10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: September 30, 2013
or
[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM: _____________ TO _____________
COMMISSION FILE NUMBER: 000-31497

CHINA LOGISTICS GROUP, INC.

(Exact name of registrant as specified in its charter)

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

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

86-21-63355100

(Registrant’s telephone number, including area code)

Not Applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 180 days.

[  ] Yes [X] No 

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

[X]Yes [  ] No 

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

Large accelerated filer	[  ]	Accelerated filer	[  ]
Non-accelerated filer	[  ]	Smaller reporting company	[X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

[  ] Yes [X] No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 130,607,716 shares of common stock are issued and outstanding as of January 27, 2014.

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page No.
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements.	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	24
Item 4.	Controls and Procedures.	25
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	25
Item 1A.	Risk Factors.	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	25
Item 3.	Defaults Upon Senior Securities.	26
Item 4.	Mine Safety Disclosures.	26
Item 5.	Other Information.	26
Item 6.	Exhibits.	27
	Signatures	28

i

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about: 

·   Our failure to timely file this report;

·   our ability to timely and accurately provide shipping agency services;

·   our declining revenues, history of losses, fluctuating margins and increased operating expenses;

·   the conversion terms of the convertible promissory notes entered into during the nine months ended September 30, 2013 which are subject to various conversion features and the terms of the notes which may restrict our ability to undertake certain transactions;

·   our history of providing advances to related parties and loans to unrelated parties which could adversely impact our liquidity;

·   our dependence on third party equipment and services to operate our business;

·   our dependence on third party cargo agents;

·   credit risks, including the need to write off a related party receivable;

·   the slowdown of the Chinese economy or risks of inflation;

·   the impact of changes in the political and economic policies and reforms of the Chinese government; fluctuations in the exchange rate between the U.S. dollar and the Chinese Renminbi (“RMB”);

·   uncertainties associated with the People’s Republic of China ("PRC")’s legal system;

·   currency exchange restrictions and fluctuations in the value of the RMB;

·   economic, legal restrictions and business conditions in China;

·   adverse impact of recent Chinese accounting scandals;

·   material weaknesses in our disclosure controls and internal control over financial reporting;

·   management’s significant holdings of our common stock;

·   limited public market for our common stock; and

·   potential dilutive impact upon the conversion of convertible notes.

You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements including those made in Item A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2012 as filed with the Securities and Exchange Commission on May 15, 2013. Other sections of this report include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

ii

OTHER PERTINENT INFORMATION

We maintain our web site at www.chinalogisticsinc.com. Information on this web site is not a part of this report.

INDEX OF CERTAIN DEFINED TERMS USED IN THIS REPORT

When used in this report the terms:

·   "China Logistics," "we," "us," "our," the "Company," and similar terms refer to China Logistics Group, Inc., a Florida corporation, and its subsidiary;

·   "Shandong Jiajia" refers to Shandong Jiajia International Freight & Forwarding Co., Ltd., a Chinese company and a majority owned subsidiary of China Logistics, and its branches in Shanghai, Qingdao, Tianjin, Xiamen, and Lianyungang;

·   "China" or the "PRC" refers to the People's Republic of China; and

·   "RMB" refers to the Renminbi, which is the currency of mainland PRC.

iii

PART 1 - FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
	September 30,			December 31,
	2013			2012
	(Unaudited)
ASSETS
Current assets:
Cash	$	2,046,002		$	2,335,156
Restricted cash		81,481			79,351
Note receivable		-			7,935
Accounts receivable, net		1,475,506			1,277,741
Other receivables, net		343,035			349,093
Prepaid expense - related party		72,154			-
Advance to vendors and other current assets		398,911			57,869
Total current assets		4,417,089			4,107,145
Property and equipment, net		149,836			64,862
Total assets	$	4,566,925		$	4,172,007
LIABILITIES AND SHAREHOLDERS' EQUITY  (DEFICIT)
Current liabilities:
Accounts payable	$	2,229,873		$	2,636,667
Advance from customers		960,101			302,042
Convertible notes payable, net		114,576			-
Derivative liabilities		55,324			-
Due to related parties		551,120			1,050,937
Accrued expense - related parties		21,690			-
Accrued expense and other current liabilities		514,218			423,598
Total current liabilities		4,446,902			4,413,244
Total liabilities		4,446,902			4,413,244
SHAREHOLDERS' EQUITY (DEFICIT):
China Logistics Group, Inc. shareholders' equity:
Preferred stock,  $0.001 par value, 10,000,000 shares authorized; Series B convertible preferred stock - $0.001 par value, 1,295,000 shares authorized; 0 and 450,000 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		-			450
Common stock, $0.001 par value, 500,000,000 shares authorized; 112,391,455 and 41,508,203shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		112,391			41,508
Additional paid-in capital		21,363,203			20,636,980
Accumulated deficit		(20,688,873	)		(20,247,282	)
Accumulated other comprehensive loss		(88,857	)		(94,549	)
Total China Logistics Group, Inc. shareholders' equity		697,864			337,107
Non-controlling interest		(577,841	)		(578,344	)
Total shareholders' equity (deficit)		120,023			(241,237	)
Total liabilities and shareholders' equity (deficit)	$	4,566,925		$	4,172,007
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

- 1 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
Sales	$	3,192,631		$	6,349,846		$	10,082,430		$	17,917,318
Cost of sales		2,917,863			6,343,360			9,073,975			16,682,335
Gross profit		274,768			6,486			1,008,455			1,234,983
Operating expenses:
Selling, general and administrative		288,291			254,258			907,969			769,870
Gain on disposal of property and equipment		(3,362	)		-			(3,362	)		(1,089	)
Bad debt expense (recovery), net		13,679			(2,877	)		181,030			9,422
Total operating expenses		298,608			251,381			1,085,637			778,203
(Loss) income from operations		(23,840	)		(244,895	)		(77,182	)		456,780
Other income (expense):
Interest income		5,382			3,447			10,503			3,632
Interest expense		(83,392	)		-			(281,074	)		-
Foreign currency transaction loss		(4,206	)		-			(38,662	)		-
Loss from change in fair value of derivative liabilities		(31,802	)		-			(60,642	)		-
Other (expense) income		(1,075	)		36,312			500			33,424
Total other (expense) income, net		(115,093	)		39,759			(369,375	)		37,056
(Loss) income before income taxes		(138,933	)		(205,136	)		(446,557	)		493,836
Benefit from (provision for) income taxes		-			161			-			(3,303	)
Net (loss) income		(138,933	)		(204,975	)		(446,557	)		490,533
Less: net (loss) income attributable to the non-controlling interest		(3,501	)		(94,685	)		(4,966	)		261,242
Net (loss) income attributable to China Logistics Group, Inc. shareholders	$	(135,432	)	$	(110,290	)	$	(441,591	)	$	229,291
Comprehensive income (loss):
Net (loss) income	$	(138,933	)	$	(204,975	)	$	(446,557	)	$	490,533
Foreign currency translation adjustments		2,481			(67,092	)		11,161			(28,263	)
Comprehensive (loss) income		(136,452	)		(272,067	)		(435,396	)		462,270
Less: comprehensive (loss) income attributable to the non-controlling interest		(2,285	)		(127,560	)		503			247,393
Comprehensive (loss) income attributable to China Logistic Group, Inc. shareholders	$	(134,167	)	$	(144,507	)	$	(435,899	)	$	214,877
Net (loss) income per common share:
Basic	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	0.01
Diluted	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	0.00
Weighted average number of shares outstanding:
Basic		101,658,431			41,508,203			73,479,756			41,508,203
Diluted		101,658,431			41,508,203			73,479,756			46,008,203
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

- 2 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
	For the Nine Months Ended
	September 30,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(446,557	)	$	490,533
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation expense		22,243			5,456
Amortization of debt discount		203,848			-
Interest expense attributable to beneficial conversion feature of convertible note		21,906			-
Loss from change in fair value of derivative liabilities		60,642			-
Increase in allowance for doubtful accounts		181,030			9,422
Gain on disposal of property and equipment		(3,362	)		-
Stock-based compensation		35,000			-
Changes in operating assets and liabilities:
Restricted cash		-			(79,258	)
Note receivable		8,047			-
Accounts receivable		(132,605	)		1,093,025
Other receivables		(208,415	)		34,315
Prepaid expense - related party		17,087			-
Advance to vendors and other current assets		(308,625	)		(689,522	)
Accounts payable		(447,222	)		(479,092	)
Advance from customers		641,917			418,604
Due to related parties		(96,968	)		-
Accrued expense - related parties		21,422			-
Accrued expense and other current liabilities		136,766			96,414
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(293,846	)		899,897
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(105,600	)		(24,210	)
Proceeds from disposal of property and equipment		4,515			1,426
Collection of advance to related parties		-			44,340
Advance to related parties		-			(11,047	)
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		(101,085	)		10,509
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible loans payable, net		136,500			-
Repayment of advance from related parties		(89,050	)		(166,737	)
Advance from related parties		-			31,975
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		47,450			(134,762	)
EFFECT OF EXCHANGE RATE ON CASH		58,327			(56,730	)
NET (DECREASE) INCREASE IN CASH		(289,154	)		718,914
CASH - beginning of period		2,335,156			1,396,896
CASH - end of period	$	2,046,002		$	2,115,810
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	-		$	-
Income taxes	$	-		$	23,843
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for future service	$	27,000		$	-
Common stock issued for convertible notes and accrued interest	$	632,463		$	-
Notes, advance, and interest payable - related parties exchanged for convertible notes	$	385,755		$	-
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

China Logistics Group, Inc. (“we”, “us”, “our” or the “Company”) is a Florida corporation and was incorporated on March 19, 1999 under the name of ValuSALES.com, Inc. We changed our name to Video Without Boundaries, Inc. on November 16, 2001. On August 31, 2006 we changed our name from Video Without Boundaries, Inc. to MediaReady, Inc. and on February 14, 2008, we changed our name from MediaReady, Inc. to China Logistics Group, Inc.

On December 31, 2007 we entered into an acquisition agreement with Shandong Jiajia International Freight and Forwarding Co., Ltd. (“Shandong Jiajia”) and its sole shareholders Messrs. Hui Liu and Wei Chen, through which we acquired a 51% interest in Shandong Jiajia. The transaction was accounted for as a capital transaction, implemented through a reverse recapitalization.  

Shandong Jiajia, formed in 1999 as a Chinese limited liability company, is an international freight forwarder and logistics management company. Shandong Jiajia acts as an agent for international freight and shipping companies. Shandong Jiajia sells cargo space and arranges land, maritime, and air international transportation for clients seeking to import or export merchandise from or into China.  Headquartered in Qingdao, Shandong Jiajia has branches in Shanghai, Xiamen, Lianyungang and Tianjin with additional sales office in Rizhao.

NOTE 2 –BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going concern

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis. The Company has an accumulated deficit of $20,688,873 at September 30, 2013. During the nine months ended September 30, 2013, the Company used cash in operating activities of $374,320. The Company has reported net loss of $446,557 and net income of $490,533 for the nine months ended September 30, 2013 and 2012, respectively. The Company’s ability to continue as a going concern is dependent upon its ability to increase its revenues to historic levels, generate profitable operations in the future and to obtain any necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The outcome of these matters cannot be predicted at this time. These matters raise substantial doubt about the ability of the Company to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements for the three and nine months periods ended September 30, 2013 and 2012 have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The consolidated financial statements for the interim periods presented are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the periods presented. Financial results for interim periods are not necessarily indicative of results that should be expected for the full year. The accompanying condensed consolidated financial statements include our accounts and those of our 51% owned subsidiary, Shandong Jiajia. All inter-company transactions and balances have been eliminated in consolidation.

Use of estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates in 2013 and 2012 include the allowance for doubtful accounts, the useful life of property and equipment, assumptions used in assessing impairment of long-term assets, the value of stock-based compensation and the fair value of derivative liabilities.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

NOTE 2 –BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair value of financial instruments

The Company adopted the guidance of the Financial Accounting standards Boards (“FASB”) Accounting Standards Codification (“ASC”) Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The carrying amounts reported in the condensed consolidated balance sheets for cash, note receivable, accounts receivable, other receivables, due from related party, advance to vendors and other current assets, convertible notes payable, accounts payable, advance from customers, due to related parties, accrued expense – related parties and accrued expense and other current liabilities approximate their fair market value based on the short-term maturity of these instruments.

ASC Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

The following table reflects changes for the nine months ended September 30, 2013 for all financial assets and liabilities categorized as Level 3 as of September 30, 2013.

Liabilities:
Balance of derivative liabilities as of January 1, 2013	$	-
Initial fair value of derivative liabilities attributable to conversion features of convertible notes		196,253
Reclassification of additional paid-in capital upon conversion		(80,287	)
Loss from change in the fair value of derivative liabilities		(60,642	)
Balance of derivative liabilities as of September 30, 2013	$	55,324

Concentration of credit risk

The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC's economy. The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and accounts receivable and other receivables. The Company deposits its cash with high credit quality financial institutions in the United States and the PRC. At September 30, 2013, the Company had deposits of approximately $2.0 million in banks in the PRC. In the PRC, there is no equivalent federal deposit insurance as in the United States; as such these amounts held in banks in the PRC are not insured. The Company has not experienced any losses in such bank accounts through September 30, 2013.

Cash and cash equivalents

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The carrying value of these instruments approximates fair value.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

NOTE 2 –BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Restricted cash

Restricted cash consists of one-year term cash deposit held by a bank in China.

Accounts receivable and other receivables

Accounts receivable and other receivables are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews accounts receivable and other receivables on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At September 30, 2013, allowance for doubtful accounts on accounts receivable totaled $3,362,749 and the allowance for doubtful accounts on other receivables amounted to $428,150. At December 31, 2012, allowance for doubtful accounts on accounts receivable totaled $3,303,295 and the allowance for doubtful accounts on other receivables amounted to $196,427, respectively.

Advance to vendors and other current assets

Advances to vendors and other current assets consist primarily of prepayments or deposits from us for contracted shipping arrangements that have not been utilized by our customers. These amounts are recognized as cost of revenues as shipments are completed and customers utilize the shipping arrangement. Advances to vendors and other current assets totaled $398,911 and $57,869 at September 30, 2013 and December 31, 2012, respectively.

Property and equipment and long-lived assets

Property and equipment are recorded at cost.  Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred.  Depreciation of property and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful lives. Leasehold improvements, if any, are amortized on a straight-line basis over the shorter of the lease period or the estimated useful life. The Company periodically evaluates the carrying value of long-lived assets to be held and used in the business, generally in conjunction with the annual business planning cycle, and when events and circumstances otherwise warrant. If the carrying value of a long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair value for assets to be held and used. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risks involved. There was no impairment recognized during the nine month ended September 30, 2013 and 2012.

Advances from customers

Advances from customers consist of prepayments to us for contracted cargo that has not yet been shipped to the recipient and for other advance deposits. These amounts are recognized as revenue when all of the revenue recognition criteria have been met. Advances from customers totaled $960,101 and $302,042, at September 30, 2013 and December 31, 2012, respectively.

Revenue recognition

The Company provides freight forwarding services to our customers. Our business model involves placing our customers’ freight on prearranged contracted transport. Our revenue recognition policy is in accordance with the guidance of ASC 605, “Revenue Recognition.” In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The Company provides transportation services, generally under contract, by third parties with whom the Company has contracted these services.

Typically, the Company recognizes revenue in connection with our freight forwarding service when the payment terms are as follows:

• When merchandise departs the shipper's location if the trade pricing terms are CIF (cost, insurance and freight),

• When merchandise departs the shipper’s location if the trade pricing terms are CFR (cost and freight cost); or

• When merchandise arrives at the destination port if the trade pricing terms are FOB (free on board) destination.

The Company recognizes direct shipping costs concurrently with the recognition of the related revenue for each shipment. These costs are generally isolated by billings as the Company does not own the shipping containers or transportation vessels.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

NOTE 2 –BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock based compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The FASB ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.

Derivative liabilities

ASC Subtopic 815-40, “Contracts in Entity’s Own Equity,” requires that entities recognize as derivative liabilities the derivative instruments, including certain derivative instruments embedded in other contracts that are not indexed to an entity’s own stock. Pursuant to the provisions of ASC Section 815-40-15, an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. The adoption of ASC Subtopic 815-40 has affected the accounting for (i) certain freestanding warrants that contain exercise price adjustment features and (ii) convertible bonds issued by foreign subsidiaries with a strike price denominated in a foreign currency. In the case of any such warrants and convertible bonds, ASC Subtopic 815-40 provides that such warrants and bonds are to be treated as a liability at fair value with changes in fair value recognized in earnings.

Basic and diluted earnings per share

Pursuant to ASC 260-10-45, basic income (loss) per common share is computed by dividing income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted income (loss) per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in our income subject to anti-dilution limitations. Potentially dilutive common shares consist of common stock issuable for stock warrants, and shares issuable upon conversion of Series B convertible preferred stock. In period where the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact.. The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30,						Nine Months Ended September 30,
Numerator:	2013			2012			2013			2012
Net (loss) income applicable to China Logistics Group, Inc. shareholders	$	(135,432	)	$	(110,290	)	$	(441,591	)	$	229,291
Denominator:
Denominator for basic earnings per share:
Weighted average shares outstanding		101,658,431			41,508,203			73,479,756			41,508,203
Series B convertible preferred stock		-			-			-			4,500,000
Denominator for diluted earnings per share:
Diluted weighted average shares outstanding		101,658,431			41,508,203			73,479,756			46,008,203
(Loss) earnings per common share - basic	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	0.01
(Loss) earnings per common share - diluted	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	0.00

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

NOTE 2 –BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Basic and diluted earnings per share (continued)

The Company's aggregate common stock equivalents at September 30, 2013 and 2012 included the following:

	September 30, 2013		September 30, 2012
Warrants		-		31,558,500
Series B convertible preferred stock		-		4,500,000
Total		-		36,058,500

Foreign currency translation

The accompanying unaudited condensed consolidated financial statements are presented in United States dollars. The functional currency of Shandong Jiajia is the RMB, the official currency of the PRC. In accordance with ASC 830-20-35, assets and liabilities are translated from the local currency into the reporting currency, U.S. dollars, at the exchange rate prevailing at the balance sheet date. Revenues and expenses are translated at average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the consolidated financial statements. Gains and losses resulting from the translation of local currency financial statements into U.S. dollars are reflected in other comprehensive income in the consolidated statements of operations and comprehensive income (loss).

RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place through PRC authorized institutions. Translation of amounts from RMB into United States dollars (“$”) has been made at the following exchange rates for the respective periods:

	September 30, 2013		September 30, 2012		December 31, 2012
Period end RMB: U.S. dollar exchange rate		6.1364		6.3190		6.3011
Average fiscal-year-to-date RMB: U.S. dollar exchange rate		6.2132		6.3085

Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Cash flows from the Company's operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

Income taxes

We account for income taxes in accordance with ASC 740, “Income Taxes.” ASC 740 requires the recognition of deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in our financial statements or tax returns.  Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between the financial reporting and tax basis of our assets and liabilities result in a deferred tax asset, ASC 740 requires an evaluation of the probability that the Company will generate sufficient taxable income to be able to realize the future benefits indicated by the deferred tax assets. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some or the entire deferred tax asset will not be realized.  

Comprehensive income (loss)

We follow ASC 220, “Comprehensive Income” to recognize the elements of comprehensive income (loss). Comprehensive income (loss) is comprised of net income (loss) and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders.  Our comprehensive income (loss) for the three and nine months ended September 30, 2013 and 2012 included net income (loss) and foreign currency translation adjustments.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

NOTE 2 –BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Non-controlling interest

Non-controlling interests in our subsidiaries are recorded as a component of our equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.

Related parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.

Reclassification

Certain reclassifications have been made in prior year same period’s financial statements to conform to the current period’s financial presentation.

Recent accounting pronouncements

In March 2013, the FASB issued ASU 2013-05 “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” ASU 2013-05 addresses the accounting for the cumulative translation adjustment when a parent either sells part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. For public entities, the ASU is effective prospectively for fiscal years, and interim periods, within those years, beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-05 is not expected to have a material impact on the Company’s consolidated financial statements.

In July 2013, the FASB issued ASU 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." ASU 2013-11 provides guidance on the presentation of unrecognized tax benefits related to any disallowed portion of net operating loss carryforwards, similar tax losses, or tax credit carryforwards, if they exist. ASU 2013-11 is effective for fiscal years beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to have a material impact on the Company’s consolidated financial statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

NOTE 3 – ACCOUNTS RECEIVABLE

At September 30, 2013 and December 31, 2012, accounts receivable consisted of the following:

	September 30, 2013			December 31, 2012
Accounts receivable	$	4,838,255		$	4,581,036
Less: allowance for doubtful accounts		(3,362,749	)		(3,303,295	)
	$	1,475,506		$	1,277,741

The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

NOTE 4 – OTHER RECEIVABLES

Other receivables are primarily comprised of advances to other entities with which we have a strategic or other business relationship, and deferred expenses.  The amounts advanced to our strategic partners are unsecured, repayable on demand, and bear no interest. We also advance money to employees for business trips which are then subsequently expensed upon processing of an expense report. The components of other receivables at September 30, 2013 and December 31, 2012 were as follows:

	September 30, 2013			December 31, 2012
Advances receivable	$	693,499		$	467,207
Deferred expenses		20,650			58,383
Other		57,036			19,930
		771,185			545,520
Less: allowance for doubtful accounts		(428,150	)		(196,427	)
	$	343,035		$	349,093

NOTE 5 – PROPERTY AND EQUIPMENT

Property and equipment at September 30, 2013 and December 31, 2012 consisted of the following:

	Useful lives	September 30, 2013			December 31, 2012
Vehicle	5 years	$	120,210		$	47,976
Furniture and office equipment	4 - 5 years		169,837			153,089
			290,047			201,065
Less: accumulated depreciation			(140,211	)		(136,203	)
		$	149,836		$	64,862

For the three months ended September 30, 2013 and 2012, depreciation expense amounted to $9,055 and $2,010, respectively. For the nine months ended September 30, 2013 and 2012, depreciation expense amounted to $22,243 and $5,456, respectively.

NOTE 6 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities are primarily comprised of (1) non-interest bearing advances from unrelated parties used for working capital purposes and payable on demand, (2) accruals for professional fees that have not yet been billed and office rent that has not yet paid, (3) accrued salaries and employees’ benefits, and (4) taxes payable.  The components of accruals and other current liabilities at September 30, 2013 and December 31, 2012 were as follows: 

	September 30, 2013		December 31, 2012
Advances payables	$	388,031	$	273,994
Accrued expenses		73,113		97,276
Accrued salaries and employees' benefits		45,809		51,971
Taxes payable		7,265		357
	$	514,218	$	423,598

- 10 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

NOTE 7 – CONVERTIBLE NOTES PAYABLE

Convertible notes and related derivative liabilities

On February 5, 2013, the Company and Hanover Holding I, LLC (“Hanover”) entered into a Securities Purchase Agreement, providing for the issuance of the 12% Convertible Promissory Note in the principal amount of $27,000. The 12% convertible promissory note and all accrued interest were due on October 5, 2013. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the note is paid. Hanover is entitled, at its option, at any time after the issuance of this Note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of Common Stock equal to a price which is a 70% discount from the average of the two (2) lowest Daily VWAPs in the 10 days prior to the day that Hanover requests conversion, unless otherwise modified by mutual agreement between the Parties (the "Conversion Price"). The Note has a Flex Floor at $0.0225 (the “Original Floor”). If the stock goes below the Original Floor, the stock has 10 business days during which the stock must close above the Original Floor for three consecutive trading days in order to maintain the Original Floor. If the stock is unable to meet these requirements after these 10 business days, a New Floor is set equivalent to 50% of the lowest trading price in the same 10 business days (the "New Floor").If the stock price dips below the New Floor, the stock will once again have l0 business days during which the stock must close above the New Floor for three consecutive trading days in order to maintain the New Floor. The stock will have to continue to maintain a price above the New Floor. If the price is unable to close above the New Floor for three consecutive trading days in 10 business days after the price has dipped, the Flex Floor will be eliminated. If the Company’s common stock is chilled for deposit at DTC and/or becomes chilled at any point while this Agreement remains outstanding, an additional 8% discount will be attributed to the Conversion Price defined hereof. The Company determined that the conversion feature of the 12% convertible promissory note represents an embedded derivative since the note is convertible into a variable number of shares.  Accordingly, the 12% convertible note was not considered to be conventional debt and the embedded conversion feature was required to be bifurcated from the debt host and accounted for as a derivative liability. Accordingly, on February 5, 2013, the fair value of this derivative instrument of $35,502 was recorded as a liability on the accompanying unaudited condensed consolidated balance sheets. Any gains and losses recorded from changes in the fair value of the liability for derivative contracts was recorded as a component of other income/(expense) in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss). On September 17, 2013, the principal amount of $10,000 of this note was converted into 1,970,444 shares of the Company’s common stock at the cost basis of $0.005075 per share. During the fourth quarter of fiscal 2013, the rest of outstanding principal amount and all accrued and unpaid interest of the note were converted into 4,016,261 shares of the Company’s common stock at the cost basis of $0.004759 per share.

