ITEM 1. BUSINESS
HISTORY
China Logistics Inc. (the “Company” or “CLGZ”) was incorporated in the State of Nevada on December 23, 1988, formerly known as China International Tourism Holdings, Ltd., Dark Dynamite, Inc., NCI Holdings, Inc., Vector Holding, Inc., and prior to June 26, 2002, Vector Aeromotive Corporation.
On February 17, 2009, the Company entered into a transfer & change of control agreement with Ms. Wanwen Su (“Ms. Su”) and Mr. Ming Lei (“Mr. Lei”), pursuant to which, Ms. Su acquired from Mr. Lei 2,636,000 shares of preferred stock of the Company and received a “controlling interest” in the Company.
On February 18, 2009, our Board of Directors adopted a resolution approving a two hundred to one reverse split of our issued and outstanding Common Stock. The reverse split combined our outstanding Common Stock on the basis of 200 outstanding shares being changed to 1 outstanding share. Each shareholder’s percentage ownership in the Company (and relative voting power) remained essentially unchanged as a result of the reverse split. The reverse split was effective on April 3, 2009.
On February 18, 2009, a Plan of Exchange (the “Exchange”) was executed between and among the Company, Chengkai Logistics Co Ltd., a corporation organized under the laws of the Peoples’ Republic of China (“Chengkai”), and the shareholders of Chengkai (“Chengkai Shareholders”). The Exchange was consummated on May 19, 2009, pursuant to which 50,000,000 (after taking into account the Reverse Split) shares of the Company’s common stock were issued to the stockholder of Chengkai. Thereafter, Chengkai became the Company’s wholly-owned subsidiary.
On April 23, 2009, China Logistics, Inc. (F/K/A China International Tourism Holdings, Ltd.), entered into an Agreement (the “Agreement”) between and among the Registrant, Shanxi Kai Da Lv You Gu Wen Xian Gong Si, a corporation organized under the laws of the Peoples’ Republic of China (“Kai Da”), and Mr. Lei Ming, an individual (“Buyer”).
Pursuant to the terms of the Agreement, the Buyer acquired 100% of the total assets of $407,616 and total liabilities of $481,275 (collectively “Kai Da Assets and Liabilities) from the Registrant for the payment of good and valuable consideration of $100.00 (the “Purchase Price”). As a result of the transactions consummated at the closing, the purchase and issuance gave the former president a 'controlling interest' in Kai Da, and Kai Da was no longer a wholly-owned subsidiary of the Company.
On August 10, 2009, the Company changed its corporate name from China International Tourism Holdings, Ltd. to China Logistics Inc. and believed that the new corporate name would provide a more accurate description of the Company’s current operations and be consistent with the Company’s marketing efforts in the logistic industry. Accordingly, the ticker symbol of the Company’s Common Stock was changed to “CLGZ”.
BUSINESS DESCRIPTION OF THE ISSUER
Since the reverse merger with Chengkai was consummated, we have continued operations of Chengkai, a logistic company specializing in logistical services for car manufacturers, car components, food assortments, chemicals, paper, and machinery in China. Chengkai was incorporated in the PRC on October 19, 2004 as a limited liability company, with registered capital of approximately $1,000,000 as of December 31, 2009. Chengkai is located in Guangzhou City, one of the largest commercial bases in China, and a booming transportation hub with easy access to railroad, highway, and rivers. Chengkai has two logistic centers located in Baiyun Airport and the Huangpu Xingang Port in Guangzhou City, Guangdong Province, China.
CLGZ and our wholly-owned subsidiary Chengkai are hereafter referred to as the “Company” or “we”.
The Company specializes in logistical services for car manufacturers, car components, food assortments, chemicals, paper, and machinery in China. The services cover various aspects of transportation management, including logistical planning, import and export management, electronic customs declaration systems, supply chain planning, transporting products from ports to warehouses or vice versa, organization of transportation, and storage and distribution of products.
The Company’s customers include international companies and domestic enterprises in China from various industries. Their clients from the automobile industry include Rolls Royce Automobile Accessories, Mercedes Benz Automobile Accessories, Peugeot Automobile Accessories, BMW Automobile Accessories, and Nissan Automobile Accessories. Their electronic industries clients include IBM Electronics and Creator Corporation China. The Company’s chemical industries clients include Korean LG Chemical Engineering Company, French Rhodia Chemical Company, Spanish Caster Rubber Company, and Korean Dongsung Chemical Co., Ltd. The Company’s customer base has been increasing at a rapid pace, especially within the Food Industry, Paper Industry, Mechanical Industry, Garment Industry, Furniture Industry and Daily Commodity Industry.
SERVICES
International Trade and Import & Export Management
Import & export trade, domestic distribution and purchasing solutions are provided by the Company to reach a win-win business solution. Through several years of practice of commercial trading in China, the Company has accumulated resourceful working experiences and gained close partnerships with financial institutions. These financial institutions help us combine our business procedures and financial status to provide value-added and win-win business solutions for our clients.
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Purchasing process
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Services orienting towards foreign purchasers
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Services for domestic manufacturing purchasers
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Distribution process
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Efficient import & export customs declaration
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Supply-chain financing service
Some international purchasers, who need to purchase their commodities and balance the account among several districts within the country, will more or less be restricted by the local policies such as the leverage of foreign exchange, value-added tax, and import & export trading rights. In order to solve such inadequacies, the Company strives to improve their clients’ working efficiency, and help minimize costs. We minimize costs by integrating manufacturing resources such as purchasing, R&D and manufacturers. We center on a specific or diversified products that highlight core business. We also incorporate management of materials, information and financing. We commit to a more reliable and efficient supply-chain partnership with manufacturers and transnational purchasers.
Customs Declaration
The Company provides customs affairs trusteeship, consultations, and software application solutions on customs network supervision.
Customs affairs have become very complicated in China given the supervision on processing trade, factors concerning China’s policies, and the local implementation and the conflicts that might occur within enterprises. We, as the third party that gets involved in between the government and enterprises, strive to keep sound relationships with governmental departments. With the support of some relevant departments, and our experiences and specialty in dealing with customs affairs, we can provide a comprehensive backup service for our clients.
Specialties:
In regards to the supervision policies on processing trade, we provide declaration management strategies and computerized system for enterprises engaged in processing trade, so as to improve their management level, optimize their declaration procedures, and control their declaration risks.
　　
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We automatically collect data in the manufacturing management database. 　　
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We safely connect the manufacturing management system and accounting management system of the enterprises. 　　
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We develop customized planning that corresponds to each enterprise. 　　
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We monitors and analyzes capital flow.
Warehousing and Transportation
The Company provides diversified logistics solutions.
In order to construct an efficient logistics system, the Company has established solutions with our co-partners, based on the needs of our clients. Through effective integration of logistics, we provide various logistics solution for our clients. Our experienced consultants diagnose and analyze elements that make up of the whole supply-chain to help customize a logistic system that shortens the time of order to the time of delivery.
Specialties:
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Production Logistics
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Sales Logistics
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International Logistics
Production Logistics
Our client’s competitiveness is measured through the enterprise’s capacity to improve its production efficiency, lower its comprehensive cost and practice expenditures, all of which are realized through the optimization and improvement of production logistics system. In-time supply and keeping appropriate inventory are of the most concerned by manufacturers. We, together with other enterprises, have worked for many years in establishing an efficient logistics system in line with our client’s needs.
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Production accessories and raw material supply
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Vendor managed inventory (VMI :Vendor Managed Inventory)
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Land transportation
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In-factory logistics
Sales Logistics
The Company provides managerial operations as well as delivery service for product agents, dealers, and department stores.
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National network transportation
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Management and operation in the logistics center
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3C digital product logistics
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Quality inspection of clothing and textile goods
International Logistics
Through the Company’s talented staff and reliable partnerships, the Company provides international cargo transportation that supports business expansion efforts of clients.
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International Logistics Business
Below are illustrations of our logistics procedures:
ITEM 1A.
ITEM 1A. RISK FACTORS
There are many factors that affect our business, operating results and financial conditions, many of which are beyond its control. The following is a description of the most significant factors that might cause the actual results of operations in future periods to differ materially from those currently expected or desired.
Business Risk Factors
Our auditors have expressed doubt about our ability to continue as a going concern. If we do not generate substantial revenue from our new relationships and are also unable to obtain capital from other resources, we will significantly curtail our operations or halt them entirely.
Historically, we have been dependent on financings to fund our development and working capital needs. For the year ended December 31, 2009, we had net loss of $1,061,366, resulting in our accumulated deficit of $1,068,060 as of December 31, 2009. Accordingly, if we do not develop any new projects, we would have to continue to severely diminish our operations or halt them entirely. The opinion of our auditors contains an explanatory paragraph regarding our ability to continue as a going concern.
