397,309)
Total operating expenses	$	1,146,475	$	(574,192)		$	572,283

Other Income (expense)
Realized exchange gain (loss)	$	25,241	$			$	25,241
Forgiveness of debt		764,220		(764,220)	(d)		-
Recovery of bad debt		397,309		(397,309)	(c)		-
Non-operating bad debt		-		(87,221)	(e)		(87,221)
Registration agreement penalty		-		(1,597,000)	(f)		(1,597,000)
Interest expenses- related party		(44,275)					(44,275)
Total other income (expense)	$	1,142,495	$	(2,845,750)		$	(1,703,255)

Earnings (loss) per share:
Basic	$	0.03	$	(0.09)		$	(0.06)
Diluted	$	0.02	$	(0.08)		$	(0.06)

(a)	To recognize reduction in bad debt expense initially recognized in the second quarter of 2008, subsequently restated expense 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 accounting acquiree of 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 recognize the registration agreement penalty related to the Company's April 2008 Unit Offering for failure to obtain registration of the related shares in the time period specified.

At September 30, 2008, the Company had incorrectly classified $397,309 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 expenses now total $572,283 and other income (expense) totals ($1,703,255) as of September 30, 2008. This restatement had no impact on our consolidated balance sheets, net income or earnings per share for the three months or nine months ended September 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 consolidated financial statements for the three month and nine month periods ended September 30, 2008 and 2007 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 our Form 10-K/A (Amendment No. 3 ) for the year ended December 31, 2007 to be filed by us with the Securities and Exchange Commission. 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.

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 we believe that the disclosures presented are adequate to keep the information from being misleading, we suggest that these accompanying financial statements be read in conjunction with our audited financial statements and notes for the year ended December 31, 2007, included in our Form 10-K/A (Amendment No. 3 ), for the year then ended to be filed by us with the Securities and Exchange Commission.

Operating results for the three month and nine month periods ended September 30, 2008 are not necessarily indicative of the results that may be expected for the remainder of the year ending December 31, 2008. It should be noted, the nine month period ended September 30, 2008 includes a one-time item, the significant recovery of bad debts previously considered uncollectable, which materially reduced our loss for the nine months ended September 30, 2008.

The accompanying consolidated financial statements include our accounts and our 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 unaudited consolidated 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 for revenue recognition. 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. We provide transportation services, generally under contract, by third parties with whom we have contracted these services.

Typically we recognize revenue in connection with our freight forwarding service when the payment terms are as follows:

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

- 9 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

September 30, 2008

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 $397,309 for the period ended September 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.

Cash and Cash Equivalents

We consider 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 us to concentration of credit risk consist primarily of cash and accounts receivable. We place our cash with high quality financial institutions in the United States and China. As of September 30, 2008, bank deposits in the United States exceeded federally insured limits by $43,125. At September 30, 2008, we had deposits of $3,578,848 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. We have not experienced any losses in such bank accounts through September 30, 2008.

Accounts Receivable

We provide 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. During the three months ended September 30, 2008, we reduced our allowance for doubtful accounts with a corresponding entry to accounts receivable by approximately $525,000 for receivables specifically identified as uncollectable.

Earnings (Loss) 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". Earnings per share have been retroactively restated to reflect the shares issued in connection with our acquisition of a 51% interest in Shandong Jiajia.

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.

- 10 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

September 30, 2008

Advances from Customers

Advances from customers consist of prepayments to us for contracted cargo that has not yet been shipped to the recipient and for other advance deposits. These amounts are recognized as revenue as shipments are completed and customers take delivery of goods, in compliance with the related contract and our revenue recognition policy. Advances from customers totaled $1,600,592 and $683,436, at September 30, 2008 and December 31, 2007, respectively.

Long-Lived Assets

We periodically evaluate the carrying value of long-lived assets to be held and used in the business, other than assets held for sale when events and circumstances warrant, generally in conjunction with the annual business planning cycle. If the carrying value of a long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair market value for assets to be held and used. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the 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 month or nine month periods ended September 30, 2007 or September 30, 2008, respectively.

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 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 period presented.

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. We, therefore, would absorb all losses applicable to a minority interest where applicable. If future earnings were then to materialize, we 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 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 September 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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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

September 30, 2008

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.