On February 6, 2013, CD International Enterprises, Inc. (the “CDII”) assigned certain loans and interest it is owed by the Company amounting to $50,952 to Magna Group LLC (“Magna”). In connection with this assignment, the Company and Magna entered into a Securities Purchase Agreement, providing for the issuance of the 6% Convertible Promissory Note (the “Magna Note”) in the principal amount of $50,952. The 6% convertible promissory note and all accrued interest were due on February 6, 2014. Magna is entitled, at its option, at any time after the issuance of this Note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of Common Stock equal to a price which is a 30% discount from the average of the two (2) lowest Daily VWAPs in the 10 days prior to the day that Magna requests conversion, unless otherwise modified by mutual agreement between the Parties (the "Conversion Price"). Magna will have a one-time Conversion Price to be used upon the first conversion of the Note that is equal to a price which is a 30% discount from the lowest Daily VWAP in the 10 days prior to the day that Magna requests conversion. The Note has a Flex Floor at $0.0225 (the “Original Floor”). If the stock goes below the Original Floor, the stock has 10 business days during which the stock must close above the Original Floor for three consecutive trading days in order to maintain the Original Floor. If the stock is unable to meet these requirements after these 10 business days, a New Floor is set equivalent to 50% of the lowest trading price in the same 10 business days (the "New Floor"). If the stock price dips below the New Floor, the stock will once again have l0 business days during which the stock must close above the New Floor for three consecutive trading days in order to maintain the New Floor. The stock will have to continue to maintain a price above the New Floor. If the price is unable to close above the New Floor for three consecutive trading days in 10 business days after the price has dipped, the Flex Floor will be eliminated. If the Company’s common stock is chilled for deposit at DTC and/or becomes chilled at any point while this Agreement remains outstanding, an additional 8% discount will be attributed to the Conversion Price defined hereof. In February 2013, the entire outstanding principal amount and all accrued and unpaid interest was converted into 1,047,852 and 1,373,035 shares of Company’s common stock at the cost basis of $0.02863 per share and $0.01526 per share, respectively. The Company determined that the conversion feature of the convertible debentures represents an embedded derivative since the debentures are convertible into a variable number of shares. Accordingly, the 6% convertible note was not considered to be conventional debt and the embedded conversion feature was required to be bifurcated from the debt host and accounted for as a derivative liability. Accordingly, on February 6, 2013, the fair value of this derivative instrument of $78,542 was recorded as a liability on the accompanying unaudited condensed consolidated balance sheets. Any gains and losses recorded from changes in the fair value of the liability for derivative contracts was recorded as a component of other income/ (expense) in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss).

- 11 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

NOTE 7 – CONVERTIBLE NOTES PAYABLE (continued)

Convertible notes and related derivative liabilities (continued)

On August 8, 2013, the Company and LG Capital Funding LLC (“LG”) entered into a note purchase agreement, providing for the issuance of an 8% convertible note in the principal amounts of $51,500. In connection with the convertible promissory note, the Company paid a fee of $5,500 and received net cash proceed of $46,000. The principal amount and accrued interest of note are due on April 8, 2014. Any amount of principal or interest on the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date thereof until the note is paid. LG is entitled, at its option, at any time after the issuance of the note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 57% of the average of three lowest trading price in the 10 consecutive trading days prior to the day that LG requests conversion. The Note has a Flex Floor at $0.001 (the “Original Floor”). If the stock goes below the Original Floor, the stock has 10 business days during which the stock must close above the Original Floor for three consecutive trading days in order to maintain the Original Floor. If the stock is unable to meet these requirements after these 10 business days, a New Floor is set equivalent to 50% of the lowest trading price in the same 10 business days (the "New Floor"). If the stock price dips below the New Floor, the stock will once again have l0 business days during which the stock must close above the New Floor for three consecutive trading days in order to maintain the New Floor.The stock will have to continue to maintain a price above the New Floor. If the price is unable to close above the New Floor for three consecutive trading days in 10 business days after the price has dipped, the Flex Floor will be eliminated. The Company determined that the conversion feature of the 8% convertible promissory note represents an embedded derivative since the note is convertible into a variable number of shares.  Accordingly, the 8% convertible note was not considered to be conventional debt and the embedded conversion feature was required to be bifurcated from the debt host and accounted for as a derivative liability. Accordingly, on August 8, 2013, the fair value of this derivative instrument of $82,209 was recorded as a liability on the accompanying unaudited condensed consolidated balance sheets. Any gains and losses recorded from changes in the fair value of the liability for derivative contracts was recorded as a component of other income/(expense) in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss).

The fair value of the derivative liabilities were estimated using the Black-Scholes-Merton option pricing model with the following assumptions:

Dividend rate	0
Term (in years)	0.04 to 1 year
Volatility	318% to 389%
Risk-free interest rate	0.01% to 0.14%

At September 30, 2013, and on the initial measurements of the derivative liabilities, and on the conversion dates of these convertible notes, the Company valued the derivative liabilities resulting in a loss in fair value of derivative liabilities of $11,658 for the nine months ended September 30, 2013. For the nine months ended September 30, 2013, amortization of debt discounts related to these convertible notes amounted to $89,374, which has been included in interest expense on the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss).

Other convertible notes

On April 8, 2013, the Company issued a 4% convertible note of the Company in the aggregate principal amount of $82,143 to its consultant CDII in connection with the exchange for working capital advances due to CDII in 2012 and prior to this convertible note. Pursuant to this convertible note, CDII was entitled, at its option, at any time after the issuance of this note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 80% of the lowest VWAP in the 10 consecutive trading days prior to the day that CDII requests conversion. On May 21, 2013, this note was fully converted into 3,422,617 shares of the Company’s common stock at a conversion price is $0.024 per share.

On April 18, 2013, CDII assigned certain notes payable and the related accrued interest due to CDII amounting to $77,700 to Magna and Magna and the Company entered into an Assignment and Modification Agreement in connection with the issuance of a 6% convertible note of the Company to Magna in the aggregate principal amount of $77,700. The principal amount and its interest were due on January 18, 2014. Magna is entitled, at its option, at any time after the issuance of this note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of Common Stock equal to a price which is 70% of the lowest VWAP in the 10 consecutive trading days prior to the day that Magna requests conversion. In May and June 2013, this Note was fully converted into 7,629,231 shares of the Company’s common stock at an average conversion price is $0.01018 per share.

- 12 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

NOTE 7 – CONVERTIBLE NOTES PAYABLE (continued)

Other convertible notes (continued)

On May 24, 2013, the Company, CDII and CFO Oncall, Inc (“CFO Oncall”) entered into an assignment agreement, in which CDII assigned to CFO Oncall a note payable originally dated December 19, 2009 of $20,000 and accrued interest of $1,906 for an aggregate amount of $21,906 to CFO Oncall, and the Company issued a 4% Convertible Promissory Note in the principal amount of $21,906 to CFO Oncall. CFO Oncall was entitled, at its option, at any time after the issuance of this note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to $0.0114. On June 25, 2013, this note has been fully converted into 1,921,590 shares of the Company’s common stock. The convertible note was considered to have an embedded beneficial conversion feature (“BCF”) because the effective conversion price was less than the fair value of the Company’s common stock. The value of the beneficial conversion feature was $21,906 and was recorded as interest expense on the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss).

On May 29, 2013, the Company, CDII and Magna entered into an assignment agreement, in which CDII sold a series of notes owed to it by the Company to Magna with the aggregate principal amount of $108,000 and accrued interest of $10,030, and the Company issued a 6% convertible promissory note in the principal amount of $118,030 to Magna. The principal amount and its interest were due on January 29, 2014. Magna is entitled, at its option, at any time after the issuance of this note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 70% of the lowest 2 daily VWAPs in the 10 consecutive trading days prior to the day that Magna requests conversion. On June 26, 2013, $45,000 of this note was converted into 4,952,449 shares of the Company’s common stock at a conversion price of $0.009 per share. On July 12, 2013, $15,000 of this note was converted into 2,031,144 shares of the Company’s common stock at a conversion price of $0.007385 per share. On July 30, 2013, $15,000 of this note was converted into 2,747,253 shares of the Company’s common stock at a conversion price of $0.00546 per share. On August 8, 2013, $15,000 of this note was converted into 2,747,253 shares of the Company’s common stock at a conversion price of $0.00546 per share. On August 14, 2013, $18,000 of this note was converted into 3,361,345 shares of the Company’s common stock at a conversion price of $0.005355 per share. On August 27, 2013, the remaining balance of principal of $10,030 and accrued and unpaid interest of $582 was converted into 1,919,025 shares of the Company’s common stock at a conversion price of $0.00553 per share.

On June 12, 2013, the Company, CDII and Iconic Holdings, LLC (“Iconic”) entered into a series of agreements, in which Iconic purchased from CDII a $30,000 note that the Company owed to CDII dated October 2, 2011 and interest payable of $3,300, and the Company issued a 10% Convertible Promissory Note in the principal amount of $33,000 to Iconic. The 10% convertible promissory note and all accrued interest are due on June 12, 2014. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the lower rate of twenty percent (20%) per annum or the highest rate permitted by law from the due date thereof until the note is paid. Iconic is entitled, at its option, at any time after the issuance of this note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of Common Stock equal to a price which is 70% of the lowest trading price in the 10 consecutive trading days prior to the day that Iconic requests conversion. On July 16, 2013, $7,517 of this note was converted into 1,167,244 shares of the Company’s common stock at a conversion price of $0.00644 per share. On July 31, 2013, $23,907 of this note was converted into 4,553,711 shares of the Company’s common stock at a conversion price of $0.00525 per share. At September 30, 2013, principal amount due under this convertible note was $1,576.

On June 12, 2013, the Company, CDII and Iconic entered into a series of agreements, in which Iconic purchased from CDII a $50,000 note dated December 2, 2011 that the Company owed to CDII and interest payable of $2,976, and the Company issued a 10% Convertible Promissory Note in the principal amount of $52,976 to Iconic. The 10% convertible promissory note and all accrued interest were due on June 12, 2014. Any amount of principal or interest on this note which is not paid when due shall bear interest at the lower rate of twenty percent (20%) per annum or the highest rate permitted by law from the due date thereof until the note is paid. Iconic is entitled, at its option, at any time after the issuance of this Note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of Common Stock equal to a price which is 70% of the lowest trading price in the 10 consecutive trading days prior to the day that Iconic requests conversion. On June 30, 2013, $32,073 of this note was converted into 3,963,786 shares of the Company’s common stock at a conversion price of $0.008 per share. On July 8, 2013, $12,320 of this note was converted into 2,000,000 shares of the Company’s common stock at a conversion price of $0.00616 per share. On July 16, 2013, the remaining balance of $8,583 was fully converted into 1,332,756 shares of the Company’s common stock at a conversion price of $0.00644 per share.

- 13 -

CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

NOTE 7 – CONVERTIBLE NOTES PAYABLE (continued)

Other convertible notes (continued)

On June 12, 2013, the Company and Iconic entered into two note purchase agreements, providing for the issuance of two 10% convertible note with the principal amount of $17,500 and $27,500 respectively, for an aggregate principal amount of $45,000. In connection with these convertible promissory notes, the Company paid a fee of $6,500 and received net cash proceeds of $38,500. The $6,500 fee paid was reflected as a debt discount to be amortized over the life of the loan. The principal amount and accrued interest of both notes are due on June 12, 2014. Any amount of principal or interest on the notes which is not paid when due shall bear interest at the lower rate of twenty percent (20%) per annum or the highest rate permitted by law from the due date thereof until the notes are paid. Iconic is entitled, at its option, at any time after the issuance of this Note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 60% of the lowest trading price in the 10 consecutive trading days prior to the day that Iconic requests conversion. At September 30, 2013, principal amount due under this convertible note amounted to $45,000.

On August 27, 2013, the Company and JSJ Investments Inc. (“JSJ”) entered into a note purchase agreement, providing for the issuance of a convertible note in the principal amounts of $25,000. The principal amount of the note is due on February 27, 2014. Any amount of principal on the note which is not paid when due shall bear interest at the rate of 10% per annum from the due date thereof until the note is paid. JSJ is entitled, at its option, at any time after the issuance of the note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 55% (45% discount) of the average of the three lowest trades on the previous 10 trading days to the date of conversion, with a maximum conversion price equal to that price would be obtained if the conversion were to be made on the date that this note was executed, and shares will not be converted under a price of $0.0005. At September 30, 2013, principal amount due under this convertible note was $25,000.

Pursuant to ASB Topic 470-20-525 (Debt with conversion and other options), since these other convertible promissory notes had fixed conversion percentages ranging from 55% to 80% of the stock price, the Company determined it had a fixed maximum amounts that can be settled for the debt. Accordingly, during the nine months ended September 30, 2013, the Company accrued a put premium amount aggregating $196,267 in this period since the notes are convertible for the conversion premium and recorded a debt discount of $196,267 which is amortized over the life of the respective note. Upon conversion of certain other convertible notes to common stock during the nine months ended September 30, 2013, the Company reduced the put premium by $142,380 and reclassified the same amount to additional paid-in capital. For the nine months ended September 30, 2013, in connection with the amortization of the debt discount, the Company recorded interest expense of $163,458.

At September 30, 2013 and December 31, 2012, convertible promissory notes consisted of the following:

	September 30, 2013			December 31, 2012
Principal amount	$	140,076		$	-
Put premium		53,887			-
		193,963			-
Less: unamortized debt discount		(79,387	)		-
Convertible note payable, net	$	114,576		$	-

NOTE 8 – STOCKHOLDERS’ EQUITY

Preferred stock

The Company has 10,000,000 shares of preferred stock, par value $0.001, authorized, 1,000,000 of which we designated as our Series A Convertible Preferred Stock in December 2007 in connection with our acquisition of a 51% interest in Shandong Jiajia. On March 28, 2008 shareholders holding the Series A Convertible Preferred Stock converted their 1,000,000 shares into 2,500,000 shares of common stock, and no shares of Series A Convertible Preferred Stock were outstanding at September 30, 2013 and December 31, 2012.

In December 2007, we designated 1,295,000 shares of our preferred stock as Series B Convertible Preferred stock in connection with our acquisition of a 51% interest in Shandong Jiajia. Each share of Series B Convertible Preferred Stock is convertible into 10 shares of our common stock. In March 2008, holders of the Series B Convertible Preferred Stock converted 845,000 shares into 8,450,000 shares of common stock, and in February 2013, holders of the Series B Convertible Preferred Stock converted 450,000 shares into 4,500,000 shares of common stock. There were 0 and 450,000 shares of Series B Convertible Preferred Stock outstanding at September 30, 2013 and December 31, 2012, respectively.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

NOTE 8 – STOCKHOLDERS’ EQUITY (continued)

Common stock

In January 2013, the Company issued 10,000,000 shares of its common stock to Mr. Wei Chen, the Company’s Chief Executive Officer for his services rendered and to be rendered in fiscal 2012 and fiscal 2013. The shares were valued at the fair market value of $30,000 on the grant date, and the Company recorded stock-based compensation of $30,000.

In August 2013, the Company issued 4,000,000 shares of its common stock to a consultant for his service from August 2013 through July 2014. The shares were valued at the fair market value of $32,000 on the grant date. The Company recorded stock-based compensation of $5,000 during the nine months ended September 30, 2013 and recorded prepaid expense of $27,000 at September 30, 2013, which will be amortized over the rest of his service periods.

In February 2013, the Company issued 4,500,000 shares of its common stock in connection with the conversion of 450,000 shares of Series B Convertible Preferred Stock.

During the nine months ended September 30, 2013, the Company issued 52,383,252 shares of its common stock in connection with the conversion of convertible notes.

Common stock purchase warrants

Warrant activity for the nine months ended September 30, 2013 was summarized as follows:

	Number of warrants			Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (Years)
Outstanding at December 31, 2012		31,558,500		$	0.20			0.33
Granted		-			-			-
Exercised		-			-			-
Expired		(31,558,500	)		(0.20	)		-
Outstanding at September 30, 2013		-		$	-			-

NOTE 9 –RELATED PARTY TRANSACTIONS

Prepaid expense - related party

From time to time, the Company makes payments to CDII, a consultant of the Company, in connection with the prepayments for professional fees. CDII is not under the common control of Mr. Wei Chen, the Company’s Chief Executive officer, and Mr. Hui Liu, the Company’s director.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

NOTE 9 –RELATED PARTY TRANSACTIONS (continued)

At September 30, 2013 and December 31, 2012, prepaid expense - related party consisted of the following;

	September 30, 2013		December 31, 2012
Prepayments made to CD International Enterprises, Inc.	$	72,154	$	-
	$	72,154	$	-

Prepaid expense - related party of $72,154 at September 30, 2013 reflects payments made to CD International Enterprises, Inc., which is the consultant of the Company, in connection with the prepayment for professional fees. 

Due to related parties

On September 30, 2013 and December 31, 2012, due to related parties consisted of the following:

	September 30, 2013		December 31, 2012
Due to Xiangfen Chen (1)	$	25,567	$	72,509
Due to Bin Liu (2)		182,627		194,949
Due to Tianjin Sincere Logistics Co., Ltd.		107,176		177,137
Due to Shunbo International Freight Ltd. (3)		37,563		2,671
Due to Lianyunbu (4)		149,298		145,982
Due to Shang Jing (5)		48,889		47,611
Due to CD International Enterprises, Inc.		-		410,078
	$	551,120	$	1,050,937

(1)   Xiangfen Chen is the general manager of Shandong Jiajia Xiamen branch.

(2)   Bin Liu is the general manager of Shandong Jiajia Tianjin branch. Mr. Liu is a 90% owner of Tianjin Sincere Logistics Co., Ltd.  

(3)   Lianyungang Shunbo International Freight Ltd. is a company owned by Shunhua Jiang, the Spouse of Shouliu Tang, the general manager of Lianyungang branch.

(4)   Langyunbu is an entity affiliated with Hui Liu, who is a member of the Company’s Board of Directors and Chief Executive Officer of Shangdong Jiajia.

(5) Shang Jing is the general manager of Shandong Jiajia Qingdao branch.

Due to related parties of $551,120 at September 30, 2013 reflect advances from related parties.  The advances are unsecured, non-interest bearing and repayable on demand. Shandong Jiajia used the proceeds for general working capital purpose.

The amounts due to CD International Enterprises, Inc. as of December 31, 2012 was $410,078, which included $323,000 of working capital loans and $87,078 related to professional fees, primarily legal and accounting paid by CDII on the Company’s behalf. The proceeds from these promissory notes were used for working capital purposes. The notes accrued interest at 4% annually and were due at various dates in 2012. In 2013, CD International Enterprises, Inc. assigned these loans and related accrued and unpaid interest to third parties and these notes were exchanged for convertible notes pursuant to related securities purchase agreements (see note 11).

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

NOTE 9 –RELATED PARTY TRANSACTIONS (continued)

Operating leases  - related parties

On December 31, 2011, Shandong Jiajia Xiamen branch entered into a lease for office space with Xiangfen Chen (the “Xiamen Office Lease". Pursuant to the Xiamen Office Lease, Xiamen branch leases approximately 95 square meter of office space from Mr. Chen in Xiamen City. Rent under the Xiamen Office Lease is RMB 900 (approximately $150) per month. The term of the Xiamen Office Lease is a year and expires on December 31, 2012. On December 31, 2012, Shandong Jiajia Xiamen branch renewed the Xiamen Office Lease. Rent under the renewed Xiamen Office Lease is RMB 900 (approximately $150) per month. The term of the renewed Xiamen Office Lease is a year and expires on December 31, 2013. For the nine months ended September 30, 2013 and 2012, rent expense related to the Xiamen Office Lease amounted $1,304 and $1,284, respectively. At September 30, 2013 and December 31, 2012, accrued rent for the Xiamen Office Lease amounted to $1,320 and $0, respectively, which were included in accrued expense-related parties on the accompanying consolidated balance sheets

Operating leases – related parties (continued)

On May 31, 2011, the Company entered into a lease for office space with Mr. Wei Chen (the “Shanghai Office Lease”), its Chairman and CEO. Pursuant to the Shanghai Office Lease, the Company leases approximately 7,008 square feet of office space in Shanghai City. The office serves as the Company’s principal executive office. Rent under the Shanghai Office Lease is RMB 25,000 (approximately $4,000) per month. The Company also needs to pay a property management fee to an unrelated party of RMB 11,719 (approximately $1,900) per month in connection with the Shanghai Office Lease. The term of the Shanghai Office Lease is two years and expires on May 31, 2013. On May 31, 2013, the Company renewed the Shanghai Office Lease. Pursuant to the renewed Shanghai Office Lease, the monthly rent is RMB 25,000 (approximately $4,000). The Company also needs to pay a property management fee to an unrelated party of RMB 11,719 (approximately $1,900) per month in connection with the renewed Shanghai Office Lease. The term of the renewed Shanghai Office Lease is a year and expires on May 31, 2014. For the nine months ended September 30, 2013 and 2012, rent expense related to the Shanghai Office Lease amounted $36,213 and $35,666, respectively. At September 30, 2013 and December 31, 2012, accrued rent for the Xiamen Office Lease amounted to $20,370 and $0, respectively, which were included in accrued expense – related parties on the accompanying consolidated balance sheets.

At September 30, 2013 and December 31, 2012, the total accrued rent for the above mentioned operating leases with related parties amounted to $21,690 and $0, respectively, which amount were included in accrued expense – related parties on the accompanying consolidated balance sheets.

NOTE 10 – FOREIGN OPERATIONS

The tables below present assets information by operating region at September 30, 2013 and December 31, 2012, respectively:

	September 30, 2013		December 31, 2012
United States	$	99,186	$	-
People's Republic of China		4,467,739		4,172,007
Total	$	4,566,925	$	4,172,007

The tables below present sales information by operating region for the three and nine months ended September 30, 2013 and 2012, respectively:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2013		2012		2013		2012
United States	$	-	$	-	$	-	$	-
People's Republic of China		3,192,631		6,349,846		10,082,430		17,917,318
Total	$	3,192,631	$	6,349,846	$	10,082,430	$	17,917,318

NOTE 11- CONSULTING AGREEMENT

On July 18, 2013, the Company entered a consulting agreement with CDII, a related party (see note 9). Pursuant to the term of the agreement, the Company shall issue 18 million shares of Company’s common stock in total to CDII as the compensation for the consulting services that provided in the fiscal year of 2012 and 2013. In October 2013, the Company issued 9,000,000 shares of its common stock to CDII for fiscal 2012 consulting service. The shares were valued at the fair market value of $90,000 on the grant date.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

NOTE 12 - SUBSEQUENT EVENTS

In October 2013, the Company issued 4,016,261 shares of its common stock in connection with the conversion of convertible notes.

In October 2013, the Company issued 9,000,000 shares of its common stock to CDII for fiscal 2012 consulting service. The shares were valued at the fair market value of $90,000 on the grant date.

In October 2013, the Company issued 5,200,000 shares of its common stock to a consultant for its service from October 2013 through December 2014. The shares were valued at the fair market value of $49,400 on the grant date.

On October 21, 2013, the Company and GEL Properties, LLC (“GEL”) entered into a note purchase agreement, providing for the issuance of a 6% convertible note in the principal amounts of $30,000. In connection with the convertible note, the Company paid a fee of $4,500 and received net cash proceed of $25,500. The principal amount and accrued interest of note are due on October 21, 2014. GEL is entitled, at its option, at any time after the issuance of the note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 60% of the lowest closing bid price of the last day of 5 trading days prior to conversion (including the day upon which a notice of conversion is received by the Company). In the event the Company experiences a DTC “Chill” on its shares while this note is eligible for conversion into common shares, the conversion price shall be decreased to 55% instead of 60% while that “Chill” is in effect.

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

The following discussion should be read in conjunction with the information contained in our unaudited consolidated financial statements and footnotes appearing elsewhere in this report, and in conjunction with the Management’s Discussion and Analysis in our Annual Report on Form 10-K, for the year ended December 31, 2012.

OVERVIEW

We are a non-asset based international freight forwarder and logistics manager located in the PRC. We act as an agent for international freight and shipping companies. We sell cargo space and arrange international transportation via land, maritime, and air routes primarily for clients seeking to export goods from China. We are a non-asset based freight forwarder and we do not own any containers, trucks, aircraft or ships. We contract with companies owning these assets to provide transportation services required for shipping freight on behalf of our customers. Our headquarters are in Qingdao, China, and we have branches in Shanghai, Tianjin, Xiamen, and Lianyungang. We coordinate with agents in North America, Europe, South America, Australia, Asia, and Africa.

Our Performance

Our revenue for the third quarter of fiscal 2013 decreased by 49.7%, or approximately $3.2 million, as compared to the third quarter of fiscal 2012. Our revenue for the nine months ended September 30, 2013 decreased by 43.7%, or approximately $7.8 million, as compared to the nine months ended September 30, 2012. Our gross profit margin increased to 8.6% for the third quarter of fiscal 2013 from 0.1% for the third quarter of fiscal 2012. For the nine months ended September 30, 2013 and 2012, our gross profit margin was 10.0% and 6.9%, respectively. Our operating expense increased by 18.8%, or approximately $ 47,000, for the third quarter of fiscal 2013, as compared to the third quarter of fiscal 2012, and operating expenses increased by 39.5%, or approximately $307,000, for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012. We had an operating loss of approximately $24,000 for the third quarter of fiscal 2013, as compared to an operating loss of approximately $245,000 for the third quarter of fiscal 2012, and our operating loss was approximately $77,000 for the nine months ended September 30, 2013 as compared to operating income of approximately $457,000 for the nine months ended September 30, 2012. We had a net loss of approximately $ 139,000 for the third quarter of fiscal 2013 as compared to a net loss of approximately $205,000 for the third quarter of fiscal 2012, and we had a net loss of approximately $447,000 and net income of approximately $491,000 for the nine months ended September 30, 2013 and 2012, respectively.

Our Outlook

Since 2012, affected by the unfavorable factors such as the European debt crisis, the recovery of the global economy and trading market has been very slow and the future remains uncertain. The international ocean freight forwarding market has been negatively impacted, especially by shipping capacity surplus and by the low price of shipping.