Competitors could copy our business model and erode our market share, brand recognition and profitability.
We cannot assure you that our competitors will not attempt to copy our business model, or portions thereof, and that this will not erode our market share and brand recognition and impair our growth rate and profitability. In response to any such competitors, we may be required to decrease our fees, which may reduce our operating margins and profitability.
Because our officers and directors reside outside of the United States, it may be difficult for you to enforce your rights against them or enforce United States court judgments against them in China.
Our directors and our executive officers reside in the PRC and all of our assets are located in China. It may therefore be difficult for United States investors to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under federal securities laws. Further, it is unclear if extradition treaties now in effect between the United States and China would permit effective enforcement of criminal penalties of the federal securities laws.
Because we may not be able to obtain business insurance in the PRC, we may not be protected from risks that are customarily covered by insurance in the United States.
Business insurance is not readily available in China. To the extent that we suffer a loss of a type which would normally be covered by insurance in the United States, such as product liability and general liability insurance, we would incur significant expenses in both defending any action and in paying any claims that result from a settlement or judgment.
Because our funds are held in banks which do not provide insurance, the failure of any bank in which we deposit our funds could affect our ability to continue in business.
Banks and other financial institutions in the PRC do not provide insurance for funds held on deposit. As a result, in the event of a bank failure, we may not have access to funds on deposit. Depending upon the amount of money we maintain in a bank that fails, our inability to have access to our cash could impair our operations, and, if we are not able to access funds to pay our suppliers, employees and other creditors, we may be unable to continue in business.
Failure to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.
We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some that may compete with us, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in China. We can make no assurance, however, that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results and stockholders could lose confidence in our financial reporting.
Internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed. Under the current SEC regulations, we will be required to include an auditor’s report on internal controls over financial reporting for the year ended December 31, 2009. Failure to achieve and maintain an effective internal control environment, regardless of whether we are required to maintain such controls, could also cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price. Although we are not aware of anything that would impact our ability to maintain effective internal controls, we have not obtained an independent audit of our internal controls, and, as a result, we are not aware of any deficiencies which would result from such an audit. Further, at such time as we are required to comply with the internal controls requirements of Sarbanes Oxley, we may incur significant expenses in having our internal controls audited and in implementing any changes which are required.
Declining economic conditions could negatively impact our business
Our operations are affected by local, national and worldwide economic conditions. Markets in the United States and elsewhere have been experiencing extreme volatility and disruption for more than 12 months, due in part to the financial stresses affecting the liquidity of the banking system and the financial markets generally. This volatility and disruption has reached unprecedented levels. The consequences of a potential or prolonged recession may include a lower level of economic activity and uncertainty regarding energy prices and the capital and commodity markets. While the ultimate outcome and impact of the current economic conditions cannot be predicted, a lower level of economic activity might result in a decline in overall sales. Instability in the financial markets, as a result of recession or otherwise, also may affect the cost of capital and our ability to raise capital.
If China Logistics loses the services of a number of key employees, their business could suffer.
Our success is highly dependent upon the continued services of Wanwen Su, who is President and CEO. We do not have a written employment agreement with Ms. Su. There can be no assurances that China Logistics would be able to replace this executive in the event her services become unavailable. We do not have any key-man life insurance on any of their employees.
Material Disruptions At Our Facilities Could Negatively Impact Our Financial Results.
We operate our facilities in compliance with applicable rules and regulations and take measures to minimize the risks of disruption at our facilities. A material disruption at one of our facilities could prevent us from meeting customer demand, reduce our sales and/or negatively impact our financial results. Any of our facilities, or any of our machines within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including:
*unscheduled maintenance outages;
*prolonged power failures;
*an equipment failure;
*a chemical spill or release;
*explosion of a boiler;
*the effect of a drought or reduced rainfall on its water supply;
*labor difficulties;
*disruptions in the transportation infrastructure, including roads, bridges, railroad tracks and tunnels;
*fires, floods, earthquakes, hurricanes or other catastrophes;
*terrorism or threats of terrorism;
*domestic and international laws and regulations applicable to our Company and our business partners, including joint venture partners, around the world; and
*other operational problems.
Any such downtime or facility damage could prevent us from meeting customer demand for our services and/or require us to make unplanned capital expenditures. If one of these facilities were to incur significant downtime, our ability to satisfy customer requirements could be impaired, resulting in lower sales and having a negative effect on our financial results.
China Logistics’ business plan is based, in part, on estimates and assumptions which may prove to be inaccurate and accordingly their business plan may not succeed.
The discussion of the business incorporates management’s current best estimate and analysis of the potential market, opportunities and difficulties that China Logistics faces. There can be no assurances that the underlying assumptions accurately reflect opportunities and potential for success. Competitive and economic forces on marketing, distribution and pricing of products make forecasting of sales, revenues and costs extremely difficult and unpredictable.
Adverse changes in economic policies of the People’s Republic of China (“PRC”) government could have a material adverse effect on the overall economic growth of the PRC, which could reduce the demand for China Logistics’ services and materially adversely affect its business.
All of China Logistics’ assets are located in and all of its revenue is sourced from the PRC. Accordingly, China Logistics’ business, financial condition, results of operations and prospects will be influenced to a significant degree by political, economic and social conditions in the PRC generally and by continued economic growth in the PRC as a whole.
The PRC economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in the PRC is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over the PRC’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.
While the PRC economy has experienced significant growth over the past decade, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have a negative effect on China Logistics. For example, China Logistics’ operating results and financial condition may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to it.
Fluctuations in exchange rates could adversely affect our business and the value of our securities.
The value of our common stock will be indirectly affected by the foreign exchange rate between U.S. dollars and RMB and between those currencies and other currencies in which our sales may be denominated. Because substantially all of our earnings and cash assets are denominated in RMB fluctuations in the exchange rate between the U.S. dollar and the RMB will affect the relative purchasing power of our monies, our balance sheet and our earnings per share in U.S. dollars. In addition, appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue that will be exchanged into U.S. dollars as well as earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.
Since July 2005, the RMB has no longer been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.
Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.
Industry Risk Factors
High fuel prices may increase carrier prices and volatility in fuel prices may make it more difficult to pass through this cost to our clients, which may impair our operating results.
Fuel prices recently reached historically high levels and continue to be volatile and difficult to predict. In the event fuel prices rise, carriers can be expected to charge higher prices to cover higher operating expenses, and our gross profits and income from operations may decrease if we are unable to continue to pass through to our clients the full amount of these higher costs. Higher fuel costs could also cause material shifts in the percentage of our revenue by transportation mode, as our clients may elect to utilize alternative transportation modes, such as inter-modal. In addition, increased volatility in fuel prices may affect our gross profits and income from operations if we are not able to pass through to our clients any higher costs associated with such volatility. Any material shifts to transportation modes with respect to which we realize lower gross profit margins could impair our operating results.
If we fail to maintain and upgrade our information technology systems to meet the demands of our customers and protect our information technology systems against risks that we cannot control, our business may be adversely affected.
We compete for customers based in part on the flexibility and sophistication of our information technology systems. The failure of the hardware or software that supports these systems, the loss of data contained in the systems or the inability to access or interact with our website or connect with our customers electronically, could significantly disrupt our operations, prevent customers from placing orders with us or cause us to lose freight, orders or customers. If our information technology systems are unable to handle additional volume as our business and scope of services grow, our service levels and operating efficiency will likely decline. In addition, we expect that our customers will continue to demand increasingly sophisticated information technology systems from us. If we fail to hire or retain qualified persons to implement, maintain and protect our information technology systems, or if we fail to upgrade or replace our information technology systems to handle increased volumes and levels of complexity and meet the increased demands of our customers, our business may be adversely affected.
Our information technology systems are dependent upon global communications providers, web browsers, telephone systems and other aspects of the Internet infrastructure that have experienced significant system failures and electrical outages in the past. Our systems are also susceptible to outages due to fire, floods, power loss, telecommunications failures and similar events. Although we have implemented network security measures, our servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering. The occurrence of any of these events could disrupt or damage our information technology systems and adversely affect our internal operations, our ability to provide services to our customers and the ability of our customers to access our information technology systems.
Stock Risk Factors
Certain shareholders control a substantial portion of our outstanding common stock.
Our chief executive officer owns a significant portion (72.14%) of the outstanding shares of our common stock and. Accordingly, she will be able to influence the election of our directors and thereby influence or direct our policies.
No dividends have been paid on our common stock.
To date, we have not paid any cash dividends on our common stock and we do not expect to declare or pay dividends on the common stock in the foreseeable future. In addition, the payment of cash dividends may be limited or prohibited by the terms of any future loan agreements.
We may need to issue more stock, which could dilute your stock.