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 unaudited consolidated financial statements have been prepared on a going concern basis. It should be noted that the results of our operations for the nine month period ended September 30, 2008 included an isolated transaction of approximately $400,000 in recovery of bad debts previously recognized as uncollectable. Additionally, during the third quarter 2008, we recognized an accrued registration agreement penalty of $1,597,000 related to our 2008 unit offering . 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 our ability to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

- 12 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

September 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.

Potentially issuable shares for the three months ended September 30, 2008 were anti-dilutive and not included in diluted earnings per share.

Earning per share presented for the three month and nine months ended September 30, 2008 have been restated due to the reverse acquisition transaction with Shandong Jiajia and a subsequent restatement for the periods . The retroactive restatement is based on our average number of weighted-average shares outstanding for the periods presented in 2007, adjusted for shares underlying convertible securities issued in the reverse acquisition transaction and further adjustments as detailed in Note 2 .

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2008			2007		2008			2007
	Restated					Restated
Numerator:
Net Income (loss) applicable to common stockholders (A)	$	(1,622,353	)	$	914,506	$	(1,479,326	)	$	501,973

Denominators:
Denominator for basic earnings per share
Weighted average shares outstanding (B)		34,508,203			3,989,874		24,242,855			3,228,230
Denominator for diluted earnings per share
Treasury Stock Method
Options		-			2,000,000		-			2,000,000
Warrants		-			-		-			-
Series B preferred - unconverted		-			-		-			-
Series A and B preferred		-			3,700,000		-			3,700,000
		-			5,700,000		-			5,700,000
Denominator for diluted
earnings (loss) per share-
adjusted weighted average shares outstanding (C)		34,508,203			9,689,874		24,242,855			8,928,230
Basic and Diluted Earnings Per Common Share:
Earnings (loss) per share- basic (A)/(B)	$	(0.05	)	$	0.23	$	(0.06	)	$	0.16
Earnings (loss) per share- diluted (A)/(C)	$	(0.05	)	$	0.09	$	(0.06	)	$	0.06

- 13 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

September 30, 2008

Potentially issuable shares of September 30, 2008 and 2007 which may result in dilution in the future but were not included in diluted earnings per share as they were anti-dilution included:

	Three Months and Nine Months
	Ended September 30,
	2008	2007
Options	2,000,000	-
Warrants	117,500	117,500
Class A and B Warrants	31,558,500	-
Series B convertible preferred stock	4,500,000	-
	38,176,000	117,500

NOTE 6 – 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 (the "2008 Unit Offering"). 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 2008 Unit 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 2008 Unit 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. We 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 2008 Unit 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 2008 Unit 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. Although we filed a registration statement and we have been making a good faith effort to resolve comments on the registration statement we received from the Commission, it has not been declared effective. Accordingly, at September 30, 2008, the Company accrued $1,597,000 due to the investor's under the provisions of the registration payment agreement in accordance with the guidance provided by SFAS No. 5 . This amount would be payable to the investors of the April 2008 Unit Offering on a pro-rata basis based on their individual investment. 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.

- 14 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

September 30, 2008

The subscription agreement for the 2008 Unit Offering provides that while the purchasers own any securities sold in the 2008 Unit 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.

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 2008 Unit 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 2008 Unit 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 2008 Unit 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.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

September 30, 2008

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, 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, 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.

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

	No. of 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 option activity during the nine month period ended September 30, 2008 is as follows:

	No. of 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		2.25	$	260,000
Granted		-		-		-		-
Exercised		-		-		-		-
Outstanding at September 30, 2008		2,000,000	$	0.30		2.25	$	260,000

* 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 after grant at $0.30 per share.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

September 30, 2008

Common Stock Purchase Warrants

A summary of our common stock warrant activity during the nine month period ended September 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 September 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, to Trilogy Partners, Inc. for marketing and public relations services, which expire on May 31, 2009.
(2)	Issued in connection with our 2008 Unit Offering completed in April, 2008.

NOTE 7 – RELATED PARTIES

Up until March 2008, we relied heavily on advances from Mr. David Aubel, a principal shareholder of our company, to fund our operations. Mr. Aubel has never held a position as an officer or director of our 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 our common stock at substantial discounts from the then prevailing market price.

On December 3, 2005, we 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, we 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 us contained no stated redemption date (due on demand) and the notes were convertible at the option of the investor, the resulting discount from market was recognized immediately.

