Edgar Filing: China Logistics Group Inc

chlo10qaamendmentno2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 2 )

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: March 31, 2009
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.)

23F. Gutai Beach Building No. 969, Zhongshan Road (South), Shanghai, China	200011
(Address of principal executive offices)	(Zip Code)

86-21-63355100

(Registrant’s telephone number, including area code)

7300 Alondra Boulevard, Suite 108, Paramount, California 90723

(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 has been submitted electronically and posted on its corporate Website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes o 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 May 19, 2009.

Explanatory Paragraph

China Logistics Group, Inc. (“we”, “us”, “our” or the “Company”) is filing this Amendment No. 2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 as filed on May 20, 2009, to correct the accounting treatment previously accorded certain transactions and to restate our consolidated balance sheets at March 31, 2009 and December 31, 2008 and our consolidated statements of operations, and consolidated statements of cash flows for the three month period ended March 31, 2009, and add our consolidated statement of changes in equity (deficit) for the year ended December 31, 2008 and the three month period ended March 31, 2009.

Our Form 10-Q filed on May 20, 2009 contained errors and were restated to correct the previous accounting treatment to:

	•	properly record the changes in the components of equity as a result of the reverse recapitalization transaction with Shandong Jiajia completed December 31, 2007;
	•	Correct the classification in the consolidated statements of cash flows of advances to and from related parties; and
	•	Correct the presentation of our unaudited balance sheets, unaudited consolidated statements of income, unaudited consolidated statements of cash flows and include our unaudited statements of changes in (deficit) equity to present the financial statements after adoption of FAS 160 Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51

Additionally, the March 31, 2008 financial statements included in our Form 10-Q, on a comparative basis, for the quarter ended March 31, 2009, filed May 20, 2009 and Form 10-Q for the quarter ended March 31, 2008 filed on May 20, 2008, contained errors and, accordingly, were restated to correct the previous accounting treatment to:

	•	recognize adjustment to the initially reported carrying values of assets and liabilities of MediaReady, Inc. as of December 31, 2007;
	•	correct the classification of $380,978 in recovery of bad debt in the consolidated statements of operations from a component of other income (expense) to a component of operating income;
	•	recognize $25,060 in professional fee expense previously incorrectly omitted;
	•	correct and erroneous over-accrual of professional fees in the amount of $137,149;
	•	correct the classification in the consolidated statement of cash flows of $64,945 in advances to related parties from cash flows from operating activities to cash flows from investing activities;
	•	correct components of equity as initially recorded in the reverse recapitalization transaction with Shandong Jiajia; and
	•	Correct the classification in the consolidated statements of cash flows of advances to and from related parties.

Following comments from the staff of the Securities and Exchange Commission and upon further review, the Company determined that further amendments were necessary, and accordingly, we have restated our financial statements and related disclosures in this Form 10-Q/A (Amendment No. 2) to:

	•	properly record common stock purchase warrants which were not indexed to our stock as a derivative liability at January 1, 2009 upon adoption of EITF 07-05 and properly record the subsequent accounting for the changes in the fair value of the associated liability at March 31, 2009;
	•	correct the presentation of the indirect method for presenting cash flows from operating activities in our unaudited consolidated statements of cash flows to begin with net income or loss rather than net income or loss attributable to China Logistics Group, Inc.

As a result of these corrections to our financial statements for the three months ended March 31, 2009 and year ended December 31, 2008, we are filing this Amendment No. 2 to our form 10-Q for the period ended March 31, 2009 to reflect the changes to our financial statements necessitated by these restatements.

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

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

This Form 10-Q/A also contains currently dated certifications as Exhibits 31.1, 31.2 and 32.1. The remaining Items in this Form 10-Q/A (Amendment No. 2 ) consist of all other Items originally contained in our Form 10-Q for the period ended March 31, 2009. This filing supersedes in its entirety our original Form 10-Q for the period ended March 31, 2009 and our Form 10-Q/A (Amendment No. 1) filed on September 9, 2009.

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page No.



PART I. - FINANCIAL INFORMATION

Item 1.	Financial Statements.	1

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	30

Item 4T.	Controls and Procedures.	30

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.	32

Item 1A.	Risk Factors.	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	33

Item 3.	Defaults Upon Senior Securities.	33

Item 4.	Submission of Matters to a Vote of Security Holders.	33

Item 5.	Other Information.	33

Item 6.	Exhibits.	33

OTHER PERTINENT INFORMATION

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

PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31, 2009			December 31, 2008
	(Restated)			(Restated)
ASSETS	(Unaudited)
Current assets:
Cash	$	922,925		$	3,156,362
Accounts receivable, net		3,188,519			2,739,173
Other receivables		2,007,800			298,442
Advances to vendors		218,310			-
Due from related parties		388,765			518,433
Prepaid expenses and other current assets		19,746			29,510
Total current assets		6,746,065			6,741,920
Property and equipment, net		40,054			44,144
Total assets	$	6,786,119		$	6,786,064

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	2,433,895		$	1,752,862
Accrued registration agreement penalty		1,597,000			1,597,000
Other accruals and current liabilities		87,702			146,953
Advances from customers		1,054,237			1,133,283
Due to related parties		275,194			378,697
Foreign tax payable		3,540			34,898
Total current liabilities		5,451,568			5,043,693

Derivative liability		2,466,739			-

Total liabilities		7,918,307			5,043,693

Equity:
China Logistics Group Inc. stockholders’ equity (deficit): Equity (deficit):
Series B convertible preferred stock- $.001 par value, 1,295,000 shares authorized; 450,000 shares issued and outstanding at March 31, 2009 and December 31, 2008		450			450
Common stock - $.001 par value, 500,000,000 shares authorized; 34,508,203 shares issued and outstanding at March 31, 2008 and December 31, 2008		34,508			34,508
Additional paid-in capital		17,556,253			19,229,513
Accumulated retained deficit		(19,190,216	)		(18,129,491	)
Accumulated other comprehensive loss		(185,453	)		(187,495	)
Total China Logistics Group, Inc. stockholders’ (deficit) equity		(1,784,458	)		947,485
Noncontrolling interest		652,270			794,886
Total (deficit) equity		(1,132,188	)		1,742,371
Total liabilities and equity	$	6,786,119		$	6,786,064

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
	March 31,			March 31,
	2009			2008
	(Restated)			(Restated)
Sales	$	3,198,572		$	6,773,213
Cost of sales		3,289,589			6,515,730
Gross profit		(91,017	)		257,483
Operating expenses:
Selling, general and administrative		316,408			283,205
Depreciation and amortization		2,351			4,225
Bad debt expense (recovery of bad debts), net		1,244			(380,978)
Total operating expenses		320,003			(93,548)
Operating (expense) income		(411,020	)		351,031
Other income (expense)
Realized exchange loss		-			(16,542)
Gain on change in fair value of derivative liability		3,388,993			-
Interest income		1,021			837
Total other income (expense)		3,390,014			(15,705)

Income from continuing operations, before tax		2,978,994			335,326
Foreign tax		1,826			7,788
Net income		2,977,168			327,538
Less: Net (loss) income attributable to noncontrolling interest		( 144,579	)		227,412
Net (loss) income attributable to China Logistics Group, Inc.	$	3,121,747		$	100,126

Earnings (loss) per share:
Basic	$	0.09		$	0.02
Diluted	$	0.08		$	0.00
Basic weighted average shares outstanding		34,508,203			6,175,726
Diluted weighted average shares outstanding		39,008,203			22,389,059

See notes to unaudited consolidated financial statements.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended
	March 31,			March 31,
	2009			2008
Cash flows from operating activities:	(Restated)			(Restated)
Net income	$	2,977,168		$	327,538
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		2,351			4,225
Gain on change in fair value of derivative liability		(3,388,993	)		-
Bad debt expense (bad debt recovery), net		1,244			(339,741)
Change in assets and liabilities
(Increase) decrease in accounts receivable		(450,590)			901,674
Increase in other receivables		(1,709,358)			-
Decrease in accounts receivable - related party		-			7,000
Decrease (increase) in prepayments and other current assets		9,764			(568,316)
Increase (decrease) in accounts payable		681,033			(989,052)
Increase in advances to vendors		(218,310)			-
(Decrease) increase in advances from customers		(79,045)			968,002
Decrease in foreign tax payable		(31,358	)		(25,399)
Decrease in other accruals		(59,251)			(215,129)
Net cash (used in) provided by operating activities		(2,265,345)			70,802
Cash flows from investing activities:
Purchases of property, plant and equipment		-			(4,305)
Advance to related parties		-			(64,945	)
Collections of advances to related parties		129,668			--
Net cash provided by (used in) investing activities		129,668			(69,250)
Cash flows from financing activities:
Proceeds from convertible note payable - related party		-			148,200
Repayment of advances from related parties		(189,041	)		(9,293)
Advances from related parties		85,538			-
Repayment of loan payable - shareholder		-			(11,272)
Net cash (used in) provided by financing activities		(103,503	)		127,635
Effect of exchange rate on cash		5,743			25,321
Net (decrease) increase in cash		(2,233,437)			154,508
Cash at beginning of period		3,156,362			1,121,605
Cash at end of period	$	922,925		$	1,276,113
Supplemental disclosure of cash flow information:
Cash paid during the period for foreign taxes	$	-		$	33,186

See notes to unaudited consolidated financial statements.