Since 2010, we have seen a decrease in freight traffic volume and a decrease in our total sales revenues and we face a number of challenges in growing our business, many of which are beyond our control. We also foresee continued competition in the marketplace that may negatively impact our gross profit margin in future periods. 

While we believe the future of international ocean freight forwarding market is uncertain and faces huge challenges including continued global economic recovery, we believe we can grow our business in the future, both domestically and in our major international markets. We are currently negotiating and will be working more closely with another logistic company to have access of their clients and lower operating cost. There are no assurances we will be successful in these efforts. We have also placed more emphasis on growing our freight forwarding services business to parts of South America. We see South America as a potential source of growth for our business to the strong overall economic growth in the region coupled with China’s rapidly growing South American trade activity. We have also recently begun to explore plans to establish our own warehouse facility for international and domestic storage and logistics. We believe this strategy would serve to complement our current international freight forwarding and logistics management. There are no assurances, however, that we will ultimately undertake this expansion.

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RESULTS OF OPERATIONS

Sales Revenues

In the third quarter of fiscal 2013, the decrease in our sales revenues of approximately $3.2 million, or 49.7% as compared to the third quarter of fiscal 2012, reflected decreased shipping activities across all of China’s major shipping ports with respect to outbound container and cargo shipments. This trend has continued since 2010.

Revenues for the nine months ended September 30, 2013 decreased by approximately $7.8 million, or 43.7%, as compared to the nine months ended September 30, 2012, since the average price per standard shipping container was decreased. Since 2010, global freight carriers have placed a number of additional ships into service in anticipation of an increase in shipping demand that has largely failed to materialize. As a result, overseas shipping prices dropped significantly, especially in northeastern China, which is a highly competitive environment for freight carriers.

Cost of Sales and Gross Profit Margin

Cost of sales, which represents the cost of the cargo space we obtain for our customers, decreased by approximately $3.4 million, or 54.0% for the third quarter of fiscal 2013 as compared to the third quarter of fiscal 2012. Our gross profit margin increased to 8.6% for the third quarter of fiscal 2013 as compared to 0.1% for the third quarter of fiscal 2012. The increase was primarily attributable to an increase in our international business which recognizes a higher gross profit margin than domestic logistics. During the nine months ended September 30, 2012, our gross margin was impacted by weaker demand for our services than originally anticipated resulting in unused reserved cargo space that we had to absorb in our cost of sales.

Cost of sales decreased by approximately $7.6 million, or 45.6%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012 mainly due to the decrease in our sales revenues. For the nine months ended September 30, 2013 and 2012, our gross margin was 10.0% and 6.9%, respectively. The increase was primarily attributable to an increase in our international business which recognizes a higher gross profit margin than domestic logistics.

Total Operating Expenses

We had a total operating expense of approximately $299,000 for the third quarter of fiscal 2013 as compared to a total operating expense of approximately $251,000 for the third quarter of fiscal 2012. We had a bad debt expense of approximately $14,000 and a bad debt recovery of approximately $3,000 for the third quarter of fiscal 2013 and 2012, respectively. Our selling, general and administrative expense increased by approximately $34,000 or 13.4% for the third quarter of fiscal 2013 as compared to the third quarter of fiscal 2012. The increase was mainly attributable to an increase in entertainment expense of approximately $11,000 due to the increased entertainment activities associated with customer support and marketing in order to enhance our visibility, an increase in depreciation expense of approximately $7,000 from the newly purchased fixed assets, an increase in consulting fees of approximately $15,000 which was incurred and paid in 2013 period, and an increase in other miscellaneous items of approximately $1,000.

Our total operating expenses increased by approximately $307,000, or 39.5% for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012. We had a bad debt expense of approximately $181,000 for the nine months ended September 30, 2013 as compared to a bad debt expense of approximately $9,000 for the nine months ended September 30, 2012. Our selling, general and administrative expense increased by approximately $138,000, or 17.9%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. The increase was mainly attributable to an increase in compensation of approximately $57,000 due to the increase in salaries paid to our management and other administrative staff resulting from our purpose to try to expand our business, an increase in expense of approximately $21,000 related to our Board member’s service, and an increase in professional fees of approximately $41,000 mainly due to the increased service fee incurred and paid for our consultants and other professionals, an increase in depreciation expense of approximately $17,000 from the newly purchased fixed assets, and an increase in other miscellaneous items of approximately $2,000.

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Total Other Income (Expense)

Total other income (expense), net, which consists of interest income, interest expense, foreign currency transaction loss, loss from change in fair value of derivative liabilities and other gains and losses not reflected within income (loss) from operations. Total other expense was approximately $115,000 for the third quarter of fiscal 2013, as compared to total other income of approximately $40,000 for the third quarter of fiscal 2012, a decrease of approximately $155,000. The decrease for the third quarter of fiscal 2013 as compared to the same period in fiscal 2012 was mainly attributable to an increase in interest expense of approximately $83,000 related to higher borrowings, an increase in foreign currency transaction loss of approximately $4,000, an increase of loss from change in fair value of derivative liabilities of approximately $32,000, an increase in other expense, net of other income, of approximately $37,000, which offset by an increase in interest income of approximately $2,000.

Total other expense was approximately $369,000 for the nine months ended September 30, 2013, as compared to total other income of approximately $37,000 for the nine months ended September 30, 2012, an increase of approximately $406,000. The increase for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 was primarily attributable to an increase in interest expense of approximately $281,000, an increase in foreign currency transaction loss of approximately $39,000, an increase in loss from change in fair value of derivative liabilities of approximately $61,000, a decrease in other income of approximately $33,000, offset by an increase in interest income of approximately $7,000.

Net Income

Net loss for the third quarter of fiscal 2013 was approximately $139,000 as compared to net loss of approximately $205,000 for the third quarter of fiscal 2012.Net loss for the nine months ended September 30, 2013 was approximately $447,000 as compared to net income of approximately $491,000 for the nine months ended September 30, 2012. The decrease in net loss of approximately $66,000 for the third quarter of fiscal 2013, as compared to the third quarter of fiscal 2012, was primarily due to higher gross profit, offset by an increase in selling, general and administrative expense and an increase in interest expense, and an increase in loss from change in fair value of derivative liabilities as discussed above. Net loss for the nine months ended September 30, 2013 was approximately $447,000 as compared to net income for the nine months ended September 30, 2012 of approximately $491,000. The increase in net loss of approximately $937,000 for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012, was mainly due to an increase in selling, general and administrative expense, an increase in bad debt expense, an increase in interest expense, and increase in loss from change in fair value of derivative liabilities as discussed above.

Foreign Currency Translation Gain (Loss)

The functional currency of our subsidiaries operating in the PRC is the Chinese Yuan or Renminbi (“RMB”). The financial statements of our subsidiaries are translated to U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange (for the period) for revenues, costs, and expenses. As a result of these translations, which are a non-cash adjustment, we reported a foreign currency translation gain of approximately $2,000 and $11,000 for the third quarter of fiscal 2013 and nine months ended September 30, 2013, respectively, as compared to a foreign currency translation loss of approximately $67,000 and $28,000 for the third quarter of fiscal 2012 and nine months ended September 30, 2012, respectively. This non-cash gain (loss) had the effect of increase (decrease) of our reported comprehensive income and the non-cash gain (loss) had the effect of decrease (increase) our reported comprehensive loss.

Comprehensive Income (Loss)

As a result of our foreign currency translation gain (loss), we had comprehensive loss for the third quarter of fiscal 2013 of approximately $136,000 as compared to comprehensive loss of approximately $272,000 for the third quarter of fiscal 2012. We had comprehensive loss of approximately $435,000 and comprehensive income of approximately $462,000 for the nine months ended September 30, 2013 and 2012, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the ability of a company to generate adequate amounts of cash to meet its needs for cash requirements.  At September 30, 2013, we had cash on hand of $2.0 million as compared to $2.3 million at December 31, 2012. These funds are mainly held in financial institutions located in the PRC.

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Our working capital deficit was approximately $30,000 at September 30, 2013, as compared to a working capital deficit of approximately $306,000 at December 31, 2012, an increase in working capital of approximately $276,000 or 90.3%. The increase in the working capital was primarily attributable to an increase in accounts receivable, net, of approximately $198,000,  an increase in prepaid expense - related party of approximately $72,000 which represents payment we made to CDII in connection with prepayment for professional fees, an increase in advance to vendors and other current assets of approximately $341,000, a decrease in accounts payable of approximately $407,000, which was primarily attributable to the payments made in fiscal 2013 for previously accrued freight costs to shippers, a decrease in due to related parties of approximately $500,000, which was primarily attributable to the exchange notes, advance, and interest payable – related parties for convertible notes, offset by a decrease in cash of approximately $289,000, an increase in convertible notes payable, net, of approximately $115,000, an increase in advance from customers of approximately $658,000, and an increase in accrued expense and other current liabilities of approximately $91,000.

During the nine months ended September 30, 2013, we issued an aggregate of 52,383,252 shares of our common stock upon the conversion of various notes which increased our issued and outstanding shares by approximately 126% as compared to the issued and outstanding shares as of December 31, 2012.  Between February 2013 and August 2013, we received net proceeds of $136,500 (net of debt discount of $12,500) under the terms of various promissory notes and used the net proceeds for working capital purpose.  As of September 30, 2013, one of these notes in the principal amount of $10,000 has converted into 1,970,444 shares of our common stock, and the other three notes are convertible at various discounts to market. During the nine months ended September 30, 2013, we issued 50,412,808 shares of our common stock to either CDII or third parties to which it had assigned various notes we owed it in the amount of $622,463 in satisfaction of those obligations. While these convertible note transactions have either provided capital for our operations or conserved cash through the conversion of debt to equity, these transactions have been dilutive to our stockholders and there are no assurances that these terms are as favorable as we might have negotiated in arms-length transactions.

While there can be no assurances given the continued economic uncertainties, we believe that our cash on hand will be sufficient to fund our operations and satisfy our obligations for the next twelve months. If, however, circumstances change regarding the overall export volumes currently being experienced at China’s shipping ports or if other economic factors beyond our control were to adversely impact our business, we may be required to raise additional capital. We do not have any external sources of liquidity or commitments for any additional capital and have been relying on advance from related and unrelated parties to supplement our working capital needs.  If it were to become necessary for us to raise additional capital there are no assurances such funds will be available on terms that are acceptable to us, or at all.

From time to time we advance working capital to unrelated key customers and strategic partners who refer businesses to us. Generally, these advances are short term demand notes which are unsecured and non-interest bearing. We believe it is in our best interest to make these advances in order to build long-term relationships, encourage continued business, and benefit from additional referrals. The decision to make these advances is made by our senior management, subject to the availability of sufficient capital. These amounts are reflected net of an allowance for doubtful accounts and totaled $343,035 and $349,093 at September 30, 2013 and December 31, 2012, respectively, and are reflected in other receivables. 

We engaged in a number of transactions with related parties. At September 30, 2103, due to related parties represents amounts advanced for working capital to us by various companies and individuals. During the nine months ended September 30, 2013, promissory notes lent to us for working capital and other amounts due to our financial consultant, CDII, for legal and accounting fees paid by them on our behalf were assigned to third parties and we converted these promissory notes to convertible debt. During the nine months ended September 30, 2013, we issued 7,665,134 shares of our common stock and reduced the amount of $146,104 owed to CDII. During the nine months ended September 30, 2013, we issued 52,383,252 shares of our common stock and reduced the principal amounts due under our convertible notes and accrued and unpaid interest related to our convertible notes by $632,463.

The amounts due to CD International Enterprises, Inc. as of December 31, 2012 was $410,078, which included $323,000 of working capital loans and $87,078 related to professional fees, primarily legal and accounting paid by CDII on the Company’s behalf. The proceeds from these promissory notes were used for working capital purposes. The notes accrued interest at 4% annually and were due at various dates in 2012. In 2013, CD International Enterprises, Inc. assigned these loans and related accrued and unpaid interest to third parties and these notes were exchanged for convertible notes pursuant to related securities purchase agreements.

There was a prepaid expense - related party of $72,154 at September 30, 2013 reflecting payments made to CD International Enterprises, Inc., which is the consultant of the Company, in connection with the prepayments for professional fees. 

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Cash Flow Analysis

Net cash used in operating activities for the nine months ended September 30, 2013 amounted to $293,846 compared to net cash provided by operating activities of $899,897 for the nine months ended September 30, 2012. For the nine months ended September 30, 2013, net cash used in operating activities was mainly attributable to net loss of approximately $447,000 adjusted for the add back of non-cash items such as amortization of debt discount of approximately $204,000, increase in allowance for doubtful accounts of approximately $181,000 and stock-based compensation of approximately $35,000, and the use of cash from changes in operating assets and liabilities such as: an increase in accounts receivable of approximately $133,000, an increase in other receivables of approximately $208,000, an increase in advance to vendors and other current assets of approximately $309,000, a decrease in accounts payable of approximately $447,000, offset by the receipt of cash from operations from changes in operating assets and liabilities including an increase in advance from customers of approximately $642,000 and an increase in accrued expense and other current liabilities of approximately $137,000.

For the nine months ended September 30, 2012, net cash provided by operating activities was primarily attributable to net income of approximately $491,000 and the receipt of cash from changes in operating assets and liabilities such as: a decrease in accounts receivable of approximately $1,093,000 and an increase in advance from customers of approximately $419,000, offset by the use of cash from changes in operating assets and liabilities such as: an increase in advance to vendors and other current assets of approximately $690,000 and a decrease in accounts payable of approximately $479,000.

Net cash flow used in investing activities was $101,085 for the nine months ended September 30, 2013 as compared to net cash flow provided by investing activities of $10,509 for the nine months ended September 30, 2012. For the nine months ended September 30, 2013, we used cash of approximately $106,000 for purchase of property and equipment and we received proceeds from disposal of property and equipment of approximately $5,000. For the nine months ended September 30, 2012, cash provided by investing activities consisted of cash provided by collection of advance to related parties of approximately $44,000 and cash proceeds from disposal property and equipment of approximately $1,000, offset by approximately $24,000 cash used for purchase of property and equipment and approximately $11,000 cash advance to related parties.

Net cash provided by financing activities for the nine months ended September 30, 2013 amounted to $47,450 and was due to the receipt of net proceeds from convertible notes payable of approximately $137,000, offset by approximately $89,000 cash used for the repayment of advance from related parties. For the nine months ended September 30, 2012, net cash used in financing activities was $134,762 and was due to approximately $167,000 cash used for the repayment of advance from related parties, offset by approximately $32,000 cash received from advance from related parties.

Significant portion of our cash is held and will continue to be held in the form of RMB in bank accounts at financial institutions located in the PRC. Cash held in banks in the PRC is not insured. The value of cash on deposit in the PRC of $2.0 million at September 30, 2013 has been converted based on the exchange rate as of September 30, 2013. 

OFF BALANCE SHEET ARRANGEMENTS

Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which we have:

• Any obligation under certain guarantee contracts,

• Any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets,

• Any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our stock and classified in stockholder’s equity in our statement of financial position, and

• Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with "U.S. GAAP”.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods.  The more critical accounting estimates include estimates related to the allowance for doubtful accounts, the useful life of property and equipment, assumptions used in assessing impairment of long-term assets, and the value of stock-based compensation.  We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in note 2 to our unaudited condensed consolidated financial statements. 

Accounts Receivable and Other Receivables

Accounts receivable and other receivables are presented net of an allowance for doubtful accounts. We maintain allowances for doubtful accounts for estimated losses. We review accounts receivable and other receivables on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, we consider many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. 

Revenue Recognition 

In general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.  We provide transportation services, generally under contract, by third parties with whom we have contracted these services.  We typically recognize revenue in connection with our freight forwarding service when the payment terms are as follows:

• when the cargo departs the shipper's destination if the trade pricing term is on a CIF (cost, insurance and freight) or CFR (cost and freight) basis;  

• when merchandise arrives at the destination port if the trade pricing term is on a FOB (free on board) basis.

Foreign Currency Translation

The accompanying unaudited condensed consolidated financial statements are presented in United States dollars. The functional currency of Shandong Jiajia is the RMB, the official currency of the PRC. In accordance with ASC 830-20-35, assets and liabilities are translated from the local currency into the reporting currency, U.S. dollars, at the exchange rate prevailing at the balance sheet date. Revenues and expenses are translated at average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the consolidated financial statements. Gains and losses resulting from the translation of local currency financial statements into U.S. dollars are reflected in other comprehensive income in the consolidated statements of operations and comprehensive income (loss).

RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place through PRC authorized institutions. Translation of amounts from RMB into United States dollars (“US$”) has been made at the following exchange rates for the respective periods:

	September 30, 2013		September 30, 2012		December 31, 2012
Period end RMB: U.S. dollar exchange rate		6.1364		6.3190		6.3011
Average fiscal-year-to-date RMB: U.S. dollar exchange rate		6.2132		6.3085

Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for a smaller reporting company.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported as specified in the SEC’s rules and forms and that such information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer (CEO), and our Chief Financial Officer (CFO), to allow timely decisions regarding required disclosure. Management, with the participation of our CEO and CFO, performed an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2013.

Based on this evaluation we concluded that as of September 30, 2013 our disclosure controls and procedures were not effective such that the information relating to our company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure as a result of (1) our failure to timely file Current Reports on Form 8-K during the period; (2) our failure to timely file this Quarterly Report; and (3) continuing significant deficiencies or material weaknesses previously identified in our Annual Report on Form 10-K for the year ended December 31, 2012.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with our evaluation that occurred during the quarter ended September 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

None

ITEM 1A.  RISK FACTORS.

Not applicable to a smaller reporting company.

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

On July 18, 2013, the Company entered into a consulting agreement with CDII whereby it engaged the company to provide various services to it in connection with its obligations as public company for its 2012 and 2013 fiscal years.  Under the terms of this agreement which expired on December 31, 2013, the Company agreed to issue CDII an aggregate of 18,000,000 shares of its common stock as compensation for its services.  In October 2013, the Company issued CDII 9,000,000 shares, representing the compensation for the previously rendered services for 2012, which were valued at $90,000.The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933, as amended, in reliance on an exemption provided by Section 4(a)(2) of that act.

On August 7, 2013, the Company entered into a consulting agreement with Weidong Wang whereby it engaged him to assist it in identifying potential acquisition targets.  As compensation for his services under this agreement which expires in July 2014, the Company issued him 4,000,000 shares of its common stock as compensation for his services. The shares were valued at the fair market value of $32,000 on the grant date.

During the third quarter of fiscal 2013, the Company issued 9,053,711 shares of its common stock to Iconic in connection with the conversion of convertible notes in the aggregate principal amounts of $52,327 together with accrued but unpaid interest of $946. The recipient was an accredited investor and the issuances were exempt from registration under the Securities Act of 1933, as amended, in reliance on an exemption provided by Section 3(a)(9) of that act.

During the third quarter of fiscal 2013, the Company issued 4,242,517 shares of its common stock to CDII in order to pay off the accrued and unpaid interest of $43,425. The recipient was an accredited investor and the issuances were exempt from registration under the Securities Act of 1933, as amended, in reliance on an exemption provided by Section 3(a)(9) of that act.

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During the third quarter of fiscal 2013, the Company issued 12,806,020 shares of its common stock to Magna in connection with the conversion of convertible notes in the aggregate principal amount of $73,030 and $582 of accrued but unpaid interest. The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933, as amended, in reliance on an exemption provided by Section 3(a)(9) of that act.

During the third quarter of fiscal 2013, the Company issued 1,970,444 shares of its common stock to Hanover in connection with the conversion of convertible note in the principal amount of $10,000. Additionally, in October 2013, the Company issued 4,016,261 shares of its common stock to Hanover in connection with the conversion of convertible note in the principal amount of $17,000 and accrued and unpaid interest of $2,160. The recipient was an accredited investor and the issuances were exempt from registration under the Securities Act of 1933, as amended, in reliance on an exemption provided by Section 3(a)(9) of that act.

On October 17, 2013, the Company entered into a consulting agreement with Peipei Song whereby it engaged him to assist it in identifying potential acquisition targets.  As compensation for his services under the terms which expires in December 2014, the Company issued 5,200,000 shares of its common stock valued at the fair market value of $49,400. The recipient was an accredited investor and the issuances were exempt from registration under the Securities Act of 1933, as amended, in reliance on an exemption provided by Section 3(a)(9) of that act.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.  MINE SAFETY DISCLOSURES.

Not applicable to our company.

ITEM 5.  OTHER INFORMATION.

There was a prepaid expense - related party of $72,154 at September 30, 2013 reflecting payments made to CD International Enterprises, Inc., which is the consultant of the Company, in connection with the prepayments for professional fees. 

The amounts due to CD International Enterprises, Inc. as of December 31, 2012 was $410,078, which included $323,000 of working capital loans and $87,078 related to professional fees, primarily legal and accounting paid by CDII on the Company’s behalf. The proceeds from these promissory notes were used for working capital purposes. The notes accrued interest at 4% annually and were due at various dates in 2012. In 2013, CD International Enterprises, Inc. assigned these loans and related accrued and unpaid interest to third parties and these notes were exchanged for convertible notes pursuant to related securities purchase agreements.

On August 8, 2013 the Company entered into a Securities Purchase Agreement with LG pursuant to which it issued and sold a $51,500 principal amount convertible promissory note.  The Company reimbursed LG for its expenses of $1,500 in connection the transaction and paid a fee of $4,000 to Anubis Partners, LLC for legal service.  The Company used the net proceeds for working capital. Under the terms of the Securities Purchase Agreement, we granted LG a 12 month right of first refusal with respect to future equity financings, including equity with a debt component, subject to certain exclusions.  The principal amount and accrued interest of note are due on April 8, 2014. Any amount of principal or interest on the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date thereof until the note is paid. LG is entitled, at its option, at any time after the issuance of the note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 57% of the average of three lowest trading price in the 10 consecutive trading days prior to the day that LG requests conversion. The Note has a Flex Floor at $0.001 (the “Original Floor”). If the stock goes below the Original Floor, the stock has 10 business days during which the stock must close above the Original Floor for three consecutive trading days in order to maintain the Original Floor. If the stock is unable to meet these requirements after these 10 business days, a New Floor is set equivalent to 50% of the lowest trading price in the same 10 business days (the "New Floor"). If the stock price dips below the New Floor, the stock will once again have l0 business days during which the stock must close above the New Floor for three consecutive trading days in order to maintain the New Floor.The stock will have to continue to maintain a price above the New Floor. If the price is unable to close above the New Floor for three consecutive trading days in 10 business days after the price has dipped, the Flex Floor will be eliminated. A copy of the note and Securities Purchase Agreement are filed as Exhibits 10.15 and 10.16, respectively, to this report.

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On August 27, 2013, the Company borrowed $25,000 from JSJ under the terms of convertible note in the principal amounts of $25,000. The principal amount of the note is due on February 27, 2014. Any amount of principal on the note which is not paid when due shall bear interest at the rate of 10% per annum from the due date thereof until the note is paid.  JSJ is entitled, at its option, at any time after the issuance of the note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 55% (representing a 45% discount) of the average of the three lowest trades on the previous 10 trading days to the date of conversion, with a maximum conversion price equal to that price would be obtained if the conversion were to be made on the date that this note was executed, and a floor conversion price of $0.0005 per share.  A copy of this note is filed as Exhibit 10.17 to this report.

On October 21, 2013, the Company borrowed $30,000 from GEL under the terms of a 6% convertible redeemable note in the principal amounts of $30,000. In connection with this transaction, the Company paid legal fees of $1,500 and an investment banking fee of $3,000 to Anubis Partners, LLC. It used the net proceeds of $25,500 for working capital. The principal amount and accrued interest are due on October 21, 2014, and interest is payable in shares of the Company’s common stock valued at the conversion price as hereinafter described. GEL is entitled, at its option, at any time after the issuance of the note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 60% of the lowest closing bid price of the last day of five trading days prior to conversion (including the day upon which a notice of conversion is received by the Company). In the event the Company experiences a DTC “Chill” on its shares while this note is eligible for conversion into common shares, the conversion price shall be decreased to 55% while that “Chill” is in effect.  At the Company’s option, the note is redeemable at various premiums ranging from 125% to 150%, dependent upon the date fixed for redemption.  The note also is subject to automatic repayment at the holder’s option, in cash, at 150% of the face amount including (i) the sale or transfer of all or substantially all of our assets, (ii) a reclassification, stock split or similar transaction, or (ii) a consolidation or merger in which the Company is not the surviving entity. A copy of this note is filed as Exhibit 10.18 to this report.

ITEM 6.  EXHIBITS.

Exhibit No.	Description
10.15	Convertible Promissory Note dated August 8, 2013 in the principal amount of $51,500 to LG Capital Funding, LLC. *
10.16	Securities Purchase Agreement dated August 8, 2013 by and between China Logistics Group, Inc. and LG Capital Funding, LLC. *
10.17	Convertible Note dated August 27,2013 in the principal amount of $25,000 to JSJ Investments Inc. *
10.18	6% Convertible Redeemable Note in the principal amount of $30,000 due GEL Properties, LLC *
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer *
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer *
32.1	Section 1350 Certification of Chief Executive Officer*
32.2	Section 1350 Certification of Chief Financial Officer*
101.INS	XBRL INSTANCE DOCUMENT **
101.SCH	XBRL TAXONOMY EXTENSION SCHEMA **
101.CAL	XBRL TAXONOMY EXTENSION CALCULATION LINKBASE **
101.DEF	XBRL TAXONOMY EXTENSION DEFINITION LINKBASE **
101.LAB	XBRL TAXONOMY EXTENSION LABEL LINKBASE **
101.PRE	XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE **

 *  filed herewith.