A summary of the intrinsic value, the difference between the conversion price Mr. Aubel paid and the fair value of our common stock on the commitment date, December 3, 2005, is as follows:

Funds advanced by Mr. Aubel:

	Funds		Intrinsic
	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
Totals	$	2,912,532	$	4,368,797

A summary of the intrinsic value of shares actually paid to Mr. Aubel against his note for the three years ended December 31, 2007 and nine month period ended September 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	)
		6,054,606	$	6,416,100	$	19,309,848

Based on our review of the facts and circumstances surrounding the agreements with Mr. Aubel and in connection with the restatement of our financial statements, we believe 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, we issued Mr. Aubel 2,864,606 shares of our 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.

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 September 30, 2008, we were due $484,915 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 September 30, 2008, our unaudited consolidated balance sheet reflects $154,083 due to Xiangfen Chen, general manager of the Xiamen branch of Shandong Jiajia. The loan is unsecured, non-interest bearing and repayable on demand.

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 8 – FOREIGN OPERATIONS

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

	Revenues		Assets
	Restated		Restated
United States	$	—		$	293,125
People's Republic of China		27,753,459			8,635,596
Totals	$	27,753,459		$	8,928,721

NOTE 9 – CONTINGENCIES

On August 11, 2004 (with an effective date of June 1, 2004) we entered into a stock purchase agreement with James Joachimczyk, the sole shareholder of Graphics Distribution, Inc., a company engaged in the business of selling and distributing electrical products. The principal terms of the agreement provide for us 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 our restricted common stock. Additional consideration included in the stock purchase agreement required us 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. We, at the time of closing, gave our initial deposit of $350,000, but has defaulted on the remaining balance due and is also in default of the collateralization provision. We have has expensed the initial deposit of $350,000. In October, 2008, we obtained a general release from Mr. Joachimczyk and Graphics Distribution, Inc. releasing us from any and all liability and causes of action that Mr. Joachimczyk and Graphics Distribution, Inc. had or may have against us as of October 14, 2008. We did pay any additional consideration to obtain these releases.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Restated) – Continued

September 30, 2008

Under the terms and conditions of the Class A and Class B warrants we issued in connection with our 2008 Unit Offering, we are required to pay liquidated damages to the warrant holders of $ 266,000 per month up to a maximum of $ 1,597,000 (an amount equal to 2% for each 30 days of the $ 13,312,425 aggregate exercise price of the warrants, but not to exceed in the aggregate 12% of the aggregate exercise price of the warrants) in the event a registration statement covering the common stock underlying the warrants was not declared effective by October 25, 2008, 180 days following the closing date of the April 2008 Offering. The liquidated damages will be payable to the investors of the April 2008 offering on a pro-forma basis based on their individual investment. Although we filed a registration statement covering the common stock under the warrants on June 19, 2008 and we have been making a good faith effort to resolve comments on the registration statement we received from the Commission, it has not declared effective. Accordingly, at September 30, 2008, the Company accrued $1,597,000 due to investors under the provisions of the registrations payment agreement in accordance with the guidance provided by SFAS No. 5.

As a result of the September 24, 2008 complaint filed by the Securities and Exchange Commission against us and Messrs. Harrell and Aubel as described in Item 1, "Legal Proceedings" of this Form 10-Q /A , we have agreed in principle to entry of a consent order granting the Commission the injunctive relief it seeks against us. We have been cooperating with the Commission in this proceeding and are still in settlement discussions with the Commission regarding disgorgement and prejudgment interest sought by the Commission. In the event we are unable to reach an agreement with the Commission with respect to disgorgement and prejudgment interest, we have agreed with the Commission to have the court determine the propriety of such amounts, if any. In addition, the pending lawsuit with the Commission may result in additional claims by stockholders, regulatory proceedings, government enforcement actions and related investigations and litigation. We cannot predict the ultimate outcome of this litigation and any continued litigation would result in significant expenses, management distraction and potential damages, penalties, other remedies, or adverse findings, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, our agreement to entry of a consent order granting the Commission injunctive relief restraining us from future violations of Federal securities laws may make future financing efforts more difficult and costly.

We are evaluating filing a lawsuit against Messrs. Harrell and Aubel and other parties involved in the improper conduct alleged by the Securities and Exchange Commission for damages we suffered as a result of their conduct. In addition, we are evaluating filing 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 we redeemed for 2,864,606 shares of our common stock in March, 2008 pursuant to the terms of the December 2007 agreement we entered into to a acquire a 51% interest in Shandong Jiajia.