- 3 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN (DEFICIT) EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2008 and THREE MONTH PERIOD ENDING MARCH 31, 2009

	China Logistics Group, Inc. Shareholders' Equity
																				Accumulated
														Additional						Other
	Preferred A Stock					Preferred B Stock					Common Stock			Paid-In			Accumulated			Comprehensive			Noncontrolling			Comprehensive
	Shares		Amount			Shares		Amount			Shares	Amount		Capital			Deficit			Loss			Interest			Income (loss)			Total
	(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	$	12,927,625		$	(16,042,873	)	$	(226,390	)	$	601,028		$	-		$	(2,733,316	)
Convertible note payable to related party converted to capital to capital	-			-		-			-		2,864,606		2,865		2,518,514			-			-			-						2,521,379
Conversion of Series A Preferred to common stock	(1,000,000	)		(1,000	)	-			-		2,500,000		2,500		(1,500	)		-			-			-						-
Conversion of Series B Preferred to common stock	-			-		(845,000	)		(845	)	8,450,000		8,450		(7,605	)		-			-			-						-
Accrued salary for president converted to stock	-			-		-			-		581,247		581		448,404			-			-			-						448,985
Private placement	-			-		-			-		15,113,000		15,113		3,344,075			-			-			-						3,359,188
Net (loss) income	-			-		-			-		-		-		-			(2,086,618	)		-			156,489			(1,930,129	)		(1,930,129	)
Other comprehensive income, net of tax:
Unrealized gain on foreign currency translation adjustment	-			-		-			-		-		-		-			-			38,895			37,369			76,264			76,264
Other comprehensive income																											76,264			76,264
Comprehensive loss																										$	(1,853,865	)		(1,853,865	)
Balance December 31, 2008	-			-		450,000			450		34,508,203		34,508		19,229,513			(18,129,491	)		(187,495	)		794,886			-			1,742,371

Cumulative effect of a change in accounting principle – adoption of EITF 07-05 effective January 1, 2009															(2,172,310	)		(3,683,422	)											(5,855,732	)
Net income -- unaudited	-			-		-			-		-		-		-			3,121,747			-			(144,579	)		2,977,168			2,977,168
Other comprehensive income, net of tax - unaudited:
Unrealized gain on foreign currency translation adjustment -- unaudited	-			-		-			-		-		-		-			-			2,042			1,963			4,005			4,005
Other comprehensive income - unaudited																											4,005			4,005
Comprehensive loss - unaudited																										$	2,981,173		$	2,981,173
Balance March 31, 2009 -- unaudited	-		$	-		450,000		$	450		34,508,203	$	34,508	$	17,057,203		$	(18,691,166	)	$	(185,453	)	$	652,270					$	(1,132,188	)

See notes to unaudited consolidated financial statements.

- 4 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

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.

During 2002, we began to reposition our company within the home entertainment media-on-demand marketplace. It was our intent to become a producer and distributor of interactive consumer electronics and provide streaming digital media and video on demand services. However, we were unable to successfully or profitably penetrate the market.

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. The transaction was accounted for as a capital transaction, implemented through a reverse recapitalization.

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

The March 31, 2009 and December 21, 2008 financial statements included in our form 10-Q filed on May 20, 2009 contained errors and were restated to correct the previous accounting treatment to:

	•	properly record the changes in the components of equity as a result of the reverse recapitalization transaction with Shandong Jiajia completed December 31, 2007;
	•	Correct the classification in the consolidated statements of cash flows of advances to and from related parties; and
	•	Correct the presentation of our unaudited balance sheets, unaudited consolidated statements of income, unaudited consolidated statements of cash flows and include our unaudited statements of changes in (deficit) equity to present the financial statements after adoption of FAS 160 Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51

Following comments from the Securities and Exchange Commission and upon further review, we determined that further amendments to the March 31, 2009 financial statements included in the Company’s Form 10-K/A (Amendment No. 1) filed on September 29, 2009 were necessary including:

	•	properly record common stock purchase warrants which were not indexed to our stock as a derivative liability at January 1, 2009 upon adoption of EITF 07-05 and properly record the subsequent accounting for the changes in the fair value of the associated liability at March 31, 2009;
	•	correct the presentation of the indirect method for presenting cash flows from operating activities in our unaudited consolidated statements of cash flows to begin with net income or loss rather than net income or loss attributable to China Logistics Group, Inc.

- 5 -

The March 31, 2009 financial statements included in our Form 10-Q /A filed on September 29, 2009 , contained errors including the treatment of common stock purchase warrants as part of equity rather than as a derivative liability . Accordingly, our consolidated balance sheet at March 31, 2009, which is included in this report, has been restated to properly record our common stock purchase warrants that were not indexed to our stock as derivative liability . The effect of correcting these errors in our balance sheet at March 31, 2009 and income statement for the three months ended March 31, 2009 was as follows:

Balance Sheet Data	March 31, 2009
	As filed			Adjustment to Restate			Restated
Derivative Liability		-			2,466,739			2,466,739

Total Liabilities		5,451,568			2,466,739			7,918,307

China Logistics Group, Inc. stockholders’ equity (deficit)
Series B Convertible Preferred Stock- 450,000 shares issued and outstanding at March 31, 2009	$	450			-		$	450
Common Stock, $0.001 par value, 500,000,000 shares authorized, 34,508,203 shares issued and outstanding March 31, 2009		34,508			-			34,508
Additional Paid-in-capital		19,229,513			(2,172,310	)		17,057,203
Accumulated Deficit		(18,396,737	)		(294,429	)		(18,691,166)
Accumulated other comprehensive income loss		(185,453)			-			(185,453)
Total China Logistics Group, Inc. stockholders’ equity (deficit)		682,281			(2,466,739	)		(1,784,458	)
Noncontrolling interest		652,270			-			652,270
Total equity (deficit)		1,334,551			(2,466,739	)		(1,132,188	)
Total liabilities and equity (deficit)	$	6,786,119			-		$	6,786,119

Income Statement Data	For the three months ended March 31, 2009
	As filed			Adjustment to Restate		Restated
Other income (expense)
Realized exchange loss		-			-		-
Gain on change in fair value of derivative liability		-			3,388,993		3,388,993
Interest income		1,021			-		1,021
Total other income (expense)		1,021			3,388,993		3,390,014

(Loss) income from continuing operations, before tax		(409,999	)		3,388,993		2,978,994

Net (loss) income		(411,825	)		3,388,993		2,977,168

Net (loss) income attributable to China Logistics Group, Inc.		(267,246	)		3,388,993		3,121,747

Earnings (loss) per share:
Basic		(0.01	)		0.10		0.09
Diluted		(0.01	)		0.09		0.08
Basic weighted average shares outstanding		34,508,203			-		34,508,203
Diluted weighted average shares outstanding		34,508,203			4,500,000		39,008,.203

Additionally, the Company has restated and modified the disclosure in the Consolidated Statement of Cash Flows to accurately present the indirect method of reporting cash flows from operating activities and effect of the treatment accorded the derivative liability .

