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SCHNEIDER
WEINBERGER & BEILLY LLP
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2200
Corporate Boulevard, N.W.
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Suite
210
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Boca
Raton, Florida 33431
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telephone
(561) 362-9595
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telecopier
(561) 362-9612
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jim@swblaw.net
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December
22, 2009
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'CORRESP'
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Attention:
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H.
Christopher Owings, Assistant Director
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Bill
Thompson, Accounting Branch Chief
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Ta
Tanisha Meadows, Staff Accountant
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Re:
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China
Logistics Group, Inc. (the "Company")
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Amendment
No. 3 to the Registration Statement on Form S-1
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File
No. 333-151783
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Form
10-K/A for the fiscal year ended December 31, 2008
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Filed
September 29, 2009
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Form
10-Q for the fiscal quarter ended June 30, 2009
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Filed
August 19, 2009
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File
No. 0-31497
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1.
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Please
include net income in the table of consolidated operating results for the
interim periods presented on page
21.
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2.
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Please
include a discussion and analysis of other income and expense for the
interim periods presented.
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3.
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Please
include a discussion and analysis of foreign income taxes for each period
presented.
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4.
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We
note that changes in your estimate of the allowance for doubtful accounts
resulted in credits to bad debt expense for the interim periods of fiscal
2008 rather than fiscal 2009. Please
revise.
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5.
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We
reviewed your response to comment six in our letter dated July, 23, 2009
and the revisions to your disclosure. You provided the
disclosure required by SFAS 165 in Note 11 to the unaudited financial
statements included in the filing. Please revise your
disclosure to clarify that you adopted the statement. Similarly
revise your disclosure in Note 4 to the unaudited financial
statements.
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6.
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We
note your response to comment seven in our letter dated July 23,
209. Please disclose whether the lease with Mr. Chen is on
terms that are at least as favorable to the company as would be available
from an unaffiliated party.
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7.
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Please
correct the apparent typographical error in the second paragraph on page
39, or advise. It appears the word should be “agreement” and
not “argument.”
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Unaudited Consolidated
Financial Statements
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Consolidated
Statements of Cash Flows, page
F-4
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8.
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The
indirect or reconciliation method of reporting net cash flow from
operating activities required by paragraph 28 of SFAS 95 should begin with
net income or loss rather than net income or loss attributable to China
Logistics Group, Inc. Please
revise.
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Notes to Unaudited
Consolidated Financial Statements, page
F-5
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Note 6- Stockholders’
Equity, page F-14
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2008 Unit Offering,
page F-14
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9.
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We
note your disclosure of the anti-dilution protections contained in the
subscription agreement for the 2008 Unit Offering. Please
provide us with your evaluation as to whether the warrants are indexed to
your own stock using the two-step approach in EITF 07-5. It
appears the warrants are not indexed to your own stock because the
exercise price is subject to adjustment and that you should have applied
the guidance in EITF 07-5 as of the beginning of the period. Refer to
Example 8 in EITF 07-5.
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1.
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One
or more underlyings
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2.
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One
or more notional amounts or payment provisions or
both.
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Its
terms implicitly or explicitly require or permit net
settlement.
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2.
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It
can readily be settled net by a means outside the
contract.
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3.
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It
provides for delivery of an asset that puts the recipient in a position
not substantially different from net
settlement.
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Interchangeable
(fungible) units, and
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Quoted
prices available in an active market that can rapidly absorb the quantity
held by the entity without significantly affecting the
price.
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·
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the
number of shares issuable upon exercise of the warrants,
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·
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the
relationship between the number of warrants and the outstanding common
stock,
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·
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the
lack of an active market in the stock,
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·
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the
fact that the common stock is not listed on an exchange and was not so
listed at the time the warrants were issued, and
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·
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the
fact that the underlying common stock is not registered with the
Commission
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Annual Financial
Statements
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10.
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Please
revise to reflect the retrospective presentation and disclosure provisions
of SFAS 160. Refer to paragraph 5 of SFAS
160. Similarly revise selected financial data on page 8 and
your disclosures in management’s discussion and analysis of financial
condition and results of operations and elsewhere throughout the
document.