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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 our unaudited consolidated financial statements and the notes thereto appearing elsewhere herein and in conjunction with the Management's Discussion and Analysis set forth in our Annual Report on Form 10-K/A (Amendment No. 3 ), for the year ended December 31, 2007 filed with the Securities and Exchange Commission.

We are on a calendar year, as such the nine month period ending September 30, is our third quarter. The year ended December 31, 2007 is referred to as "2007", the year ended December 31, 2006 is referred to as "2006", and the coming year ending 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.

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.

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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 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 December 31, 2007 we acquired a 51% interest in Shandong Jiajia. Established in November 1999, Shandong Jiajia is a non-asset based international freight forwarder and logistics manager located in the PRC. Since completion of this transaction, the business and operations of Shandong Jiajia represent all of our operations. We used a substantial portion of the proceeds from the 2008 Unit Offering to provide the required funds to satisfy the financial commitments related to the Shandong Jiajia acquisition. Our business focus is on expanding the business and operations of Shandong Jiajia and we do not intend to use any of the remaining funds of our 2008 Unit Offering for our historical operations.

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

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

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

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

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

During the remainder of 2008 and beyond, we face a number of challenges in growing our business as a result of the weak global economy. We cannot predict when global economic conditions will improve. We forecast continued weak demand within our shipping business due to reduced levels of exports from China until global economic conditions improve.

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 to be 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 provide certain comparative information based on our consolidated results of operations for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007, and for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007:

	Nine months ended September 30, 2008			Nine months ended September 30, 2007		$ Change			% Change
	Restated
Net Sales	$	27,753,459		$	24,575,206	$	3,178,253			13	%
Cost of Sales		26,149,830			23,584,744		2,565,086			11	%
Gross Profit		1,603,629			990,462		613,167			62	%
Total Operating Expenses		572,283			452,033		120,250			27	%
Income (Loss) from Operations		1,031,346			538,429		492,917			92	%
Total Other Income (Loss)		(1,703,255	)		10,580		(1,713,835	)		N/M
Net Income (Loss)	$	(1,479,326	)	$	501,973	$	(1,981,299	)		395	%

	Three months ended September 30, 2008			Three months ended September 30, 2007			$ Change			% Change
	Restated
Net Sales	$	12,961,259		$	10,781,536		$	2,179,723			20	%
Cost of Sales		12,072,099			9,681,560			2,390,539			25	%
Gross Profit		889,160			1,099,976			(210,816	)		19	%
Total Operating Expenses		538,017			159,716			378,301			237	%
Income (Loss) from Operations		351,143			940,260			(589,117	)		63	%
Total Other Income (Loss)		(1,602,960	)		(8,443	)		(1,594,517	)		N/M
Net Income (Loss)	$	(1,622,353	)	$	914,506		$	(2,536,859	)		(277	%)

N/M: Non Meaningful

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OTHER KEY INDICATORS

	Nine months ended September 30, 2008			Nine months ended September 30, 2007
	Restated
Other Key Indicators:
Cost of Sales as a percentage of Revenues		94	%		96	%
Gross Profit Margin		6	%		4	%
Total Operating Expenses as a percentage of Revenues		2	%		2	%

	Three months ended September 30, 2008			Three months ended September 30, 2007
	Restated
Other Key Indicators:
Cost of Sales as a percentage of Revenues		93	%		90	%
Gross Profit Margin		7	%		10	%
Total Operating Expenses as a percentage of Revenues		4	%		1	%

Net Sales

Our consolidated revenues for the nine months ended September 30, 2008 increased $3,178,253 or approximately 13%, increasing from $24,575,206 for the nine months ended September 30, 2007 to $27,753,459 for the nine months ended September 30, 2008. This increase was due to increased shipping and freight volume between the periods and growth supported by our fund raising in April 2008 .

Our consolidated revenues for the three months ended September 30, 2008 were up $2,179,723 or approximately 20%, increasing from $10,781,536 for the three months ended September 30, 2007 to $12,961,259 for the three months ended September 30, 2008. This increase, as with the nine month growth , was due to increased shipping and freight volume resulting from an overall expansion in activities supported in part by our April 2008 unit offering .