If China Logistics does not have enough capital to meet future capital requirements, they may need to conduct additional capital-raising in order to continue operations. To the extent that additional capital is raised through the sale of equity and/or convertible debt securities, the issuance of such securities could result in dilution to shareholders and/or increased debt service commitments. Accordingly, if China Logistics issues additional stock, it could reduce the value of your stock.
Our stock may be subject to substantial price and volume fluctuations due to a number of factors, many of which will be beyond our control and may prevent our stockholders from reselling our common stock at a profit.
The securities markets have experienced significant price and volume fluctuations in the past. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our common stock in spite of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors, and in response the market price of our common stock could decrease significantly. Investors may be unable to resell their shares of our common stock for a profit. The decline in the market price of our common stock and market conditions generally could adversely affect our ability to raise additional capital, to complete future acquisitions of or investments in other businesses and to attract and retain qualified technical and sales and marketing personnel.
There is no trading market for our shares of common stock and you may be unable to sell your shares.
There has never been a public trading market in our common stock and no such trading market is expected to develop in the immediate future. We are relying on certain exemptions from registration under the Securities Act of 1933, which will result in certain restrictions on the resale of our shares. We are not obligated to repurchase any shares at the request of any holder thereof. Further, we are not obligated to register our common stock under the Securities Act of 1933 or to otherwise contact market makers to create and maintain a market in our shares. Our common stock is not a suitable investment for investors who require liquidity. There can be no assurance that a significant public market for our securities will develop or be sustained following this offering. Thus, there is a risk that you may never be able to sell your shares.
Because we may be subject to the “penny stock” rules, you may have difficulty in selling our common stock.
Because our stock price is less than $5.00 per share, our stock may be subject to the SEC’s penny stock rules, which impose additional sales practice requirements and restrictions on broker-dealers that sell our stock to persons other than established customers and institutional accredited investors. The application of these rules may affect the ability of broker-dealers to sell our common stock and may affect your ability to sell any common stock you may own.
According to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include:
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Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
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Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
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“Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;
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Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
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The wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.
As an issuer of “penny stock” the protection provided by the federal securities laws relating to forward looking statements does not apply to us.
Although the federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, if we are a penny stock, we will not have the benefit of this safe harbor protection in the event of any claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading.
The application of the "penny stock" rules could adversely affect the market price of our common stock and increase your transaction costs to sell those shares.
As long as the trading price of our common shares is below $5 per share, the open-market trading of our common shares will be subject to the "penny stock" rules. The "penny stock" rules impose additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of securities and have received the purchaser's written consent to the transaction before the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the broker-dealer must deliver, before the transaction, a disclosure schedule prescribed by the Securities and Exchange Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. These additional burdens imposed on broker-dealers may restrict the ability or decrease the willingness of broker-dealers to sell our common shares, and may result in decreased liquidity for our common shares and increased transaction costs for sales and purchases of our common shares as compared to other securities.
ITEM 1B.
ITEM 1B. Unresolved Staff Comments
Not applicable.
ITEM 2.
ITEM 2. PROPERTIES
Our main office is located at Suite 910, Yi An Plaza, 33 Jian She Liu Road, Guangzhou, People’s Republic of China, which has a total area of 750 square feet. Our office is under a two-year lease agreement with annual rental payment of approximately $9,600. This space is adequate for our present operations. No other businesses operate from this office.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We may be subject to, from time to time, various legal proceedings relating to claims arising out of our operations in the ordinary course of our business. We are not currently a party to any legal proceedings, the adverse outcome of which, individually or in the aggregate, would have a material adverse effect on the business, financial condition, or results of operations of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 24, 2009, we filed a Definitive Information Statement on Schedule 14C to propose to amend the Company’s Articles of Incorporation to change the name of the corporation from China International Tourism Holdings, Ltd. to "China Logistics, Inc." This name change was approved by action by written consent without a meeting of a majority of all shareholders entitled to vote on the record date (the “Name Change Proposal”).
Holders of 40,000,000 shares of our Common Stock and 2,636,000 shares of Convertible Preferred Stock (25 shares of our Common Stock for each share of Preferred Stock), representing approximately 79.84% of our shares entitled to vote on this matter have executed a written consent in favor of the Name Change Proposal.
The name change from China International Tourism Holdings, Limited to China Logistics Inc. took effective on August 10, 2009.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is quoted on the Electronic Over-the-Counter Bulletin Board under the symbol, “CLGZ.OB”. Trading in the common stock in the over-the-counter market has been limited and sporadic and the quotations set forth below are not necessarily indicative of actual market conditions. Furthermore, these prices reflect inter-dealer prices without retail mark-up, mark-down, or commission, and may not necessarily reflect actual transactions. The high and low bid prices for the common stock for each quarter of the years ended December 31, 2009 and 2008 are as follows:
Interim Period Low High
Interim period ended March 31, 2010 $0.22 $0.22
Fiscal Low High
Quarter ended March 31, 2009 $0.40 $0.40
Quarter ended June 30, 2009 $0.27 $0.27
Quarter ended September 30, 2009 $0.15 $0.15
Quarter ended December 31, 2009 $0.07 $0.07
Fiscal Low High
Quarter ended March 31, 2008 $2.20 $2.20
Quarter ended June 30, 2008 $2.00 $2.00
Quarter ended September 30, 2008 $0.80 $1.00
Quarter ended December 31, 2008 $0.20 $0.40
Record Holders
The holders of the Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the Common Stock have no preemptive rights and no right to convert their Common Stock into any other securities. There are no redemption or sinking fund provisions applicable to the Common Stock. We are authorized to issue 250,000,000 shares of common stock, and 5,000,000 shares of preferred stock. There are currently 4,505 record holders of our common stock.
Dividends
We have not declared any dividends since our inception and do not anticipate paying any dividends in the foreseeable future. The payment of dividends is within the discretion of the Board of Directors, and will depend on our earnings, capital requirements, financial condition, and other relevant factors. There are no restrictions that currently limit our ability to pay dividends on our Common Stock, other than those generally imposed by applicable state law.
Securities Authorized for Issuance Under Equity Compensation Plans
As of the date of this Report, we have not authorized any equity compensation plan, nor has our Board of Directors authorized the reservation or issuance of any securities under any equity compensation plan.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
On July 13, 2009, the Company issued 3,800,000 shares of common stock to its consultant for business advisory services rendered in fiscal years 2008 and 2009. The fair value of this stock issuance was determined using the fair value of the Company’s common stock on the grant date, at a market quoted price of $.27.
On July 13, 2009, the Company issued 742,000 shares of its common stock to settle the loan from shareholder of $58,120 and the loan from a third party of $16,000, which were accrued expenses in connection with the Company’s overseas consulting and advising fees, lawyer fees, and accounting fees from period to period, paid by the shareholder or the third party out of the bank accounts in the United States due to the strict laws and regulations imposed by the Chinese government on out-going foreign currency wire transfers.
The loans from the shareholder or from the third party have the option to convert within two years into common stock of the Company at the price of $.10 per share.
The fair value of this stock issuance was determined using the fair value of the Company’s common stock on the grant date, at a market quoted price of $.27. The difference between the fair market value and the conversion price of $.10 per share was recognized as loss on extinguishment of convertible debt.
Purchases of Equity Securities by the Small Business Issuer and Affiliated Purchasers
None.
Transfer Agent
Our transfer agent is Guardian Registrar & Transfer, Inc. located at 7951 SW 6th Street, Suite 216, Plantation, Florida 33324.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
If the registrant qualifies as a smaller reporting company as defined by Rule 229.10(f)(1), it is not required to provide the information required by this Item.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
Certain statements in this report, including statements of our expectations, intentions, plans and beliefs, including those contained in or implied by "Management's Discussion and Analysis" and the Notes to Consolidated Financial Statements, are "forward-looking statements", within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are subject to certain events, risks and uncertainties that may be outside our control. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”, “will”, and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements. These forward-looking statements include statements of management's plans and objectives for our future operations and statements of future economic performance, information regarding our expansion and possible results from expansion, our expected growth, our capital budget and future capital requirements, the availability of funds and our ability to meet future capital needs, the realization of our deferred tax assets, and the assumptions described in this report underlying such forward-looking statements. Actual results and developments could differ materially from those expressed in or implied by such statements due to a number of factors, including, without limitation, those described in the context of such forward-looking statements, our expansion strategy, our ability to achieve operating efficiencies, our dependence on distributors, capacity, suppliers, industry pricing and industry trends, evolving industry standards, domestic and international regulatory matters, general economic and business conditions, the strength and financial resources of our competitors, our ability to find and retain skilled personnel, the political and economic climate in which we conduct operations and the risk factors described from time to time in our other documents and reports filed with the Securities and Exchange Commission (the "Commission"). Additional factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to: 1) our ability to successfully develop our services; 2) our ability to compete effectively with other companies in the same industry; 3) our ability to raise sufficient capital in order to effectuate our business plan; and 4) our ability to retain our key executives.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Sales
We had sales of $11,992,260 and $13,918,164 for the years ended December 31, 2009 and 2008, respectively. The decrease in 2009 was due to the slowdown in the economy. Our revenues were derived from logistic services and import / export business. Since the US is China’s biggest export partner and we are a logistics company devoted to the import and export of products between China and the US, the global financial crisis starting in 2008 had significant impact on our business.