 ** In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: January 28, 2014	CHINA LOGISTICS GROUP, INC.
	By:	/s/ Wei Chen
		Wei Chen
		Chairman, Chief Executive Officer and President (principal executive officer)
	By:	/s/ Yuan Huang
		Yuan Huang
		Chief Financial Officer (principal financial and accounting officer)

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EX-10.15

Exhibit 10.15

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 Principal Amount: $51,500.00                             Original Issue Date: August 8, 2013

 Purchase Price: $51,500.00

CONVERTIBLE PROMISSORY NOTE

FOR VALUE RECEIVED, CHINA LOGISTICS GROUP, INC., a Florida corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of LG CAPITAL FUNDING, LLC., a New York corporation, or registered assigns (the “Holder”) the sum of Fifty One Thousand Five Hundred Dollars ($51,500.00) together with any interest as set forth herein, on April 8, 2014 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise.  This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein with the written consent of the Holder which may be withheld for any reason or for no reason. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”).  Interest shall commence accruing on the Issue Date, shall be computed on the basis of a 365-day year and the actual number of days elapsed.  All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America.  All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note.  Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date.  As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.  Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).

This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.

The following terms shall apply to this Note:

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ARTICLE I. CONVERSION RIGHTS

1.1 Conversion Right.  The Holder shall have the right from time to time, and at any time commencing one hundred eighty (180) days from the Issue Date and prior to the later of: (i) the Maturity Date; and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non- assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price  (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock.  For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso.  The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”).  The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Borrower’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, provided, however, that the Company shall have the right to pay any or all interest in cash plus (3) at the Borrower’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.

1.2 Conversion Price.

(a) Calculation of Conversion Price.  The Conversion Price shall be the Variable Conversion Price (as defined herein) (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events).  The "Variable Conversion Price" shall mean Fifty Five Percent (55%) multiplied by the Market Price (as defined herein) (representing a discount rate of 45%).  “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Borrower via facsimile (the “Conversion Date”).  “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”) as reported by a reliable reporting service (“Reporting Service”) mutually acceptable to Borrower and Holder and hereafter designated by Holders of a majority in interest of the Notes and the Borrower or, if the OTCBB is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of

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the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc.  If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes.  “Trading Day” shall mean any day on which the Common Stock is traded for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.

The Note shall have a Flex Floor at $0.001 (the “Original Floor”). If the stock goes below the Original Floor, the stock has 10 business days during which the stock must close above the Original Floor for three consecutive trading days in order to maintain the Original Floor. If the stock is unable to meet these requirements after these 10 business days, a New Floor is set equivalent to 50% of the lowest trading price in the same 10 business days (the "New Floor").If the stock price dips below the New Floor, the stock will once again have l0 business days during which the stock must close above the New Floor for three consecutive trading days in order to maintain the New Floor. The stock will have to continue to maintain a price above the New Floor. If the price is unable to close above the New Floor for three consecutive trading days in 10 business days after the price has dipped, the Flex Floor will be eliminated.

(b) Conversion Price During Major Announcements.  Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the  “Announcement Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a).  For purposes hereof,  “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.

1.3 Authorized Shares.  The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement.  The Borrower is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time) (the “Reserved Amount”).  The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of the Purchase Agreement.  The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable.  In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes.  The Borrower (i) acknowledges that it has

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irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

1.4 Method of Conversion.

(a) Mechanics of Conversion.  Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

(b) Surrender of Note Upon Conversion.  Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted.  The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion.  In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error.  Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note.  The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

(c) Payment of Taxes.  The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.

(d) Delivery of Common Stock Upon Conversion.  Upon receipt by the Borrower from the Holder of a facsimile transmission (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) (such second business day being hereinafter referred to as the “Deadline”) in accordance with the terms hereof and the Purchase Agreement.

(e) Obligation of Borrower to Deliver Common Stock.  Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable

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upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion.  If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion.  The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.

(f) Delivery of Common Stock by Electronic Transfer.  In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower’s transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

(g) Failure to Deliver Common Stock Prior to Deadline.  Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is more than three (3) business days after the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock.  Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

1.5 Concerning the Shares.  The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless  (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of  counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement).  Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note

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that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefor free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act and the shares are so sold or transferred, (ii) such Holder provides the Borrower or its transfer agent with reasonable assurances that the Common Stock issuable upon conversion of this Note (to the extent such securities are deemed to have been acquired on the same date) can be sold pursuant to Rule 144 or (iii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

1.6 Effect of Certain Events.

(a) Effect of Merger, Consolidation, Etc.  At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either:  (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof.  “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.

(b) Adjustment Due to Merger, Consolidation, Etc.  If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note,

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upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof.  The Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b).  The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.

(c) Adjustment Due to Distribution.  If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

(d) Adjustment Due to Dilutive Issuance.  If, at any time when any Notes are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.  For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable).  No

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further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.  For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities.  No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

(e) Purchase Rights.  If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

(f) Notice of Adjustments.  Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder of a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.  The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.

1.7 Trading Market Limitations.  Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof.  Once the Maximum Share Amount has been issued (the date of which is hereinafter referred to as the “Maximum Conversion Date”), if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount (a “Trading Market Prepayment Event”), in lieu of any further right to convert this Note, and in full satisfaction of the Borrower’s obligations

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under this Note, the Borrower shall pay to the Holder, within fifteen (15) business days of the Maximum Conversion Date (the “Trading Market Prepayment Date”), an amount equal to 150% times the sum of (a) the then outstanding principal amount of this Note immediately following the Maximum Conversion Date, plus (b) accrued and unpaid interest on the unpaid principal amount of this Note to the Trading Market Prepayment Date, plus (c) Default Interest, if any, on the amounts referred to in clause (a) and/or (b) above, plus (d) any optional amounts that may be added thereto at the Maximum Conversion Date by the Holder in accordance with the terms hereof (the then outstanding principal amount of this Note immediately following the Maximum Conversion Date, plus the amounts referred to in clauses (b), (c) and (d) above shall collectively be referred to as the “Remaining Convertible Amount”).  In the event that the sum of (x) the aggregate number of shares of Common Stock issued upon conversion of this Note and the other Notes issued pursuant to the Purchase Agreement plus (y) the aggregate number of shares of Common Stock that remain issuable upon conversion of this Note and the other Notes issued pursuant to the Purchase Agreement, represents at least one hundred percent (100%) of the Maximum Share Amount (the “Triggering Event”), the Borrower will use its best efforts to seek and obtain Shareholder Approval (or obtain such other relief as will allow conversions hereunder in excess of the Maximum Share Amount) as soon as practicable following the Triggering Event and before the Maximum Conversion Date.  As used herein, “Shareholder Approval” means approval by the shareholders of the Borrower to authorize the issuance of the full number of shares of Common Stock which would be issuable upon full conversion of the then outstanding Notes but for the Maximum Share Amount.

1.8 Status as Shareholder.  Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms  of this Note.  Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted.  In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower’s failure to convert this Note.

1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date and ending on the date which is thirty (30) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment

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Amount”) equal to one hundred fifteen percent (115%), multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holderof the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is thirty-one (31) days following the issue date and ending on the date which is ninety (90) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Second Optional Prepayment Amount”) equal to one hundred twenty five percent (125%), multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Second Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is ninety-one (91) days following the issue date and ending on the date which is one hundred eighty (180) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Third Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Third Optional Prepayment Amount”) equal to one hundred fifty percent (150%), multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Third Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

After the expiration of one hundred eighty (180) following the date of the Note, the Borrower shall have no right of prepayment.

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ARTICLE II.  CERTAIN COVENANTS

2.1 Distributions on Capital Stock.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.

2.2 Restriction on Stock Repurchases.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.

2.3 Borrowings.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, create, incur, assume guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection, or suffer to exist any liability for borrowed money, except (a) borrowings in existence or committed on the date hereof and of which the Borrower has informed Holder in writing prior to the date hereof, (b) indebtedness to trade creditors or financial institutions incurred in the ordinary course of business or (c) borrowings, the proceeds of which shall be used to repay this Note.

2.4 Sale of Assets.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business.  Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.

2.5 Advances and Loans.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $100,000.

ARTICLE III.  EVENTS OF DEFAULT

If any of the following events of default (each, an “Event of Default”) shall occur:

3.1 Failure to Pay Principal or Interest.  The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon a Trading Market Prepayment Event pursuant to Section 1.7, upon acceleration or otherwise;

3.2 Conversion and the Shares.  The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common

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Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty eight (48) hours of a demand from the Holder;

3.3 Breach of Covenants.  The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder;

3.4 Breach of Representations and Warranties.  Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement;

3.5 Receiver or Trustee.  The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed;

3.6 Judgments.  Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld;

3.7 Bankruptcy.  Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower;

3.8 Delisting of Common Stock.  The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange;

3.9 Failure to Comply with the Exchange Act.  The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act; or

3.10 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

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3.11 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.

3.12 Maintenance of Assets. The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).

3.13 Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.

3.14 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

3.15 Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.

3.16 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered 16 a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable

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and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.

ARTICLE IV. MISCELLANEOUS

4.1 Failure or Indulgence Not Waiver.  No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges.  All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

4.2 Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:

If to the Borrower, to:

CHINA LOGISTICS GROUP, INC.

23F. Gutai Beach Building No. 969

Zhongshan Road (South), Shanghai, China 200011

Attn: Wei Chen, Chief Executive Officer

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With a copy by fax only to (which copy shall not constitute notice):

________________________________

________________________________

________________________________

If to the Holder:

LG Capital Funding LLC

Attn: Joseph Lerman - Managing member

1218 Union St. Suite #2

Brooklyn NY 11225

Office 718-506-9240

Fax 718-732-4512

4.3 Amendments.  This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder.  The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.

4.4 Assignability.  This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns.  Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act).  Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

4.5 Cost of Collection.  If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.

4.6 Governing Law.  This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws.  Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of Kings County, New York.  The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  The Company and Holder waive trial by jury.  The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.   Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

4.7 Certain Amounts.  Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine

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and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note.  The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.

4.8 Purchase Agreement.  By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.

4.9 Notice of Corporate Events.  Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders).  In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time.  The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.

4.10 Remedies.  The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby.  Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this August 8, 2013.

CHINA LOGISTICS GROUP, INC.

By: /s/ Wei Chen

Print Name: Wei Chen

Title: Chief Executive Officer

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EXHIBIT A

NOTICE OF CONVERSION

The undersigned hereby elects to convert $_________________ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of CHINA LOGISTICS GROUP, INC., a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of August 8, 2013 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

Box Checked as to applicable instructions:

[ ] The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).

Name of DTC Prime Broker:

Account Number:

[ ] The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

LG Capital Funding LLC

Attn: Joseph Lerman - Managing member

1218 Union St. Suite #2

Brooklyn NY 11225

Please FedEx Overnight the Share Cert to the following address:

__________________________________

__________________________________

__________________________________

Date of Conversion: _____________

Applicable Conversion Price: $____________

Number of Shares of Common Stock to be Issued Pursuant to Conversion: _________________

Principal Balance Remaining on the Note after this conversion: ______________

LG CAPITAL FUNDING, LLC.

By:_____________________________

Name: Joseph Lerman

Title:  Managing Member

Date: ______________

EX-10.16

Exhibit 10.16

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of August 8, 2013, by and among CHINA LOGISTICS GROUP, INC., a Florida corporation, with headquarters located at 23F. Gutai Beach Building No. 969 Zhongshan Road (South), Shanghai, China 200011 (the “Company”), and LG CAPITAL FUNDING, LLC, a New York corporation (the “Buyer”).

WHEREAS:

A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the rules and regulations as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”);

B. Buyer desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement an 8% secured convertible note of the Company, in the form attached hereto as Exhibit A, in the aggregate principal amount of Fifty One Thousand  Five Dollars ($51,500.00) (together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, the “Note”), convertible into shares of common stock, par value $0.001 per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note.

C. The Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of Note as is set forth immediately below its name on the signature pages hereto; and

NOW THEREFORE, the Company and the Buyer severally (and not jointly) hereby agree as follows:

1. Purchase and Sale of Note.

a. Purchase of Note.  On the Closing Date (as defined below), the Company shall issue and sell to the Buyer and the Buyer agrees to purchase from the Company such principal amount of Note as is set forth immediately below the Buyer’s name on the signature pages hereto.

b. Form of Payment.  On the Closing Date (as defined below), (i) the Buyer shall pay the purchase price for the Note to be issued and sold to it at the Closing (as defined below) (the “Purchase Price”) by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, against delivery of the Note in the principal amount equal to the Purchase Price as is set forth immediately below the Buyer’s name on the signature pages hereto, and (ii) the Company shall deliver such duly executed on behalf of the Company, to the Buyer, against delivery of such Purchase Price.

c. Closing Date.  Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be 12:00 noon, Eastern Standard Time on August 9, 2013, or such other mutually agreed upon time.  The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties.

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2. Buyer’s Representations and Warranties.  The Buyer represents and warrants to the Company that:

a. Investment Purpose.  As of the date hereof, the Buyer is purchasing the Note and the shares of Common Stock issuable upon conversion of or otherwise pursuant to the Note (including, without limitation, such additional shares of Common Stock, if any, as are issuable (i) on account of interest on the Note, (ii) as a result of the events described in Sections 1.3 and 1.4(g) of the Note or (iii) in payment of the Standard Liquidated Damages Amount (as defined in Section 2(f) below) pursuant to this Agreement, such shares of Common Stock being collectively referred to herein as the “Conversion Shares” and, collectively with the Note, the “Securities”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.

b. Accredited Investor Status.  The Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”).

c. Reliance on Exemptions.  The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.

d. Information.  The Buyer and its advisors, if any, have been, and for so long as the Note remain outstanding will continue to be, furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors.  The Buyer and its advisors, if any, have been, and for so long as the Note remain outstanding will continue to be, afforded the opportunity to ask questions of the Company.  Notwithstanding the foregoing, the Company has not disclosed to the Buyer any material nonpublic information and will not disclose such information unless such information is disclosed to the public prior to or promptly following such disclosure to the Buyer.  Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below.  The Buyer understands that its investment in the Securities involves a significant degree of risk. The Buyer is not aware of any facts that may constitute a breach of any of the Company's representations and warranties made herein.

e. Governmental Review.  The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.

f. Transfer or Re-sale.  The Buyer understands that (i) the sale or re-sale of the Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred unless (a) the Securities are sold pursuant to an effective registration statement under the 1933 Act, (b) the Buyer shall have delivered to the Company, at the cost of the Company, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in comparable transactions to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which opinion shall be accepted by the Company, (c) the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a successor rule) (“Regulation S”), and the Buyer shall have delivered to the Company, at the cost of the Company, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in corporate transactions, which opinion shall be accepted by the Company;

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(ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case).  Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

g. Legends.  The Buyer understands that the Note and, until such time as the Conversion Shares have been registered under the 1933 Act may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Conversion Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities):

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

h. Authorization; Enforcement. This Agreement has been duly and validly authorized.  This Agreement has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer enforceable in accordance with its terms.

i. Residency.  The Buyer is a resident of the jurisdiction set forth immediately below the Buyer’s name on the signature pages hereto.

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3. Representations and Warranties of the Company.  The Company represents and warrants to the Buyer that:

a. Organization and Qualification.  The Company and each of its Subsidiaries (as defined below), if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted.  Schedule 3(a) sets forth a list of all of the Subsidiaries of the Company and the jurisdiction in which each is incorporated.  The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect.  “Material Adverse Effect” means any material adverse effect on the business, operations, assets, financial condition or prospects of the Company or its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith.  “Subsidiaries” means any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.

b. Authorization; Enforcement.  (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Note and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Note by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Note and the issuance and reservation for issuance of the Conversion Shares issuable upon conversion or exercise thereof) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its shareholders is required, (iii) this Agreement has been duly executed and delivered by the Company by its authorized representative, and such authorized representative is the true and official representative with authority to sign this Agreement and the other documents executed in connection herewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Note, each of such instruments will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms.

c. Capitalization.  As of the date hereof, the authorized capital stock of the Company consists of: (i) 500,000,000 shares of Common Stock, $0.001 par value per share, of which 58,429,090 shares are issued and outstanding; and (ii) 10,000,000 shares of Preferred Stock, $0.001 par value per share, of which 1,295,000 shares of Series B Convertible Preferred Stock are issued and outstanding.  Subject to adjustment at the sole discretion of the Buyer and pursuant to Section 4(g) of this Agreement, the Company shall initially reserve 40,000,000 shares of common stock for issuance upon conversion of the Note. All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and non-assessable.  No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company.  Except as disclosed in Schedule 3(c), as of the effective date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Note or the Conversion Shares.

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The Company has furnished to the Buyer true and correct copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate of Incorporation”), the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto.  The Company shall provide the Buyer with a written update of this representation signed by the Company’s Chief Executive on behalf of the Company as of the Closing Date.

d. Issuance of Shares.  The Conversion Shares are duly authorized and reserved for issuance and, upon conversion of the Note in accordance with its respective terms, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.

e. Acknowledgment of Dilution.  The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Conversion Shares upon conversion of the Note.  The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Note in accordance with this Agreement, the Note is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.

f. No Conflicts.  The execution, delivery and performance of this Agreement, the Note by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to which the Company or any of its Subsidiaries is a party, or (iii)  result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect).  Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries, if any, are not being conducted, and shall not be conducted so long as a Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity.  Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement, the Note in accordance with the terms hereof or thereof or to issue and sell the Note in accordance with the terms hereof and to issue the Conversion Shares upon conversion of the Note.  All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof.  The Company is not in violation of the listing requirements of the Over-the-Counter Bulletin Board (the “OTCBB”) and does not reasonably anticipate that the Common Stock will be delisted by the OTCBB in the foreseeable future. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

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g. SEC Documents; Financial Statements.  The Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”).  The Company has delivered to the Buyer true and complete copies of the SEC Documents, except for such exhibits and incorporated documents.  As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof).  As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved  and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).  Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to March 31, 2013, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company is subject to the reporting requirements of the 1934 Act.

h. Absence of Certain Changes.  Since March 31, 2013, there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations, prospects or 1934 Act reporting status of the Company or any of its Subsidiaries.

i. Absence of Litigation.  There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their officers or directors in their capacity as such, that could have a Material Adverse Effect.  Schedule 3(i) contains a complete list and summary description of any pending or, to the knowledge of the Company, threatened proceeding against or affecting the Company or any of its Subsidiaries, without regard to whether it would have a Material Adverse Effect.  The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

j. Patents, Copyrights, etc.  The Company and each of its Subsidiaries owns or possesses the requisite licenses or rights to use all patents, patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names and copyrights (“Intellectual Property”) necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); there is no claim or action by any person pertaining to, or proceeding pending, or to the Company’s knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect to any Intellectual Property necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); to the best of the Company’s knowledge, the Company’s or its Subsidiaries’ current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing.  The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property.

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k. No Materially Adverse Contracts, Etc.  Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect.  Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse Effect.

l. Tax Status.  The Company and each of its Subsidiaries has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.  The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax.  None of the Company’s tax returns is presently being audited by any taxing authority.

m. Certain Transactions.  Except for arm’s length transactions pursuant to which the Company or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third parties and other than the grant of stock options disclosed on Schedule 3(c), none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

n. Disclosure.  All information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading.  No event or circumstance has occurred or exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed (assuming for this purpose that the Company’s reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).

o. Acknowledgment Regarding Buyer’ Purchase of Securities.  The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm’s length purchasers with respect to this Agreement and the transactions contemplated hereby.  The Company further acknowledges that no Buyer is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by any Buyer or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Buyer’ purchase of the Securities.  The Company further represents to the Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.

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p. No Integrated Offering.  Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyer.  The issuance of the Securities to the Buyer will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any shareholder approval provisions applicable to the Company or its securities.

q. No Brokers.  The Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement or the transactions contemplated hereby.

r. Permits; Compliance.  The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Company Permits”), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits.  Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.  Since March 31, 2013, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.

s. Environmental Matters.

(i) There are, to the Company’s knowledge, with respect to the Company or any of its Subsidiaries or any predecessor of the Company, no past or present violations of Environmental Laws (as defined below), releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or similar federal, state, local or foreign laws and neither the Company nor any of its Subsidiaries has received any notice with respect to any of the foregoing, nor is any action pending or, to the Company’s knowledge, threatened in connection with any of the foregoing.  The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

(ii) Other than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company or any of its Subsidiaries, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company or any of its Subsidiaries during the period the property was owned, leased or used by the Company or any of its Subsidiaries, except in the normal course of the Company’s or any of its Subsidiaries’ business.

(iii) There are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its Subsidiaries that are not in compliance with applicable law.

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t. Title to Property.  The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(t) or such as would not have a Material Adverse Effect.  Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a Material Adverse Effect.

u. Insurance.  The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged.  Neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.  The Company has provided to Buyer true and correct copies of all policies relating to directors’ and officers’ liability coverage, errors and omissions coverage, and commercial general liability coverage.

v. Internal Accounting Controls.  The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company’s board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

w. Foreign Corrupt Practices.  Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

x. Solvency.  The Company (after giving effect to the transactions contemplated by this Agreement) is solvent (i.e., its assets have a fair market value in excess of the amount required to pay its probable liabilities on its existing debts as they become absolute and matured) and currently the Company has no information that would lead it to reasonably conclude that the Company would not, after giving effect to the transaction contemplated by this Agreement, have the ability to, nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection therewith as such debts mature.  The Company did not receive a qualified opinion from its auditors with respect to its most recent fiscal year end and, after giving effect to the transactions contemplated by this Agreement, does not anticipate or know of any basis upon which its auditors might issue a qualified opinion in respect of its current fiscal year.

y. No Investment Company.  The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement will not be an “investment company” required to be registered under the Investment Company Act of 1940 (an “Investment Company”).  The Company is not controlled by an Investment Company.

z. Breach of Representations and Warranties by the Company.  If the Company breaches any of the representations or warranties set forth in this Section 3, and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of Default under Section 3.4 of the Note.

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4. COVENANTS.

a. Best Efforts.  The parties shall use their best efforts to satisfy timely each of the conditions described in Section 6 and 7 of this Agreement.

b. Form D; Blue Sky Laws.  The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Buyer promptly after such filing.  The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Buyer at the applicable closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyer on or prior to the Closing Date.

c. Use of Proceeds.  The Company shall use the proceeds for general working capital purposes.

d. Right of First Refusal. Unless it shall have first delivered to the Buyer, at least seventy two (72) hours prior to the closing of such Future Offering (as defined herein), written notice describing the proposed Future Offering, including the terms and conditions thereof and proposed definitive documentation to be entered into in connection therewith, and providing the Buyer an option during the seventy two (72) hour period following delivery of such notice to purchase the securities being offered in the Future Offering on the same terms as contemplated by such Future Offering (the limitations referred to in this sentence and the preceding sentence are collectively referred to as the “Right of First Refusal”) (and subject to the exceptions described below), the Company will not conduct any equity financing (including debt with an equity component) (“Future Offerings”) during the period beginning on the Closing Date and ending twelve (12) months following the Closing Date. In the event the terms and conditions of a proposed Future Offering are amended in any respect after delivery of the notice to the Buyer concerning the proposed Future Offering, the Company shall deliver a new notice to the Buyer describing the amended terms and conditions of the proposed Future Offering and the Buyer thereafter shall have an option during the seventy two (72) hour period following delivery of such new notice to purchase its pro rata share of the securities being offered on the same terms as contemplated by such proposed Future Offering, as amended. The foregoing sentence shall apply to successive amendments to the terms and conditions of any proposed Future Offering. The Right of First Refusal shall not apply to any transaction involving (i) issuances of securities in a firm commitment underwritten public offering (excluding a continuous offering pursuant to Rule 415 under the 1933 Act) or (ii) issuances of securities as consideration for a merger, consolidation or purchase of assets, or in connection with any strategic partnership or joint venture (the primary purpose of which is not to raise equity capital), or in connection with the disposition or acquisition of a business, product or license by the Company. The Right of First Refusal also shall not apply to the issuance of securities upon exercise or conversion of the Company’s options, warrants or other convertible securities outstanding as of the date hereof or to the grant of additional options or warrants, or the issuance of additional securities, under any Company stock option or restricted stock plan approved by the shareholders of the Company.

e. Expenses.  At the Closing, the Company shall reimburse Buyer for expenses incurred by them in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the other agreements to be executed in connection herewith (“Documents”), including, without limitation, reasonable attorneys’ and consultants’ fees and expenses, transfer agent fees, fees for stock quotation services, fees relating to any amendments or modifications of the Documents or any consents or waivers of provisions in the Documents, fees for the preparation of opinions of counsel, escrow fees, and costs of restructuring the transactions contemplated by the Documents.  When possible, the Company must pay these fees directly, otherwise the Company must make immediate payment for reimbursement to the Buyer for all fees and expenses immediately upon written notice by the Buyer or the submission of an invoice by the Buyer Notwithstanding anything herein to the contrary, the Company’s obligation to reimburse Buyer’ expenses shall be $1,500.