Cost of Sales and Gross Profit

Our consolidated cost of sales increased $2,565,086, or 11%, from $23,584,744 during the nine months ended September 30, 2007 to $26,149,830 during the nine months ended September 30, 2008. Cost of sales as a percentage of net revenues decreased between periods, from 96% for the nine months ended September 30, 2007 to 94% for the nine months ended September 30, 2008. This decrease in cost of sales as a percentage of net revenues reflected an improvement in efficiencies at the higher revenue level and contributed to our positive gross profit during the current year.

Consolidated gross profit increased $613,167, from $990,462 for the nine months ended September 30, 2007 to $1,603,629 for the nine months ended September 30, 2008. Gross profit as a percentage of sales increased from 4% for the nine months ended September 30, 2007 to 6% for the nine months ended September 30, 2008.

Our consolidated cost of sales increased $2,390,539, or 25%, from $9,681,560 during the three months ended September 30, 2007 to $12,072,099 during the three months ended September 30, 2008. Cost of sales as a percentage of net revenues increased between periods, from 90% for the three months ended September 30, 2007 to 93% for the three months ended September 30, 2008. This increase was primarily due to increased fuel costs between periods.

Consolidated gross profit decreased $210,816, from $1,099,976 for the three months ended September 30, 2007 to $889,160 for the three months ended September 30, 2008. Gross profit as a percentage of sales decreased from 10% for the three months ended September 30, 2007 to 7% for the three months ended September 30, 2008.

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Total Operating Expenses

Total operating expenses increased $120,250, or 27%, from $452,033 for the nine months ended September 30, 2007 to $572,283 for the nine months ended September 30, 2008. Operating expense as a percentage of revenue remained constant between the periods at 2%.

While remaining relatively stable in total between the periods, components varied significantly. Included in operating expenses for the nine months ended September 30, 2008 was approximately $400,000 in recovery of bad debts. Absent this isolated and non-recurring transaction, operating expenses between the periods would have actually increased approximately $518,000 or 115%. This sharp increase, as well as the increase in the third quarter 2008 over the prior year period, was primarily due to $419,00 incurred by the parent company, formerly MediaReady, Inc. during the first three quarters of 2008, not incurred in the prior year.

Total operating expenses increased $378,301, or 237%, from $159,716 for the three months ended September 30, 2007 to $538,017 for the three months ended September 30, 2008. As with the nine months figures, this increase reflected a sharp rise in general and administrative expenses resulting from the inclusion of MediaReady, Inc. costs in 2008. Operating expense as a percentage of revenue increased from 1% the in the prior fiscal year to 4% during the current year.

Total Other Income (Expense)

Total other non-operating expense increased sharply for the nine months ended September 30, 2008 over the prior year. Overall, these expenses totaled $1,703,255 in 2008 compared to other income of $10,580 recognized in the prior year. This increase in expense was due to the recognition of approximately $87,000 in bad debt from a major shareholder and related party, Mr. David Aubel, deemed uncollectible and the recognition of $1,597,000 in expense under a registration payment agreement related to our financing completed in April 2008. The $1,597,000 registration payment penalty is payable to the investors of our April 2008 Unit Offering on a pro-rata basis based on the amount of their individual investment.

Total other non-operating expense also increased sharply for the three months ended September 30, 2008 over the prior year. These expenses for the three month period ended September 30, 2008 totaled $1,602,960 compared to $8,443 incurred during the same period in the prior year. This increase was primarily due to $1,597,000 in expense under a registration payment agreement related to our financing completed in April 2008 accrued at September 30, 2008. The $1,597,000 registration payment penalty is payable to the investors of our April 2008 Unit Offering on a pro-rata basis based on the amount of their individual investment.

Net Income (Loss)

Due primarily to the recognition of the $1,597,000 registration agreement penalty and non-operating based bad debt recorded of approximately $87,000, despite the approximately $400,000 in recoveries of trade related debts, we recognized a net loss for the nine months ended September 30, 2008 of $1,479,326 compared to net income of $501,973. In addition, 2008 reflected general and administrative costs incurred by the parent company, formerly MediaReady, Inc., of approximately $419,000 not incurred in 2007.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the ability of a company to generate funds to support our current and future operations, satisfy our obligations and otherwise operate on an ongoing basis.

At September 30, 2008, we had working capital of $2,808,532 including cash of $3,871,973 as compared to a working capital deficit of $2,775,652 and cash of $1,121,605, as restated, at December 31, 2007. This significant increase in working capital was attributable primarily to the settlement, in stock, of approximately $2,820,000 in convertible notes due a related party and accrued compensation due our former president and CEO and the completion of our 2008 Unit Offering completed in April 2008 with net proceeds of approximately $3.3 million, offset by the recognition of a current liability of $1,597,000 attributable to an accrued registration agreement penalty.