Components of this restatement include:

Statement of Cash Flow Data	For the three months ended March 31, 2009
	As filed			Adjustment to Restate			Restated
Net income		(267,246			3,244,414			2,977,168
Gain on change in fair value of derivative liability		-			(3,388,993	)		(3,388,993	)
Income (loss) attributable to noncontrolling interest		(144,579	)		144,579			-
Net cash (used in) provided by operating activities		(2,264,345	)		-			(2,264,345	)

- 6 -

The December 31, 2008 financial statements included in our Form 10-K filed on May 18, 2009, contained errors including the method of recording the reverse recapitalization transaction with Shandong Jiajia completed on December 31, 2007. Accordingly, our consolidated balance sheet at December 31, 2008, which is included in this report, has been restated to properly record the transaction. The effect of correcting these errors in our balance sheet at December 31, 2008 was as follows:

Balance Sheet Data	December 31, 2008
	As filed		Adjustment to Restate		Restated
Equity
Series B Convertible Preferred Stock- 450,000 shares issued and outstanding at December 31, 2008		450		-		450
Common Stock, $0.001 par value, 500,000,000 shares authorized, 34,508,203 shares issued and outstanding December 31, 2008		34,508		-		34,508
Additional Paid-in-capital	$	3,572,042	$	15,657,471	$	19,229,513
Accumulated Deficit		(2,472,020)		(15,657,471)		(18,129,491)
Accumulated other comprehensive income loss		(187,495)		-		(187,495)
Total (China Logistics Group, Inc.) shareholders equity		947,485		-		947,485
Noncontrolling Interest		-		794,886		794,886
Total equity		947,485		794,886		1,742,371
Total liabilities and equity	$	6,786,064		-	$	6,786,064

The March 31, 2008 financial statements included in the Company’s Form 10-Q filed on May 20, 2008, and Form 10-Q/A filed January 12, 2009 contained errors and, accordingly, were restated to correct the accounting treatment previously accorded certain transactions including:

	•		Recognize adjustment to the initially reported carrying values of assets and liabilities of MediaReady, Inc. as of December 31, 2007;
	•		Correct the classification of $380,978 in recovery of bad debt in the consolidated statements of operations from a component of other income (expense) to a component of operating income;
	•		Recognize $25,060 in professional fee expense previously incorrectly omitted;
	•		Correct and erroneous over-accrual of professional fees in the amount of $137,149;
	•		Correct the classification in the consolidated statement of cash flows of $64,945 in advances to related parties from cash flows from operating activities to cash flows from investing activities; and
	•		Correct components of equity as initially recorded in the reverse recapitalization transaction with Shandong Jiajia.

The effect of these error corrections was as follows:

Consolidated Statements of Operations Data	Three months ended March 31, 2008
	As Filed			Adjustment to Restate			Restated

Selling, general and administrative	$	395,596		$	(112,391	)	$	283,205
Depreciation and amortization		201,613			(197,388	)		4,225
Recovery of bad debt, net		--			(380,978	)		(380,978	)
Fair value of equity instruments		5,450			(5,540	)		--
Total operating expenses		602,659			(696,207	)		(93,548	)
Operating income (loss)		(345,176	)		696,207			351,031
Other income (expense)
Change in fair value of derivative liability		74,347			(74,347	)		--
Recovery of bad debt		380,978			(380,978	)		--
Total other income (expense)		439,620			(455,325	)		(15,705	)
Income (loss) before income taxes		94,444			240,882			335,326
Net income (loss)		86,656			240,882			327,538
Net income (loss) attributable to China Logistics Group, Inc.		(140,756	)		240,882			100,126
Foreign currency translation adjustment		23,321			(11,428	)		11,893
Comprehensive income (loss)		(117,435	)		229,454			112,019
Earnings (loss) per share:
Basic		(0.02	)		0.04			0.02
Diluted		(0.02	)		0.02			0.00
Weighted average shares outstanding
Basic		6,598,579			(422,853	)		6,175,726
Diluted		6,598,579			15,790,480			22,389,059

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Statement of cash flows data	Three months ended March 31, 2008
	As Filed			Adjustment to Restate			Restated
Net income (loss)	$	(140,756	)	$	240,882		$	100,126
Depreciation and amortization		201,613			(197,388	)		4,225
Minority interest in income of consolidated subsidiary		227,412			(227,412	)		-
Income (loss) attributable to noncontrolling interest		-			227,412			227,4125
Bad debt recovery		(380,978	)		41,237			(339,741	)
Change in fair value of derivative liability		(74,347	)		74,347			--
Securities issued for services		5,450			(5,450	)		--
Decrease (increase) in accounts receivable		942,910			(41,236	)		901,674
Decrease in accounts receivable- related party		6,301			699			7,000
(Increase) in due from related parties		(64,945	)		64,945			--
(Increase ) in prepayment and other assets		(567,353	)		(963	)		(568,316	)
Decrease in accounts payable		(849,904	)		(139,148	)		(989,052	)
Decrease in due to related parties		(9,293	)		9,293			--
(Decrease) increase in other accruals		(240,188	)		25,059			(215,129	)
Net cash provided by (used in) operating activities		(1,474	)		72,276			70,802
Cash flows from investing activities
Purchases of property plant and equipment		(4,267	)		(38	)		(4,305	)
Advances to related parties		-			(64,945	)		(64,945	)
Net cash used in investing activities		(4,267	)		(125,401	)		(129,668	)
Cash flows from financing activities
Repayment advances from related parties		--			(74,238	)		(74,238	)
Net cash provided by financing activities		136,928			(74,238			62,690
Effect of exchange rate in cash		23,321			2,000			25,321
Net increase (decrease) in cash		154,508			--			154,508
Cash beginning of year		1,121,605			--			1,121,605
Cash at end of period		1,276,113			--			1,276,113

Certain amounts in Notes 5, 8 and 9 have been restated to reflect the restatement adjustments described above.

NOTE 3 – GOING CONCERN

The accompanying unaudited consolidated financial statements have been prepared on a going concern basis. 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.

As a result of the weak global economy, the demand for exported Chinese products has also declined, resulting in a significant drop in the demand for our freight and transport services. In response to the sharp decline in our revenues, we plan to reduce the controllable portions of our cost of sales where possible. While there can be no assurance, we anticipate these efforts will result in a positive gross profit in future quarters. We believe our cost reduction program can have the desired result and should assist to return the Company to a positive cash flow position, even at the reduced revenue levels which we anticipate for the foreseeable future.

If our cost reduction efforts related to our cost of sales are not successful to a level which enables us to generate sufficient cash flows from operations to fund our needs we may need to raise additional working capital. We do not have any commitments for any additional capital and both the terms of our 2008 Unit Offering which contain certain restrictive covenants and the overall softness of the capital markets could hinder our efforts. In that event, it would be necessary for us to take additional steps to further reduce our operating expenses including personnel reductions and the possible consolidation of our offices. We believe this cost containment approach is a viable response to the current market conditions and, coupled with our cash on-hand, should allow us to maintain our operations for the foreseeable future.

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NOTE 4 –BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements for the three month periods ended March 31, 2009 and 2008 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. 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 (the “SEC”).

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to present fairly the financial position and results of operations of the Company as of the dates and for the periods presented.

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, 2008, included in our Form 10-K filed with the SEC on May 18, 2009 and Form 10-K/A filed on September 25, 2009.

Operating results for the three month period ended March 31, 2009 is not necessarily indicative of the results that may be expected for the remainder of the year ending December 31, 2009.

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 SEC’s Staff Accounting Bulletin No. 104 for revenue recognition. In general, we record revenue 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.

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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 assumptions associated with our derivative liability and stock based compensation recognized 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 periods.

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 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.

The recovery of bad debt recognized in the first quarter 2008 reflected an adjustment in our estimate of bad debt expense reflected in the allowance account. This credit did not stem from the recovery of a previously written-off account or accounts. It had been our policy to reserve for bad debt expense based principally on the age of our receivables. Experience proved we had over reserved and an adjustment was indicated. The adjustment was not repeated in 2009.

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. At March 31, 2009, we had deposits of $860,557 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 March 31, 2009.

