CHINA LOGISTICS GROUP INC (CHLO) - Description of business

Company Description
Corporate HistoryVideo Without Boundaries, Inc., a Florida corporation (the “Company”, or “we”) is the result of a merger between a then existing public company and a private corporation in 1999. The Company developed as a single-source internet and streaming media product and solutions provider.Since 2003, the Company has repositioned itself within the entertainment and home broadband marketplace as it continues to develop its MediaREADY™ product line. The Company now provides products and services in the converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics markets.GeneralThe Company is focused on home entertainment media products and solutions that enhance the consumer experience, while providing new revenue opportunities for online music and movie content providers. The Company has become a supplier of broadband products, services and content including its ability to deliver broadcast quality digital video and web interactivity at transfer rates as low as 56K.The Company's goals are: 1) to become a developer/licenser, producer and distributor of interactive consumer electronics equipment; 2) establish itself as a software infrastructure player within the home entertainment media-on-demand marketplace; and 3) attempt to capture revenue and market share from services and products within the video on demand (IP) marketplace.Broadband Media MarketplaceNielsen//NetRatings, a global leader in Internet media and market research recently reported the following: · The number of active broadband users from home increased 28 percent year-over-year, from 74.3 million in February 2005 to 95.5 million in February 2006. Broadband composition among the U.S. active online population has seen vigorous growth during the past three years, increasing at least ten percentage points annually and hitting an all-time high of 68 percent for active Internet users in February 2006. · From February 2003 to February 2004, broadband composition grew twelve percentage points, from 33 percent to 45 percent. In February 2005, it increased another ten percentage points to 55 percent. This year, February saw broadband composition reach an all-time high of 68 percent, increasing an impressive 13 percentage points over the previous February. · Overall Internet penetration in the U.S. has stabilized over the past few years, reaching 74 percent at home in February 2006. · World broadband market grows with almost 10 percent and the number of broadband subscribers in the third quarter soared to over 187.8 million with more than 15.6 million new subscribers since the second quarter of 2005. Asia-Pacific, with 5.55 million, followed by Europe, has been the biggest regions in terms of nominal subscriber gain followed by the Americas and Middle East- Africa. At the same time the region has registered the lowest relative quarterly gain compared to the other regions. Europe, with nearly 5.5 million net gains or 10.5 percent quarterly growth, is the second largest broadband market in the world.Similar research in the industry also points out that over 50% of broadband customers are installing in-home networks as a means for sharing high speed data connections, files and resources. With this mass adoption of broadband connectivity and in-home networking technology, consumers have the ability to access a wide range of digital media over the internet and move that media around our homes. The world is moving away from the storefront delivery of media to a new all-digital distribution system. Consumers are becoming acclimated to the benefits and quality of digital media goods and on-line digital media. In addition, PCs, digital cameras, USB storage devices, MP3 players, CDs and DVDs are all broadly accepted consumer devices that are changing the way consumers view media. Consumers no longer store their pictures, videos or audio files on tapes or other antiquated storage mechanisms.The acceptance of digital media and storage options, coupled with new digital distribution (IP) methods, is resulting in new convergence devices being introduced to consumers that allow for: · Universal Playback and storage of all digital media rented and purchased by the consumer · Consumers to have “on-demand” or immediate access to all digital media purchased & available for rental. · All forms of digital media to be played on all traditional audio/video equipment within the home, but also on relatively new, increasingly portable equipment (laptops, MP3 players)As a result of the above, consumer interaction with media is changing in significant ways. Supporting and exploiting this new consumer behavior requires: · Simple to use devices that conform to existing consumer behavior and media needs · Conceptual bridge between the “home PC” and the living room environment · Robust Digital Rights Management (DRM) solution to support secure IP media deliveryPRINCIPAL PRODUCTSMediaREADY™ Digital Media Centers MediaREADY ™ 4000 The MediaREADY™ 4000, retail price $449, connects to the home user’s TV, stereo, home network and internet to bring the best of what digital media can be into a single device. As the medium of media delivery is shifting from tangible products to electronic media, new capabilities are required from the essential entertainment devices in the consumer’s living rooms. The MediaREADY™ 4000 is a product that was designed to provide for the consumer’s changing needs. The MediaREADY™ 4000 comes with support for an essential suite of TV-centric media applications to help create an easy to navigate environment for controlling a consumer’s entertainment choices. In addition, the product serves as an upgradeable platform that allows consumers to constantly update the features and content to ensure their ability to enjoy this product well into the future.MediaREADY™ 4000 Highlights · Media Jukebox - burn and manage music, movies and pictures on the MediaREADY™ hard drive, any PC connected to the same home network or connected peripherals (ex. digital cameras, external storage devices) · Rip CDs onto the MediaREADY™ 4000 - Provides easy access to a consumer’s music collection from the TV screen, creates play lists of favorite songs · Present your pictures on the TV - Transfer pictures from digital camera to be displayed on the TV, transfer pictures from a consumer’s PC to be displayed on the TV, create slideshows to auto-play while music plays at the same time · Play music and video from PC on the TV - Access all the pictures, music and video stored on the PC from the TV · Download and stream full-Screen DVD quality video and music over the Internet on one’s TV · High speed internet browsing with TV-centric website portal to provide the best surfing experience on the TV · Enhanced DVD/CD Player with 5.1 Digital Surround · Create and manage multiple email accounts · TV-friendly games of all genres and skill levels · Simple to use Karaoke feature to sing along with one’s entire music collection or access new content on demand · Wireless Keyboard and Remote Controls both with trackball mouse built in for easy navigation · Unmatched level of connectivity for USB, 1394, Component or composite video peripherals · Remotely upgradeable to ensure the latest applications, services and content are kept current and competitive MediaREADY ™ 5000 The MediaREADY™ 5000, suggested retail price $699, allows users to customize viewing by recording shows on a built-in computer hard drive or DVD recorder. Made popular by TiVo, the concept of time shifting television is gaining mass acceptance. The functionality of this unit is, however, unmatched in the industry. Users can access digital media files on the unit’s internal drive, any PC or on the same in-home network, connected peripheral devices. In addition, the unit brings on-demand content, e-mail, internet browser, games, and MP3/CD/DVD/MPEG-1/MPEG-2/MPEG-4 playback to any connected television.Portable Media Centers MediaREADY ™ Flyboy In December 2004, the Company announced the development of the MediaREADY™ Flyboy, an ultra-slim portable MPEG4 media player and recorder. This portable device allows the user to record up to 40 hours of video, store over 100,000 digital pictures, or hold over 6,000 songs on its 20 GB hard drive while enjoying it all on the move. The Flyboy has a pleasant to watch 3.5 inch LCD screen with built-in speakers. The internal USB 2.0 hard drive allows Flyboy to receive files from another MediaREADY™ unit or a PC. The Company is focused on delivering portable media technology in combination with the MediaREADY™ line allowing consumers to take their media on the go.MediaREADY™ Flyboy Features: · MPEG4 Video Player/Recorder - record up to 40 hours of video on Flyboy and watch it on 3.5 inch LCD screen or connect it to a TV for convenient playback. Supports Real One player. · MP3 Player - hold up to 370 hours (6,000 songs) of MP3 music. You can transfer your entire MP3 collection in no time at all via USB 2.0 connection. · Digital Picture Storage - store over 100,000 digital pictures (1600x1200 pixels). View pictures on the LCD screen. Includes 3x zoom functionality. · Digital Voice Recorder - records meeting notes, to do list or a jam session with the Flyboy’s built-in microphone. · Data Storage Centre - when connected to other MediaREADY™ devices or a PC, the Flyboy is an external hard drive for transporting and storing data files. · Built-In Speaker and Earphone output - whether you want to entertain your neighbours or keep it private, the Flyboy lets you plug in your earphones or crank it up over your built-in speakers.The MediaREADY™ Flyboy has been shipping commercially since June 2005. MediaREADY ™ CoPilot The Company introduced a new portable named CoPilot into the US retail market in Decemnber 2005.  The new flash-based MPEG-4 portable retails for under $200 and features AV input recording allowing for easy connection to DVD Player, VCRs, cable and satellite set-top boxes for simple recording of TV and movies.  Additional "pluses" includes video playback and recording on its 512MB flash drive. The unit memory is also expandable via its SD card slot enabling the CoPilot to store more than 5 hours of video at 320 x 240 @ 30f/sresolution. The CoPilot also supports MP3, WAV, and WMA formats and Line In Audio for simple playback and recording of music.Other Features include: · Internal microphone for voice recording · Photo viewing · Video output for playback of video onto TV · Games · Calendar · Clock · Built-in speakers · FM radioFuture Products OEM Licensing To architect and build this new breed of device requires a skill-set in both hardware and software that most Consumer Electronics (CE) and Personal Computer (PC) makers do not possess. The management of aftermarket media/application deployment is going to require a technological and networking understanding beyond most of today’s manufacturers. Some of the largest CE companies in the world are building teams to try to better understand and manage this opportunity (per recent Panasonic and Sony press releases). Others will simply buy the capability in from outside organizations or by acquisition. In both the CE and PC media centre markets, hardware designs, software and networking solutions like this are traditionally licensed or acquired by the manufacturer.In July 2004, we announced our plans to license the MediaREADY™ 4000, MediaREADY™ 5000, and the MediaREADY™ Module to consumer electronics manufacturers interested in deploying a variety of competitive broadband-enabled devices. All of our MediaREADY™ products are tightly integrated hardware designs which provide broadband media capabilities, fast time-to-market and recurring revenue opportunities for licensees. The MediaREADY™ Module is a low-cost small footprint module designed to empower television sets and other consumer electronics devices with a wide range of broadband media applications. As our products are groundbreaking and today unrivalled at the retail level, we are receiving interest from other consumer electronics companies in licensing our solutions. Licensing fees are one-time in nature and book only when a new device is deployed.Again in line with our “provide the industry model”, OEM licensing of our MediaREADY™ products will expand our content consumer base as well as increase the economies of scale for producing our MediaREADY™ product line. Several discussions with major branded OEMs have already taken place and we are in the early stages of forming these relationships. MediaREADY ™ Delivery Network (MRDN) While the sale of our hardware will constitute the bulk of our near-term revenue, we expect direct sales and sales commissions from third-party licensees to grow as licensed devices may be deployed.  Direct sales and commissions from aftermarket consumer purchases over our MRDN generated over the life of the device.  We expect that as the installed base grows, non-license fee revenues will rapidly eclipse our base licensing revenue. Most general system and OS patches are expected to be free to the end-user, but we will offer enhanced bundled upgrades at least once a quarter at prices ranging from 5 - 50 per unit (games packs, advanced photo managers, ITV applications, etc.)Demand for the Company’s products has been such that a number of content providers have agreed to provide content to the Company for distribution to deployed products. The provision of this content to the Company’s customers is highly profitable and further enhances the products offered. The Company is planning to launch a pilot of our Media on Demand service mid 2006 on deployed MediaREADY™ 4000 and MediaREADY™ 5000 units. The pilot’s goals are as follows: · To deliver DVD quality movies direct to MediaREADY™ devices · To provide subscription based Media on Demand - music & video delivery services · Determine technology and financial requirements for large-scale deployment of our MediaREADY™ Delivery Network (MRDN) for broader product support in late 2006The Company has partnered with a variety of companies involved with distribution of media over the IP channel. These consist of three categories: · Online media distributors · Niche and independent content owners · Major studio and label content owners. Online Media Distributors : Rhapsody, Napster, iTunes, Movielink and CinemaNow are all examples of online businesses that utilize the Internet to distribute content on behalf of the content owner.  The MediaREADY™ products are compatible with all of these services, and in the short-term, selected services will be made available on all units.  The Company is currently negotiating “bounty” fees for each service, so that for every new MediaREADY™ subscriber, both the Company and the licensee receive either a one time or residual royalty on all media sales of each service.  These services will increase consumer satisfaction levels of compatibility with main-stream digital media service. Other examples of announced content partners within this market are: Blastro.com (music videos); King Biscuit (music and video); Live365 (internet radio); and Ingrooves (specialty music distributor). Niche and Independent Content Owners : The introduction of high speed data access to the masses has fueled a surge in development of a new breed of online content. Individually produced movies, TV shows, news, music, etc. are proliferating throughout the internet. VLogs, streaming TV stations, and the introduction of video search engines by Google and Yahoo further feed the phenomenon. People are now watching the Internet and expressing a desire for a means to have this content also delivered on their televisions.  The Company has made significant progress in getting early commitments from independent and select major studio/label contacts to utilize their content. As the MediaREADY™ products are launched through retailers, the Company will pursue other independent content providers. Major Studio and Label Content Owners : The company has met with representatives from all major studios and labels regarding this opportunity. In addition, we have been negotiating with a major distributor who has IP distribution rights from six of the major movie studios as well as major record labels and clearing houses for online distribution of music services.Sales and MarketingThe Company plans to promote itself by direct sales efforts using telephone sales, conventional media advertising, and Internet marketing. These advertisements will be targeted at small, medium, and large business customers as well as retail consumers who are likely to respond to specific ads or visit specific web sites to make a purchase.The Company employs three inside and outside sales people to help customers and to prospect business from various forms of lead generation. The Company may also engage independent sales agents in various geographic areas as well as product dealers and resellers.Our marketing strategy is to promote and enhance our brand by participating in targeted industry conferences and seminars, as well as engaging in a public relations campaign. This strategy is designed to strengthen our brand name and generate new clients by increasing the awareness of our brand with high quality comprehensive converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics companies. The extent of the sales and marketing of our products and services is dependent on the Company’s continued ability to raise capital and grow revenues, of which no assurances are given.The Company believes that establishing and maintaining a good reputation and name recognition is critical for attracting and expanding our customer base. We also believe that the importance of product acceptance and market validation will increase due to the growth in the converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics markets. If the various product markets and customersdo not perceive our products and services to be effective or of high quality, our brand name and reputation could be materially and adversely affected.Sources and Availability of Raw MaterialsThe Company utilizes an outsourcing product development model. Therefore, many of the products’ materials and components are provided as assemblies by the Company’s suppliers. Most of those suppliers are in Asia and procurement is either contract-development based or by purchase order.The MediaREADY™ media center products, while architected by the Company, are designed and manufactured for the Company under contract with original design and manufacturing partners. Components such as the main board, enclosure, and peripheral boards are outsource designed and produced uniquely for the Company. Integrated circuits and other components used in the design of such electronic assemblies are primarily off-the-shelf silicon from industry providers such as Sigman Designs, Via Technology, Philips, Samsung, Hitachi, and Texas Instruments. Other components of these products, eg. power supply, hard drive, and DVD/CD drives are industry standard components from companies providing the personal computer industry. Mechanical components are designed and produced by original design and manufacturing partners in Asia as well.The mix between Company specific components and off-the-shelf components is a result of finding the optimal trade off between what is available in the market place and what the Company must create in order to have the most marketable products. This result is very much part and parcel of the Company’s outsourced model advantage.CustomersThe Company continues to focus on long-term relationships with clients that will range from retail consumers to small, medium, and large business customers. Agreements and purchase orders that may be entered into in connection with product sales are generally on an order by order basis. If our clients terminate purchase orders or if the Company is unable to enter into new engagements or sell its new products and services, our business, financial condition and results of operations could be materially and adversely affected. In addition, because a proportion of the Company’s expenses is relatively fixed, a variation in the number of products sold can cause significant variations in operating results from quarter to quarter.The Company’s product sales will vary in size; therefore, a customer that accounts for a significant portion of the Company’s revenues in one period may not generate a similar amount of revenue in subsequent periods.  Based upon recent informal discussions with various prospective customers, the Company does not currently believe that it will derive a significant portion of its revenues from a limited number of clients in the near term. However, we can not assure that this will be the case and in such an event, any cancellation, deferral, or significant reduction in future orders could have a material adverse affect on the Company’s business, financial condition, and results of operations.Competition Broadband Media Device Competition Industry: Product Line Example PC Manufacturers: Multimedia PC “Media Station” · Form factor (design), connectivity and usability are not living room & stereo/TV friendly · Designed for early adopter market · Expensive (averaging $2,000) Networking/Wireless Approach: Media Receiver · Requires PC and extensive PC proficiency from the user · Expensive (averaging $849) Consumer Electronics Manufacturers: Media Server · Expensive (averaging $7442)Many of the Company’s competitors have longer operating histories, larger client bases, longer relationships with clients, greater brand or name recognition and significantly greater financial, technical, marketing and public relations resources. Several of these competitors may provide or intend to provide a broader range of products and services than the Company. Furthermore, greater resources may enable a competitor to respond more quickly to new or emerging technologies and changes in customer requirements and to devote greater resources to the development, promotion and sale of its products and services than we can. In addition, competition may intensify in the converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics markets by major companies which could have an adverse on the Company.While as of December 31, 2005, the Company had no portion of the converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics market due to its development and testing of products for distribution launch in the United States, we have recently entered the retail market on a limited basis through a limited number of distributors. There can be no assurances that we will be able to further penetrate retail markets in the future because of the need for the Company to raise additional capital to fund its sales and marketing efforts.TrademarksAs of December 31, 2005, the Company had submitted the following marks for listing on the trademark registry:MediaREADY TMFlyBoy TMGovernmental ApprovalsThe Company’s MediaREADY™ set top boxes are required to pass radiation emission testing as per applicable Federal Communications Commission requirements.  The Company uses the services of a full service importer that handles the logistics of importing the products which includes the emissions testing.Research and DevelopmentThe Company expended research and development costs of $7,231 and $5,304 for the years ended December 31, 2005 and 2004, respectively.Other DevelopmentsGraphics Distribution:  On August 11, 2004 (with an effective date of June 1, 2004) the Company entered into a stock purchase agreement with the sole shareholder of a privately-held company engaged in the business of selling and distributing electrical products. The principal terms of the agreement provide for the Company to acquire all of the issued and outstanding shares of the acquired entity for a purchase price of $1,500,000 plus the issuance of 1,000,000 restricted common stock shares in the acquiring entity. Additional consideration included in this stock purchase agreement require the Company to collateralize an existing line of credit in the amount of $2,500,000 as well as retain the services of the selling shareholder, pursuant to a consulting agreement dated August 11, 2004, for a term consistent with the fulfillment of the stock purchase agreement. The Company, at time of closing, gave its initial deposit of $350,000, but has defaulted on the remaining balance due and is also in default of the collateralization provision. Management has written off the deposit of $350,000 and is actively negotiating with the seller to resolve this matter. Management anticipates, but can not assure, that a settlement will be forthcoming and that the Company loss will consist of its forfeited deposit.CAC Media:  The Company reviewed the investment in CAC Media for possible impairment and provided fully for a decline in value of $70,000, $93,000, $865,000, and $0 at December 31, 2002, 2003, 2004, and 2005, respectively.On October 10, 2005, the Company and a stockholder/creditor entered into an agreement which amended a prior agreement concerning the terms and conditions attached to the conversion of outstanding debt into restricted or free trading stock of the Company. The original agreement conveyed upon the stockholder the right to convert amounts owed to him at a price of one ($.01) cent per share without restrictions as to time periods. Based upon the terms and conditions of the amended agreement, the stockholder, effective with the period commencing July 1, 2005, has conversion rights as follows: for the third calendar quarter of 2005, the conversion of debt to stock shall be at twenty (20%) percent of the then closing price on the date of conversion; for all subsequent periods thisconversion formula shall be at forty (40%) percent of the then closing price of the stock on the date of conversion. In addition, effective December 3, 2005, the stockholder shall be limited in respect to the amount of outstanding debt he will be permitted to convert in any calendar quarter. This limitation has been set at three (3%) percent of the total outstanding stock of the Company.As of December 31, 2005, the Company had cash and net working capital of $1,097 and ($2,930,804), respectively.  The Company believes that its current working capital and cash generated from operations will not be sufficient to meet the Company’s cash requirements for the next twelve months without the ability to obtain profitable operations and/or obtain additional financing. If the Company is not successful in generating sufficient cash flows from operations or in raising additional capital when required in sufficient amounts and on acceptable terms, these failures could have a material adverse effect on the Company’s business, results of operations and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of the Company’s then-current stockholders would be diluted. Our independent public accountant has included as a footnote in their report on our financial statements, stating that certain factors raise substantial doubt about our ability to continue as a going concern.There can be no assurance that the Company will be able to raise any required capital necessary to achieve its targeted growth rates and future continuance on favorable terms or at all.EmployeesAs of December 31, 2005 the Company employed a total of eight persons on a full-time and part-time basis. In addition the Company had consulting agreements with three outside individuals or firms for sales and marketing, technical consulting, and public relations. Our personnel are not subject to any collective bargaining agreements and Company has not experienced any work stoppages. The Company believes that its labor relations are satisfactory.