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Notes to Consolidated
Financial Statements, page
F-25
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Note 1 – Summary of
Business and Organization, page
F-25
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11.
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We
reviewed your response to comment 27 in our letter dated July 23,
2009. We understand the acquisition agreement was amended to
provide for the payment of additional consideration. We also
understand from your disclosure on page F-26 that it was in your long-term
best interest to agree to pay Mr. Chen additional consideration,
particularly as the operations of Shandong Jiajia represented all of your
business and operations following the transaction. Please tell
us why Mr. Liu did not receive additional consideration as a shareholder
of Shandong Jiajia. Please also provide us with your analysis
of the facts and circumstances that support accounting for the
consideration as acquisition consideration as opposed to compensation,
particularly since the additional consideration was not distributed to
shareholders on a pro rata basis and in light of your disclosure that Mr.
Chen was critical to the integration. In addition, as
previously requested, tell us why the warrants issued
to Mr. Chen are properly accounted for as equity instruments during the
period in which you did not have sufficient authorized shares to settle
the contract. Refer to paragraph 19 of EITF
00-19.
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12.
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Please
disclose the adjustments to additional paid-in capital and accumulated
deficit in the table of balance sheet data for 2007. In
addition, we note that total current liabilities, basic and diluted income
(loss) per common share and basic and diluted weighted average shares
outstanding in the 2007 tables differ from the financial
statements. Please
revise.
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Balance
Sheet Data
December
31, 2007
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As
Filed
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Adjustment
to Restate
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Restated
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Accounts
receivable – related party
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$
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160,350
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$
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(153,350
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)
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$
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7,000
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Deferred
Costs
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5,450
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(5,450
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)
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-
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Prepayment
and other current assets
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338,895
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(10,830
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)
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328,065
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Total
current assets
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5,269,566
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(169,630
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)
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5,099,936
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Property
and equipment, net
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46,622
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(4,286
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)
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42,336
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Other
assets:
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Intangible
assets
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3,912,301
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(3,912,301
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)
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-
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Deposits
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12,00
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(12,000
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)
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-
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Total
other assets
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3,924,301
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(3,924,301
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)
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-
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Total
assets
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9,240,489
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(4,098,217
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)
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5,142,272
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Accounts
payable – trade
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4,444,825
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(835,940
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)
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3,608,885
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Accrued
consulting fees
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3,780,000
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(3,780,000
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)
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-
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Other
accruals and current liabilities
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343,301
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141,800
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485,101
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Derivative
liabilities
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3,856,416
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(3,856,416
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)
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-
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Total
current liabilities
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16,206,143
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(8,330,555
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)
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7,875,588
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Minority
interest
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781,441
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(180,413
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)
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601,028
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Stockholders’
deficit
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Series
B Convertible Preferred Stock
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845
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450
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1,295
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Common
Stock, $.001 par value
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199,962
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(194,963
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)
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4,999
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Additional
paid-in capital
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20,813,099
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(7,885,474
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12,927,625
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Accumulated
deficit
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(28,535,611
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)
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12,492,738
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(16,042,873
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)
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Total
stockholders’ equity (deficit)
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(7,747,095
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)
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4,412,751
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(3,334,344
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)
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Total
liabilities and stockholders’ deficit
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9,240,489
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(4,098,217
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)
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5,142,272
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Statement
of Operations Data
Year
ended December 31, 2007
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As
Filed
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Adjustment
to Restate
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Restated
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Sales
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$
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-
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$
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35,298,453
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$
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35,298,453
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Cost
of sales
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-
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34,036,196
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34,036,196
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Gross
profit
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-
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1,262,257
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1,262,257
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Selling,
general and administrative
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1,317,258
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(639,081
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)
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678,177
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Provision
for obsolete inventory
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4,138
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(4,138
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)
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-
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Depreciation
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8,028
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(8,028
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)
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-
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Fair
value of equity instruments
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10,424,900
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(10,424,900
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)
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-
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Bad
debt expense
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5,917
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(5,917
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)
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-
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Total
operating expenses
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11,760,241
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(11,082,064
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)
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678,177
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Operating
income (loss)
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(11,760,241
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)
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12,344,321
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584,080
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Other
income (expenses):
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Change
in fair value of derivative liability
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662,899
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(662,899
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)
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-
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Other
income
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_-
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13,515
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13,575
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Interest
expense-related party
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(201,583
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)
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201,583
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-
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Total
other income (expense)
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461,316
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(447,741
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)
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13,575
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Income
(loss) before income taxes and minority interest
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(11,298,925
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)
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11,896,580
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597,655
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Foreign
taxes
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-
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57,205
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57,205
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Income
(loss) before minority interest
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(11,298,925
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)
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11,839,375
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540,450
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Minority
interest in income of subsidiary
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-
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264,820
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264,820
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Net
income (Loss)
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(11,298,925
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)
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11,574,555
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275,630
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Foreign
currency translation adjustment
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-
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(228,976
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)
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(228,976
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)
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Comprehensive
income (loss)
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(11,298,925
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)
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11,345,579
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46,654
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Basic
and Diluted income (loss) per common share:
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Basic
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(0.08
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)
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20.20
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20.12
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Diluted
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(0.08
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)
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0.13
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0.05
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Weighted
average number of shares outstanding:
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Basic
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137,686,070
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(134,243,918
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)
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3,442,152
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Diluted
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137,686,070
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(134,196,462
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)
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3,489,608
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13.