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. The allowance for doubtful accounts totaled $465,519 and $464,275 at March 31, 2009 and December 31, 2008, respectively.

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Earnings (Losses) Per Share

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

Stock Based Compensation

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

Advances from Customers

Advances from customers consist of prepayments to 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 $1,054,237 and $1,133,283, at March 31, 2009 and December 31, 2008, respectively.

Other receivables

Other receivables at March 31, 2009 were $2,007,800 and is comprised of advances to other entities with which we have a strategic or other business relationship, a deposit we made as required by a Chinese court for potential payment to a former customer in the event we are unsuccessful in a lawsuit we filed against our former customer for amounts owed to us, and deferred expenses. The amounts advanced to our strategic partners are unsecured, repayable on demand, and bear no interest. We also advance money to employees for business trips which are then subsequently expensed upon processing of an expense report. The components of other receivables at March 31, 2009 and December 31, 2008 was as follows:

	March 31, 2009		December 31, 2008
	(Restated)		(Restated)
Loans receivable	$	1,844,206	$	229,742
Legal deposit		38,662		38,662
Deferred expense		23,373		23,561
Other		101,559		6,477
	$	2,007,800	$	298,442

On March 31, 2009 Shandong Jiajia lent $1,614,000 to Shanghai Yudong Logistics Co., Ltd., a strategic partner. This unsecured loan was lent on a 21-day term bearing no interest and was timely repaid in April 2009.

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 periods ended March 31, 2009 or March 31, 2008, respectively.

Derivative Liability

We issued a total of 31,558,500 common stock purchase warrants in connection with our 2008 Unit Offering comprised of 16,445,500 Class A warrants exercisable at $0.35 per share and 15,113,000 Class B warrants excercisble at $0.50 per share. Other than the exercise price of the warrants, the terms of the Class A and Class B warrants are identical and expire April 30, 2013. The exercise price of the warrants and the number of shares issuable upon exercise is subject to reset adjustment in the event of stock splits, stock dividends, recapitalization and similar corporate events. If we issue or sell shares of our common stock after the 2008 Unit Offering for an amount less than the original exercise price per share, the exercise price of the warrants is reduced to equal the new issuance price of those shares.

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Upon our retroactive adoption of EITF 07-05 “Determining Whether and Instrument (or and Embedded Feature) is indexed to an Entity’s Own Stock”on January 1, 2009, we determined that the warrants did not qualify for a scope exception under FAS 133 “Accounting for Derivative Instruments and Hedging Activities” as they were determined to not be indexed to our stock as prescribed by FAS 133. Retroactively effective January 1, 2009, the warrants, under FAS 133 and EITF 07-05, were reclassified from equity to a derivative liability for the then relative fair market value of $5,855,732 and marked to market. The value of the warrants increased by $3,683,422 from the warrants issuance date to the adoption date of EITF 07-05, January 1, 2009. As of January 1, 2009, the cumulative effect in adopting EITF 07-05 was a reduction to additional paid in capital of $2,172,310 to reclassify the warrants from equity to derivative liability and a decrease in retained earnings of $3,683,422 as a cumulative effect of a change in accounting principle to reflect the change in the value of the warrants between their issuance date and January 1, 2009. For the three months ended March 31, 2009, we recorded a gain on change in fair value of derivative liability of $3,388,993 to mark to market for the decrease in fair value of the warrants during the three and six month periods ended June 30, 2009. Under FAS 133, the warrants will be carried at fair value and adjusted at each reporting period.

The Company determined the fair value of the warrants at each reporting date using the Black Scholes Option Pricing Model based on the following assumptions and key inputs for each Class of warrants and reporting date:

	Class A Warrants						Class B Warrants
	January 1, 2009			March 31, 2009			January 1, 2009			March 31, 2009
Dividend Yield		0	%		0	%		0	%		0	%
Volatility		231	%		253	%		231	%		253	%
Risk Free Rate		1.00	%		1.15	%		1.00	%		1.15	%
Expected Term		4.33			4.08			4.33			4.08
Asset Price	$	0.19		$	0.08		$	0.19		$	0.08
Exercise Price	$	0.35		$	0.35		$	0.50		$	0.50

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. Transactions and balances initially recorded in RMB are converted into US dollars in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 52 “ Foreign Currency Translations ” and are included in determining comprehensive income or loss. 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.

Noncontrolling Interest

Noncontrolling interests in our subsidiaries are recorded in accordance with the provisions of SFAS 160 "Noncontrolling Interests in Consolidated Financial Statements, an amendment to ARB No. 51" and are reported as a component of our equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the noncontrolling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.

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 was effective for fiscal years beginning after November 15, 2007. We have adopted SFAS 159 and determined that it had no impact as of March 31, 2009, 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 was effective for periods beginning on or after December 15, 2008, and will apply to all business combinations occurring after the effective date. SFAS 141R will have an impact on accounting for the Company’s business combinations, if any, but the effect depends on the terms of the Company’s business combinations subsequent to the effective date.

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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 was effective for periods beginning after December 15, 2008. Early adoption was prohibited. The adoption of SFAS 160 effected the classification and presentation of the Company’s consolidated financial statements and did not have any other material effect 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 was effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The adoption of SFAS 161 did not have a material effect on The Company’s consolidated financial statements. The Company does not currently have any derivative instruments.

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. This standard must be applied on a retrospective basis. The adoption of FSP APB 14-1 did not have a material effect on our consolidated financial statements.

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 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. SFAS No. 162 did not 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 was effective for fiscal years beginning after December 15, 2008. The adoption of EITF 03-6-1 to did not have a material effect on the Company’s consolidated financial statements.

In May 2008, the FASB issued a SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”), which identifies the source of accounting principles and the framework for selecting the principles to be used in preparation of financial statements in conformity with generally accepted accounting principles in the United Sates. SFAS No. 162 will become effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The adoption of SFAS No.162 did not have a material effect on the Company’s consolidated financial statements.

In June 2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument (or and Embedded Feature) Is Indexed to ad Entity’s Own Stock. EITF No. 07-5 provides that an entity should use a two step approach to evaluate whether an entity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. It also clarifies on the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF No. 07-5 is effective for fiscal years beginning after December 15, 2008. The adoption of EITF No. 07-5 did have a material effect on our consolidated financial statements and resulted in a restatement of these financial statements to recognize a derivative liability of approximately $2.5 million at March 31, 2009.

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

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NOTE 5 – EARNINGS (LOSS) PER SHARE

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

	Three Months Ended
	March 31,
	2009		2008
	(Restated)		(Restated)
Numerator:
Net Income (loss) applicable to common stockholders (A)	$	3,121,747	$	100,126

Denominators:
Denominator for basic earnings per share:
Weighted average shares outstanding (B)		34,508,203		6,175,726
Denominator for diluted earnings per share
Treasury stock method
Stock purchase warrants issued to Mr. Chen		-		1,250,000
Warrants		-		-
Series B preferred - unconverted		4,500,000		4,500,000
Series A and B preferred		-		10,463,333
		-		16,213,333
Denominator for diluted earnings (loss) per share:
adjusted weighted average shares outstanding (C)		39,008,203		22,389,059
Basic and diluted earnings per common share:
Earnings (loss) per share- basic (A)/(B)	$	0.09	$	0.02
Earnings (loss) per share- diluted (A)/(C)	$	0.08	$	0.00

Potentially issuable shares at March 31, 2009 and 2008 which could result in dilution in the future but were not included in diluted earnings per share for the periods presented as they are anti-dilutive, included:

	Three Months Ended March 31,
	2009	2008
Stock purchase warrants to Mr. Chen	2,000,000
Warrants	117,500	117,500
Class A and B warrants	31,558,500	-
Series B convertible preferred stock	-	-
	33,676,000	117,500

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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.

The 31,558,500 warrants issued in connection with the 2008 Unit Offering and comprised of 16,445,500 Class A warrants exercisable at $0.35 per share and 15,113,000 Class B warrants exercisable at $0.50 per share. Other than the exercise price of the warrants, the terms of the Class A and Class B warrants are identical.

These warrants are exercisable through the last calendar day of the month in which the fifth anniversary of the issue date occurs and are exercisable in whole or in part at any time following the issue date.