While in April 2008, we raised approximately $3,360,000 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 may not be sufficient to meet our cash requirements for the 2009 year without the ability to attain profitable operations and/or obtain additional financing.

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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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 our 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.

Cash used from operating activities totaled $ 821,779 for the nine months ended September 30, 2008 compared to cash used in operating activities of $ 31,564 for the nine months ended September 30, 2007. This overall increase in cash used by operating activities of $ 821,779 was primarily attributable to paying down accounts payable during the current year. The largest sources of cash include funding from the following: $ 917,156 from an increase in advances from customers, $ 136,936 from an increase in taxes payable, and $ 181,726 from an increase in other accruals; these sources of cash were offset primarily by the following uses of cash: $ 1,731,178 from an decrease in accounts payable, $ 652,674 from an increase in accounts receivable, and $ 409,336 in prepayments and other current assets.

We used $ 74,295 of cash for investing activities during the period, of which $ 25,646 was for capital expenditures with the balance related to net advances to related parties .

Cash from financing activities totaled $ 3,492,954 for the nine months ended September 30, 2008, the majority of this cash inflow came from $ 3,357,387 in net proceeds from the 2008 Unit Offering and the proceeds from a convertible note payable issued to a related party.

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

	September 30, 2008			December 31, 2007
United States	$	293,125	8%	$	215	--%
China		3,578,848	92%		1,121,390	100%
	$	3,871,973	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.

Total current assets increased $3,778,858 or 74% at September 30, 2008 over December 31, 2007. This increase was due primarily to our completion of our 2008 Unit Offering in April 2008 with net proceeds to us of approximately $3,360,000. The increase in prepayments and other assets of $409,336 resulted from our making payments in advance to various freight shipping firms to secure cargo space for our customers which reflect our overall efforts in increase the level of operations.

Trade accounts payable declined substantially at September 30, 2008 from our 2007 year end balances. This decline, totaling approximately $1.7 million, was due in part from satisfaction of obligations using funds made available from our April 2008 Unit Offering.

Advances from customers totaled $1.6 million at September 30, 2008, an increase of approximately $917,000 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 September 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.

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Typically we recognize revenue in connection with our freight forwarding service when the payment terms are as follows:

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

On March 20, 2008 under the terms of our agreement with Shandong Jiajia:

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

These transactions had the effect of reducing our liabilities at September 30, 2008 as compared to December 31, 2007.

Due from/to Related Parties

At September 30, 2008, we were due $484,915 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 September 30, 2008, our unaudited consolidated balance sheet reflects $154,083 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.

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 resulted in a recovery of bad debt of $397,309 for the nine month period ended September 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 nine month periods ending September 30, 2008, or 2007. Further, we rely on certain assumptions and calculations underlying our provision for taxes in China. 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.

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 operating results and financial condition.

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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 September 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 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.

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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 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:

•	risks from Securities and Exchange Commission litigation;
•	risks from liquidated damages related to warrants sold in our April 2008 offering;
•	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 subsidiaries;
•	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;
•	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.

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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 to be filed by us with the Securities and Exchange Commission, Part II, Item 1A - Risk Factors of This Form 10-Q 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 September 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 and accounting officer concluded that as September 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 SEC 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.

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.

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Further, in our September 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, (iv) failed to recognize a non-operating bad debt to a related party and significant shareholder of $87,222, and (v) failed to record and expense of $1,597,000 due under a registration payment agreement.

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 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 ("U.S. 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 September 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.

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.

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.