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We
reviewed your response to comment 32 in our letter dated July 23, 2009,
and it is still unclear to us how the restatement affected your financial
statements. We understand that embedded conversion features
were properly accounted for as derivatives until the notes were modified
in connection with the reverse recapitalization
transactions. Please tell us whether our understanding is
correct or whether you restated the historical financial statements of the
legal acquirer in accounting for the transaction. Please also
tell us the entries you made to correct the accounting accorded to the
convertible notes in the restatement of your financial
statements. In addition, tell us the discounts recorded to
equity and immediately recognized in earnings with respect to beneficial
conversion features embedded in the convertible notes for each period
presented. We may have further comment regarding your
disclosures after reviewing your
response.
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Description
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Debit
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Credit
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Derivative
Liability
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$3,856,416
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Additional
Paid-in-Capital
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$3,856,416
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Description
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Debit
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Credit
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Additional
Paid-in-Capital
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$3,856,416
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Retained Earnings
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$3,856,416
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Year
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Number
of Shares Converted
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Amount
of Note Reduction
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Intrinsic
Value
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|||||||||
2006
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592,500
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1,445,000
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2,319,000
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2007
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1,795,000
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1,751,720
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2,821,280
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|||||||||
2008
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2,864,606
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2,521,380
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(659,432
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)
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Note 14- Commitments,
page F-47
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14.
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As
previously requested, please disclose rent expense for each year presented
with separate amounts for minimum rentals, contingent rentals and sublease
rentals. Refer to paragraph 16 of SFAS
13.
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Form 10-K/A for Fiscal
Year Ended December 31, 2008
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15.
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Please
address the above comments in future annual reports to the extent
applicable
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Form 10-Q for Fiscal
Quarter Ended June 30, 2009
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16.
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Please
address the above comments in future interim filings to the extent
applicable.
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Comment
No.
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Page
No. of 10-Q where comment was addressed
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Brief
description
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1 | 24 |
The
Company included net income in the table of consolidated operating results
for the interim periods.
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2 | 26 |
The
Company included a discussion and analysis of other income and expense for
the interim periods.
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3 | 26 |
The
Company included a discussion and analysis of foreign income taxes for the
interim periods.
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6 | 20 |
The
Company included the following statement after the description of related
party leases: “There are no assurances that the terms of the transactions
with these related parties are comparable to terms we could have obtained
from unaffiliated third parties.”
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8 | 4 |
The
Company properly employed the indirect or reconciliation method of
reporting net cash flows from operating activities and began with net
(loss) income.
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10 | 2-3 |
The
Company retrospectively presents the financial statements for the period
ended December 31, 2008 according to the provisions of SFAS 160 or FASB
ASC Topic 810.
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14 | 22 |
The
Company disclosed rent expense for the interim
periods
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Sincerely,
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/s/
James M. Schneider
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James
M. Schneider
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cc: Mr.
Wei Chen
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Sherb
& Co., LLP
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