The exercise price of the warrants and the number of shares issuable upon exercise is subject pre-note adjustment in the event of stock splits, stock dividends, recapitalization and similar corporate events. At anytime after the required effective date of the related registration statement the warrants are exercisable on a cashless basis, which currently is the case. The exercise of the warrants is subject to a 4.99% cap on the beneficial ownership that each warrant holder may have while the securities are outstanding. This provision is waived during the final 45 days the warrants are exercisable.

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 connection with the 2008 Unit Offering for 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 of approximately $77,500. 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 SEC 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 SEC, it has not yet been declared effective. Accordingly, for the quarter ended 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.

- 15 -

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

The subscription agreement for the 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.

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Preferred Stock

We have 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 in connection with our acquisition of a 51% interest in Shandong Jiajia. In March 2008, all 1,000,000 shares of our Series A convertible preferred stock were converted into 2,500,000 shares of our common stock.

In December 2007 we designated 1,295,000 shares of our preferred stock as Series B convertible preferred stock in connection with our acquisition of a 51% interest in Shandong Jiajia. In March 2008, 845,000 shares of our Series B convertible preferred stock were converted into 8,450,000 shares of our 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 three month periods ended March 31, 2009 and 2008 is as follows:

	No. of Shares issued during three month period ended March 31,
	2009		2008
Settlement of obligation to former President and CEO, Mr. V. Jeffrey Harrell		-		581,247
Settlement (conversion) of note payable to principal shareholder, David Aubel		-		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
		-		14,395,853

Common Stock Purchase Warrants issued to Mr. Chen

A summary of our the common stock warrant activity with Mr. Chen during the three month periods ended March 31, 2009 is as follows:

	No. of Shares Underlying warrants		Weighted Average Exercise Price		Weighted Average Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2008		2,000,000	$	0.30		1.75	$	-
Granted		-		-		-		-
Exercised		-		-		-		-
Outstanding at March 31, 2009		2,000,000	$	0.30		1.75	$	-

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Common Stock Purchase Warrants

A summary of our common stock warrant activity during the three month periods ended March 31, 2009 is as follows:

	Shares Underlying Warrants		Weighted Average Exercise Price
Outstanding at December 31, 2008		31,676,000	$	0.46
Granted		-		-
Exercised		-		-
Outstanding at March 31, 2009		31,676,000	$	0.46

NOTE 7 – RELATED PARTIES

At March 31, 2009 and December 31, 2008, we were owed $388,765 and $518,433, respectively 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 March 31, 2009 and December 31, 2008, we owed $109,005 and $123,458, respectively, to Xiangfen Chen, general manager of the Xiamen branch of Shandong Jiajia. Such amounts are included in due to related parties.

At March 31, 2009 and December 31, 2008, we owed $108,749 and $62,652, respectively, to Bin Liu general manger of the Tianjin branch of Shandong Jiajia and a 90% owner of Tianjin Sincere Logistics Co., Ltd. (“Tianjin Sincere"). At March 31, 2009 and December 31, 2008, we owed $14,739 and $183,448, respectively, to Tianjin Sincere. These loans are unsecured, non-interest bearing and repayable on demand and are included in due to related parties.

At March 31, 2009 we owed $39,441 to Hui Liu, a member of the board of directors of Shandong Jiajia. This loan is unsecured, non-interest bearing and repayable on demand and is included in due to related parties.

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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 is paying Mr. Chen a base annual rent of approximately $43,700 for the use of such office space plus a management fee of approximately $20,440 per year.

On March 31, 2009 and December 31, 2008, due to related parties consisted of the following:

	March 31, 2009		December 31, 2008
	(Restated)		(Restated)
Due to Xiangfen Chen	$	109,005	$	123,458
Due to Bin Liu		108,749		62,652
Due to Tianjin Sincere Logistics Co., Ltd		14,739		183,448
Due to Hui Liu		39,441		-
Other		3,260		9,139
	$	275,194	$	378,697

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 three months ended March 31, 2009.

	Revenues			Assets
	(Restated)			(Restated)
United States		$	--		$	62,368
People’s Republic of China			3,198,572			6,723,751
Totals		$	3,198,572		$	6,786,119

The table below presents information by operating region for the three months ended March 31, 2008.

	Revenues			Assets
	(Restated)			(Restated)
United States		$	--		$	359
People’s Republic of China			6,773,213			5,360,829
Totals		$	6,773,213		$	5,361,188

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NOTE 9 – CONTINGENCIES

As a result of the September 24, 2008 complaint filed by the SEC against us and Messrs. Harrell and Aubel as described in Part II, Item 1, “Legal Proceedings” of this Form 10-Q, we consented to the entry of a Permanent Injunction and Other Relief to resolve the liability aspects of the complaint. The Permanent Injunction, among other things, permanently restrains and enjoins us from violation of Sections 5(a) and 5(c) of the Securities Act of 1933, 15 U.S.C. §§ 77e(a) and 77e(c); violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule l0b-5 promulgated thereunder, 17 C.F.R. §240.l0b-5; violations of Section 13(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78m(a), and Rules 12b-20, 13a-l, and 13a-13 thereunder, 17 C.F.R. §§ 240.12b-20, 240.13a-l, and 240. 13a-13; and violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78m(b )(2)(A) and 8m(b )(2)(B).

We are still in settlement discussions with the SEC regarding disgorgement and prejudgment interest sought by the SEC. In the event we are unable to reach an agreement with the SEC with respect to disgorgement and prejudgment interest, the consent provides that the Court will determine whether it is appropriate to order disgorgement and, if so, the amount of the disgorgement. In addition, the pending lawsuit with the SEC 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 SEC 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 SEC 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.

NOTE 10 – COMMITMENTS

Rent expense from our office leases for the first quarter of 2009 was approximately $29,000 and approximately $27,000 in the comparative periods of 2008. We did not have any minimum, contingent, or sublease arrangements in these leases.

The table below presents our commitments for our various office leases in the U.S. and China for the years ended December 31, 2009 and thereafter:

Period	Total
Period Ended December 31, 2009	$	121,000
Period Ended December 31, 2010		48,000
Period Ended December 31, 2011		23,000
Period Ended December 31, 2012		23,000
Period Ended December 31, 2013		23,000
Thereafter		--
	$	238,000

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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 , for the year ended December 31, 2008 as filed with the SEC.

We maintain our financial records and report on a calendar year basis, as such the three month period ending March 31, is our first quarter. The year ended December 31, 2008 is referred to as “2008”, the year ended December 31, 2009 is referred to as “2009”, and the coming year ending December 31, 2010 is referred to as “2010”.

OVERVIEW

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

On December 31, 2007 we acquired a 51% interest in Shandong Jiajia. This transaction was accounted for as a capital transaction, effected through a reverse recapitalization.

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. Our business focus is on expanding the business and operations of Shandong Jiajia.

Shandong Jiajia is seeking 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 and improving margins. We believe that if we are able to ship a larger volume of products, we will be able to negotiate a more favorable rate from our vendors and suppliers and ultimately improve profit margins.

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

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

Additionally, Shandong Jiajia also faces the challenges related to the management and streamlining of the logistical aspect of the new shipping routes that our company plans to undertake and the possibility that our new routes will not be met with acceptance by our present and prospective clients. To accomplish their growth goals, Shandong Jiajia intends to invest in an information sharing and personnel training system among our affiliates and promote new shipping routes and new services. In addition, we are relying 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.

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During the remainder of 2009 and beyond, we face a number of challenges in growing our business as a result of the global economic slowdown. 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 for the year ended December 31, 2008 filed with the SEC 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, limited working capital and an accumulated deficit. The accompanying unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets carrying amounts or the amount and classification of liabilities that might result from the outcome of these uncertainties.