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f. Financial Information.  Upon written request, the Company agrees to send or make available the following reports to the Buyer until the Buyer transfers, assigns, or sells all of the Securities: (i) within ten (10) days after the filing with the SEC, a copy of its Annual Report on Form 10-K its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K; (ii) within one (1) day after release, copies of all press releases issued by the Company or any of its Subsidiaries; and (iii) contemporaneously with the making available or giving to the shareholders of the Company, copies of any notices or other information the Company makes available or gives to such shareholders.

g. Authorization and Reservation of Shares.  The Company shall at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the full conversion or exercise of the outstanding Note and issuance of the Conversion Shares in connection therewith (based on the Conversion Price of the Note in effect from time to time) and as otherwise required by the Note.  The Company shall not reduce the number of shares of Common Stock reserved for issuance upon conversion of Note without the consent of the Buyer.  The Company shall at all times maintain the number of shares of Common Stock so reserved for issuance at an amount (“Reserved Amount”) equal to a minimum of four times the number that is then actually issuable upon full conversion of the Note (based on the Conversion Price of the Note in effect from time to time).  If at any time the number of shares of Common Stock authorized and reserved for issuance (“Authorized and Reserved Shares”) is below the Reserved Amount, the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of shareholders to authorize additional shares to meet the Company’s obligations under this Section 4(g), in the case of an insufficient number of authorized shares, obtain shareholder approval of an increase in such authorized number of shares, and voting the management shares of the Company in favor of an increase in the authorized shares of the Company to ensure that the number of authorized shares is sufficient to meet the Reserved Amount.  If the Company fails to obtain such shareholder approval within thirty (30) days following the date on which the number of Reserved Amount exceeds the Authorized and Reserved Shares, the Company shall pay to the Borrower the Standard Liquidated Damages Amount, in cash or in shares of Common Stock at the option of the Buyer.  If the Buyer elects to be paid the Standard Liquidated Damages Amount in shares of Common Stock, such shares shall be issued at the Conversion Price at the time of payment.  In order to ensure that the Company has authorized a sufficient amount of shares to meet the Reserved Amount at all times, the Company must deliver to the Buyer at the end of every month a list detailing (1) the current amount of shares authorized by the Company and reserved for the Buyer; and (2) amount of shares issuable upon conversion of the Note and as payment of interest accrued on the Note for one year.  If the Company fails to provide such list within five (5) business days of the end of each month, the Company shall pay the Standard Liquidated Damages Amount, in cash or in shares of Common Stock at the option of the Buyer, until the list is delivered.  If the Buyer elects to be paid the Standard Liquidated Damages Amount in shares of Common Stock, such shares shall be issued at the Conversion Price at the time of payment.

h. Listing.  The Company shall promptly secure the listing of the Conversion Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and, so long as any Buyer owns any of the Securities, shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares from time to time issuable upon conversion of the Note.  The Company will obtain and, so long as any Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on the OTCBB or any equivalent replacement exchange, the Nasdaq National Market (“Nasdaq”), the Nasdaq SmallCap Market (“Nasdaq SmallCap”), the New York Stock Exchange (“NYSE”), or the American Stock Exchange (“AMEX”) and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as applicable.  The Company shall promptly provide to the Buyer copies of any notices it receives from the OTCBB and any other exchanges or quotation systems on which the Common Stock is then listed regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems.

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i. Corporate Existence.  So long as a Buyer beneficially owns any Note, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose

Common Stock is listed for trading on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.

j. No Integration.  The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.

k. Breach of Covenants.  If the Company breaches any of the covenants set forth in this Section 4, and in addition to any other remedies available to the Buyer pursuant to this Agreement, the Company shall pay to the Buyer the Standard Liquidated Damages Amount, in cash or in shares of Common Stock at the option of Buyer, until such breach is cured.  If the Buyer elects to pay the Standard Liquidated Damages Amount in shares, such shares shall be issued at the Conversion Price at the time of payment.

l. Failure to Comply with the 1934 Act.  So long as the Buyer beneficially owns the Note, the Company shall comply with the reporting requirements of the 1934 Act; and the Company shall continue to be subject to the reporting requirements of the 1934 Act.

m. Trading Activities.  Neither the Buyer nor their affiliates has an open short position in the common stock of the Company and the Buyer agree that they shall not, and that they will cause their affiliates not to, engage in any short sales of or hedging transactions with respect to the common stock of the Company.

5. Transfer Agent Instructions.  The Company shall issue irrevocable instructions to its transfer agent to issue certificates, registered in the name of the Buyer or its nominee, for the Conversion Shares in such amounts as specified from time to time by the Buyer to the Company upon conversion of the Note in accordance with the terms thereof (the “Irrevocable Transfer Agent Instructions”). In the event that the Borrower proposes to replace its transfer agent, the Borrower shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower. Prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement.  The Company warrants that: (i) no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(f) hereof (in the case of the Conversion Shares, prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold), will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for Conversion Shares to be issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement; and (iii) it will not fail to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Conversion Shares issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement.  Nothing in this Section shall affect in any way the Buyer’s obligations and agreement set forth in Section 2(g) hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities.

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 If a Buyer provides the Company, at the cost of the Company, with (i) an opinion of counsel in form, substance and scope customary for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected or (ii) the Buyer provides reasonable assurances that the Securities can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by the Buyer.  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer, by vitiating the intent and purpose of the transactions contemplated hereby.  Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section, that the Buyer shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.

6. Conditions to the Company’s Obligation to Sell.  The obligation of the Company hereunder to issue and sell the Note to a Buyer at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

a. The Buyer shall have executed this Agreement and delivered the same to the Company.

b. The Buyer shall have delivered the Purchase Price in accordance with Section 1(b) above.

c. The representations and warranties of the applicable Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and the applicable Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the applicable Buyer at or prior to the Closing Date.

d. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

7. Conditions to The Buyer’s Obligation to Purchase.  The obligation of the Buyer hereunder to purchase the Note at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions, provided that these conditions are for the Buyer’s sole benefit and may be waived by the Buyer at any time in its sole discretion:

a. The Company shall have executed this Agreement and delivered the same to the Buyer.

b. The Company shall have delivered to the Buyer duly executed Note (in such denominations as the Buyer shall request) in accordance with Section 1(b) above.

c. The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to a majority-in-interest of the Buyer, shall have been delivered to and acknowledged in writing by the Company’s Transfer Agent.

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d. The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date.  The Buyer shall have received a certificate or certificates, executed by the chief executive officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by the Buyer including, but not limited to certificates with respect to the Company’s Certificate of Incorporation, By-laws and Board of Directors’ resolutions relating to the transactions contemplated hereby.

e. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

f. No event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company including but not limited to a change in the 1934 Act reporting status of the Company or the failure of the Company to be timely in its 1934 Act reporting obligations.

g. The Conversion Shares shall have been authorized for quotation on the OTCBB and trading in the Common Stock on the OTCBB shall not have been suspended by the SEC or the OTCBB.

h. The Buyer shall have received an officer’s certificate described in Section 3(c) above, dated as of the Closing Date.

8. Governing Law; Miscellaneous.

a. Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws.  Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state and county of Kings County, New York.  The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  The Company and Holder waive trial by jury.  The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.   Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

b. Counterparts; Signatures by Facsimile.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party.  This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

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c. Headings.  The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.

d. Severability.  In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to

conform with such statute or rule of law.  Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.

e. Entire Agreement; Amendments.  This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the majority in interest of the Buyer.

f. Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:

If to the Company, to:

CHINA LOGISTICS GROUP, INC.

23F. Gutai Beach Building No. 969

Zhongshan Road (South), Shanghai, China 200011

Attn: Wei Chen, Chief Executive Officer

With a copy by fax only to (which copy shall not constitute notice):

[enter name of law firm]

Attn: [attorney name]

[enter address line 1]

[enter city, state, zip]

facsimile: [enter fax number]

If to the Buyer:

  LG CAPITAL FUNDING, LLC

  Attn: Joseph Lerman, Managing Member

  1218 Union St. Suite #2

Brooklyn NY 11225

Office 718-506-9240

Fax 718-732-4512

With a copy by fax only to (which copy shall not constitute notice):

Each party shall provide notice to the other party of any change in address.

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g. Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns.  Neither the Company nor any Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other.  Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its rights hereunder to any person that purchases Securities in a private transaction from a Buyer or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.

h. Third Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

i. Survival.  The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyer.  The Company agrees to indemnify and hold harmless each of the Buyer and all their officers, directors, employees and agents for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.

j. Publicity.  The Company, and each of the Buyer shall have the right to review a reasonable period of time before issuance of any press releases, SEC, OTCBB or FINRA filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of each of the Buyer, to make any press release or SEC, OTCBB (or other applicable trading market) or FINRA filings with respect to such transactions as is required by applicable law and regulations (although each of the Buyer shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon).

k. Further Assurances.  Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

l. No Strict Construction.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

m. Remedies.  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby.  Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, that the Buyer shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.

COMPANY:

CHINA LOGISTICS GROUP, INC.

By: /s/ Wei Chen

Name: Wei Chen

Title: Chief Executive Officer

INVESTOR:

LG CAPITAL FUNDING, LLC.

By: /s/ Joseph Lerman

Name: Joseph Lerman

Title:   Managing Member

AGGREGATE SUBSCRIPTION AMOUNT:

Aggregate Principal Amount of Note: $51,500.00

Aggregate Purchase Price: $51,500.00

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EX-10.17

Exhibit 10.17

NEITHER THIS NOTE NOR THE SECURITIES THAT MAY BE ISSUED BY THE BORROWER UPON CONVERSION HEREOF (COLLECTIVELY, THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THE SECURITIES NOR ANY INTEREST OR PARTICIPATION THEREIN MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED: (i) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE 1933 ACT, OR APPLICABLE STATE SECURITIES LAWS; OR (ii) IN THE ABSENCE OF AN OPINION OF COUNSEL, IN A FORM ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT OR; (iii) UNLESS SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO RULE 144 UNDER THE 1933 ACT.

CONVERTIBLE NOTE

$ 25,000.00                August 27, 2013 (the "Issuance Date")

FOR VALUE RECEIVED, China Logistics Group, Inc., a Florida Corporation (the "Company") doing business in Shanghai, China; hereby promises to pay to the order of JSJ Investments Inc., an accredited investor and Texas Corporation,  assigns (the "Holder") the principal amount of Twenty Five Thousand  Dollars ($25,000.00), on demand of the Holder (the "Maturity Date") which shall be six (6) months.  The principal balance of this Note shall be payable pursuant to Paragraph 1.

1. Payments of Principal and Interest.

(a) Pre-Payment of Principal. This note would have a cash redemption premium of 125% of the principal amount. The principal balance of this Note shall be paid to the Holder hereof on the Demand after the Maturity Date. The Company shall not prematurely pay or prepay any outstanding principal balance to the Holder.

(b) Default Interest. Any amount of principal on this Note which is not paid when due shall bear ten percent (10%) interest  per annum from the date thereof until the same is paid ("Default Interest") and the Holder, at the Holder's sole discretion, may include any accrued but unpaid Default Interest in the Conversion Amount.

(d) General Payment Provisions.   This Note shall be made in lawful money of the United States of America by check to such account as the Holder may from time to time designate by written notice to the Company in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day (as defined below), the same shall instead be due on the next succeeding day which is a Business Day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. For purposes of this Note, "Business Day" shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the State of Georgia are authorized or required by law or executive order to remain closed.

2, Conversion of Note. At any time prior to the Maturity Date, this Note shall be convertible into shares of the Company's common stock, share (the "Common Stock"), on the terms and conditions set forth in this Paragraph 2.

 (a) Certain Defined Terms.  For purposes of this Note, the following terms shall have the following meanings:

(1) "Conversion Amount" means the sum of (A) the principal amount of this Note to be converted with respect to which this determination is being made, and (B) Default

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Interest, if any, on unpaid interest and principal, if so included at the Holder's sole discretion.

(2) "Conversion Price" means 45% discount to the average of the three lowest trades on the previous ten (10) trading days to the date of Conversion, with a maximum conversion price equal to that price that would be obtained if the conversion were to be made on the date that this note was executed, and shares will not be converted under a price of .0005.

(3) "Other Note" means the convertible notes, other than this Note, issued by the Company to the Holder whether prior, simultaneously with or hereinafter executed.

(4) "Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.

 (b) Holder's Conversion Right. At any time or times on or after the Maturity Date, the Holder shall be entitled to convert all of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock in accordance with Paragraph 2(d), at the Conversion Rate (as defined below). The Company shall not issue any fraction of a share of Common Stock upon any conversion; if such issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share.

(c) Conversion Rate. The number of shares of Common Stock issuable upon conversion of a Conversion Amount of this Note pursuant to Paragraph 2(b) shall be determined according to the following formula (the "Conversion Rate"):

Conversion Amount / Conversion Price = number of shares of Common Stock issuable upon conversion of a Conversion Amount of this Note

(d) Conversion Amount. Loan shall be converted pursuant to Rule 504(b) of regulation D promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended, into un-legend shares at the Conversion Price.

(e) Mechanics of Conversion. The conversion of this Note shall be conducted in the following manner:

(1) Holder's Delivery Requirements. To convert this Note into shares of Common Stock on any date set forth in the Conversion Notice by the Holder (the "Conversion Date"), the Holder hereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., Eastern Time on such date, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit 2.(e)(1) (the "Conversion Notice") to the Company; and (B) surrender to a common carrier for delivery to the Company as soon as practicable following the date of the Conversion Notice original of the Note being converted.

(2) Company's Response. Upon receipt by the Company of a copy of a Conversion Notice, the Company shall as soon as practicable, but in no event later than three (3) Business Days after receipt of such Conversion Notice, send, via facsimile and overnight courier, a confirmation of receipt of such Conversion Notice (the "Conversion Confirmation") to such Holder indicating that the Company will process such Conversion Notice in accordance with the terms herein. Within five (5) Business Days after the date of the Conversion Confirmation, the Company shall issue and surrender to a common carrier for delivery to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder, for the number of shares of Common Stock to which the Holder shall be entitled. If less than the

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full principal amount of this Note is submitted for conversion, then the Company shall within five (5) Business Days after receipt of the Note and at its own expense, issue and deliver to the Holder a new Note for the outstanding principal amount not so converted; provided that such new Note shall be substantially in the same form as this Note.

 (3) Record Holder. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

(e) Taxes. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Common Stock upon the conversion of Notes.

3. Other Rights of Holders.

(a) Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "Organic Change." Prior to the consummation of any (i) Organic Change or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "Acquiring Entity") a written agreement (in form and substance reasonably satisfactory to the Holder) to deliver to Holder in exchange for this Note, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Note, and reasonably satisfactory to the Holder.  Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance reasonably satisfactory to the Holders of a majority of the Conversion Amount of the Notes then outstanding) to ensure that each of the Holders will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the conversion of such Holder's Note, such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock which would have been acquirable and receivable upon the conversion of such Holder's Note as of the date of such Organic Change (without taking into account any limitations or restrictions on the convertibility of the Note).

(b). Security Interest.    None.

4. Reservation of Shares. The Company shall at all times, so long as any principal amount of the Notes is outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Notes, such number of shares of Common Stock as shall at all times be sufficient to effect the conversion of all of the principal amount of the Notes then outstanding; provided that the number of shares of Common Stock so reserved shall at no time be less than one hundred twenty percent (125%) of the number of shares of Common Stock for which the principal amount of the Notes are at any time convertible. The initial number of shares of Common Stock reserved for conversions of the Notes and each increase in the number of shares so reserved shall be allocated pro rata among the Holders of the Notes based on the principal amount of the Notes held by each Holder at the time of issuance of the Notes or increase in the number of reserved shares, as the case may be. In the event a Holder shall sell or otherwise transfer any of such Holder's Notes, each transferee shall be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for such transferor. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Notes shall be allocated to the remaining Holders, pro rata based on the principal amount of the Notes then held by such Holders.

5. Voting Rights. Holders shall have no voting rights, except as required by law.

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6. Reissuance of Note. In the event of a conversion or redemption pursuant to this Note of less than all of the Conversion Amount represented by this Note, the Company shall promptly cause to be issued and delivered to the Holder, upon tender by the Holder of the Note converted or redeemed, a new note of like tenor representing the remaining principal amount of this Note which has not been so converted or redeemed and which is in substantially the same form as this Note.

7. Defaults and Remedies.

(a) Events of Default. An "Event of Default" is: (i) default for ten (10) days in payment of interest or Default Interest on this Note; (ii) default in payment of the principal amount of this Note when due; (iii) failure by the Company for thirty (30) days after notice to it to comply with any other material provision of this Note; (iv) if the Company pursuant to or within the meaning of any Bankruptcy Law; (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it or for all or substantially all of its property; (D) makes a general assignment for the benefit of its creditors; or (E) admits in writing that it is generally unable to pay its debts as the same become due; or (vi) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (I) is for relief against the Company in an involuntary case; (2) appoints a Custodian of the Company or for all or substantially all of its property; or (3) orders the liquidation of the Company or any subsidiary, and the order or decree remains unstayed and in effect for thirty (30) days. The Term "Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal or State Law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.

(b) Remedies. If an Event of Default occurs and is continuing, the Holder of this Note may declare all of this Note, including any interest and Default Interest and other amounts due, to be due and payable immediately.

8. Vote to Change the Terms of this Note. This Note and any provision hereof may only be amended by an instrument in writing signed by the Company and holders of a majority of the aggregate Conversion Amount of the Notes then outstanding.

9. Lost or Stolen Note. Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of an indemnification undertaking by the Holder to the Company in a form reasonably acceptable to the Company and, in the case of mutilation, upon surrender and cancellation of the Notes, the Company shall execute and deliver a new Note of like tenor and date and in substantially the same form as this Note; provided, however, the Company shall not be obligated to re-issue a Note if the Holder contemporaneously requests the Company to convert such remaining principal amount into Common Stock.

10. Payment of Collection, Enforcement and Other Costs. If: (i) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding; or (ii) an attorney is retained to represent the Holder of this Note in any bankruptcy, reorganization, receivership or other proceedings affecting creditors' rights and involving a claim under this Note, then the Company shall pay to the Holder all reasonable attorneys' fees, costs and expenses incurred in connection therewith, in addition to all other amounts due hereunder.

11. Cancellation. After all principal and accrued interest at any time owed on this Note has been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.

12. Waiver of Notice. To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Securities Purchase Agreement.

13. Governing Law. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be

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governed by, the laws of the State of Florida, without giving effect to provisions thereof regarding conflict of laws. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in North Carolina for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by sending by certified mail or overnight courier a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

14. Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, at law or in equity (including a decree of specific performance and/or other injunctive relief), and no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a Holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Note. The Company covenants to each Holder of Notes that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof).

15. Specific Shall Not Limit General; Construction. No specific provision contained in this Note shall limit or modify any more general provision contained herein. This Note shall be deemed to be jointly drafted by the Company and all Holders and shall not be construed against any person as the drafter hereof.

16. Failure or Indulgence Not Waiver.  No failure or delay on the part of this Note in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

IN WITNESS WHEREOF, the Company has caused this Note to be signed by its CEO, on and as of the Issuance Date.

       China Logistics Group, Inc.

       By: /s/ Wei Chen

        Wei Chen, CEO

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EXHIBIT 2.(e)(1) CONVERSION NOTICE

Reference is made to the Convertible Note issued by China Logistics Group, Inc. (the "Note").

In accordance with and pursuant to the Note, the undersigned hereby elects to convert a portion or all of the principal balance of the Note, indicated below into shares of Common Stock (the "Common Stock"), of the Company, by tendering the Note specified below as of the date specified below.

Date of Conversion:

Principal Amount to be converted:                                    $

Please confirm the following information:

Conversion Amount:

Conversion Price:

Number of shares of Common Stock to be issued:

Please issue the Common Stock into which the Note is being converted in the name of the Holder of the Note and to the following address:

Authorization:

Holder:

By: ____________________________________

            Sameer Hirji, President

            JSJ Investments Inc.

Date:

Accepted by:

       China Logistics Group, Inc.

       By: ________________________________

        Wei Chen, CEO

Accepted as of:

EX-10.18

Exhibit 10.18

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY SECTION 3(b) OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT)

US $30,000.00

CHINA LOGISTICS GROUP, INC.

6% CONVERTIBLE REDEEMABLE NOTE

DUE OCTOBER 21, 2014

NOW THEREFORE FOR VALUE RECEIVED, China Logistics Group, Inc. (the “Company”) promises to pay to the order of GEL Properties, LLC and its authorized successors and permitted assigns ("Holder"), the aggregate principal face amount of Thirty Thousand dollars exactly (U.S. $30,000.00) on October 21, 2014 ("Maturity Date") and to pay interest on the principal amount outstanding hereunder at the rate of 6% per annum commencing on October 21, 2013 (the “Funding Date”).   The Company acknowledges it has received the sum of $30,000 less legal fees of $1,500 incurred by the Holder in connection with this transaction and investment banking fees of $3,000 for a total net payment of $25,500.00. The interest will be paid to the Holder in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note.  The principal of, and interest on, this Note are payable at 16192 Coastal Highway, Lewes, DE, 19958, initially, and if changed, last appearing on the records of the Company as designated in writing by the Holder hereof from time to time.  The Company will pay each interest payment and the outstanding principal due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records of the Company.  The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and shall satisfy and discharge the liability for principal on this Note to the extent of the sum represented by such check or wire transfer.  Interest shall be paya-ble in Common Stock (as defined below) pursuant to paragraph 4(b) herein.

This Note is subject to the following additional provisions:

1.           This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same.  No service charge will be made for such registration or transfer or exchange, except that Holder shall pay any tax or other governmental charges payable in connection therewith.

2.           The Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable laws.

3.           This Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended ("Act") and applicable state securities laws.  Any attempted transfer to a non-qualifying party shall be treated by the Company as void.  Prior to due present-ment for transfer of this Note, the Company and any agent of the Company may treat the person in whose name this Note is duly registered on the Company's records as the owner hereof for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected or bound by notice to the contrary.  Any Holder of this Note electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prospective transferee of this Note, also is required to give the Company written confirmation that this Note is being converted ("Notice of Conversion") in the form annexed hereto as Exhibit A. The date of receipt (including receipt by telecopy) of such Notice of Conversion shall be the Conversion Date.

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4.           (a)           The Holder of this Note is entitled, at its option, at any time after the requisite rule 144 holding period, and after full cash payment for the shares convertible here-under, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock (the "Common Stock") without restrictive legend of any nature, at a conversion price ("Conversion Price") for each share of Common Stock equal to 60% of the lowest closing bid price of the Common Stock as reported on the National Quotations Bureau OTCQB exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for any of the five trading days including the day upon which a Notice of Conversion is received by the Company (provided such Notice of Conversion is delivered by fax or other electronic method of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to included the same day closing price). If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. Such conversion shall be effectuated by the Company delivering the shares of Common Stock to the Holder within 3 business days of receipt by the Company of the Notice of Conversion.  Once the Holder has received such shares of Common Stock, the Holder shall surrender this Note to the Company, executed by the Holder evidencing such Holder's intention to convert this Note or a specified portion hereof, and accompanied by proper assignment hereof in blank.  Accrued but unpaid interest shall be subject to conversion.  No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share.  In the event the Company experiences a DTC “Chill” on its shares while this note is eligible for conversion into free trading shares, the conversion price shall be decreased to 55% instead of 60% while that “Chill” is in effect. The Holder will not short or maintain a short position in the stock of the Company while this Note is in effect.

(b)           Interest on any unpaid principal balance of this Note shall be paid at the rate of 6% per annum.  Interest shall be paid by the Company in Common Stock ("Interest Shares").  The Holder may, at any time, send in a Notice of Conversion to the Company for In-terest Shares based on the formula provided in Section 4(a) above.  The dollar amount converted into Interest Shares shall be all or a portion of the accrued interest calculated on the unpaid prin-cipal balance of this Note to the date of such notice.

(c)           The Company shall have the option to redeem this Note and pay to the Holder (i) 125% of the unpaid principal and accrued interest amount due under this Note, in full, is such redemption occurs prior to the 90th date after the issuance day of this Note;  (ii) If this note is prepaid after the 91st day after issuance but before the 180th day after issuance than the Company shall pay to the Holder 135% of the unpaid principal and accrued interest amount due under this Note, in full.  After the 180th day, if the Company desires to redeem this Note, it shall pay to the Holder 150% of the unpaid principal and accrued interest amount due under this Note, in full. If the redemption request occurs following the 180th day after the issuance of this Note, then the Company shall give the Holder 5 days written notice and the Holder during such 5 days shall have the option to convert this Note or any part thereof into shares of Common Stock at the Conversion Price set forth in paragraph 4(a) of this Note.

(d)           Upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series of related transactions, (ii) a reclassification, capital reorganization or other change or exchange of outstanding shares of the Common Stock, or (iii) any consolidation or merger of the Company with or into another person or entity in which the Company is not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or ex-change of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i), (ii) and (iii) being referred to as a "Sale Event"), then, in each case, the Company shall, upon request of the Holder, redeem this Note in cash for 150% of the principal amount, plus ac-crued but unpaid interest through the date of redemption, or at the election of the Holder, such Holder may convert the unpaid principal amount of this Note (together with the amount of ac-crued but unpaid interest) into shares of Common Stock immediately prior to such Sale Event at the Conversion Price.

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(e)           In case of any Sale Event in connection with which this Note is not re-deemed or converted, the Company shall cause effective provision to be made so that the Holder of this Note shall have the right thereafter, by converting this Note, to purchase or convert this Note into the kind and number of shares of stock or other securities or property (including cash) receivable upon such reclassification, capital reorganization or other change, consolidation or merger by a holder of the number of shares of Common Stock that could have been purchased upon exercise of the Note and at the same Conversion Price, as defined in this Note, immediately prior to such Sale Event. The foregoing provisions shall similarly apply to successive Sale Events. If the consideration received by the holders of Common Stock is other than cash, the value shall be as determined by the Board of Directors of the Company or successor person or entity acting in good faith.

5.           No provision of this Note shall alter or impair the obligation of the Com-pany, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.

6.           The Company hereby expressly waives demand and presentment for pay-ment, notice of non-payment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereto.

7.           The Company agrees to pay all costs and expenses, including reasonable attorneys' fees and expenses, which may be incurred by the Holder in collecting any amount due under this Note.

8.           If one or more of the following described "Events of Default" shall occur:

(a)           The Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the Company; or

(b)           Any of the representations or warranties made by the Company herein or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Note shall be false or misleading in any respect; or

(c)           The Company shall fail to perform or observe, in any respect, any cove-nant, term, provision, condition, agreement or obligation of the Company under this Note; or

(d)           The Company shall (1) become insolvent; (2) admit in writing its inability to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its dissolution; (4) apply for or consent to the appointment of a trus-tee, liquidator or receiver for its or for a substantial part of its property or business; (5) file a peti-tion for  bankruptcy relief, consent to the filing of such petition or have filed against it an invol-untary petition for bankruptcy relief, all under federal or state laws as applicable; or

(e)           A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged with-in thirty (30) days after such appointment; or

(f)           Any governmental agency or any court of competent jurisdiction at the in-stance of any governmental agency shall assume custody or control of the whole or any substan-tial portion of the properties or assets of the Company; or

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(g)           One or more money judgments, writs or warrants of attachment, or similar process, in excess of one hundred thousand dollars ($100,000) in the aggregate, shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or

(h)           Bankruptcy, reorganization, insolvency or liquidation proceedings, or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted voluntarily by or involuntarily against the Company; or

(i)           The Company shall have its Common Stock delisted from an exchange (including the OTCBB exchange) or, if the Common Stock trades on an exchange, then trading in the Common Stock shall be suspended for more than 10 consecutive days;

(j)           If a majority of the members of the Board of Directors of the Company on the date hereof are no longer serving as members of the Board; or

(k)           The Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein without restrictive legend within 3 business days of its receipt of a Notice of Conversion.

Then, or at any time thereafter, unless cured, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Note immediately due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law.  Upon an Event of Default, interest shall be accrue at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law.  In the event of a breach of 8(k) the penalty shall be $250 per day the shares are not issued beginning on the 4th day after the conversion notice was delivered to the Company.  This penalty shall increase to $500 per day beginning on the 10th day.

If the Holder shall commence an action or proceeding to enforce any provisions of this Note, in-cluding without limitation engaging an attorney, then the Holder shall be reimbursed by the Company for its attorneys’ fees and other costs and expenses incurred in the investigation, prepa-ration and prosecution of such action or proceeding.

9.           In case any provision of this Note is held by a court of competent jurisdic-tion to be excessive in scope or otherwise invalid or unenforceable, such provision shall be ad-justed rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby.

10.           Neither this Note nor any term hereof may be amended, waived, dis-charged or terminated other than by a written instrument signed by the Company and the Holder.

11.           The Company represents that it is not a “shell” issuer and has never been a “shell” issuer or that if it previously has been a “shell” issuer that at least 12 months have passed since the Company has reported form 10 type information indicating it is no longer a “shell issu-er.  Further. The Company will instruct its counsel to either (i) write a 144- 3(a)(9) opinion to al-low for salability of the conversion shares or (ii) accept such opinion from Holder’s counsel.

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12.           The Company will issue irrevocable transfer agent instructions reserving 1,595,000 shares of Common Stock for conversion under this Note and any other notes being is-sued on even day herewith.  The reserve shall be replenished as needed to allow for conversions of this Note.  Upon full conversion of this Note, the reserve representing this Note shall be can-celled.  From this reserve, the Holder may send a Conversion Notice to the Company, and the Company will duly pass to its transfer agent, a conversion for a tranche of shares to be converted (Tranche Conversion”) This/these Tranche Conversion(s) may be actually transferred by the transfer agent to the Holder, or via DWAC to the Holder’s designated Broker-Dealer(s) to be held in street name FBO the Holder, yet unconverted on the books and records of the Company in a Creditor in Possession Escrow. (“CPE”)  When the CPE is active, by having shares therein, the Holder must submit daily transaction journals, on days that there were a sale, in the Compa-ny’s securities (“Runs”) to the Company to calculate the price of conversion (“Basis”) of any conversion and the amount and date thereunder.

13.           The Company will give the Holder direct notice of any corporate actions including but not limited to name changes, stock splits, recapitalizations etc.  This notice shall be given to the Holder as soon as possible under law.  The Company will email such notices to Goldy@pisc.us.

14.           This Note shall be governed by and construed in accordance with the laws of New York applicable to contracts made and wholly to be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto.  The Holder and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of the State of New York.  This Agreement may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original.

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IN WITNESS WHEREOF, the Company has caused this Note to be duly execut-ed by an officer thereunto duly authorized.

Dated:

CHINA LOGISTICS GROUP, INC.

By: /s/ Wei Chen

Title: CEO

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EXHIBIT A

NOTICE OF CONVERSION

 (To be Executed by the Registered Holder in order to Convert the Note)

The undersigned hereby irrevocably elects to convert $___________ of the above Note into _________ Shares of Common Stock of China Logistics Group, Inc.  (“Shares”) ac-cording to the conditions set forth in such Note, as of the date written below.

If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer and other taxes and charges payable with respect thereto.

Date of Conversion:

Applicable Conversion Price:

Signature:

[Print Name of Holder and Title of Signer]

Address:

SSN or EIN:

Shares are to be registered in the following name:

Name:

Address:

Tel:

Fax:

SSN or EIN:

Shares are to be sent or delivered to the following account:

Account Name:

Address:

EX-31.1

EXHIBIT 31.1

Rule 13a-14(a)/15d-14(a) Certification

I, Wei Chen, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2013 of China Logistics Group, Inc..

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

January 28, 2013 /s/Wei Chen Wei Chen, Chief Executive Officer, principal executive officer

EX-31.2

EXHIBIT 31.2

Rule 13a-14(a)/15d-14(a) Certification

I, Yuan Huang, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2013 of China Logistics Group, Inc..
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
	(c)		Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

January 28, 2013 /s/Yuan Huang Yuan Huang, Chief Financial Officer, principal financial and accounting officer

EX-32.1

EXHIBIT 32.1

Section 1350 Certification

In connection with the Quarterly Report of China Logistics Group, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2013 as filed with the Securities and Exchange Commission (the “Report”), I, Wei Chen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to SS. 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

2. The information contained in the Report fairly presents, in all material respects, the financial conditions and results of operations of the Company.

January 28, 2013 /s/Wei Chen Wei Chen, Chief Executive Officer, principal executive officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

Section 1350 Certification

In connection with the Quarterly Report of China Logistics Group, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2013 as filed with the Securities and Exchange Commission (the “Report”), I, Yuan Huang, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to SS. 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

2. The information contained in the Report fairly presents, in all material respects, the financial conditions and results of operations of the Company.

January 28, 2013 /s/Yuan Huang Yuan Huang, Chief Financial Officer, principal financial and accounting officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Basic and Diluted Earnings Per Share: Common stock equivalents table (Tables)

9 Months Ended

Sep. 30, 2013

Tables/Schedules

Common stock equivalents table

	September 30, 2013	September 30, 2012
Warrants	0	31,558,500
Series B convertible preferred stock	0	4,500,000
Total	0	36,058,500

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Concentration of Credit Risk (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2013
Details
Deposits in PRC Banks	$ 2.0

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Note 9 -related Party Transactions: Due from related parties table (Tables)

9 Months Ended

Sep. 30, 2013

Tables/Schedules

Due from related parties table

	September 30, 2013	December 31, 2012
Prepayments made to CD International Enterprises, Inc.	$         72,154	$                   0
	$         72,154	$                   0

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Note 9 -related Party Transactions: Due to related parties table (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Details
Due to Xiangfen Chen	$ 25,567	$ 72,509
Due to Bin Liu	182,627	194,949
Due to Tianjin Sincere Logistics Co., Ltd.	107,176	177,137
Due to Shunbo International Freight Ltd.	37,563	2,671
Due to Lianyunbu	149,298	145,982
Due to Shang Jing	48,889	47,611
Due to CD International Enterprises, Inc.	0	410,078
Due to related parties	$ 551,120	$ 1,050,937

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Accounts Receivable and Other Receivables (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Details
Allowance for Doubtful Accounts Receivable, Current	$ 3,362,749	$ 3,303,295
Allowance for doubtful accounts on other receivable	$ 428,150	$ 196,427

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Note 7 - Convertible Notes Payable: Convertible promissory notes table (Tables)

9 Months Ended

Sep. 30, 2013

Tables/Schedules

Convertible promissory notes table

	September 30, 2013	December 31, 2012
Principal amount	$     140,076	$                   0
Put premium	53,887	0
	193,963	0
Less: unamortized debt discount	(79,387)	0
Convertible note payable, net	$     114,576	$                   0

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Non-controlling Interest (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Non-controlling Interest

Non-controlling interest

Non-controlling interests in our subsidiaries are recorded as a component of our equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.

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Note 10 - Foreign Operations: Sales by operating region table (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Details
Sales Revenue - US	$ 0	$ 0	$ 0	$ 0
Sales Revenue - PRC	3,192,631	6,349,846	10,082,430	17,917,318
Sales Revenue - Total	$ 3,192,631	$ 6,349,846	$ 10,082,430	$ 17,917,318

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Advances From Customers (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Details
Advances from customers	$ 960,101	$ 302,042

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Note 9 -related Party Transactions (Details) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Details
Rent expense to related parties	$ 1,304	$ 1,284
Accrued rent to related parties	$ 1,320		$ 0

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Advances From Customers (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Advances From Customers

Advances from customers

Advances from customers consist of prepayments to us for contracted cargo that has not yet been shipped to the recipient and for other advance deposits. These amounts are recognized as revenue when all of the revenue recognition criteria have been met. Advances from customers totaled $960,101 and $302,042, at September 30, 2013 and December 31, 2012, respectively.

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Note 10 - Foreign Operations: Assets by operating region table (Tables)

9 Months Ended

Sep. 30, 2013

Tables/Schedules

Assets by operating region table

	September 30, 2013	December 31, 2012
United States	$         99,186	$                   0
People's Republic of China	4,467,739	4,172,007
Total	$   4,566,925	$   4,172,007

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Note 4 - Other Receivables: Other receivables table (Tables)

9 Months Ended

Sep. 30, 2013

Tables/Schedules

Other receivables table

	September 30, 2013	December 31, 2012
Advances receivable	$     693,499	$     467,207
Deferred expenses	20,650	58,383
Other	57,036	19,930
	771,185	545,520
Less: allowance for doubtful accounts	(428,150)	(196,427)
Other Receivables, net	$     343,035	$     349,093

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Fair Value of Financial Instruments: Changes in level 3 financial assets and liabilities table (Tables)

9 Months Ended

Sep. 30, 2013

Tables/Schedules

Changes in level 3 financial assets and liabilities table

Liabilities:
Balance of derivative liabilities as of January 1, 2013	$                  0
Initial fair value of derivative liabilities attributable to conversion features of convertible notes	196,253
Reclassification of additional paid-in capital upon conversion	(80,287)
Loss from change in the fair value of derivative liabilities	(60,642)
Balance of derivative liabilities as of September 30, 2013	$ 55,324

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies (Details) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Details
Approximate accumulated deficit	$ 20,688,873
Cash used in operating activities	374,320
Approximate Net Loss	446,557
Approximate Net lncome		$ 490,533

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Note 8 - Stockholders' Equity (Details)	9 Months Ended
	Sep. 30, 2013
Details
Shares issued related to Conversion of the certain other convertible notes	52,383,252

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Note 3 - Accounts Receivable: Schedule of Accounts and Notes Receivable (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Details
Accounts Receivable, Gross	$ 4,838,255	$ 4,581,036
Allowance for Doubtful Accounts Receivable	(3,362,749)	(3,303,295)
Accounts Receivable, Net, Current	$ 1,475,506	$ 1,277,741

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Note 8 - Stockholders' Equity: Warrant activities table (Tables)

9 Months Ended

Sep. 30, 2013

Tables/Schedules

Warrant activities table

	Number of warrants	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (Years)
Outstanding at December 31, 2012	31,558,500	$                    0.20	0.33
Granted	0	0	0
Exercised	0	0	0
Expired	(31,558,500)	(0.20)	0
Outstanding at September 30, 2013	0	$                          0	0

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Note 5 - Property and Equipment

9 Months Ended

Sep. 30, 2013

Notes

Note 5 - Property and Equipment

NOTE 5 – PROPERTY AND EQUIPMENT

Property and equipment at September 30, 2013 and December 31, 2012 consisted of the following:

(Useful lives)	September 30, 2013	December 31, 2012
Vehicle(5 years)	$     120,210	$        47,976
Furniture and office equipment(4 - 5 years)	169,837	153,089
	290,047	201,065
Less: accumulated depreciation	(140,211)	(136,203)
Property and equipment, net	$     149,836	$        64,862

For the three months ended September 30, 2013 and 2012, depreciation expense amounted to $9,055 and $2,010, respectively. For the nine months ended September 30, 2013 and 2012, depreciation expense amounted to $22,243 and $5,456, respectively.

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Note 4 - Other Receivables: Other receivables table (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Details
Advances receivable	$ 693,499	$ 467,207
Deferred expenses	20,650	58,383
Other Assets, Miscellaneous	57,036	19,930
Allowance for Doubtful Accounts, Premiums and Other Receivables	(428,150)	(196,427)
Other Receivables	$ 343,035	$ 349,093

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Note 5 - Property and Equipment: Property and equipment table (Tables)

9 Months Ended

Sep. 30, 2013

Tables/Schedules

Property and equipment table

(Useful lives)	September 30, 2013	December 31, 2012
Vehicle(5 years)	$     120,210	$        47,976
Furniture and office equipment(4 - 5 years)	169,837	153,089
	290,047	201,065
Less: accumulated depreciation	(140,211)	(136,203)
Property and equipment, net	$     149,836	$        64,862

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Basic and Diluted Earnings Per Share (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Basic and Diluted Earnings Per Share

Basic and diluted earnings per share

Pursuant to ASC 260-10-45, basic income (loss) per common share is computed by dividing income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted income (loss) per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in our income subject to anti-dilution limitations. Potentially dilutive common shares consist of common stock issuable for stock warrants, and shares issuable upon conversion of Series B convertible preferred stock. In period where the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact.. The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30,		Nine Months Ended September 30,
Numerator:	2013	2012	2013	2012
Net (loss) income applicable to China Logistics Group, Inc. shareholders	$        (135,432)	$       (110,290)	$       (441,591)	$        229,291
Denominator:
Denominator for basic earnings per share:
Weighted average shares outstanding	101,658,431	41,508,203	73,479,756	41,508,203
Series B convertible preferred stock	0	0	0	4,500,000
Denominator for diluted earnings per share:
Diluted weighted average shares outstanding	101,658,431	41,508,203	73,479,756	46,008,203
(Loss) earnings per common share - basic	$               (0.00)	$              (0.00)	$              (0.01)	$               0.01
(Loss) earnings per common share - diluted	$               (0.00)	$              (0.00)	$              (0.01)	$               0.00

The Company's aggregate common stock equivalents at September 30, 2013 and 2012 included the following:

	September 30, 2013	September 30, 2012
Warrants	0	31,558,500
Series B convertible preferred stock	0	4,500,000
Total	0	36,058,500

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Derivative Liabilities (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Derivative Liabilities

Derivative liabilities

ASC Subtopic 815-40, “Contracts in Entity’s Own Equity,” requires that entities recognize as derivative liabilities the derivative instruments, including certain derivative instruments embedded in other contracts that are not indexed to an entity’s own stock. Pursuant to the provisions of ASC Section 815-40-15, an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. The adoption of ASC Subtopic 815-40 has affected the accounting for (i) certain freestanding warrants that contain exercise price adjustment features and (ii) convertible bonds issued by foreign subsidiaries with a strike price denominated in a foreign currency. In the case of any such warrants and convertible bonds, ASC Subtopic 815-40 provides that such warrants and bonds are to be treated as a liability at fair value with changes in fair value recognized in earnings.

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Advance To Vendors and Other Current Assets (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Details
Other Prepaid Expense, Current	$ 398,911	$ 57,869

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Note 6 - Accrued Expenses and Other Current Liabilities: Accruals and other current liabilities table (Tables)

9 Months Ended

Sep. 30, 2013

Tables/Schedules

Accruals and other current liabilities table

	September 30, 2013	December 31, 2012
Advances payables	$      388,031	$      273,994
Accrued expenses	73,113	97,276
Accrued salaries and employees' benefits	45,809	51,971
Taxes payable	7,265	357
Accrued expenses and other current liabilities	$      514,218	$      423,598

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Foreign Currency Translation (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Foreign Currency Translation

Foreign currency translation

The accompanying unaudited condensed consolidated financial statements are presented in United States dollars. The functional currency of Shandong Jiajia is the RMB, the official currency of the PRC. In accordance with ASC 830-20-35, assets and liabilities are translated from the local currency into the reporting currency, U.S. dollars, at the exchange rate prevailing at the balance sheet date. Revenues and expenses are translated at average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the consolidated financial statements. Gains and losses resulting from the translation of local currency financial statements into U.S. dollars are reflected in other comprehensive income in the consolidated statements of operations and comprehensive income (loss).

RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place through PRC authorized institutions. Translation of amounts from RMB into United States dollars (“$”) has been made at the following exchange rates for the respective periods:

	September 30, 2013	September 30, 2012	December 31, 2012
Period end RMB: U.S. dollar exchange rate	6.1364	6.3190	6.3011
Average fiscal-year-to-date RMB: U.S. dollar exchange rate	6.2132	6.3085

Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Cash flows from the Company's operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Income Taxes (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Income Taxes

Income taxes

We account for income taxes in accordance with ASC 740, “Income Taxes.” ASC 740 requires the recognition of deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in our financial statements or tax returns.  Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between the financial reporting and tax basis of our assets and liabilities result in a deferred tax asset, ASC 740 requires an evaluation of the probability that the Company will generate sufficient taxable income to be able to realize the future benefits indicated by the deferred tax assets. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some or the entire deferred tax asset will not be realized.  

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Note 4 - Other Receivables

9 Months Ended

Sep. 30, 2013

Notes

Note 4 - Other Receivables

NOTE 4 – OTHER RECEIVABLES

Other receivables are primarily comprised of advances to other entities with which we have a strategic or other business relationship, and deferred expenses.  The amounts advanced to our strategic partners are unsecured, repayable on demand, and bear no interest. We also advance money to employees for business trips which are then subsequently expensed upon processing of an expense report. The components of other receivables at September 30, 2013 and December 31, 2012 were as follows:

	September 30, 2013	December 31, 2012
Advances receivable	$     693,499	$     467,207
Deferred expenses	20,650	58,383
Other	57,036	19,930
	771,185	545,520
Less: allowance for doubtful accounts	(428,150)	(196,427)
Other Receivables, net	$     343,035	$     349,093

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Comprehensive Income (loss) (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Comprehensive Income (loss)

Comprehensive income (loss)

We follow ASC 220, “Comprehensive Income” to recognize the elements of comprehensive income (loss). Comprehensive income (loss) is comprised of net income (loss) and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders.  Our comprehensive income (loss) for the three and nine months ended September 30, 2013 and 2012 included net income (loss) and foreign currency translation adjustments.

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Foreign Currency Translation: Foreign exchange rates table (Tables)

9 Months Ended

Sep. 30, 2013

Tables/Schedules

Foreign exchange rates table

	September 30, 2013	September 30, 2012	December 31, 2012
Period end RMB: U.S. dollar exchange rate	6.1364	6.3190	6.3011
Average fiscal-year-to-date RMB: U.S. dollar exchange rate	6.2132	6.3085

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Fair Value of Financial Instruments: Changes in level 3 financial assets and liabilities table (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Details
Balance of derivative liabilities	$ 55,324	$ 0
Initial fair value of derivative liabilities	196,253
Reclassification of additional paid-in capital upon conversion	(80,287)
Loss from change in the fair value of derivative liabilities	$ (60,642)

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Note 10 - Foreign Operations: Assets by operating region table (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Details
Assets - US	$ 99,186	$ 0
Assets - PRC	4,467,739	4,172,007
Assets - Total	$ 4,566,925	$ 4,172,007

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Current assets:
Cash	$ 2,046,002	$ 2,335,156
Restricted cash	81,481	79,351
Note receivable		7,935
Accounts receivable, net	1,475,506	1,277,741
Other Receivables, net	343,035	349,093
Prepaid expense - related party	72,154
Advance to vendors and other current assets	398,911	57,869
Total current assets	4,417,089	4,107,145
Property and equipment, net	149,836	64,862
Total assets	4,566,925	4,172,007
Current liabilities:
Accounts payable	2,229,873	2,636,667
Advances from customers	960,101	302,042
Convertible notes payable, net	114,576	0
Derivative liabilities	55,324
Due to related parties	551,120	1,050,937
Accrued expense - related parties	21,690
Accrued expense and other current liabilities	514,218	423,598
Total current liabilities	4,446,902	4,413,244
Total liabilities	4,446,902	4,413,244
Shareholers' equity (deficit):
Preferred stock, $0.001 par value, 10,000,000 shares authorized; Series B convertible preferred stock - $0.001 par value, 1,295,000 shares authorized; 0 and 450,000 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		450
Common stock, $0.001 par value, 500,000,000 shares authorized; 112,391,455 and 41,508,203 shares issued and outstanding at September 30, 2013 and December 31, 2012	112,391	41,508
Additional paid-in capital	21,363,203	20,636,980
Accumulated deficit	(20,688,873)	(20,247,282)
Accumulated other comprehensive loss	(88,857)	(94,549)
Total China Logistics Group, Inc. shareholders' equity	697,864	337,107
Non-controlling interest	(577,841)	(578,344)
Total shareholders' equity (deficit)	120,023	(241,237)
Total liabilities and shareholders' equity (deficit)	$ 4,566,925	$ 4,172,007

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Note 7 - Convertible Notes Payable: Schedule of Derivative Liabilities at Fair Value (Tables)

9 Months Ended

Sep. 30, 2013

Tables/Schedules

Schedule of Derivative Liabilities at Fair Value

Dividend rate	0
Term (in years)	0.04 to 1 year
Volatility	318% to 389%
Risk-free interest rate	0.01% to 0.14%

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2013

Notes

Note 2 -basis of Presentation and Summary of Significant Accounting Policies

NOTE 2 –BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going concern

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis. The Company has an accumulated deficit of $20,688,873 at September 30, 2013. During the nine months ended September 30, 2013, the Company used cash in operating activities of $374,320. The Company has reported net loss of $446,557 and net income of $490,533 for the nine months ended September 30, 2013 and 2012, respectively. The Company’s ability to continue as a going concern is dependent upon its ability to increase its revenues to historic levels, generate profitable operations in the future and to obtain any necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The outcome of these matters cannot be predicted at this time. These matters raise substantial doubt about the ability of the Company to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements for the three and nine months periods ended September 30, 2013 and 2012 have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The consolidated financial statements for the interim periods presented are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the periods presented. Financial results for interim periods are not necessarily indicative of results that should be expected for the full year. The accompanying condensed consolidated financial statements include our accounts and those of our 51% owned subsidiary, Shandong Jiajia. All inter-company transactions and balances have been eliminated in consolidation.

Use of estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates in 2013 and 2012 include the allowance for doubtful accounts, the useful life of property and equipment, assumptions used in assessing impairment of long-term assets, the value of stock-based compensation and the fair value of derivative liabilities.

Fair value of financial instruments

The Company adopted the guidance of the Financial Accounting standards Boards (“FASB”) Accounting Standards Codification (“ASC”) Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The carrying amounts reported in the condensed consolidated balance sheets for cash, note receivable, accounts receivable, other receivables, due from related party, advance to vendors and other current assets, convertible notes payable, accounts payable, advance from customers, due to related parties, accrued expense – related parties and accrued expense and other current liabilities approximate their fair market value based on the short-term maturity of these instruments.

ASC Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

The following table reflects changes for the nine months ended September 30, 2013 for all financial assets and liabilities categorized as Level 3 as of September 30, 2013.

Liabilities:
Balance of derivative liabilities as of January 1, 2013	$                  0
Initial fair value of derivative liabilities attributable to conversion features of convertible notes	196,253
Reclassification of additional paid-in capital upon conversion	(80,287)
Loss from change in the fair value of derivative liabilities	(60,642)
Balance of derivative liabilities as of September 30, 2013	$ 55,324

Concentration of credit risk

The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC's economy. The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and accounts receivable and other receivables. The Company deposits its cash with high credit quality financial institutions in the United States and the PRC. At September 30, 2013, the Company had deposits of approximately $2.0 million in banks in the PRC. In the PRC, there is no equivalent federal deposit insurance as in the United States; as such these amounts held in banks in the PRC are not insured. The Company has not experienced any losses in such bank accounts through September 30, 2013.

Cash and cash equivalents

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The carrying value of these instruments approximates fair value.

Restricted cash

Restricted cash consists of one-year term cash deposit held by a bank in China.

Accounts receivable and other receivables

Accounts receivable and other receivables are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews accounts receivable and other receivables on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At September 30, 2013, allowance for doubtful accounts on accounts receivable totaled $3,362,749 and the allowance for doubtful accounts on other receivables amounted to $428,150. At December 31, 2012, allowance for doubtful accounts on accounts receivable totaled $3,303,295 and the allowance for doubtful accounts on other receivables amounted to $196,427, respectively.

Advance to vendors and other current assets

Advances to vendors and other current assets consist primarily of prepayments or deposits from us for contracted shipping arrangements that have not been utilized by our customers. These amounts are recognized as cost of revenues as shipments are completed and customers utilize the shipping arrangement. Advances to vendors and other current assets totaled $398,911 and $57,869 at September 30, 2013 and December 31, 2012, respectively.

Property and equipment and long-lived assets

Property and equipment are recorded at cost.  Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred.  Depreciation of property and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful lives. Leasehold improvements, if any, are amortized on a straight-line basis over the shorter of the lease period or the estimated useful life. The Company periodically evaluates the carrying value of long-lived assets to be held and used in the business, generally in conjunction with the annual business planning cycle, and when events and circumstances otherwise warrant. If the carrying value of a long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair value for assets to be held and used. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risks involved. There was no impairment recognized during the nine month ended September 30, 2013 and 2012.

Advances from customers

Advances from customers consist of prepayments to us for contracted cargo that has not yet been shipped to the recipient and for other advance deposits. These amounts are recognized as revenue when all of the revenue recognition criteria have been met. Advances from customers totaled $960,101 and $302,042, at September 30, 2013 and December 31, 2012, respectively.

Revenue recognition

The Company provides freight forwarding services to our customers. Our business model involves placing our customers’ freight on prearranged contracted transport. Our revenue recognition policy is in accordance with the guidance of ASC 605, “Revenue Recognition.” In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The Company provides transportation services, generally under contract, by third parties with whom the Company has contracted these services.

Typically, the Company recognizes revenue in connection with our freight forwarding service when the payment terms are as follows:

- When merchandise departs the shipper's location if the trade pricing terms are CIF (cost, insurance and freight),

- When merchandise departs the shipper’s location if the trade pricing terms are CFR (cost and freight cost); or

- When merchandise arrives at the destination port if the trade pricing terms are FOB (free on board) destination.

The Company recognizes direct shipping costs concurrently with the recognition of the related revenue for each shipment. These costs are generally isolated by billings as the Company does not own the shipping containers or transportation vessels.

Stock based compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The FASB ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.

Derivative liabilities

ASC Subtopic 815-40, “Contracts in Entity’s Own Equity,” requires that entities recognize as derivative liabilities the derivative instruments, including certain derivative instruments embedded in other contracts that are not indexed to an entity’s own stock. Pursuant to the provisions of ASC Section 815-40-15, an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. The adoption of ASC Subtopic 815-40 has affected the accounting for (i) certain freestanding warrants that contain exercise price adjustment features and (ii) convertible bonds issued by foreign subsidiaries with a strike price denominated in a foreign currency. In the case of any such warrants and convertible bonds, ASC Subtopic 815-40 provides that such warrants and bonds are to be treated as a liability at fair value with changes in fair value recognized in earnings.

Basic and diluted earnings per share

Pursuant to ASC 260-10-45, basic income (loss) per common share is computed by dividing income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted income (loss) per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in our income subject to anti-dilution limitations. Potentially dilutive common shares consist of common stock issuable for stock warrants, and shares issuable upon conversion of Series B convertible preferred stock. In period where the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact.. The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30,		Nine Months Ended September 30,
Numerator:	2013	2012	2013	2012
Net (loss) income applicable to China Logistics Group, Inc. shareholders	$        (135,432)	$       (110,290)	$       (441,591)	$        229,291
Denominator:
Denominator for basic earnings per share:
Weighted average shares outstanding	101,658,431	41,508,203	73,479,756	41,508,203
Series B convertible preferred stock	0	0	0	4,500,000
Denominator for diluted earnings per share:
Diluted weighted average shares outstanding	101,658,431	41,508,203	73,479,756	46,008,203
(Loss) earnings per common share - basic	$               (0.00)	$              (0.00)	$              (0.01)	$               0.01
(Loss) earnings per common share - diluted	$               (0.00)	$              (0.00)	$              (0.01)	$               0.00

The Company's aggregate common stock equivalents at September 30, 2013 and 2012 included the following:

	September 30, 2013	September 30, 2012
Warrants	0	31,558,500
Series B convertible preferred stock	0	4,500,000
Total	0	36,058,500

Foreign currency translation

The accompanying unaudited condensed consolidated financial statements are presented in United States dollars. The functional currency of Shandong Jiajia is the RMB, the official currency of the PRC. In accordance with ASC 830-20-35, assets and liabilities are translated from the local currency into the reporting currency, U.S. dollars, at the exchange rate prevailing at the balance sheet date. Revenues and expenses are translated at average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the consolidated financial statements. Gains and losses resulting from the translation of local currency financial statements into U.S. dollars are reflected in other comprehensive income in the consolidated statements of operations and comprehensive income (loss).

RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place through PRC authorized institutions. Translation of amounts from RMB into United States dollars (“$”) has been made at the following exchange rates for the respective periods:

	September 30, 2013	September 30, 2012	December 31, 2012
Period end RMB: U.S. dollar exchange rate	6.1364	6.3190	6.3011
Average fiscal-year-to-date RMB: U.S. dollar exchange rate	6.2132	6.3085

Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Cash flows from the Company's operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

Income taxes

We account for income taxes in accordance with ASC 740, “Income Taxes.” ASC 740 requires the recognition of deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in our financial statements or tax returns.  Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between the financial reporting and tax basis of our assets and liabilities result in a deferred tax asset, ASC 740 requires an evaluation of the probability that the Company will generate sufficient taxable income to be able to realize the future benefits indicated by the deferred tax assets. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some or the entire deferred tax asset will not be realized.  

Comprehensive income (loss)

We follow ASC 220, “Comprehensive Income” to recognize the elements of comprehensive income (loss). Comprehensive income (loss) is comprised of net income (loss) and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders.  Our comprehensive income (loss) for the three and nine months ended September 30, 2013 and 2012 included net income (loss) and foreign currency translation adjustments.

Non-controlling interest

Non-controlling interests in our subsidiaries are recorded as a component of our equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.

Related parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.

Reclassification

Certain reclassifications have been made in prior year same period’s financial statements to conform to the current period’s financial presentation.

Recent accounting pronouncements

In March 2013, the FASB issued ASU 2013-05 “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” ASU 2013-05 addresses the accounting for the cumulative translation adjustment when a parent either sells part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. For public entities, the ASU is effective prospectively for fiscal years, and interim periods, within those years, beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-05 is not expected to have a material impact on the Company’s consolidated financial statements.

In July 2013, the FASB issued ASU 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." ASU 2013-11 provides guidance on the presentation of unrecognized tax benefits related to any disallowed portion of net operating loss carryforwards, similar tax losses, or tax credit carryforwards, if they exist. ASU 2013-11 is effective for fiscal years beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to have a material impact on the Company’s consolidated financial statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Basic and Diluted Earnings Per Share: Common stock equivalents table (Details)	Sep. 30, 2013	Sep. 30, 2012
Details
Warrants Outstanding	0	31,558,500
Series B convertible preferred stock outstanding	0	4,500,000
Total potential dilutive shares outstanding	0	36,058,500

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Reclassification (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Reclassification

Reclassification

Certain reclassifications have been made in prior year same period’s financial statements to conform to the current period’s financial presentation.

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Note 7 - Convertible Notes Payable (Details) (USD $)	Aug. 27, 2013	Aug. 08, 2013	Jun. 12, 2013	May 29, 2013	May 24, 2013	Apr. 18, 2013	Apr. 08, 2013	Feb. 06, 2013	Feb. 05, 2013
Details
Convertible Promissory Note with Hanover Holding									$ 27,000
Loans and interest assigned from CDII to Magna Group								50,952
Convertible Promissory Note with LG Capital Funding LLC		51,500
Convertible note issued	25,000		33,000	118,030	21,906	77,700	82,143
Convertible note issued Iconic			$ 52,976

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Accounts Receivable and Other Receivables (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Accounts Receivable and Other Receivables

Accounts receivable and other receivables

Accounts receivable and other receivables are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews accounts receivable and other receivables on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At September 30, 2013, allowance for doubtful accounts on accounts receivable totaled $3,362,749 and the allowance for doubtful accounts on other receivables amounted to $428,150. At December 31, 2012, allowance for doubtful accounts on accounts receivable totaled $3,303,295 and the allowance for doubtful accounts on other receivables amounted to $196,427, respectively.

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Recent Accounting Pronouncements (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Recent Accounting Pronouncements

Recent accounting pronouncements

In March 2013, the FASB issued ASU 2013-05 “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” ASU 2013-05 addresses the accounting for the cumulative translation adjustment when a parent either sells part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. For public entities, the ASU is effective prospectively for fiscal years, and interim periods, within those years, beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-05 is not expected to have a material impact on the Company’s consolidated financial statements.

In July 2013, the FASB issued ASU 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." ASU 2013-11 provides guidance on the presentation of unrecognized tax benefits related to any disallowed portion of net operating loss carryforwards, similar tax losses, or tax credit carryforwards, if they exist. ASU 2013-11 is effective for fiscal years beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to have a material impact on the Company’s consolidated financial statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Property and Equipment and Long-lived Assets (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Property and Equipment and Long-lived Assets

Property and equipment and long-lived assets

Property and equipment are recorded at cost.  Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred.  Depreciation of property and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful lives. Leasehold improvements, if any, are amortized on a straight-line basis over the shorter of the lease period or the estimated useful life. The Company periodically evaluates the carrying value of long-lived assets to be held and used in the business, generally in conjunction with the annual business planning cycle, and when events and circumstances otherwise warrant. If the carrying value of a long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair value for assets to be held and used. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risks involved. There was no impairment recognized during the nine month ended September 30, 2013 and 2012.

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Note 8 - Stockholders' Equity: Warrant activities table (Details) (USD $)	Sep. 30, 2013	Jun. 30, 2013	Dec. 31, 2012
Details
Number of Shares Underlying Warrants		$ 0	$ 31,558,500
Weighted Average exercise Price		$ 0	$ 0.20
Weighted Average Contractual Term		0	0.33
Number of Shares UnderlyingWarrants Expired	(31,558,500)
Weighted Average Price of Shares UnderlyingWarrants Expired	(0.20)

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Note 3 - Accounts Receivable

9 Months Ended

Sep. 30, 2013

Notes

Note 3 - Accounts Receivable

NOTE 3 – ACCOUNTS RECEIVABLE

At September 30, 2013 and December 31, 2012, accounts receivable consisted of the following:

	September 30, 2013	December 31, 2012
Accounts receivable	$     4,838,255	$     4,581,036
Less: allowance for doubtful accounts	(3,362,749)	(3,303,295)
Accounts receivable, net	$     1,475,506	$     1,277,741

The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances.

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Revenues:
Sales	$ 3,192,631	$ 6,349,846	$ 10,082,430	$ 17,917,318
Cost of sales	2,917,863	6,343,360	9,073,975	16,682,335
Gross profit	274,768	6,486	1,008,455	1,234,983
Operating expenses:
Selling, general and administrative	288,291	254,258	907,969	769,870
Gain on disposal of property and equipment	(3,362)		(3,362)	(1,089)
Bad debt expenses	13,679	(2,877)	181,030	9,422
Total operating expenses	298,608	251,381	1,085,637	778,203
(Loss) income from operations	(23,840)	(244,895)	(77,182)	456,780
Other income (expenses):
Interest income	5,382	3,447	10,503	3,632
Interest expense	(83,392)		(281,074)
Foreign currency translation loss	(4,206)		(38,662)
Loss from change in fair value of derivative liability	(31,802)		(60,642)
Other (expense) income	(1,075)	36,312	500	33,424
Total other (expenses) income, (net)	(115,093)	39,759	(369,375)	37,056
(Loss) income before income taxes	(138,933)	(205,136)	(446,557)	493,836
Benefit from (provision for) income taxes		161		(3,303)
Net (loss) income	(138,933)	(204,975)	(446,557)	490,533
Less: net income attributable to the non-controlling interest	(3,501)	(94,685)	(4,966)	261,242
Net (loss) income attributable to China Logistics Group, Inc. shareholders	(135,432)	(110,290)	(441,591)	229,291
Comprehensive income:
Net (loss) income	(138,933)	(204,975)	(446,557)	490,533
Foreign currency translation adjustment	2,481	(67,092)	11,161	(28,263)
Comprehensive (loss) income	(136,452)	(272,067)	(435,396)	462,270
Less: comprehensive (loss) income attributable to the non-controlling interest	(2,285)	(127,560)	503	247,393
Comprehensive (loss) income attributable to China Logistic Group, Inc. shareholders	$ (134,167)	$ (144,507)	$ (435,899)	$ 214,877
Net (loss) income per common share:
Earnings Per Share - Basic	$ (0.001)	$ (0.002)	$ (0.006)	$ 0.006
Earnings Per Share - Diluted	$ (0.001)	$ (0.002)	$ (0.006)	$ 0.000
Weighted average number of shares outstanding:
Weighted average number of shares outstanding - Basic	101,658,431	41,508,203	73,479,756	41,508,203
Weighted average number of shares outstanding - Diluted	101,658,431	41,508,203	73,479,756	46,008,203

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Use of Estimates (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Use of Estimates

Use of estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates in 2013 and 2012 include the allowance for doubtful accounts, the useful life of property and equipment, assumptions used in assessing impairment of long-term assets, the value of stock-based compensation and the fair value of derivative liabilities.

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Document and Entity Information (USD $)	9 Months Ended
	Sep. 30, 2013	Jan. 27, 2014	Jun. 30, 2012
Document and Entity Information:
Entity Registrant Name	China Logistics Group Inc
Document Type	10-Q
Document Period End Date	Sep. 30, 2013
Amendment Flag	false
Entity Central Index Key	0001123493
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		130,607,716
Entity Public Float			$ 415,082
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Fair Value of Financial Instruments (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Fair Value of Financial Instruments

Fair value of financial instruments

The Company adopted the guidance of the Financial Accounting standards Boards (“FASB”) Accounting Standards Codification (“ASC”) Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The carrying amounts reported in the condensed consolidated balance sheets for cash, note receivable, accounts receivable, other receivables, due from related party, advance to vendors and other current assets, convertible notes payable, accounts payable, advance from customers, due to related parties, accrued expense – related parties and accrued expense and other current liabilities approximate their fair market value based on the short-term maturity of these instruments.

ASC Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

The following table reflects changes for the nine months ended September 30, 2013 for all financial assets and liabilities categorized as Level 3 as of September 30, 2013.

Liabilities:
Balance of derivative liabilities as of January 1, 2013	$                  0
Initial fair value of derivative liabilities attributable to conversion features of convertible notes	196,253
Reclassification of additional paid-in capital upon conversion	(80,287)
Loss from change in the fair value of derivative liabilities	(60,642)
Balance of derivative liabilities as of September 30, 2013	$ 55,324

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CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$ (446,557)	$ 490,533
Adjustments to reconcile net income (loss) to net cash provide by (used in) operating activities:
Depreciation expense	22,243	5,456
Amortization of debt discount	203,848
Interest expense attributable to beneficial conversion feature of convertible note	21,906
Loss from change in fair value of derivative liabilities	60,642
Increase in allowance for doubtful accounts	181,030	9,422
Gain on disposal of property and equipment	(3,362)
Stock-based compensation	35,000
Changes in operating assets and liabilities:
Restricted cash	(80,474)	(79,258)
Notes receivable	8,047
Accounts receivable	(132,605)	1,093,025
Other receivables	(208,415)	34,315
Prepaid expense - related parties	17,087
Advance to vendors and other current assets	(308,625)	(689,522)
Accounts payable	(447,222)	(479,092)
Advance from customers	641,917	418,604
Due to related parties	(96,968)
Accrued expense - related parties	21,422
Accrued expense and current liabilities	136,766	96,414
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	(293,846)	899,897
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property plant and equipment	(105,600)	(24,210)
Proceeds from disposal of property and equipment	4,515	1,426
Collection of advance to related parties		44,340
Advance to related parties		(11,047)
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES	(101,085)	10,509
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible loans payable, net	136,500
Repayment of advances to related parties	(89,050)	(166,737)
Advances from related parties		31,975
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	47,450	(134,762)
EFFECT OF EXCHANGE RATE ON CASH	58,327	(56,730)
NET (DECREASE) INCREASE IN CASH	(289,154)	718,914
CASH	2,335,156	1,396,896
CASH	2,046,002	2,115,810
Cash paid for:
Income taxes		23,843
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for future service	27,000
Common stock issued for convertible notes and accrued interest	632,463
Notes, advances, and interest payable - related party reclassified to convertible notes	$ 385,755

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Note 8 - Stockholders' Equity

9 Months Ended

Sep. 30, 2013

Notes

Note 8 - Stockholders' Equity

NOTE 8 – STOCKHOLDERS’ EQUITY

Preferred stock

The Company has 10,000,000 shares of preferred stock, par value $0.001, authorized, 1,000,000 of which we designated as our Series A Convertible Preferred Stock in December 2007 in connection with our acquisition of a 51% interest in Shandong Jiajia. On March 28, 2008 shareholders holding the Series A Convertible Preferred Stock converted their 1,000,000 shares into 2,500,000 shares of common stock, and no shares of Series A Convertible Preferred Stock were outstanding at September 30, 2013 and December 31, 2012.

In December 2007, we designated 1,295,000 shares of our preferred stock as Series B Convertible Preferred stock in connection with our acquisition of a 51% interest in Shandong Jiajia. Each share of Series B Convertible Preferred Stock is convertible into 10 shares of our common stock. In March 2008, holders of the Series B Convertible Preferred Stock converted 845,000 shares into 8,450,000 shares of common stock, and in February 2013, holders of the Series B Convertible Preferred Stock converted 450,000 shares into 4,500,000 shares of common stock. There were 0 and 450,000 shares of Series B Convertible Preferred Stock outstanding at September 30, 2013 and December 31, 2012, respectively.

Common stock

In January 2013, the Company issued 10,000,000 shares of its common stock to Mr. Wei Chen, the Company’s Chief Executive Officer for his services rendered and to be rendered in fiscal 2012 and fiscal 2013. The shares were valued at the fair market value of $30,000 on the grant date, and the Company recorded stock-based compensation of $30,000.

In August 2013, the Company issued 4,000,000 shares of its common stock to a consultant for his service from August 2013 through July 2014. The shares were valued at the fair market value of $32,000 on the grant date. The Company recorded stock-based compensation of $5,000 during the nine months ended September 30, 2013 and recorded prepaid expense of $27,000 at September 30, 2013, which will be amortized over the rest of his service periods.

In February 2013, the Company issued 4,500,000 shares of its common stock in connection with the conversion of 450,000 shares of Series B Convertible Preferred Stock.

During the nine months ended September 30, 2013, the Company issued 52,383,252 shares of its common stock in connection with the conversion of convertible notes.

Common stock purchase warrants

Warrant activity for the nine months ended September 30, 2013 was summarized as follows:

	Number of warrants	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (Years)
Outstanding at December 31, 2012	31,558,500	$                    0.20	0.33
Granted	0	0	0
Exercised	0	0	0
Expired	(31,558,500)	(0.20)	0
Outstanding at September 30, 2013	0	$                          0	0

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Note 7 - Convertible Notes Payable

9 Months Ended

Sep. 30, 2013

Notes

Note 7 - Convertible Notes Payable

NOTE 7 – CONVERTIBLE NOTES PAYABLE

Convertible notes and related derivative liabilities

On February 5, 2013, the Company and Hanover Holding I, LLC (“Hanover”) entered into a Securities Purchase Agreement, providing for the issuance of the 12% Convertible Promissory Note in the principal amount of $27,000. The 12% convertible promissory note and all accrued interest were due on October 5, 2013. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the note is paid. Hanover is entitled, at its option, at any time after the issuance of this Note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of Common Stock equal to a price which is a 70% discount from the average of the two (2) lowest Daily VWAPs in the 10 days prior to the day that Hanover requests conversion, unless otherwise modified by mutual agreement between the Parties (the "Conversion Price"). The Note has a Flex Floor at $0.0225 (the “Original Floor”). If the stock goes below the Original Floor, the stock has 10 business days during which the stock must close above the Original Floor for three consecutive trading days in order to maintain the Original Floor. If the stock is unable to meet these requirements after these 10 business days, a New Floor is set equivalent to 50% of the lowest trading price in the same 10 business days (the "New Floor").If the stock price dips below the New Floor, the stock will once again have l0 business days during which the stock must close above the New Floor for three consecutive trading days in order to maintain the New Floor. The stock will have to continue to maintain a price above the New Floor. If the price is unable to close above the New Floor for three consecutive trading days in 10 business days after the price has dipped, the Flex Floor will be eliminated. If the Company’s common stock is chilled for deposit at DTC and/or becomes chilled at any point while this Agreement remains outstanding, an additional 8% discount will be attributed to the Conversion Price defined hereof. The Company determined that the conversion feature of the 12% convertible promissory note represents an embedded derivative since the note is convertible into a variable number of shares.  Accordingly, the 12% convertible note was not considered to be conventional debt and the embedded conversion feature was required to be bifurcated from the debt host and accounted for as a derivative liability. Accordingly, on February 5, 2013, the fair value of this derivative instrument of $35,502 was recorded as a liability on the accompanying unaudited condensed consolidated balance sheets. Any gains and losses recorded from changes in the fair value of the liability for derivative contracts was recorded as a component of other income/(expense) in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss). On September 17, 2013, the principal amount of $10,000 of this note was converted into 1,970,444 shares of the Company’s common stock at the cost basis of $0.005075 per share. During the fourth quarter of fiscal 2013, the rest of outstanding principal amount and all accrued and unpaid interest of the note were converted into 4,016,261 shares of the Company’s common stock at the cost basis of $0.004759 per share.

On February 6, 2013, CD International Enterprises, Inc. (the “CDII”) assigned certain loans and interest it is owed by the Company amounting to $50,952 to Magna Group LLC (“Magna”). In connection with this assignment, the Company and Magna entered into a Securities Purchase Agreement, providing for the issuance of the 6% Convertible Promissory Note (the “Magna Note”) in the principal amount of $50,952. The 6% convertible promissory note and all accrued interest were due on February 6, 2014. Magna is entitled, at its option, at any time after the issuance of this Note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of Common Stock equal to a price which is a 30% discount from the average of the two (2) lowest Daily VWAPs in the 10 days prior to the day that Magna requests conversion, unless otherwise modified by mutual agreement between the Parties (the "Conversion Price"). Magna will have a one-time Conversion Price to be used upon the first conversion of the Note that is equal to a price which is a 30% discount from the lowest Daily VWAP in the 10 days prior to the day that Magna requests conversion. The Note has a Flex Floor at $0.0225 (the “Original Floor”). If the stock goes below the Original Floor, the stock has 10 business days during which the stock must close above the Original Floor for three consecutive trading days in order to maintain the Original Floor. If the stock is unable to meet these requirements after these 10 business days, a New Floor is set equivalent to 50% of the lowest trading price in the same 10 business days (the "New Floor"). If the stock price dips below the New Floor, the stock will once again have l0 business days during which the stock must close above the New Floor for three consecutive trading days in order to maintain the New Floor. The stock will have to continue to maintain a price above the New Floor. If the price is unable to close above the New Floor for three consecutive trading days in 10 business days after the price has dipped, the Flex Floor will be eliminated. If the Company’s common stock is chilled for deposit at DTC and/or becomes chilled at any point while this Agreement remains outstanding, an additional 8% discount will be attributed to the Conversion Price defined hereof. In February 2013, the entire outstanding principal amount and all accrued and unpaid interest was converted into 1,047,852 and 1,373,035 shares of Company’s common stock at the cost basis of $0.02863 per share and $0.01526 per share, respectively. The Company determined that the conversion feature of the convertible debentures represents an embedded derivative since the debentures are convertible into a variable number of shares. Accordingly, the 6% convertible note was not considered to be conventional debt and the embedded conversion feature was required to be bifurcated from the debt host and accounted for as a derivative liability. Accordingly, on February 6, 2013, the fair value of this derivative instrument of $78,542 was recorded as a liability on the accompanying unaudited condensed consolidated balance sheets. Any gains and losses recorded from changes in the fair value of the liability for derivative contracts was recorded as a component of other income/ (expense) in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss).

On August 8, 2013, the Company and LG Capital Funding LLC (“LG”) entered into a note purchase agreement, providing for the issuance of an 8% convertible note in the principal amounts of $51,500. In connection with the convertible promissory note, the Company paid a fee of $5,500 and received net cash proceed of $46,000. The principal amount and accrued interest of note are due on April 8, 2014. Any amount of principal or interest on the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date thereof until the note is paid. LG is entitled, at its option, at any time after the issuance of the note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 57% of the average of three lowest trading price in the 10 consecutive trading days prior to the day that LG requests conversion. The Note has a Flex Floor at $0.001 (the “Original Floor”). If the stock goes below the Original Floor, the stock has 10 business days during which the stock must close above the Original Floor for three consecutive trading days in order to maintain the Original Floor. If the stock is unable to meet these requirements after these 10 business days, a New Floor is set equivalent to 50% of the lowest trading price in the same 10 business days (the "New Floor"). If the stock price dips below the New Floor, the stock will once again have l0 business days during which the stock must close above the New Floor for three consecutive trading days in order to maintain the New Floor. The stock will have to continue to maintain a price above the New Floor. If the price is unable to close above the New Floor for three consecutive trading days in 10 business days after the price has dipped, the Flex Floor will be eliminated. The Company determined that the conversion feature of the 8% convertible promissory note represents an embedded derivative since the note is convertible into a variable number of shares.  Accordingly, the 8% convertible note was not considered to be conventional debt and the embedded conversion feature was required to be bifurcated from the debt host and accounted for as a derivative liability. Accordingly, on August 8, 2013, the fair value of this derivative instrument of $82,209 was recorded as a liability on the accompanying unaudited condensed consolidated balance sheets. Any gains and losses recorded from changes in the fair value of the liability for derivative contracts was recorded as a component of other income/(expense) in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss).

The fair value of the derivative liabilities were estimated using the Black-Scholes-Merton option pricing model with the following assumptions:

Dividend rate	0
Term (in years)	0.04 to 1 year
Volatility	318% to 389%
Risk-free interest rate	0.01% to 0.14%

At September 30, 2013, and on the initial measurements of the derivative liabilities, and on the conversion dates of these convertible notes, the Company valued the derivative liabilities resulting in a loss in fair value of derivative liabilities of $11,658 for the nine months ended September 30, 2013. For the nine months ended September 30, 2013, amortization of debt discounts related to these convertible notes amounted to $89,374, which has been included in interest expense on the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss).

Other convertible notes

On April 8, 2013, the Company issued a 4% convertible note of the Company in the aggregate principal amount of $82,143 to its consultant CDII in connection with the exchange for working capital advances due to CDII in 2012 and prior to this convertible note. Pursuant to this convertible note, CDII was entitled, at its option, at any time after the issuance of this note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 80% of the lowest VWAP in the 10 consecutive trading days prior to the day that CDII requests conversion. On May 21, 2013, this note was fully converted into 3,422,617 shares of the Company’s common stock at a conversion price is $0.024 per share.

On April 18, 2013, CDII assigned certain notes payable and the related accrued interest due to CDII amounting to $77,700 to Magna and Magna and the Company entered into an Assignment and Modification Agreement in connection with the issuance of a 6% convertible note of the Company to Magna in the aggregate principal amount of $77,700. The principal amount and its interest were due on January 18, 2014. Magna is entitled, at its option, at any time after the issuance of this note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of Common Stock equal to a price which is 70% of the lowest VWAP in the 10 consecutive trading days prior to the day that Magna requests conversion. In May and June 2013, this Note was fully converted into 7,629,231 shares of the Company’s common stock at an average conversion price is $0.01018 per share.

On May 24, 2013, the Company, CDII and CFO Oncall, Inc (“CFO Oncall”) entered into an assignment agreement, in which CDII assigned to CFO Oncall a note payable originally dated December 19, 2009 of $20,000 and accrued interest of $1,906 for an aggregate amount of $21,906 to CFO Oncall, and the Company issued a 4% Convertible Promissory Note in the principal amount of $21,906 to CFO Oncall. CFO Oncall was entitled, at its option, at any time after the issuance of this note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to $0.0114. On June 25, 2013, this note has been fully converted into 1,921,590 shares of the Company’s common stock. The convertible note was considered to have an embedded beneficial conversion feature (“BCF”) because the effective conversion price was less than the fair value of the Company’s common stock. The value of the beneficial conversion feature was $21,906 and was recorded as interest expense on the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss).

On May 29, 2013, the Company, CDII and Magna entered into an assignment agreement, in which CDII sold a series of notes owed to it by the Company to Magna with the aggregate principal amount of $108,000 and accrued interest of $10,030, and the Company issued a 6% convertible promissory note in the principal amount of $118,030 to Magna. The principal amount and its interest were due on January 29, 2014. Magna is entitled, at its option, at any time after the issuance of this note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 70% of the lowest 2 daily VWAPs in the 10 consecutive trading days prior to the day that Magna requests conversion. On June 26, 2013, $45,000 of this note was converted into 4,952,449 shares of the Company’s common stock at a conversion price of $0.009 per share. On July 12, 2013, $15,000 of this note was converted into 2,031,144 shares of the Company’s common stock at a conversion price of $0.007385 per share. On July 30, 2013, $15,000 of this note was converted into 2,747,253 shares of the Company’s common stock at a conversion price of $0.00546 per share. On August 8, 2013, $15,000 of this note was converted into 2,747,253 shares of the Company’s common stock at a conversion price of $0.00546 per share. On August 14, 2013, $18,000 of this note was converted into 3,361,345 shares of the Company’s common stock at a conversion price of $0.005355 per share. On August 27, 2013, the remaining balance of principal of $10,030 and accrued and unpaid interest of $582 was converted into 1,919,025 shares of the Company’s common stock at a conversion price of $0.00553 per share.

On June 12, 2013, the Company, CDII and Iconic Holdings, LLC (“Iconic”) entered into a series of agreements, in which Iconic purchased from CDII a $30,000 note that the Company owed to CDII dated October 2, 2011 and interest payable of $3,300, and the Company issued a 10% Convertible Promissory Note in the principal amount of $33,000 to Iconic. The 10% convertible promissory note and all accrued interest are due on June 12, 2014. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the lower rate of twenty percent (20%) per annum or the highest rate permitted by law from the due date thereof until the note is paid. Iconic is entitled, at its option, at any time after the issuance of this note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of Common Stock equal to a price which is 70% of the lowest trading price in the 10 consecutive trading days prior to the day that Iconic requests conversion. On July 16, 2013, $7,517 of this note was converted into 1,167,244 shares of the Company’s common stock at a conversion price of $0.00644 per share. On July 31, 2013, $23,907 of this note was converted into 4,553,711 shares of the Company’s common stock at a conversion price of $0.00525 per share. At September 30, 2013, principal amount due under this convertible note was $1,576.

On June 12, 2013, the Company, CDII and Iconic entered into a series of agreements, in which Iconic purchased from CDII a $50,000 note dated December 2, 2011 that the Company owed to CDII and interest payable of $2,976, and the Company issued a 10% Convertible Promissory Note in the principal amount of $52,976 to Iconic. The 10% convertible promissory note and all accrued interest were due on June 12, 2014. Any amount of principal or interest on this note which is not paid when due shall bear interest at the lower rate of twenty percent (20%) per annum or the highest rate permitted by law from the due date thereof until the note is paid. Iconic is entitled, at its option, at any time after the issuance of this Note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of Common Stock equal to a price which is 70% of the lowest trading price in the 10 consecutive trading days prior to the day that Iconic requests conversion. On June 30, 2013, $32,073 of this note was converted into 3,963,786 shares of the Company’s common stock at a conversion price of $0.008 per share. On July 8, 2013, $12,320 of this note was converted into 2,000,000 shares of the Company’s common stock at a conversion price of $0.00616 per share. On July 16, 2013, the remaining balance of $8,583 was fully converted into 1,332,756 shares of the Company’s common stock at a conversion price of $0.00644 per share.

On June 12, 2013, the Company and Iconic entered into two note purchase agreements, providing for the issuance of two 10% convertible note with the principal amount of $17,500 and $27,500 respectively, for an aggregate principal amount of $45,000. In connection with these convertible promissory notes, the Company paid a fee of $6,500 and received net cash proceeds of $38,500. The $6,500 fee paid was reflected as a debt discount to be amortized over the life of the loan. The principal amount and accrued interest of both notes are due on June 12, 2014. Any amount of principal or interest on the notes which is not paid when due shall bear interest at the lower rate of twenty percent (20%) per annum or the highest rate permitted by law from the due date thereof until the notes are paid. Iconic is entitled, at its option, at any time after the issuance of this Note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 60% of the lowest trading price in the 10 consecutive trading days prior to the day that Iconic requests conversion. At September 30, 2013, principal amount due under this convertible note amounted to $45,000.

On August 27, 2013, the Company and JSJ Investments Inc. (“JSJ”) entered into a note purchase agreement, providing for the issuance of a convertible note in the principal amounts of $25,000. The principal amount of the note is due on February 27, 2014. Any amount of principal on the note which is not paid when due shall bear interest at the rate of 10% per annum from the due date thereof until the note is paid. JSJ is entitled, at its option, at any time after the issuance of the note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 55% (45% discount) of the average of the three lowest trades on the previous 10 trading days to the date of conversion, with a maximum conversion price equal to that price would be obtained if the conversion were to be made on the date that this note was executed, and shares will not be converted under a price of $0.0005. At September 30, 2013, principal amount due under this convertible note was $25,000.

Pursuant to ASB Topic 470-20-525 (Debt with conversion and other options), since these other convertible promissory notes had fixed conversion percentages ranging from 55% to 80% of the stock price, the Company determined it had a fixed maximum amounts that can be settled for the debt. Accordingly, during the nine months ended September 30, 2013, the Company accrued a put premium amount aggregating $196,267 in this period since the notes are convertible for the conversion premium and recorded a debt discount of $196,267 which is amortized over the life of the respective note. Upon conversion of certain other convertible notes to common stock during the nine months ended September 30, 2013, the Company reduced the put premium by $142,380 and reclassified the same amount to additional paid-in capital. For the nine months ended September 30, 2013, in connection with the amortization of the debt discount, the Company recorded interest expense of $163,458.

At September 30, 2013 and December 31, 2012, convertible promissory notes consisted of the following:

	September 30, 2013	December 31, 2012
Principal amount	$     140,076	$                   0
Put premium	53,887	0
	193,963	0
Less: unamortized debt discount	(79,387)	0
Convertible note payable, net	$     114,576	$                   0

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Advance To Vendors and Other Current Assets (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Advance To Vendors and Other Current Assets

Advance to vendors and other current assets

Advances to vendors and other current assets consist primarily of prepayments or deposits from us for contracted shipping arrangements that have not been utilized by our customers. These amounts are recognized as cost of revenues as shipments are completed and customers utilize the shipping arrangement. Advances to vendors and other current assets totaled $398,911 and $57,869 at September 30, 2013 and December 31, 2012, respectively.

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Concentration of Credit Risk (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Concentration of Credit Risk

Concentration of credit risk

The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC's economy. The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and accounts receivable and other receivables. The Company deposits its cash with high credit quality financial institutions in the United States and the PRC. At September 30, 2013, the Company had deposits of approximately $2.0 million in banks in the PRC. In the PRC, there is no equivalent federal deposit insurance as in the United States; as such these amounts held in banks in the PRC are not insured. The Company has not experienced any losses in such bank accounts through September 30, 2013.

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Note 11 - Consulting Agreement

9 Months Ended

Sep. 30, 2013

Notes

Note 11 - Consulting Agreement

NOTE 11 - CONSULTING AGREEMENT

On July 18, 2013, the Company entered a consulting agreement with CDII, a related party (see note 9). Pursuant to the term of the agreement, the Company shall issue 18 million shares of Company’s common stock in total to CDII as the compensation for the consulting services that provided in the fiscal year of 2012 and 2013. In October 2013, the Company issued 9,000,000 shares of its common stock to CDII for fiscal 2012 consulting service. The shares were valued at the fair market value of $90,000 on the grant date.

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Foreign Currency Translation: Foreign exchange rates table (Details)	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2012
Details
Period end RMB: U.S. dollar exchange rate	6.1364	6.3011	6.3190
Average fiscal-year-to-date RMB: U.S. dollar exchange rate	6.2132		6.3085

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Note 9 -related Party Transactions

9 Months Ended

Sep. 30, 2013

Notes

Note 9 -related Party Transactions

NOTE 9 –RELATED PARTY TRANSACTIONS

Due from related party

From time to time, the Company makes payment to CDII, a consultant of the Company, in connection with the prepayments for professional fees. CDII is not under the common control of Mr. Wei Chen, the Company’s Chief Executive officer, and Mr. Hui Liu, the Company’s director.

At September 30, 2013 and December 31, 2012, prepaid expense - related party consisted of the following;

	September 30, 2013	December 31, 2012
Prepayments made to CD International Enterprises, Inc.	$         72,154	$                   0
	$         72,154	$                   0

Prepaid expense - related party of $72,154 at September 30, 2013 reflects payments made to CD International Enterprises, Inc., which is the consultant of the Company, in connection with the prepayment for professional fees.  

Due to related parties

On September 30, 2013 and December 31, 2012, due to related parties consisted of the following:

	September 30, 2013	December 31, 2012
Due to Xiangfen Chen (1)	$         25,567	$         72,509
Due to Bin Liu (2)	182,627	194,949
Due to Tianjin Sincere Logistics Co., Ltd.	107,176	177,137
Due to Shunbo International Freight Ltd. (3)	37,563	2,671
Due to Lianyunbu (4)	149,298	145,982
Due to Shang Jing (5)	48,889	47,611
Due to CD International Enterprises, Inc.	0	410,078
Total Due to related parties	$      551,120	$   1,050,937

(1)           Xiangfen Chen is the general manager of Shandong Jiajia Xiamen branch.

(2)           Bin Liu is the general manager of Shandong Jiajia Tianjin branch. Mr. Liu is a 90% owner of Tianjin Sincere Logistics Co., Ltd.  

(3)           Lianyungang Shunbo International Freight Ltd. is a company owned by Shunhua Jiang, the Spouse of Shouliu Tang, the general manager of Lianyungang branch.

(4)           Langyunbu is an entity affiliated with Hui Liu, who is a member of the Company’s Board of Directors and Chief Executive Officer of Shangdong Jiajia.

 (5)          Shang Jing is the general manager of Shandong Jiajia Qingdao branch.

Due to related parties of $551,120 at September 30, 2013 reflect advances from related parties.  The advances are unsecured, non-interest bearing and repayable on demand. Shandong Jiajia used the proceeds for general working capital purpose.

The amounts due to CD International Enterprises, Inc. as of December 31, 2012 was $410,078, which included $323,000 of working capital loans and $87,078 related to professional fees, primarily legal and accounting paid by CDII on the Company’s behalf. The proceeds from these promissory notes were used for working capital purposes. The notes accrued interest at 4% annually and were due at various dates in 2012. In 2013, CD International Enterprises, Inc. assigned these loans and related accrued and unpaid interest to third parties and these notes were exchanged for convertible notes pursuant to related securities purchase agreements (see note 11).

Operating leases - related parties

On December 31, 2011, Shandong Jiajia Xiamen branch entered into a lease for office space with Xiangfen Chen (the “Xiamen Office Lease". Pursuant to the Xiamen Office Lease, Xiamen branch leases approximately 95 square meter of office space from Mr. Chen in Xiamen City. Rent under the Xiamen Office Lease is RMB 900 (approximately $150) per month. The term of the Xiamen Office Lease is a year and expires on December 31, 2012. On December 31, 2012, Shandong Jiajia Xiamen branch renewed the Xiamen Office Lease. Rent under the renewed Xiamen Office Lease is RMB 900 (approximately $150) per month. The term of the renewed Xiamen Office Lease is a year and expires on December 31, 2013. For the nine months ended September 30, 2013 and 2012, rent expense related to the Xiamen Office Lease amounted $1,304 and $1,284, respectively. At September 30, 2013 and December 31, 2012, accrued rent for the Xiamen Office Lease amounted to $1,320 and $0, respectively, which were included in accrued expense - related parties on the accompanying consolidated balance sheets

On May 31, 2011, the Company entered into a lease for office space with Mr. Wei Chen (the “Shanghai Office Lease”), its Chairman and CEO. Pursuant to the Shanghai Office Lease, the Company leases approximately 7,008 square feet of office space in Shanghai City. The office serves as the Company’s principal executive office. Rent under the Shanghai Office Lease is RMB 25,000 (approximately $4,000) per month. The Company also needs to pay a property management fee to an unrelated party of RMB 11,719 (approximately $1,900) per month in connection with the Shanghai Office Lease. The term of the Shanghai Office Lease is two years and expires on May 31, 2013. On May 31, 2013, the Company renewed the Shanghai Office Lease. Pursuant to the renewed Shanghai Office Lease, the monthly rent is RMB 25,000 (approximately $4,000). The Company also needs to pay a property management fee to an unrelated party of RMB 11,719 (approximately $1,900) per month in connection with the renewed Shanghai Office Lease. The term of the renewed Shanghai Office Lease is a year and expires on May 31, 2014. For the nine months ended September 30, 2013 and 2012, rent expense related to the Shanghai Office Lease amounted $36,213 and $35,666, respectively. At September 30, 2013 and December 31, 2012, accrued rent for the Xiamen Office Lease amounted to $20,370 and $0, respectively, which were included in accrued expense – related parties on the accompanying consolidated balance sheets.

At September 30, 2013 and December 31, 2012, the total accrued rent for the above mentioned operating leases with related parties amounted to $21,690 and $0, respectively, which amount were included in accrued expense – related parties on the accompanying consolidated balance sheets.

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Note 10 - Foreign Operations

9 Months Ended

Sep. 30, 2013

Notes

Note 10 - Foreign Operations

NOTE 10 – FOREIGN OPERATIONS

The tables below present assets information by operating region at September 30, 2013 and December 31, 2012, respectively:

	September 30, 2013	December 31, 2012
United States	$         99,186	$                   0
People's Republic of China	4,467,739	4,172,007
Total	$   4,566,925	$   4,172,007

The tables below present sales information by operating region for the three and nine months ended September 30, 2013 and 2012, respectively:

	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2013	2012	2013	2012
United States	$                   0	$                   0	$                    0	$                    0
People's Republic of China	3,192,631	6,349,846	10,082,430	17,917,318
Total	$   3,192,631	$   6,349,846	$  10,082,430	$  17,917,318

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Note 12 - Subsequent Events

9 Months Ended

Sep. 30, 2013

Notes

Note 12 - Subsequent Events

NOTE 12 - SUBSEQUENT EVENTS

In October 2013, the Company issued 4,016,261 shares of its common stock in connection with the conversion of convertible notes.

In October 2013, the Company issued 9,000,000 shares of its common stock to CDII for fiscal 2012 consulting service. The shares were valued at the fair market value of $90,000 on the grant date.

In October 2013, the Company issued 5,200,000 shares of its common stock to a consultant for its service from October 2013 through December 2014. The shares were valued at the fair market value of $49,400 on the grant date.

On October 21, 2013, the Company and GEL Properties, LLC (“GEL”) entered into a note purchase agreement, providing for the issuance of a 6% convertible note in the principal amounts of $30,000. In connection with the convertible note, the Company paid a fee of $4,500 and received net cash proceed of $25,500. The principal amount and accrued interest of note are due on October 21, 2014. GEL is entitled, at its option, at any time after the issuance of the note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal to a price which is 60% of the lowest closing bid price of the last day of 5 trading days prior to conversion (including the day upon which a notice of conversion is received by the Company). In the event the Company experiences a DTC “Chill” on its shares while this note is eligible for conversion into common shares, the conversion price shall be decreased to 55% instead of 60% while that “Chill” is in effect.

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Note 6 - Accrued Expenses and Other Current Liabilities: Accruals and other current liabilities table (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Details
Accounts Payable, Other, Current	$ 388,031	$ 273,994
Accrued expenses	73,113	97,276
Accrued Salaries	45,809	51,971
Taxes Payable	7,265	357
Accrued Liabilities, Current	$ 514,218	$ 423,598

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Note 7 - Convertible Notes Payable: Convertible promissory notes table (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Details
Principal amount of Convertible Notes	$ 140,076	$ 0
Put premium of Convertible Notes	53,887	0
unamortized debt discount of Convertible Notes	(79,387)	0
Convertible notes payable, net	$ 114,576	$ 0

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Note 5 - Property and Equipment: Property and equipment table (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Details
Automobile	$ 120,210	$ 47,976
Furniture and Fixtures, Gross	169,837	153,089
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	(140,211)	(136,203)
Property and equipment, net	$ 149,836	$ 64,862

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Related Parties (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Related Parties

Related parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.

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Note 10 - Foreign Operations: Sales by operating region table (Tables)

9 Months Ended

Sep. 30, 2013

Tables/Schedules

Sales by operating region table

	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2013	2012	2013	2012
United States	$                   0	$                   0	$                    0	$                    0
People's Republic of China	3,192,631	6,349,846	10,082,430	17,917,318
Total	$   3,192,631	$   6,349,846	$  10,082,430	$  17,917,318

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Restricted Cash (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Restricted Cash

Restricted cash

Restricted cash consists of one-year term cash deposit held by a bank in China.

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Revenue Recognition (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Revenue Recognition

Revenue recognition

The Company provides freight forwarding services to our customers. Our business model involves placing our customers’ freight on prearranged contracted transport. Our revenue recognition policy is in accordance with the guidance of ASC 605, “Revenue Recognition.” In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The Company provides transportation services, generally under contract, by third parties with whom the Company has contracted these services.

Typically, the Company recognizes revenue in connection with our freight forwarding service when the payment terms are as follows:

- When merchandise departs the shipper's location if the trade pricing terms are CIF (cost, insurance and freight),

- When merchandise departs the shipper’s location if the trade pricing terms are CFR (cost and freight cost); or

- When merchandise arrives at the destination port if the trade pricing terms are FOB (free on board) destination.

The Company recognizes direct shipping costs concurrently with the recognition of the related revenue for each shipment. These costs are generally isolated by billings as the Company does not own the shipping containers or transportation vessels.

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Note 9 -related Party Transactions: Due to related parties table (Tables)

9 Months Ended

Sep. 30, 2013

Tables/Schedules

Due to related parties table

	September 30, 2013	December 31, 2012
Due to Xiangfen Chen (1)	$         25,567	$         72,509
Due to Bin Liu (2)	182,627	194,949
Due to Tianjin Sincere Logistics Co., Ltd.	107,176	177,137
Due to Shunbo International Freight Ltd. (3)	37,563	2,671
Due to Lianyunbu (4)	149,298	145,982
Due to Shang Jing (5)	48,889	47,611
Due to CD International Enterprises, Inc.	0	410,078
Total Due to related parties	$      551,120	$   1,050,937

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Note 3 - Accounts Receivable: Schedule of Accounts and Notes Receivable (Tables)

9 Months Ended

Sep. 30, 2013

Tables/Schedules

Schedule of Accounts and Notes Receivable

	September 30, 2013	December 31, 2012
Accounts receivable	$     4,838,255	$     4,581,036
Less: allowance for doubtful accounts	(3,362,749)	(3,303,295)
Accounts receivable, net	$     1,475,506	$     1,277,741

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Note 1 - Organization and Description of Business

9 Months Ended

Sep. 30, 2013

Notes

Note 1 - Organization and Description of Business

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

China Logistics Group, Inc. (“we”, “us”, “our” or the “Company”) is a Florida corporation and was incorporated on March 19, 1999 under the name of ValuSALES.com, Inc. We changed our name to Video Without Boundaries, Inc. on November 16, 2001. On August 31, 2006 we changed our name from Video Without Boundaries, Inc. to MediaReady, Inc. and on February 14, 2008, we changed our name from MediaReady, Inc. to China Logistics Group, Inc.

On December 31, 2007 we entered into an acquisition agreement with Shandong Jiajia International Freight and Forwarding Co., Ltd. (“Shandong Jiajia”) and its sole shareholders Messrs. Hui Liu and Wei Chen, through which we acquired a 51% interest in Shandong Jiajia. The transaction was accounted for as a capital transaction, implemented through a reverse recapitalization.  

Shandong Jiajia, formed in 1999 as a Chinese limited liability company, is an international freight forwarder and logistics management company. Shandong Jiajia acts as an agent for international freight and shipping companies. Shandong Jiajia sells cargo space and arranges land, maritime, and air international transportation for clients seeking to import or export merchandise from or into China.  Headquartered in Qingdao, Shandong Jiajia has branches in Shanghai, Xiamen, Lianyungang and Tianjin with additional sales office in Rizhao.

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Note 6 - Accrued Expenses and Other Current Liabilities

9 Months Ended

Sep. 30, 2013

Notes

Note 6 - Accrued Expenses and Other Current Liabilities

NOTE 6 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities are primarily comprised of (1) non-interest bearing advances from unrelated parties used for working capital purposes and payable on demand, (2) accruals for professional fees that have not yet been billed and office rent that has not yet paid, (3) accrued salaries and employees’ benefits, and (4) taxes payable.  The components of accruals and other current liabilities at September 30, 2013 and December 31, 2012 were as follows: 

	September 30, 2013	December 31, 2012
Advances payables	$      388,031	$      273,994
Accrued expenses	73,113	97,276
Accrued salaries and employees' benefits	45,809	51,971
Taxes payable	7,265	357
Accrued expenses and other current liabilities	$      514,218	$      423,598

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Basic and Diluted Earnings Per Share: Schedule of Earnings Per Share, Basic and Diluted (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Details
Net Income applicable to common stockholders	$ (135,432)	$ (110,290)	$ (441,591)	$ 229,291
Basic weighted average shares outstanding	101,658,431	41,508,203	73,479,756	41,508,203
Series B convertible preferred stock	0	0	0	4,500,000
Diluted weighted average shares outstanding	101,658,431	41,508,203	73,479,756	46,008,203
Earnings Loss Per Common Share Basic	$ 0.00	$ 0.00	$ (0.01)	$ 0.01
Earnings Loss Per Common Share Diluted	$ 0.00	$ 0.00	$ (0.01)	$ 0.00

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Note 9 -related Party Transactions: Due from related parties table (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Details
Prepayment made to CD International Enterprises, Inc.	$ 72,154	$ 0

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Stock Based Compensation (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Stock Based Compensation

Stock based compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The FASB ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Basic and Diluted Earnings Per Share: Schedule of Earnings Per Share, Basic and Diluted (Tables)

9 Months Ended

Sep. 30, 2013

Tables/Schedules

Schedule of Earnings Per Share, Basic and Diluted

	Three Months Ended September 30,		Nine Months Ended September 30,
Numerator:	2013	2012	2013	2012
Net (loss) income applicable to China Logistics Group, Inc. shareholders	$        (135,432)	$       (110,290)	$       (441,591)	$        229,291
Denominator:
Denominator for basic earnings per share:
Weighted average shares outstanding	101,658,431	41,508,203	73,479,756	41,508,203
Series B convertible preferred stock	0	0	0	4,500,000
Denominator for diluted earnings per share:
Diluted weighted average shares outstanding	101,658,431	41,508,203	73,479,756	46,008,203
(Loss) earnings per common share - basic	$               (0.00)	$              (0.00)	$              (0.01)	$               0.01
(Loss) earnings per common share - diluted	$               (0.00)	$              (0.00)	$              (0.01)	$               0.00

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Note 2 -basis of Presentation and Summary of Significant Accounting Policies: Cash and Cash Equivalents (Policies)

9 Months Ended

Sep. 30, 2013

Policies

Cash and Cash Equivalents

Cash and cash equivalents

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The carrying value of these instruments approximates fair value.