On September 24, 2008, the U.S. Securities and Exchange Commission (the "Commission") filed a civil complaint in the U.S. District Court for the Southern District of Florida (Case No. 08-61517-CIV-GOLD MCALILEY) against V. Jeffrey Harrell, our former CEO and principal and financial accounting officer, David Aubel, previously our largest shareholder and formerly a consultant to us, and the company based upon the alleged improper conduct of Messrs. Harrell and Aubel that occurred at various times between in or about April 2003 and September 2006. The Commission’s complaint alleges that Mr. Harrell, filed annual and quarterly reports with the Commission that, among other things, materially overstated our revenues and assets and understated our net losses. The complaint also alleges that Mr. Harrell falsely certified numerous annual and quarterly reports we filed with the Commission that he knew, or was severely reckless in not knowing, contained material misstatements and omissions. The complaint further alleges that from November 2003 to September 2006, Mr. Harrell and Mr. Aubel issued a series of false and misleading press releases announcing our acquisition of another company, the availability of large credit facilities, and an international operating subsidiary. Taking advantage of our artificially inflated stock price, the complaint alleges that Mr. Aubel dumped millions of shares of our stock, acquired at steep discount from us, into the public market in transactions that were not registered under federal securities laws. The complaint alleges that the conduct of Messrs. Harrell and Aubel and our company constituted violations of various sections of the Securities Act of 1933 ("Securities Act") and the Securities Exchange Act of 1934 ("Exchange Act"). The complaint seeks, among other things, to permanently enjoin the Messrs. Harrell and Aubel and us from engaging in the wrongful conduct alleged in the complaint, disgorgement, civil monetary penalties, and a penny stock bar against Mr. Aubel, civil monetary penalties, a penny stock bar, and an officer and director bar against Mr. Harrell and disgorgement against us.

Our current management had no knowledge of Messrs. Harrell and Aubel's improper conduct as alleged in the complaint which relate to their actions prior to 2007 involving us when our company was known as Video Without Boundaries, Inc. In December 2007, control of our company, which at the time had changed our name to MediaREADY, Inc., was acquired by principals and other parties unrelated to Messrs. Harrell and Aubel in connection with the acquisition and financing of Shandong Jiajia. After the acquisition of a 51% interest in Shandong Jiajia, we changed our name to China Logistics Group, Inc. Messrs. Harrell and Aubel remain minority shareholders of our company.

We have been cooperating with the Commission in this proceeding and, despite our lack of knowledge of any wrongdoing, agreed in principle with the Commission to settle certain aspects of the lawsuit. Under the terms of the agreement in principle, we will consent, without admitting or denying the allegations in the Commission's complaint, to the entry of a final judgment of permanent injunction enjoining us from violating certain provisions of the Securities Act and the Exchange Act. With respect to disgorgement and prejudgment interest, we have agreed with the Commission to have the court determine the propriety and amount of disgorgement and prejudgment interest, if any, against us in the event we are unable to reach a mutual agreement with the Commission on such amounts. While we cannot predict the ultimate outcome of the issue of disgorgement and prejudgment interest, continued litigation would result in significant expenses, management distraction and potential damages, penalties, other remedies, or adverse findings, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are evaluating filing a separate lawsuit against Messrs. Harrell and Aubel and other parties involved in the improper conduct alleged by the Commission for damages we suffered as a result of their conduct. In addition, we are evaluating filing 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 we redeemed for 2,864,606 shares of our common stock in March, 2008 pursuant to the terms of the December 2007 agreement we entered into to a acquire a 51% interest in Shandong Jiajia.

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 year ended December 31, 2007 to be filed by us with the Securities and Exchange Commission and Risk Factors included in our registration statement on Form S-1 (Amendment No. 1) (Commission File No. 333-151783) filed on January 29, 2009 and any amendments to these documents. In addition to these risk factors, investors should consider carefully the following additional risk factors before deciding to invest in our common stock.

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Risks from SEC Litigation

As a result of the September 24, 2008 complaint filed by the Commission against us and Messrs. Harrell and Aubel as described in Item 1, "Legal Proceedings" of this Form 10-Q/A, we have agreed in principle to entry of a consent order granting the Commission the injunctive relief it seeks against us. We have been cooperating with the Commission in this proceeding and are still in settlement discussions with the Commission regarding disgorgement and prejudgment interest sought by the Commission. In the event we are unable to reach an agreement with the Commission with respect to disgorgement and prejudgment interest, we have agreed with the Commission to have the court determine the propriety of such amounts, if any. In addition, the pending lawsuit with the Commission may result in additional claims by stockholders, regulatory proceedings, government enforcement actions and related investigations and litigation. We cannot predict the ultimate outcome of this litigation and any continued litigation would result in significant expenses, management distraction and potential damages, penalties, other remedies, or adverse findings, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, our agreement to entry of a consent order granting the Commission injunctive relief restraining us from future violations of Federal securities laws may make future financing efforts more difficult and costly.

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

None.

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 herein 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 herein 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)
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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