RESULTS OF OPERATIONS

The following tables provide certain comparative information based on our consolidated results of operations for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008:

	Three months ended March 31, 2009			Three months ended March 31, 2008			$ Change			% Change
	(Restated)			(Restated)
Sales	$	3,198,572		$	6,773,213		$	(3,574,641	)		(53	%)
Cost of Sales		3,289,589			6,515,730			(3,226,141	)		(50	%)
Gross (Loss) Profit		(91,017	)		257,483			(348,500	)		(135	%)
Total Operating Expenses (Income)		320,003			(93,548	)		413,551			(442	%)
Income (Loss) from Operations		(411,020	)		351,031			(762,051	)		(217	%)
Total Other Income		3,390,014			(15,705	)		3,405,719			N/M
Net Income (loss)		2,977,168			327.538			2,649,630			809	%
Net Income (loss) attributable to China Logistics Group, Inc.	$	3,121,747		$	100,126		$	3,021,621			N/M

N/M – Not Meaningful

OTHER KEY INDICATORS

	Three months ended March 31,
	2009		2008
	(Restated)		(Restated)
Cost of sales as a percentage of sales		103%		96%
Gross profit as a percentage of sales		(3%)		4%
Total operating expenses (income) as a percentage of gross (loss) profit		(352%)		(37%)

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Sales

Sales for the first quarter of 2009 decreased 53% compared to the first quarter of 2008. This sharp decline continues a trend which began in mid 2008. Sales in the first half of 2008 were increasing, primarily due to a planned expansion of services made possible through the input of capital from our 2008 unit offering completed in April 2008. Revenues peaked in the first quarter at approximately $13 million. The fourth quarter 2008 showed a sharp decline in revenues to approximately $7.8 million, representing a 27%, quarter-over-quarter decline compared to the third quarter of 2008. First quarter 2009 revenues, totaling approximately $3.2 million, represented a reduction of 59% from the fourth quarter of 2008 and a 75% decline from the third quarter of 2008. We believe these declines are due to the overall global economic slowdown, with a corresponding reduction in demand for Chinese sourced raw materials and finished goods with the related reduction in demand for transportation services.

While the Company has taken, and will continue to takes, steps to minimize the negative financial impact of these conditions, we are unable to reliably predict either the depth or duration of the trend.

Cost of Sales and Gross Profit

Cost of sales increased from 96% of revenues for the first quarter of 2008 to 103% of revenues for the first quarter of 2009. This sharp increase, resulting in a negative gross profit of approximately $94,000 for the first quarter 2009, was primarily due to the 53% decline in sales volume between the periods and higher shipping costs due to lower shipping volumes.

While the Company is essentially a service organization, not dependent on capital intensive assets, sharp declines in revenues do significantly impact our margins. Where possible, we are cutting costs to “right-size” the organization in response to these declines. These efforts have, however, been further hampered by the overall global economic slowdown which has had a negative effect on demand for Chinese sourced raw materials and finished goods and the related reduction in demand for the transportation services we offer. We intend to continue to reduce costs where possible and, while there can be no assurance, we believe these steps will improve or minimize the decline in our gross margins.

Total Operating Expenses

Selling, general and administrative expenses increased approximately $32,000 or 12% to $316,408 in the first quarter of 2009 compared to the first quarter of 2008. This increase was due primarily to professional fees associated with increased public reporting activity and legal fees partially offset by lower operating expenses associated with our cost cutting efforts. While higher than the first quarter of 2008, total selling, general and administrative expenses for the first quarter were down sharply from the third and fourth quarter of 2008 consistent with the decrease in revenues between the same periods.

The first quarter 2008 included net recovery of bad debts of approximately $381,000 which did not occur in 2009. The recovery of bad debt recognized in the first quarter 2008 reflected an adjustment in our estimate of bad debt expense reflected in the allowance account. This credit did not stem from the recovery of a previously written-off account or accounts. It had been our policy to reserve for bad debt expense based principally on the age of our receivables. Experience proved we had over reserved and an adjustment was indicated. The adjustment was not repeated in 2009.

Total Other Income (Expenses)

Total other income (expense) consists of realized exchange gains and losses, interest expense, and change in fair value of derivative liability. Total other income in the first quarter of 2009 increased $3,405,719 compared to same period in 2008 primarily as a result the change in fair value of our derivative liability recorded in connection with our Class A and Class B warrants at March 31, 2009 compared to January 1, 2009 decreased $3,388,993 creating a gain in the current quarter.

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Foreign Taxes

Foreign taxes for the first quarter of 2009 decreased $5,962, compared to the same periods in 2008 due to lower income generated in China. We did not generate revenues in the U.S. in any period presented and only incurred corporate and non-cash expenses and therefore have a net loss carryforward for U.S. tax purposes.

Net Income (Loss)

We recognized net income in the first quarter of 2009 of $ 2,977,168 compared to net income of $ 327,538 in the first quarter of 2008 primarily due to the non-cash gain from the change in fair value of our derivative liability. Excluding the impact of this non-cash gain we would have shown a net loss of $411,825 due to the overall decline in our revenues and our inability to cut costs in proportion to this decline. Demand for the transportation services we provide is dependant primarily on the global demand for Chinese sourced goods and materials which has been negatively affected by the overall global economic slowdown. At this time, we are unable to reliably forecast when demand for our services will increase to the levels previously achieved.

Net Income (Loss) Attributable to China Logistics Group, Inc.

Our net income attributable to China Logistics Group, Inc. consists of net income (loss) less the net income (loss) attributable to the non-controlling interest holders of Shandong Jiajia. The noncontrolling interest holders have claim to 49% of the net income or loss of Shandong Jiajia. During the first quarter of 2009 Shandong Jiajia recognized a net loss and we attributed $144,579 of the total loss of Shandong Jiajia to noncontrolling interest. During the first quarter of 2008 Shandong Jiajia recognized net income and we attributed $227,412 of the total net income to the noncontrolling interest. This 164% decrease is a result of weak demand for transportation services during the first quarter of 2009 as previously described.

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 March 31, 2009, we had working capital of $1,294,497 compared to $1,698,227 at December 31, 2008. This decline, totaling approximately $404,000, was due primarily to the net loss of $267,246 during the first quarter of 2009. Cash at March 31, 2009 was $922,925, down from $3,156,362 at December 31, 2008. This $2.2 million decline was due primarily to a $1,614,000 short-term loan made in March 2009 to a strategic partner, cash used in operations and an operational loss during the first quarter of 2009. The loan was accounted for in other receivables and collected in April 2009.

The report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2008 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our recurring losses from operations, net cash used in operations, and accumulated deficit.

While in April 2008, we raised approximately $3,360,000 in net proceeds from our 2008 Unit Offering, approximately $2,000,000 was utilized to satisfy our commitments to Shandong Jiajia, approximately $140,000 was used to reduce certain payables and we subsequently advanced Shandong Jiajia an additional $500,000 for working capital. In addition, we have recognized a liability in the amount of $1,597,000 provided for under the terms of the registration statement we entered into in connection with the warrants we issued in our 2008 Unit Offering and we may be subject to potential disgorgement and prejudgment interest in connection with the SEC’s September 24, 2008 complaint filed against us and Mr. Harrell and Mr. Aubel as described in Part II, Item 1 ?C Legal Proceedings. We believe our current level of working capital and cash generated from operations may not be sufficient to meet these cash requirements and potential obligations in 2009 without attaining profitable operations and/or obtaining additional financing.

The terms of our 2008 Unit Offering contain certain restrictive covenants which could hinder our ability to raise additional capital. If we are not successful in generating sufficient cash flows from operations or in raising additional capital when required in sufficient amounts and on acceptable terms, these failures would have a material adverse effect on our business, results of operations and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of 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.

As a result of the weak global economy, the demand for exported Chinese products has also declined, resulting in a significant drop in the demand for our freight and transport services. In response to the sharp decline in our revenues, we plan to reduce the controllable portions of our cost of sales where possible. We anticipate these efforts to result in a positive gross profit in future quarters. We believe our cost reduction program can have the desired result and should assist to return the Company to a positive cash flow position, even at the reduced revenue levels which we anticipate for the foreseeable future.

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Net cash used in operating activities in the first quarter of 2009 totaled $2,265,345 compared to $70,802 net cash provided by operating activities in the first quarter of 2008. This decrease was due primarily to a net increase in other receivables of $1,709,358, which includes a short-term loan of approximately $1.6 million to a strategic partner, an increase in accounts receivable of $450,590, and an increase in advances to vendors of $218,310. These uses of cash flow are offset, in part, by an increase in accounts payable of $681,033.