Income / Loss
We had net loss of $1,061,366 and $641 for the years ended December 31, 2009 and 2008, respectively. The significant net loss during the year ended December 31, 2009 was due primarily to the increase in selling general and administrative costs by $938,971, compared to $931,801 in selling general and administrative expenses during 2008.
In addition, we had loss of $126,220 on extinguishment of convertible debt during 2009, as a result of the issuance of 742,000 shares of common stock to settle the loan from shareholder of $58,120 and the loan from a third party of $16,000. The shares were valued at the fair value of our common stock on the grant date, or $.27 per share. The difference between the fair market value and the conversion price of $.10 per share was recognized as loss on extinguishment of convertible debt.
Expenses
We had operating expenses of $1,870,772 and $931,801 for the years ended December 31, 2009 and 2008, respectively. The significant increase in operating expenses during the year ended December 31, 2009 was due primarily to the non-cash consulting expenses, which were $1,026,000 as a result of the issuance of 3,800,000 shares of common stock for the services rendered in 2008 and 2009. The shares were not issued until the third quarter of 2009, using the fair value of our common stock on the grant date, at a market quoted price of $.27.
Cost of Sales
We had $11,014,269 and $13,020,385 in cost of sales, or 91.84% and 93.55% of sales revenues, during the years ended December 31, 2009 and 2008, respectively. Cost of sales as a percentage of sales was high in general determined by our business model as a logistic services provider for import/export business. The intensive competition in logistic industry as a result of globalization restricts the growth in our gross margin. The cost of sales as a percentage of sales was low during the year ended December 31, 2009 was due primarily to our most revenues earned from service charge during this period since import / export business decreased as a result of global financial crisis. Our services charge includes cargo fees and agent fees, which bear lower cost than import / export business.
Impact of Inflation
We believe that inflation has had a negligible effect on operations during this period. We believe that we can offset inflationary increases in the cost of sales by increasing sales and improving operating efficiencies.
Liquidity and Capital Resources
We had cash flows of $1,235,684 provided by operating activities for the year ended December 31, 2009, compared to the cash flows of $2,404,371 used in operations for the year ended December 31, 2008. Positive cash flows from operations during the year ended December 31, 2009 were primarily due to effective collection in accounts receivable in the amount of $3,464,878, plus the increase in accounts payable by $1,083,483, and the increase in others by $321,808, partially offset by the increase in inventory and other receivable, which were $3,136,582 and $133,949, respectively. Negative cash flows from operation during the year ended December 31, 2008 were primarily due to the amount increase in accounts receivable by $5,292,420, partially offset by the increase in accounts payable by $2,496,712 and the decrease in other receivable by $228,949.
Cash flows used in investing activities were $25,399 and $1,446 for the years ended December 31, 2009 and 2008, respectively, due primarily to the purchase of property and equipment in both years.
We had cash flows of $517,659 used in financing activities for the year ended December 31, 2009 due to the repayments to a shareholder loan. Comparably, cash flows of $377,084 for the year ended December 31, 2008 was due to proceeds from shareholder loans.
Overall, we have funded our cash needs from inception through December 31, 2009 with a series of debt and equity transactions, primarily with related parties. If we are unable to receive additional cash from our related parties, we may need to rely on financing from outside sources through debt or equity transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain such financing could have a material adverse effect on operations and financial condition.
We had cash of $1,223,829 on hand and working capital of $1,221,454 as of December 31, 2009. Currently, we have enough cash to fund our operations for about nine months. This is based on current cash flows from operating activities and projected revenues. Also, if the projected revenues fall short of needed capital we may not be able to sustain our capital needs. We will then need to obtain additional capital through equity or debt financing to sustain operations for an additional year. Our current level of operations would require capital of approximately $700,000 per year starting in 2010. Modifications to our business plans may require additional capital for us to operate. For example, if we are unable to raise additional capital in the future we may need to curtail our number of product offers or limit our marketing efforts to the most profitable geographical areas. This may result in lower revenues and market share for us. In addition, there can be no assurance that additional capital will be available to us when needed or available on terms favorable to us.
On a long-term basis, liquidity is dependent on continuation and expansion of operations, receipt of revenues, additional infusions of capital and debt financing. However, there can be no assurance that we will be able to obtain additional equity or debt financing in the future, if at all. If we are unable to raise additional capital, our growth potential will be adversely affected. Additionally, we will have to significantly modify our business plan.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors. Certain officers and directors of the Company have provided personal guarantees to our various lenders as required for the extension of credit to the Company
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not use derivative financial instruments in our investment portfolio and has no foreign exchange contracts. Our financial instruments consist of cash and cash equivalents, trade accounts receivable, accounts payable and long-term obligations. We consider investments in highly liquid instruments purchased with a remaining maturity of 90 days or less at the date of purchase to be cash equivalents. However, in order to manage the foreign exchange risks, we may engage in hedging activities to manage our financial exposure related to currency exchange fluctuation. In these hedging activities, we might use fixed-price, forward, futures, financial swaps and option contracts traded in the over-the-counter markets or on exchanges, as well as long-term structured transactions when feasible.
Foreign Exchange Rates
All of our sales are denominated in Renminbi (“RMB”). As a result, changes in the relative values of U.S. Dollars and RMB affect our reported levels of revenues and profitability as the results are translated into U.S. Dollars for reporting purposes. Fluctuations in exchange rates between the U.S. dollar and RMB affect our gross and net profit margins and could result in foreign exchange and operating losses.
Our results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in our statement of shareholders’ equity. We recorded net foreign currency gains of $7,798 in fiscal 2009 and $77,251 in fiscal 2008. We have not used any forward contracts, currency options or borrowings to hedge our exposure to foreign currency exchange risk. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future.
Our financial statements are expressed in U.S. dollars but the functional currency of our operating subsidiary is RMB. The value of your investment in our stock will be affected by the foreign exchange rate between U.S. dollars and RMB. To the extent we hold assets denominated in U.S. dollars, including the net proceeds to us from this offering, any appreciation of the RMB against the U.S. dollar could result in a change to our statement of operations and a reduction in the value of our U.S. dollar denominated assets. On the other hand, a decline in the value of RMB against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results, the value of your investment in our company and the dividends we may pay in the future, if any, all of which may have a material adverse effect on the price of our stock.
The exchange rates used to translate amounts in RMB into U.S. Dollars for the purposes of preparing the financial statements or otherwise stated in this MD&A were as follows:
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS
Financial Summary Information
Because this is only a financial summary, it does not contain all the financial information that may be important to you. It should be read in conjunction with the consolidated financial statements and related notes presented in this section.
Audited Financial Summary Information for the Years Ended December 31, 2009 and
** Less than $.01
AUDITED FINANCIALS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of China Logistics, Inc.
We have audited the accompanying consolidated balance sheets of China Logistics, Inc. (the “Company”) as of December 31, 2009 and 2008, and related consolidated statements of operations, stockholders’ deficit, and cash flows for the years ending December 31, 2009 and 2008. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of China Logistics, Inc. as of December 31, 2009 and 2008 and the results of its operations and its cash flows for years ended December 31, 2009 and 2008 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 10, the Company has suffered recurring losses and accumulated deficit that raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/Lake & Associates CPA’s LLC
Lake & Associates CPA’s LLC
April 12,
CHINA LOGISTIC INC., AND SUBSIDIARY
Notes to Audited Consolidated Financial Statements
For the Years Ended December 31, 2009 and 2008
(Stated in US Dollars)
1.
ORGANIZATION AND BUSINESS BACKGROUND
China Logistics Inc. (the “Company” or “CLGZ”) was incorporated in the State of Nevada on December 23, 1988, formerly known as China International Tourism Holdings, Limited, Dark Dynamite, Inc., NCI Holdings, Inc., Vector Holding, Inc., and prior to June 26, 2002, Vector Aeromotive Corporation. The name change from China International Tourism Holdings, Limited to China Logistics Inc. took effective on August 10, 2009.