Cash provided by investing activities in the first quarter of 2009 totaled $129,668 compared to cash used in investing activities of $69,250 in the first quarter of 2008. During 2009, we received $129,668 as collections of prior advances to related parties and during 2008, we advanced amounts totaling $64,945 to related parties and purchased $4,305 in property, plant and equipment.

Cash used in financing activities during the first quarter of 2009 in the amount of $103,503 was comprised of $189,041 we paid as repayments for advances from related parties offset by $85,538 we received as advances from related parties, compared to $127,635 provided in the first quarter of 2008. The decline in net cash provided by financing activities for the first quarter ended March 31, 2009 was attributable to an absence of fund raising associated with a convertible note - related party offset by changes in related party advances and repayment of such advances. In 2008 cash provided by financing activities was mainly due to $148,200 in proceeds from convertible related party notes.

The net impact on our cash flow of cash advances to and from related parties was $26,165 of cash provided during the first quarter of 2009 compared to $62,690 of cash provided during the first quarter of 2008.

We maintain cash balances in the United States and China. At March 31, 2009 and December 31, 2008, our cash by geographic area was as follows:

	March 31, 2009			December 31, 2008
United States	$	62,368	7%	$	201,605	6%
China		860,557	93%		2,954,757	94%
	$	922,925	100%	$	3,156,362	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.

- 25 -

The following tables provide certain comparative information based on our consolidated balance sheets at March 31, 2009 as compared to December 31, 2008:

	March 31, 2009		December 31, 2008		Increase/ Decrease			% Change
	(Restated)		(Restated)
Cash	$	922,925	$	3,156,362	$	(2,233,437	)		(71	%)
Accounts receivable, net		3,188,519		2,739,173		449,346			16	%
Advance to vendors		218,310		-		218,310			100	%
Other Receivables		2,007,800		298,442		1,709,358			573	%
Due from related parties		388,765		518,433		(129,668	)		(25	%)
Prepayments and other current assets		19,746		29,510		(9,764	)		(33	%)
Total current assets		6,746,065		6,741,920		4,145			N/M

Accounts payable - trade		2,433,895		1,752,862.00		681,033			39	%
Other accruals and current liabilities		1,684,702		1,743,953		(59,251	)		(3	%)
Advances from customers		1,054,237		1,133,283		(79,046	)		(7	%)
Due to related parties		275,194		378,697		(103,503	)		(27	%)
Foreign tax payable		3,540		34,898		(31,358	)		(90	%)
Total current liabilities		5,451,568		5,043,693		407,874			8	%

N/M – Not Meaningful

Total current assets increased $4,145 at March 31, 2009 from December 31, 2008. The change was due to a $2.2 million decrease in cash primarily attributable to a $1.7 million increase in other receivables as described below, and an approximate $450,000 increase in net accounts receivable. This increase in accounts receivable reflected slower pay cycles from our customers.

Total current liabilities increased 8% at June 30, 2009 from December 31, 2008 primarily due to an increase in our trade accounts payable, partially offset by decreases in due to related parties as further described below, and advances from customers.

Other receivables at March 31, 2009 were $2,007,800 and was primarily comprised of a $1,614,000 21-day term non-interest bearing unsecured loan advanced to Shanghai Yudong Logistics Co., Ltd., a strategic partner; approximately $300,000 of advances to other entities with which we have a strategic or other business relationship with, $38,716 reflecting a deposit we made as required by a Chinese court for potential payment to a former customer in the event we are unsuccessful in a lawsuit we filed against our former customer for amounts owed to us and approximately $55,000 in deferred expenses.

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.

In 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.

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Due from/to Related Parties

At March 31, 2009, we were due $388,765 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 March 31, 2009, we owed $109,005 to Xiangfen Chen, general manager of the Xiamen branch of Shandong Jiajia and $108,749 to Bin Liu general manger of the Tianjin branch of Shandong Jiajia and a 90% owner of Tianjin Sincere Logistics Co., Ltd. (“Tianjin Sincere”). At March 31, 2009 we owed $14,739 to Tianjin Sincere. The loan, which was provided for working capital purposes is unsecured, non-interest bearing and repayable on demand. At March 31, 2009 we owed $39,441 Mr. Hui Liu, a member of the board of directors of Shandong Jiajia pursuant to an oral agreement. This loan is unsecured, non-interest bearing and repayable on demand and is included in due to related parties.

Commitments

The table below presents our commitments for our various office leases in the U.S. and China for the years ended December 31, 2009 and thereafter:

Period	Total
Period Ended December 31, 2009	$	121,000
Period Ended December 31, 2010		48,000
Period Ended December 31, 2011		23,000
Period Ended December 31, 2012		23,000
Period Ended December 31, 2013		23,000
Thereafter		--
	$	238,000

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

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 and knowledge of our industry segment in Asia. We also rely on certain assumptions when deriving the fair value of our derivative liability and share-based compensation and calculations underlying our provision for taxes in China. Assumptions and estimates employed in the areas are material to our reported financial conditions and results of operations. Actual results could differ from these estimates.

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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 was effective for periods beginning after December 15, 2008. Early adoption was prohibited. The adoption of SFAS 160 effected the classification and presentation of the Company’s financial statements and did not have any other material effect on its 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 was effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The adoption of SFAS 161 did not have a material effect on the Company’s consolidated financial statements. The Company does not currently have any derivative instruments.

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 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. The adoption of SFAS No. 162 did not have a material impact on the preparation of our consolidated financial statements.

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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 was effective for fiscal years beginning after December 15, 2008. The adoption of EITF 03-6-1 did not have a material effect on the Company’s consolidated financial statements.

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

This report contains forward-looking statements. The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q 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, if any, 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 unit offering;
	•		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;
	•		the existence of extended payment terms which are customary in China; and
	•		uncertainties related to PRC regulation relating to acquisitions of PRC companies by foreign entities that could restrict or limit our ability to operate, and could negatively affect our acquisition strategy.

These factors are discussed in greater detail under Item 1. Description of Business-Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC on May 18, 2009.

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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, 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 March 31, 2009, 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 serves as our principal executive officer and principal financial and accounting officer concluded that as of March 31, 2009 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 transaction, and (iii) account for certain costs related to the Shandong Jiajia transaction as costs directly associated with the reverse recapitalization transaction.

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 2008 interim reports, the Company: (i) failed to properly recognize and record $25,060 in professional fees expense attributable to that period, (ii) correctly classify approximately $400,000 in recovery of bad debts in the consolidated statements of operations from a component of other income (expense) to a component of operating income, (iii) failed to recognize an overall accrual of $137,149 in expenses, and (iv) failed to recognize an accrued loss of $1,597,000 due under a registration payment arrangement entered into in connection with the Company’s financing completed in April 2008. We have also amended our Annual Report on Form 10-K as originally filed to include restated financial statements which correct the following previous errors in our financial statements: (i) we did not properly record the reverse recapitalization transaction and its effects on equity, and (ii) we did not properly classify and present cash flows related to advances from, and repayments of advances from related parties. Finally, we have also amended our Quarterly Report on Form 10-Q as originally filed by this amendment to include restated financial statements which correct the following previous errors in our financials statements: (i) we did not properly record the reverse recapitalization transaction and its effects on equity, (ii) we did not properly classify and present cash flows related to advances to, collections of advances to, advances from, and repayments of advances from related parties, and (iii) we did not properly adopt the provisions of FAS 160 Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51.

We have also amended our Quarterly Report on Form 10-Q for the interim three months ended March 31, 2009 to include restated financial statements which correct the following previous errors in our financial statements: (i) we did not properly record the reverse recapitalization transaction and its effects on equity, (ii) we did not properly classify and present cash flows related to advances to, collections of advances to, advances from, and repayments of advances from related parties, and (iii) we did not properly adopt the provisions of FASB Accounting Standard No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51.”

Finally, we have further amended our Quarterly Report on Form 10-Q/A (Amendment No 1) for the period ended March 31, 2009 to include restated financial statements which correct the following previous errors in our financial statements: (i) we did not properly record the common stock purchase warrants which were not indexed to our stock as a derivative liability at January 1, 2009 upon adoption of EITF 07-05 “Determining Whether and Instrument (or and Embedded Feature) is indexed to an Entity’s Own Stock” and properly record the subsequent accounting for changes in the fair value of the associated liability at March 31, 2009, and (ii) we did not properly present cash flows from operating activities using the indirect method to begin with net income or loss rather than net income or loss attributable to China Logistics Group, Inc.

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 Chief Financial 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 U.S. GAAP knowledge 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 March 31, 2009. 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 before. 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 expect the material weakness will be remediated prior to December 31, 2009. As we improve our internal control over financial reporting and implement remediation measures, we may supplement or modify the remediation measures described above.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with our evaluation that occurred during our last quarter (our fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On September 24, 2008, the SEC filed a civil complaint in the U.S. District Court for the Southern District of Florida (Case No. 08-61517-CIV-GOLD MCALILEY) against Mr. V. Jeffrey Harrell, our former CEO and principal and financial accounting officer, Mr. David Aubel, previously our largest shareholder and formerly a consultant to us, and our 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 SEC’s complaint alleges that Mr. Harrell filed annual and quarterly reports with the SEC 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 SEC 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 and the Securities Exchange Act of 1934. 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 its name to MediaReady, Inc., was acquired by principals and other parties unrelated to Messrs. Harrell and Aubel in connection with the reverse recapitalization transaction 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 cooperated with the SEC in its action against us and, despite our lack of knowledge of any wrongdoing; in February 2009 we entered into a consent to the entry of a Permanent Injunction and Other Relief to resolve the liability aspects of the complaint. The Permanent Injunction among other things, permanently restrains and enjoins us from violation of Sections 5(a) and 5(c) of the Securities Act of 1933, 15 U.S.C. §§ 77e(a) and 77e(c); violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule l0b-5 promulgated thereunder, 17 C.F.R. §240.l0b-5; violations of Section 13(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78m(a), and Rules 12b-20, 13a-l, and 13a-13 thereunder, 17 C.F.R. §§ 240.12b-20, 240.13a-l, and 240. 13a-13; and violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78m(b )(2)(A) and 8m(b )(2)(B). The consent also provides that the Court will determine whether it is appropriate to order disgorgement and, if so, the amount of the disgorgement.

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 for damages we suffered against Messrs. Harrell and Aubel and other parties involved in the improper conduct alleged in the SEC September 24, 2008 complaint 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 $2,521,379 which we redeemed for 2,864,606 shares of our common stock in March 2008 pursuant to the terms of the December 2007 agreement to a acquire a 51% interest in Shandong Jiajia.

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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 for the year ended December 31, 2008 filed with the SEC on May 18, 2009.

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.

On March 31, 2009 Shandong Jiajia lent $1,614,000 without interest to Shanghai Yudong Logistics Co., Ltd., a strategic partner. The loan was repaid in April 2009.

ITEM 6. EXHIBITS.

Exhibit No.		Description
	3.1	Articles of Incorporation (1)
	3.2	Articles of Amendment (1)
	3.3	Articles of Amendment (5)
	3.4	Articles of Amendment (2)
	3.5	Form of Articles of Amendment (10)
	3.6	Bylaws (1)
	4.1	Trilogy Capital Partners, Inc. Warrant Agreement dated June 1, 2006(3)
	4.2	Form of common stock purchase warrant issued to Mr. Chen (12)
	4.3	Form of common stock purchase warrant issued in the 2008 Unit Offering (13)
	10.1	Debt Conversion Agreement with David Aubel dated December 3, 2005 (4)
	10.2	Amendment to Debt Conversion Agreement with David Aubel dated May 15, 2006 (6)
	10.3	Consulting and Management Agreement dated May 22, 2007 with China Direct Investments, Inc. (7)
	10.4	Consulting and Management Agreement dated September 5, 2007 with Capital One Resource Co., Ltd (8)

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	10.5		Acquisition Agreement dated as of December 31, 2007 between MediaReady, Inc., Shandong Jiajia International Freight & Forwarding (Logistics Co.) Ltd., and Messrs. Hui Liu and Wei Chen (2)
	10.6		Finder's Agreement dated as of December 31, 2007 between MediaReady, Inc. and Dragon Venture (Shanghai) Capital Management Co., Ltd. (2)
	10.7		Consulting Agreement dated as of December 31, 2007 between MediaReady, Inc. and China Direct, Inc. (2)
	10.8		Form of Amendment to Acquisition Agreement dated as of January 28, 2008 between MediaReady, Inc., Shandong Jiajia International Freight & Forwarding Co., Ltd., and Messrs. Hui Liu and Wei Chen (9)
	10.9		Form of Amendment to Finder's Agreement dated as of January 28, 2008 between MediaReady, Inc. and Dragon Venture (Shanghai) Capital Management Co., Ltd. (9)
	10.10		Form of Amendment to Acquisition Agreement dated as of March 13, 2008 between MediaReady, Inc., Shandong Jiajia International Freight & Forwarding Co., Ltd., and Messrs. Hui Liu and Wei Chen (11)
	10.11		Lease Agreement between China Logistics Group, Inc. and ETI International, Inc. (17)
	10.12		Form of Subscription Agreement for 2008 Unit Offering (13)
	10.13		Lease Agreement between Wei Chen and Shandong Jiajia International Freight & Forwarding Co., Ltd.(14)
	10.14		Lease Agreement dated December 31, 2008 between Shandong Jiajia International & Freight Forwarding Co., Ltd. and Shandong Import & Export Co., Ltd. (17)
	10.15		Assumption Agreement dated December 31, 2007 between David Aubel and MediaReady, Inc. (17)
	10.16		Conversion Agreement dated March 20, 2008 between V. Jeffrey Harrell and China Logistics Group, Inc. (16)
	10.17		Conversion Agreement dated March 20, 2008 between David Aubel and China Logistics Group, Inc. (16)
	10.18		Form of promissory note in the principal amount of $561,517.27 dated January 1, 2003 issued by Video Without Boundaries, Inc. to Mr. David Aubel (15)
	10.19		Form of Security Agreement dated May 23, 2001 between Valusales.com, Inc. and Mr. David Aubel (15)
	10.20		Promissory note from Shanghai Yudong Logistics Co., Ltd. to Shandong Jiajia International Freight & Forwarding Co., Ltd., dated March 30, 2009**
	14.1		Code of Business Conduct and Ethics (12)
	21.1		Subsidiaries of the Registrant (12)
	31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
	31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
	32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

* filed herewith

** previously filed

(1	)	Incorporated by reference to the registration statement on Form 10-SB, SEC File No. 0-31497 as filed with the Securities and Exchange Commission on September 11, 2000, as amended.
(2	)	Incorporated by reference to the Current Report on Form 8-K as filed on January 7, 2008.
(3	)	Incorporated by reference to the Current Report on Form 8-K as filed on June 2, 2006.
(4	)	Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 2004.
(5	)	Incorporated by reference to the Current Report on Form 8-K as filed on September 27, 2006.
(6	)	Incorporated by reference to the Quarterly Report on Form 10-QSB for the period ended September 30, 2006.
(7	)	Incorporated by reference to the Current Report on Form 8-K as filed on May 23, 2007.
(8	)	Incorporated by reference to the Current Report on Form 8-K as filed on September 10, 2007.
(9	)	Incorporated by reference to the Current Report on Form 8-K as filed on January 31, 2008.
(10	)	Incorporated by reference to the definitive information statement on Schedule 14C as filed on February 14, 2008.
(11	)	Incorporated by reference to the Current Report on Form 8-K as filed on March 18, 2008.
(12	)	Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2007.
(13	)	Incorporated by reference to the Current Report on Form 8-K as filed on April 24, 2008.
(14	)	Incorporated by reference to the Quarterly Report on Form 10-Q/A (Amendment No. 1) for the period ended June 30, 2008.
(15	)	Incorporated by reference to the Quarterly Report on Form 10-Q for the period ended September 30, 2008.
(16	)	Incorporated by reference to the Quarterly Report on Form 10-Q/A (Amendment No. 1) for the period ended March 31, 2008.
(17	)	Incorporated by reference to the registration statement on Form S-1, SEC File No. 333-151783, as amended.

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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.

	CHINA LOGISTICS GROUP, INC.

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

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