On February 18, 2009, a Plan of Exchange (the “Exchange”) was executed between and among the Company, Chengkai Logistics Co Ltd., a corporation organized under the laws of the Peoples’ Republic of China (“Chengkai”), and the shareholders of Chengkai (“Chengkai Shareholders”). The Exchange was consummated on May 19, 2009, pursuant to which 50,000,000 (after taking into account the Reverse Split) shares of the Company’s common stock were issued to the stockholder of Chengkai. Thereafter, Chengkai became the Company’s wholly-owned subsidiary.
Simultaneously, pursuant to a Purchase Agreement, the former president of the Company tendered a cash purchase price of $100 and assumed certain liabilities in exchange for all outstanding shares of Shanxi Kai Da Lv You Gu Wen Xian Gong Si, the Company’s wholly-owned subsidiary organized under the laws of the Peoples’ Republic of China ("Kai Da"). As a result of the transactions consummated at the closing, the purchase and issuance gave the former president a 'controlling interest' in Kai Da, and Kai Da was no longer a wholly-owned subsidiary of the Company.
The Exchange between the Company and Chengkai have been respectively accounted for as reverse acquisition and recapitalization of the Company and Chengkai whereby Chengkai is deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer) under the Exchange. The condensed consolidated financial statements are in substance those of Chengkai, with the assets and liabilities, and revenues and expenses, of the Company being included effective from the respective consummation dates of the Exchange.
CLGZ and its wholly-owned subsidiary Chengkai are hereafter referred to as (the “Company”).
The Company is a logistic company specializing in logistical services for car manufacturers, car components, food assortments, chemicals, paper, and machinery in China. The services cover various aspects of transportation management, including logistical planning, import and export management, electronic customs declaration systems, supply chain planning, transporting products from ports to warehouses or vice versa, organization of transportation, and storage and distribution of products.
The Company’s customers include international companies and domestic enterprises in China from various industries. Chengkai’s customer base has been increasing at a rapid pace, especially within the Food Industry, Paper Industry, Mechanical Industry, Garment Industry, Furniture Industry and Daily Commodity Industry.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.
Management’s Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include but are not limited to depreciation, taxes, and contingencies. Actual results could differ from those estimates. The financial statements above reflect all of the costs of doing business.
Principles of Consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiary, Chengkai.
All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.
Cash and cash equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
Allowance for doubtful accounts
The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectibility of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance. The Company considers the historical level of credit losses and applies percentages to aged receivables categories. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations, and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a larger allowance may be required.
Based on the above assessment, during the reporting periods, the management establishes the general provisioning policy to make allowance equivalent to 0.5% of gross amount of trade receivables due less than 1 year, 5% of gross amount of trade receivables due from 1 to 2 years, 10% of gross amount of trade receivables due from 2 to 3 years. The management completely writes off the gross amount of trade receivables due over 3 years. Additional specific provision is made against trade receivables to the extent which they are considered to be doubtful.
Bad debts are written off when identified. The Company does not accrue interest on trade receivables.
Historically, losses from uncollectible accounts have not significantly deviated from the general allowance estimated by the management and no significant additional bad debts have been written off directly to the profit and loss. This general provisioning policy has not changed in the past since establishment and the management considers that the aforementioned general provisioning policy is adequate and not too excessive and does not expect to change this established policy in the near future.
CHINA LOGISTIC INC., AND SUBSIDIARY
Notes to Audited Consolidated Financial Statements
For the Years Ended December 31, 2009 and 2008
(Stated in US Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on a first in first out basis and includes all expenditures incurred in bringing the goods to the point of sale and putting them in a saleable condition. In case of manufacturing inventories, cost includes an appropriate share of production overheads based on normal operating capacity. In assessing the ultimate realization of inventories, the management makes judgments as to future demand requirements compared to current or committed inventory levels. The Company estimates the demand requirements based on market conditions, forecasts prepared by its customers, sales contracts and orders in hand.
In addition, the Company estimates net realizable value based on intended use, current market value and inventory ageing analyses. The Company writes down the inventories for estimated obsolescence or unmarketable inventories equal to the difference between the cost of inventories and the estimated market value based upon assumptions about future demand and market conditions.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use.
Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
Maintenance or repairs are charged to expense as incurred. Upon sale or disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal is charged or credited to income.
Impairment of long-lived assets
In accordance with SFAS No.144, “Accounting for the Impairment or Disposal of Long-lived Assets”, the Company assesses long-lived assets, such as property and equipment and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be fully recoverable. Recoverability of asset groups to be held and used in measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of an asset group exceeds the fair value of the asset group. The Company evaluated its long-lived assets and no impairment charges were recorded for any of the periods presented.
Revenue recognition
Revenue from sales of the Company’s products is recognized when the significant risks and rewards of ownership have been transferred to the customers at the time when the products are delivered to and accepted by them, the sales price is fixed or determinable and collection is reasonably assured.
Cost of sales
Cost of sales consists primarily of material costs, direct labor, depreciation and overheads, which are directly attributable to the products and the provision of services.
Selling expenses
Selling expenses mainly consist of advertising, entertainment, salaries, shipping and handling cost and traveling expense which are incurred during the selling activities.
General and administrative expenses
General and administrative expenses consist of rent paid, office expenses, depreciation, staff welfare, utilities, labor protection and salaries which are incurred at the administrative level.
Income taxes
The Company accounts for income tax using SFAS No. 109 “Accounting for Income Taxes”, which requires the asset and liability approach for financial accounting and reporting for income taxes. Under this approach, deferred income taxes are provided for the estimated future tax effects attributable to temporary differences between financial statement carrying amounts of assets and liabilities and their respective tax bases, and for the expected future tax benefits from loss carry-forwards and provisions, if any. Deferred tax assets and liabilities are measured using the enacted tax rates expected in the years of recovery or reversal and the effect from a change in tax rates is recognized in the statement of operations and comprehensive income in the period of enactment. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, and trade and other receivables. As of December 31, 2009 and 2008, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC, which management believes are of high credit quality. With respect to trade receivables, the Company extends credit based on an evaluation of the customer’s financial condition. The Company generally does not require collateral for trade and other receivables and maintains an allowance for doubtful accounts of trade and other receivables.
Foreign currencies translation
The reporting currency of the Company is the United States dollar (“U.S. dollars”). Transactions denominated in currencies other than U.S. dollar are calculated at the average rate for the period. Monetary assets and liabilities denominated in currencies other than U.S. dollar are translated into U.S. dollar at the rates of exchange ruling at the balance sheet date. The resulting exchange differences are recorded in the other expenses in the statement of operations and comprehensive income.
Foreign currencies translation (cont’d)
The Company’s subsidiary maintains its books and records in its local currency, the Renminbi Yuan (“RMB”), which is functional currency as being the primary currency of the economic environment in which its operations are conducted. In general, for consolidation purposes, the Company translates the subsidiary’s assets and liabilities into U.S. dollars using the applicable exchange rates prevailing at the balance sheet date, and the statement of operations is translated at average exchange rates during the reporting period. Adjustments resulting from the translation of the subsidiary’s financial statements are recorded as accumulated other comprehensive income.
Comprehensive income (loss)
SFAS No. 130, “Reporting Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during the year from non-owner sources. Accumulated comprehensive income, as presented in the accompanying statement of stockholders’ equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
Fair value of financial instruments
The Company values its financial instruments as required by SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”. The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies.
The estimates presented herein are not necessarily indicative of amounts that the Company could realize in a current market exchange.
The Company’s financial instruments primarily include cash and cash equivalents, accounts receivable, inventories, prepayment, accounts payable, other payables and accrued liabilities.
As of the balance sheet date, the estimated fair values of financial instruments were not materially different from their carrying values as presented due to short maturities of these instruments.
Recently issued accounting pronouncements
FASB Accounting Standards Codification
(Accounting Standards Update (“ASU”) 2009-01)
In June 2009, FASB approved the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative nongovernmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission (“SEC”), have been superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become nonauthoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The Codification is effective for interim or annual periods ending after September 15, 2009, and impacts the Company’s financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification. There have been no changes to the content of the Company’s financial statements or disclosures as a result of implementing the Codification during the year ended December 31, 2009. As a result of the Company’s
CHINA LOGISTIC INC., AND SUBSIDIARY
Notes to Audited Consolidated Financial Statements
For the Years Ended December 31, 2009 and 2008
(Stated in US Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Recently issued accounting pronouncements (cont’d)
implementation of the Codification during the year ended December 31, 2009, previous references to new accounting standards and literature are no longer applicable. In the current annual financial statements, the Company will provide reference to both new and old guidance to assist in understanding the impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.
Subsequent Events
(Included in Accounting Standards Codification (“ASC”) 855 “Subsequent Events”, previously SFAS No. 165 “Subsequent Events”)
SFAS No. 165 established general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or available to be issued (“subsequent events”). An entity is required to disclose the date through which subsequent events have been evaluated and the basis for that date. For public entities, this is the date the financial statements are issued. SFAS No. 165 does not apply to subsequent events or transactions that are within the scope of other GAAP and did not result in significant changes in the subsequent events reported by the Company. SFAS No. 165 became effective for interim or annual periods ending after June 15, 2009 and did not impact the Company’s financial statements. The Company evaluated for subsequent events through the issuance date of the Company’s financial statements. No recognized or non-recognized subsequent events were noted.
Determination of the Useful Life of Intangible Assets
(Included in ASC 350 “Intangibles - Goodwill and Other”, previously FSP SFAS No. 142-3 “Determination of the Useful Lives of Intangible Assets”)
FSP SFAS No. 142-3 amended the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under previously issued goodwill and intangible assets topics. This change was intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset under topics related to business combinations and other GAAP. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. FSP SFAS No. 142-3 became effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FSP SFAS No. 142-3 did not impact the Company’s financial statements.
Noncontrolling Interests
(Included in ASC 810 “Consolidation”, previously SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51”)
SFAS No. 160 changed the accounting and reporting for minority interests such that they will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS No. 160 became effective for fiscal years beginning after December 15, 2008 with early application prohibited. The Company implemented SFAS No. 160 at the start of fiscal 2009 and no longer records an intangible asset when the purchase price of a noncontrolling interest exceeds the book value at the time of buyout. Any excess or shortfall for buyouts of noncontrolling interests in mature restaurants is recognized as an adjustment to additional paid-in capital in stockholders’ equity. Any shortfall resulting from the early buyout of noncontrolling interests will continue to be recognized as a benefit in partner investment expense up to the initial amount recognized at the time of buy-in. Additionally, operating losses can be allocated to noncontrolling interests even when such allocation results in a deficit balance (i.e., book value can go negative). The Company presents noncontrolling interests (previously shown as minority interest) as a component of equity on its consolidated balance sheets. Minority interest expense is no longer separately reported as a reduction to net income on the consolidated income statement, but is instead shown below net income under the heading “net income attributable to noncontrolling interests.” The adoption of SFAS No. 160 did not have any other material impact on the Company’s financial statements.
Consolidation of Variable Interest Entities - Amended
(To be included in ASC 810 “Consolidation”, SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”)
SFAS No. 167 amends FASB Interpretation No. 46(R) “Consolidation of Variable Interest Entities regarding certain guidance for determining whether an entity is a variable interest entity and modifies the methods allowed for determining the primary beneficiary of a variable interest entity. The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. SFAS No. 167 is effective for the first annual reporting period beginning after November 15, 2009, with earlier adoption prohibited. The Company will adopt SFAS No. 167 in fiscal 2010 and does not anticipate any material impact on the Company’s financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standards or pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
3.
SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information for the year ended December 31, 2009 and 2008 are summarized as follows:
Cash paid during the year ended December 31, 2009 and 2008 for interest and income taxes:
Income Taxes $37,387 $ -0-
Interest $ $ -0-
4.
ACCOUNTS RECEIVABLE, NET
The majority of the Company’s sales are on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. The Company evaluates the need of an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. If actual collections experience changes, revisions to the allowance may be required. Based upon the aforementioned criteria, management has determined that the allowances for doubtful accounts of $22,204 and $39,653 are required as of December 31, 2009 and 2008, respectively.
CHINA LOGISTIC INC., AND SUBSIDIARY
Notes to Audited Consolidated Financial Statements
For the Years Ended December 31, 2009 and 2008
(Stated in US Dollars)
4. ACCOUNTS RECEIVABLE, NET (CON’T)
5.
INVENTORIES
There was no provision for obsolete inventories recorded by the Company as of December 31, 2009 and 2008, respectively.
6.
SHORT-TERM INVESTMENT
The Company had a short-term investment of RMB 3,500,000, equivalent to approximately $512,000, to a non-related company in March, 2009. The investment was returned during the 4th quarter of 2009.
7.
REVERSE STOCK SPLIT
On February 18, 2009, the Board of Directors of the Company adopted a resolution approving a two hundred to one reverse split of our Common Stock. The reverse split combines the Company’s outstanding Common Stock on the basis of 200 outstanding shares being changed to 1 outstanding share. Each shareholder’s percentage ownership in the Company (and relative voting power) will remain essentially unchanged as a result of the reverse split. The reverse split took effect on April 3, 2009.
The statement of equity and the earnings per share numbers in the financial statements have been restated per FASB 128 paragraph 134.
8.
COMMON STOCK
(a)
Common stock issued for the Exchange
On April 29, 2009, the Company issued 50,000,000 shares of its common stock to the stockholders of Chengkai to consummate the Exchange (see Note 1).
The Company’s issued and outstanding number of common stock immediately prior to the Exchange was 245,026 (after taking into account the Reverse Split) shares, which had been accounted for at its net book value at the time of the Exchange.
(b)
Common stock issued for previous service rendered
On July 13, 2009, the Company issued 3,800,000 shares of common stock to its consultant for business advisory services rendered in fiscal years 2008 and 2009. The fair value of this stock issuance was determined using the fair value of the Company’s common stock on the grant date, at a market quoted price of $.27.
(c)
Common stock issued to settle loan from shareholder
On July 13, 2009, the Company issued 742,000 shares of its common stock to settle the loan from shareholder of $58,120 and the loan from a third party of $16,000, which were accrued expenses in connection with the Company’s overseas consulting and advising fees, lawyer fees, and accounting fees from period to period, paid by the shareholder or the third party out of the bank accounts in the United States due to the strict laws and regulations imposed by the Chinese government on out-going foreign currency wire transfers.
The loans from the shareholder or from the third party have the option to convert within two years into common stock of the Company at the price of $.10 per share.
The fair value of this stock issuance was determined using the fair value of the Company’s common stock on the grant date, at a market quoted price of $.27. The difference between the fair market value and the conversion price of $.10 per share was recognized as loss on extinguishment of convertible debt.
9.
CONCENTRATION AND RISK
(a)
Major customers
For the year ended December 31, 2009 and 2008, 100% of the Company’s assets were located in the PRC and 100% of the Company’s revenues and purchases were derived from customers and vendors located in the PRC.
The Company had one customer that individually comprised 84% and 82% of net revenue for the year ended December 31, 2009 and 2008, respectively.
As of December 31,
As of December 31,
(b) Credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition, but does not require collateral to support such receivables.
CHINA LOGISTIC INC., AND SUBSIDIARY
Notes to Audited Consolidated Financial Statements
For the Years Ended December 31, 2009 and 2008
(Stated in US Dollars)
10. GOING CONCERN UNCERTAINTIES
These consolidated financial statements have been prepared assuming that Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As of December 31, 2009, the Company had an accumulated deficit of $1,068,060. Management has taken certain action and continues to implement changes designed to improve the Company’s financial results and operating cash flows. The actions involve certain cost-saving initiatives and growing strategies, including (a) reductions in headcount and corporate overhead expenses; and (b) expansion into new market. Management believes that these actions will enable the Company to improve future profitability and cash flow in its continuing operations through December 31, 2009. As a result, the financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of the Company’s ability to continue as a going concern.
11. INCOME TAXES
The Company conducts all its operating business through its subsidiary in China. The subsidiary is governed by the income tax laws of the PRC and do not have any deferred tax assets or deferred tax liabilities under the income tax laws of the PRC because there are no temporary differences between financial statement carrying amounts and the tax bases of existing assets and liabilities. The Company by itself does not have any business operating activities in the United States and is therefore not subject to United States income tax.
The Company’s subsidiaries are governed by the Income Tax Law of the People’s Republic of China (“PRC”) concerning Foreign Investment Enterprises and Foreign Enterprises and various local income tax laws (the “Income Tax Laws”). Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law has replaced the previous laws for Domestic Enterprises (“DEs”) and Foreign Invested Enterprises (“FIEs”). The new standard EIT rate of 25% has replaced the 33% rate previously applicable to both DEs and FIEs.
Prior to 2008, under the Chinese Income Tax Laws, FIEs generally were subject to an income tax at an effective rate of 33% (30% state income taxes plus 3% local income taxes) on income as reported in their statutory financial statements after appropriate tax adjustments unless the enterprise was located in specially designated regions for which more favorable effective tax rates apply. Beginning January 1, 2008, China has unified the corporate income tax rate on foreign invested enterprises and domestic enterprises. The unified corporate income tax rate is 25%.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for federal and state income tax purposes.
Utilization of the net operating losses may be subject to certain annual limitations due to changes in control. This may result in the expiration of net operating losses before full utilization.
The Company is subject to income taxes on an entity basis, on income arising in, or derived from the tax jurisdiction in which it is domiciled and operates. The corporate accrued income taxes as of December 31, 2009 and 2008 were $7,805 and $32,336, respectively.
The Company applies SFAS 109, “Accounting for Income Taxes”, which requires recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the income tax basis and financial reporting basis of assets and liabilities. The provision for income taxes consist of taxes currently due plus deferred taxes. Because the Company has no operations within the United States, there is no provision for US income taxes and there are no deferred tax amounts as of December 31, 2009 and 2008.
The charge for taxation is based on the results for the year as adjusted for items that are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred taxes are accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized.
Deferred taxes are calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred taxes are charged or credited in the income statement, except when they relate to items credited or charged directly to equity, in which case the deferred taxes are also recorded in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
The Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), as of January 1, 2007. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption of FIN 48 had no affect on the Company’s financial statements.
Value added tax (“VAT”)
Enterprises or individuals who sell commodities, engage in repair and maintenance or import or export goods in the PRC are subject to a value added tax in accordance with the PRC laws. The value added tax standard rate is 17% of the gross sales price. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s products can be used to offset the VAT due on the sales of the products.
CHINA LOGISTIC INC., AND SUBSIDIARY
Notes to Audited Consolidated Financial Statements
For the Years Ended December 31, 2009 and 2008
(Stated in US Dollars)
12. SUBSEQUENT EVENTS
We evaluated subsequent events through the date and time our financial statements were issued on April 12, 2010. There are no subsequent events through April 12, 2010.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the specified time periods. Our Chief Executive Officer and its Chief Financial Officer (collectively, the “Certifying Officers”) are responsible for maintaining our disclosure controls and procedures. The controls and procedures established by us are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.
As of the end of the period covered by this report, the Certifying Officers evaluated the effectiveness of our disclosure controls and procedures. Based on the evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.
The Certifying Officers have also concluded, based on their evaluation of our controls and procedures that as of December 31, 2009, our internal controls over financial reporting are effective and provide a reasonable assurance of achieving their objective.
The Certifying Officers have also concluded that there was no change in our internal controls over financial reporting identified in connection with the evaluation that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9A(T). CONTROLS AND PROCEDURES
(a) Conclusions regarding disclosure controls and procedures. Disclosure controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management is responsible for establishing and maintaining adequate internal control over financial reporting.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Exchange Act as of December 31, 2009, and, based on their evaluation, as of the end of such period, the our disclosure controls and procedures were effective as of the end of the period covered by the Annual Report,
(b) Management’s Report On Internal Control Over Financial Reporting. It is management’s responsibilities to establish and maintain adequate internal controls over the Company’s financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers and effected by the issuer’s management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; and
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management of the issuer; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.
As of the end of the period covered by the Annual Report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal control over financial reporting.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, internal controls over financial reporting were effective as of the end of the period covered by the Report.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.
(c) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors and Executive Officers
Identification of Directors and Executive Officers and Significant Employees
The following table identifies all of our current executive officers, directors and significant employees. The officers and directors will serve until the next annual meeting of the stockholders, or until their successors are elected or appointed and qualified, or they resign or are terminated.
All executive officers are elected by the Board and hold office until the next Annual Meeting of stockholders and until their successors are elected and qualify.
* Ms. Wanwen Su was appointed to the board effective as of February 17, 2009, the effective date of the resignation of Mr. Ming Lei as former President and CEO.
Business Experience and Personal Background
Ms. Wanwen Su graduated from Guangzhou Jinan University with a degree in Accounting. She previously worked as a manager of Burberry Guangzhou. She founded Guangzhou Chengkai Logistics Co. Ltd in 2005. She has experience in marketing and sales of luxury goods and has established herself well in the logistics business
Mr. Weiheng Cai, age 37, has worked as a technical consultant for the past 5 years both independently and for Conceptual Management, Inc., his wholly-owned company. Mr. Cai primarily performs his services from the Peoples Republic of China where he resides. Mr. Cai performs website development services for emerging companies. He has a BS in Business Administration from the University of North Carolina.
Ms. Yanfen Su, 59 years old, graduated from Zhongshan University with a degree in Journalism. She has decades of management experience, and previously worked at Guangzhou Pearl River Group as an Administrative Manager. Ms.Su is currently retired.
Promoters and Control Persons
These directors may be considered control persons of us within the meaning of the rules promulgated under the Securities Act of 1933, as amended, by virtue of his and her share ownership, his and her ability to influence our activities, and his positions as our officers and directors.
Family Relationships
Ms. Yanfen Su is the mother of Ms. Wanwen Su.
Legal Proceedings
No officer, director, or persons nominated for such positions and no promoter or significant employee of ours has been involved in legal proceedings that would be material to an evaluation of our management.
Audit Committee
We do not have a separately designated standing audit committee. Pursuant to Section 3(a)(58)(B) of the Exchange Act, the entire Board of Directors acts as an audit committee for the purpose of overseeing the accounting and financial reporting processes, and audits of our financial statements. The Commission recently adopted new regulations relating to audit committee composition and functions, including disclosure requirements relating to the presence of an "audit committee financial expert" serving on its audit committee. In connection with these new requirements, our Board of Directors examined the Commission's definition of "audit committee financial expert" and concluded that we do not currently have a person that qualifies as such an expert. We have had minimal operations for the past two (2) years. Presently, there are only three (3) directors serving on our Board, and us are not in a position at this time to attract, retain and compensate additional directors in order to acquire a director who qualifies as an "audit committee financial expert", but we intend to retain an additional director who will qualify as such an expert, as soon as reasonably practicable. While neither of our current directors meets the qualifications of an "audit committee financial expert", each of our directors, by virtue of his past employment experience, has considerable knowledge of financial statements, finance, and accounting, and has significant employment experience involving financial oversight responsibilities. Accordingly, we believe that our current directors capably fulfill the duties and responsibilities of an audit committee in the absence of such an expert.
Code of Ethics
We have adopted a code of ethic (the "Code of Ethics") that applies to our principal chief executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A draft of the Code of Ethics is in Exhibit 14.1 hereto. The Code of Ethics is being designed with the intent to deter wrongdoing, and to promote the following:
• Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships
• Full, fair, accurate, timely and understandable disclosure in reports and documents that a small business issuer files with, or submits to, the Commission and in other public communications made by the small business issuer
• Compliance with applicable governmental laws, rules and regulations
• The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code
• Accountability for adherence to the code
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Exchange Act, all executive officers, directors, and each person who is the beneficial owner of more than 10% of the common stock of a company that files reports pursuant to Section 12 of the Exchange Act, are required to report the ownership of such common stock, options, and stock appreciation rights (other than certain cash-only rights) and any changes in that ownership with the Commission. Specific due dates for these reports have been established, and we are required to report, in this Form 10-K, any failure to comply therewith. We believe that all of these filing requirements were satisfied by our executive officers, directors and by the beneficial owners of more than 10% of our common stock. In making this statement, hawse have relied solely on copies of any reporting forms received by it, and upon any written representations received from reporting persons that no Form 5 (Annual Statement of Changes in Beneficial Ownership) was required to be filed under applicable rules of the Commission.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the annual and long-term compensation for services in all capacities to us for the prior fiscal years ended December 31, 2009, 2008, and 2007, of those persons who were either the chief executive officer during the last completed fiscal year or any other compensated executive officers as of the end of the last completed fiscal year, and whose compensation exceeded $100,000 for those fiscal periods.
SUMMARY COMPENSATION TABLE
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCK HOLDER MATTERS.
The following tables set forth the ownership, as of April 14, 2010, of our common stock (a) by each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, and (b) by each of our directors, by all executive officers and our directors as a group. To the best of our knowledge, all persons named have sole voting and investment power with respect to such shares, except as otherwise noted.
Security Ownership of Certain Beneficial Owners
(1) Unless otherwise indicated in the footnotes to the table, each shareholder shown on the table has sole voting and investment power with respect to the shares beneficially owned by him or it.
(2) Based on 3,295,000 shares of Preferred Stock issued and outstanding.
(1) Unless otherwise indicated in the footnotes to the table, each shareholder shown on the table has sole voting and investment power with respect to the shares beneficially owned by him or it.
(2) Based on 3,295,000 shares of Preferred Stock outstanding with a conversion ratio of 1 for 25 and based on 137,162,026 shares of common stock issued and outstanding after the preferred stock is converted.
(3) Based on 2,636,000 shares of preferred stock with a conversion ratio of 1 for 25 and 33,042,000 shares of common stock already issued and outstanding for Ms. Wanwen Su.
(4) Based on 659,000 shares of preferred stock with a conversion ratio of 1 for 25 and 12,405 shares of common stock already issued and outstanding for Mr. Ming Lei.
Change in Control Arrangements
On February 17, 2009, the Company entered into a transfer & change of control agreement with Ms. Wanwen Su (“Ms. Su”) and Mr. Ming Lei (“Mr. Lei”), pursuant to which, Ms. Su acquired from Mr. Lei 2,636,000 shares of preferred stock of the Company and received a “controlling interest” in the Company.
On February 18, 2009, our Board of Directors adopted a resolution approving a two hundred to one reverse split of our issued and outstanding Common Stock. The reverse split combined our outstanding Common Stock on the basis of 200 outstanding shares being changed to 1 outstanding share. Each shareholder’s percentage ownership in the Company (and relative voting power) remained essentially unchanged as a result of the reverse split. The reverse split was effective on April 3, 2009.
On February 18, 2009, a Plan of Exchange (the “Exchange”) was executed between and among the Company, Chengkai Logistics Co Ltd., a corporation organized under the laws of the Peoples’ Republic of China (“Chengkai”), and the shareholders of Chengkai (“Chengkai Shareholders”). The Exchange was consummated on May 19, 2009, pursuant to which 50,000,000 (after taking into account the Reverse Split) shares of the Company’s common stock were issued to the stockholder of Chengkai. Thereafter, Chengkai became the Company’s wholly-owned subsidiary.
On April 23, 2009, China Logistics, Inc. (F/K/A China International Tourism Holdings, Ltd.), entered into an Agreement (the “Agreement”) between and among the Registrant, Shanxi Kai Da Lv You Gu Wen Xian Gong Si, a corporation organized under the laws of the Peoples’ Republic of China (“Kai Da”), and Mr. Lei Ming, an individual (“Buyer”).
Pursuant to the terms of the Agreement, the Buyer acquired 100% of the total assets of $407,616 and total liabilities of $481,275 (collectively “Kai Da Assets and Liabilities) from the Registrant for the payment of good and valuable consideration of $100.00 (the “Purchase Price”). As a result of the transactions consummated at the closing, the purchase and issuance gave the former president a 'controlling interest' in Kai Da, and Kai Da was no longer a wholly-owned subsidiary of the Company.
On August 10, 2009, the Company changed its corporate name from China International Tourism Holdings, Limited to China Logistics Inc. and believed that the new corporate name would provide a more accurate description of the Company’s current operations and be consistent with the Company’s marketing efforts in the logistic industry. Accordingly, the ticker symbol of the Company’s Common Stock was changed to “CLGZ”.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Other than as disclosed below, none of our present directors, officers or principal shareholders, nor any family member of the foregoing, nor, to the best of our information and belief, any of our former directors, senior officers or principal shareholders, nor any family member of such former directors, officers or principal shareholders, has or had any material interest, direct or indirect, in any transaction, or in any proposed transaction which has materially affected or will materially affect us.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table represents the aggregate fees billed for professional audit services rendered to the independent auditor, Lake & Associates CPA’s LLC (“Lake”) for our audit of the annual financial statements for the years ended December 31, 2009 and 2008. Audit fees and other fees of auditors are listed as follows:
(1)
Audit Fees. These are fees for professional services for the audit of our annual financial statements, and for the review of the financial statements included in our filings on Form 10-Q, and for services that are normally provided in connection with statutory and regulatory filings or engagements.
(2)
The amounts shown in 2009 relate to (i) the audit of our annual financial statements for the fiscal year ended December 31, 2009, and (ii) the review of the financial statements included in our filings on Form 10-Q for the quarters of 2010.
(3)
The amounts shown in 2008 relate to (i) the audit of our annual financial statements for the fiscal year ended December 31, 2008, and (ii) the review of the financial statements included in our filings on Form 10-Q for the quarters of 2009.
(4)
Audit-Related Fees. These are fees for the assurance and related services reasonably related to the performance of the audit or the review of our financial statements.
(5)
Tax Fees. These are fees for professional services with respect to tax compliance, tax advice, and tax planning.
(6)
All Other Fees. These are fees for permissible work that does not fall within any of the other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax Fees.
Pre-Approval Policy for Audit and Non-Audit Services
We do not have a standing audit committee, and the full Board performs all functions of an audit committee, including the pre-approval of all audit and non-audit services before we engage an accountant. All of the services rendered by Lake & Associates CPA’s LLC were pre-approved by our Board of Directors.
We are presently working with its legal counsel to establish formal pre-approval policies and procedures for future engagements of our accountants. The new policies and procedures will be detailed as to the particular service, will require that the Board or an audit committee thereof be informed of each service, and will prohibit the delegation of pre-approval responsibilities to management. It is currently anticipated that our new policy will provide (i) for an annual pre-approval, by the Board or audit committee, of all audit, audit-related and non-audit services proposed to be rendered by the independent auditor for the fiscal year, as specifically described in the auditor's engagement letter, and (ii) that additional engagements of the auditor, which were not approved in the annual pre-approval process, and engagements that are anticipated to exceed previously approved thresholds, will be presented on a case-by-case basis, by the President or Controller, for pre-approval by the Board or audit committee, before management engages the auditors for any such purposes. The new policy and procedures may authorize the Board or audit committee to delegate, to one or more of its members, the authority to pre-approve certain permitted services, provided that the estimated fee for any such service does not exceed a specified dollar amount (to be determined). All pre-approvals shall be contingent on a finding, by the Board, audit committee, or delegate, as the case may be, that the provision of the proposed services is compatible with the maintenance of the auditor's independence in the conduct of its auditing functions. In no event shall any non-audit related service be approved that would result in the independent auditor no longer being considered independent under the applicable rules and regulations of the Securities and Exchange Commission.
(a) On December 31, 2009, our Chief Executive Officer and Chief Financial Officer made an evaluation of our disclosure controls and procedures. In our opinion, the disclosure controls and procedures are adequate because the systems of controls and procedures are designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows for the respective periods being presented. Moreover, the evaluation did not reveal any significant deficiencies or material weaknesses in our disclosure controls and procedures.
(b) There have been no significant changes in our internal controls or in other factors that could significantly affect these controls since the last evaluation.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
Financial Statements
1. The following financial statements of China International Tourism Holdings, Ltd. are included in Part II, Item 8:
Report of Independent Registered Public Accounting Firm Balance Sheet at December 31,
Statements of Operations - for the years ended December 31, 2009 and
Statements of Cash Flows - for the years ended December 31, 2009 and 2008
Statements of Stockholders’ Equity - for the years ended December 31, 2009 and
Notes to Financial Statements
2. Exhibits
14.1. Code of Ethics
31.1. Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer and Chief Financial Officer
32.1. Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer
(b)
Reports on Form 8-K
(1) On May 20, 2009, we filed an amendment on Form 8-K/A to amend the current report on Form 8-K filed on April 17, 2009. We also announced that on April 23, 2009, the Company entered into an Agreement between and among the Registrant, Shanxi Kai Da Lv You Gu Wen Xian Gong Si, a corporation organized under the laws of the Peoples’ Republic of China (“Kai Da”), and Mr. Lei Ming, an individual, pursuant to which Kai Da was no longer a wholly-owned subsidiary of the Company.
(2) On April 17, 2009, we filed a current report on Form 8-K to announce that the Company entered into a Plan of Exchange (the “Agreement”) between and among the Company, Chengkai Logistics Co Ltd., a corporation organized under the laws of the Peoples’ Republic of China (“Chengkai”), the shareholders of Chengkai (“Chengkai Shareholders”) and Ms. Wanwen Su, our President and Director (“Ms. Su”), pursuant to which Chengkai became a wholly-owned subsidiary of the Company.
(3) On March 4, 2009, we filed a current report on Form 8-K to announce the appointment of Ms. Yanfen Su as an Independent Director to the Board of Directors.
(4) On March 3, 2009, we filed a current report on Form 8-K to announce that the Board of Directors of the Company adopted a resolution approving a two hundred to one reverse split of our issued and outstanding Common Stock. The reverse split combines our outstanding Common Stock on the basis of 200 outstanding shares being changed to 1 outstanding share. Each shareholder’s percentage ownership in the Company (and relative voting power) will remain essentially unchanged as a result of the reverse split.
(5) On February 17, 2009, we filed a current report on Form 8-K to announce the Company entered into a transfer & change of control agreement with Ms. Wanwen Su (the “Buyer”) and Mr. Ming Lei (the “Seller). Pursuant to the terms and conditions of the Agreement, the Buyer acquired from the Seller 2,636,000 shares of preferred stock of the Registrant. We also announced the appointment of Ms. Wanwen Su as President and Chairman of the Board, and Mr. Weiheng Cai as an Independent Director to the Board of Directors.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned majority of the Board of Directors, thereunto duly authorized.
Exhibits
14.1. Code of Ethics
31.1. Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer and Chief Financial Officer
32.1. Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer