China Auto Logistics Reports 2017 Third Quarter and Nine Month Results

Investor Conference Call Scheduled for Wednesday, November 15th at 8:00am ET

/EINPresswire.com/ -- TIANJIN, CHINA--(Marketwired - Nov 14, 2017) - China Auto Logistics Inc. (the "Company" or "CALI") (NASDAQ: CALI), a top seller in China of luxury imported automobiles and a leading provider of auto-related services, today reported results for the three months and nine months ended September 30, 2017.

In the 2017 third quarter - - based primarily on higher sales of automobiles - - revenues from continuing operations increased 30.5% year over year to approximately $125 million. However, weak gross margins in Auto Sales coupled with reduced fee revenues and margins in Financing Services, and a reserve for uncollectible receivables in the latter business, resulted in a net loss from continuing operations in the 2017 third quarter of approximately $(939,000) or a loss of $(0.23) per share.

During the third quarter a key impact on gross margins in the Auto Sales business continued to be the 10% additional tax on "super luxury" cars imposed by the Chinese government in December of 2016. Although the Company was able to sell more high end luxury vehicles in the quarter as compared with the second quarter this year, high end sales nevertheless continued to be lower than normal and reduced profitability of the business. With respect to the large year over year increase in sales of automobiles, to some extent this reflected the lower than normal sales in the 2016 third quarter. The Company believes the latter resulted from auto dealer customers continuing throughout 2016 to draw down on inventories they had built up in 2015 and first quarter of 2016 in response to anticipated and actual sharp devaluations of the RMB versus the U.S. dollar. 

For the nine months ended September 30, 2017, year over year revenues increased approximately 14.5% to approximately $374.5 million. Weak gross margins in Auto Sales, lower Financing Services revenue, and a reserve set up for uncollectible Financing Services accounts, produced a net loss attributable to shareholders from continuing operations in the period of approximately $(1.42 million), or $(0.35) per share. This compared with a loss from continuing operations of approximately $(865 thousand), or $(0.21) per share in the first nine months of 2016.

Commenting on these results, Mr. Tong Shiping, Chairman and CEO of the Company, stated, "While our efforts during the quarter generated an increase in Auto Sales, the steps we took to improve margins, such as increased retail sales, fell short. We will continue to take the necessary steps to maintain our leadership position and believe this will serve us well down the road as China's economy continues to rebound and as high end buyers return to the market." He added, "One key indicator during the quarter of confidence in the future of the Company was the acquisition in September by our largest shareholder - - Bright Praise Enterprises Limited ('Bright Praise') - - of 806,000 new common shares issued by the Company in connection with a Debt Exchange Agreement. This transaction which is fully described in our Form 10-Q and in other filings with the U.S. Securities and Exchange Commission, brought Bright Praise ownership of the Company to 50.7%."

Financial Highlights of the Third Quarter and Nine Months ended September 30, 2017

  • Net revenue from continuing operations in the third quarter rose 30.05% to $125,231,888 from $96,293,622 in the third quarter of 2016.
  • The net loss from continuing operations attributable to shareholders in the third quarter was $(939,443), or $(0.23) per share, compared with a net loss of $(200,000) or $(0.05) per share, in the year earlier quarter.
  • Gross profit margins in the 2017 third quarter declined to 0.42% from 0.65% a year earlier primarily due to the continuing impact of a 10% additional tax on "super luxury" automobiles imposed by the government, as well as lower Financing Services sales, and recording a reserve of $519,334 for uncollectable Financing Services accounts receivable.
  • Net revenue from continuing operations for the nine months ended September 30, 2017 increased 14.47% to $374,524,571 from $327,177,025 in the year earlier period. Gross profit margins in the first nine months of 2017 decreased to 0.40% from 0.68% a year earlier, leading to a net loss from continuing operations of $(1,416,798) on $(0.35) per share, as compared with a net loss of $(835,397), or $(0.21) per share, in the 2016 nine month results.
  • Total cash and cash equivalents increased to $5,742,988 as of September 30, 2017 from $3,004,932 as of December 31, 2016.
  • As of September 30, 2017 the Company had working capital of $24,913,664 compared with $23,576,035 as of December 31, 2016.
  • Primarily reflecting the operating losses incurred thus far in 2017 and the negative operating cash flows, the Company included a "Going Concern" paragraph in the Notes to the Company's Condensed Consolidated Financial Statements for the period ended September 30, 2017.
  • As a consequence of the issuance of 806,000 common shares by the Company in September this year, the weighted average number of basic and diluted common shares outstanding for the three months ended September 30, 2017 increased to 4,095,720 from 4,034,494 at the same time last year.

Sales of Automobiles

In the 2017 third quarter the Company achieved increases in the volume and dollar amount of automobiles sold. Net revenue from Auto Sales of $124,174,090 represented a 30.35% increase over the prior year quarter, as the number of autos sold increased to 1,208 from 902 a year earlier. As previously described, these increases compared with relatively low sales in the third quarter of 2016 due to the inventory buildup by auto dealers in 2015 and first quarter of 2016 which was sold off in the remainder of 2016. Profit margins in the 2017 third quarter dropped to 0.12% from 0.14% a year earlier, primarily due to the continuing impact of the government's 10% extra tax on "super luxury" vehicles priced above $190,000, which typically yield the highest profit margins to the Company. Sales of these vehicles increased over sales in the 2017 second quarter, but not enough to generate significantly better results.

Financing Services

While net revenues from Financing Services in the 2017 third quarter increased 3.06% compared with the prior year quarter, revenue from the fee income portion of the business declined 22.48% in this time frame. This resulted in a 35.74% gross margin in the period compared with 47.52% a year earlier. The Company continued to lose market share in the quarter to new players in this increasingly competitive market.

Outlook

"While we anticipate continuing difficulty in the short term with respect to improving margins," Mr. Tong stated, "we remain optimistic that the boost being provided to independent importers like ourselves by the government's Parallel Imported Vehicle Scheme, and an improving economy in China, will lead to improved results, especially as luxury buyers return to the market. In addition, we continue to review potential new higher margin businesses and are likely as well to continue to expand our retail sales where we believe higher margins also are possible."

Conference Call Invitation

The Company will discuss 2017 third quarter results during a live conference call and webcast on Wednesday, November 15th at 8:00am ET.

To participate in the call, interested participants should call 1-800-239-9838 when calling within the United States or 1-323-794-2551 when calling internationally. Please ask for the Conference ID: 2890686. There will be a playback available until 11/22/17. To listen to the playback, please call 1-844-512-2921 when calling within the United States or 1-412-317-6671 when calling internationally. Use the Replay Pin Number: 2890686.

This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link: http://public.viavid.com/index.php?id=127245 at ViaVid's website at http://viavid.com.

SEE ATTACHED TABLES

About China Auto Logistics Inc.

China Auto Logistics Inc. is one of China's top sellers of imported luxury vehicles. It also provides a variety of "one stop" automobile related services such as short term dealer financing.

Information Regarding Forward-Looking Statements

Except for historical information contained herein, the statements in this press release are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results. These risks and uncertainties include, among other things, product demand, market competition, and risks inherent in our operations. These and other risks are described in our filings with the U.S. Securities and Exchange Commission. We do not undertake any obligation to publicly update these forward-looking statements, whether as a result of new information, future events or otherwise.

   
   
CHINA AUTO LOGISTICS INC.  
CONDENSED CONSOLIDATED BALANCE SHEETS  
   
    September 30, 2017
(Unaudited)
    December 31, 2016  
ASSETS:                
Current assets:                
Cash and cash equivalents   $ 5,742,988     $ 3,004,932  
Restricted cash     9,390,254       22,703,835  
Receivable related to financing services, net     54,270,503       48,549,972  
Inventories     13,007,389       13,049,065  
Advances to suppliers, net     69,854,476       71,921,388  
Prepaid expenses     35,324       376,581  
Value added tax receivable     328,778       615,555  
Total current assets     152,629,712       160,221,328  
                 
Property, plant, and equipment, net     272,681       317,282  
Other assets     31,647       30,329  
Total assets   $ 152,934,040     $ 160,568,939  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY:                
Current liabilities:                
Lines of credit related to financing services   $ 49,671,882     $ 47,081,763  
Short term borrowings     15,778,796       12,961,389  
Accounts payable     2,770,789       365,120  
Notes payable to suppliers     12,021,940       25,922,779  
Accrued expenses     159,173       131,128  
Customer deposits     42,430,668       46,047,515  
Deferred revenue     52,438       48,171  
Due to former shareholder     2,041,659       1,956,625  
Due to shareholder     2,248,026       -  
Due to director     69,950       1,550,745  
Income tax payable     470,727       580,058  
Total current liabilities     127,716,048       136,645,293  
                 
Equity:                
China Auto Logistics Inc. shareholders' equity:                
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding     -       -  
Common stock, $0.001 par value, 95,000,000 shares authorized, with 4,840,394 shares issued and outstanding as of September 30, 2017 and 4,034,394 shares issued and outstanding as of December 31, 2016     4,840       4,034  
Additional paid-in capital     24,679,588       22,979,734  
Accumulated other comprehensive income     5,121,205       3,939,898  
Accumulated deficit     (4,780,364 )     (3,363,566 )
Total China Auto Logistics Inc. shareholders' equity     25,025,269       23,560,100  
Noncontrolling interests     192,723       363,546  
Total equity     25,217,992       23,923,646  
                 
Total liabilities and shareholders' equity   $ 152,934,040     $ 160,568,939  
                 
   
China Auto Logistics Inc. Condensed Consolidated Statements of Operations (Unaudited)
 
   
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2017     2016     2017     2016  
                                 
Net revenue   $ 125,231,888     $ 96,293,622     $ 374,524,571     $ 327,177,025  
Cost of revenue     124,704,662       95,671,721       373,011,864       324,958,268  
    Gross profit     527,226       621,901       1,512,707       2,218,757  
                                 
Operating expenses:                                
  Selling and marketing     212,440       180,371       589,823       532,676  
  General and administrative     564,931       460,664       1,674,355       1,443,153  
  Reserve (recovery) from reserve for uncollectible receivable related to financing services     519,334       -       228,981       (68,813 )
    Total operating expenses     1,296,705       641,035       2,493,159       1,907,016  
                                 
(Loss) income from continuing operations     (769,479 )     (19,134 )     (980,452 )     311,741  
                                 
Other income (expenses)                                
  Interest income     23,240       18,811       53,198       233,274  
  Interest expense     (200,151 )     (202,803 )     (630,056 )     (1,331,835 )
  Gain on sale of property and equipment     1,910       -       1,910       2,707  
  Miscellaneous     4,900       3,091       8,206       6,546  
    Total other expenses     (170,101 )     (180,901 )     (566,742 )     (1,089,308 )
                                 
Loss from continuing operations before income taxes     (939,580 )     (200,035 )     (1,547,194 )     (777,567 )
                                 
Income tax (benefit) expense     -       -       (130,118 )     87,737  
                                 
Net loss from continuing operations     (939,580 )     (200,035 )     (1,417,076 )     (865,304 )
                                 
Discontinued operations:                                
  Income from operations of discontinued Airport Automall Automotive Services (including gain on disposal of $6,701,350 for nine months ended September 30, 2016)     -       -       -       4,543,918  
  Income tax benefit     -       -       -       (246,791 )
Net income from discontinued operations     -       -       -       4,790,709  
                                 
Net (loss) income     (939,580 )     (200,035 )     (1,417,076 )     3,925,405  
Less: Net (loss) income attributable to noncontrolling interests     (137 )     (35 )     (278 )     93  
                                 
Net (loss) income attributable to shareholders of China Auto Logistics Inc.   $ (939,443 )   $ (200,000 )   $ (1,416,798 )   $ 3,925,312  
                                 
Net (loss) income attributable to shareholders of China Auto Logistics Inc.                                
  - continuing operations   $ (939,443 )   $ (200,000 )   $ (1,416,798 )   $ (865,397 )
  - discontinued operations     -       -       -       4,790,709  
    $ (939,443 )   $ (200,000 )   $ (1,416,798 )   $ 3,925,312  
                                 
(Loss) income per share attributable to shareholders of China Auto Logistics Inc. from                                
  - continuing operations - basic and diluted   $ (0.23 )     (0.05 )   $ (0.35 )   $ (0.21 )
  - discontinued operations - basic and diluted   $ -     $ -     $ -     $ 1.19  
  Total (loss) earnings per share attributable to shareholders of China Auto Logistics Inc.   $ (0.23 )   $ (0.05 )   $ (0.35 )   $ 0.98  
Weighted average number of common shares Outstanding                                
  - basic and diluted     4,095,720       4,034,494       4,055,061       4,034,494  
   
   
CHINA AUTO LOGISTICS INC.  
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)  
   
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2017     2016     2017     2016  
                                 
Net (loss) income   $ (939,580 )   $ (200,035 )   $ (1,417,076 )   $ 3,925,405  
                                 
Other comprehensive income (loss)                                
  Foreign currency translation adjustments     509,370       (111,136 )     1,181,314       (750,288 )
                                 
Comprehensive (loss) income     (430,210 )     (311,171 )     (235,762 )     3,175,117  
Less: Comprehensive (loss) income (loss) attributable to noncontrolling interests     (52 )     (99 )     (271 )     50  
                                 
  Comprehensive income attributable to shareholders of China Auto Logistics Inc.   $ (430,158 )   $ (311,072 )   $ (235,491 )   $ 3,175,067  
   
   
CHINA AUTO LOGISTICS INC.  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  
   
    Nine Months Ended
September 30,
 
    2017     2016  
Cash flows from operating activities                
Net (loss) income   $ (1,417,076 )   $ 3,925,405  
Add: loss from discontinued operations     -       1,910,641  
                 
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities                
Reserve (recovery) on reserve for uncollectible receivable related to financing services     228,981       (68,813 )
Depreciation on property, plant and equipment     67,124       58,532  
Gain on disposal of property and equipment     (1,910 )     (5,702 )
Change in reserve for advances to suppliers     -       (76,554 )
Gain on sale of Zhonghe     -       (6,701,350 )
                 
Changes in operating assets and liabilities:                
Restricted cash     14,010,712       (35,507,788 )
Accounts receivable     5,827       -  
Receivables related to financing services     (3,624,954 )     31,710,041  
Inventories     563,361       (7,938,670 )
Advances to suppliers     5,065,968       (54,723,792 )
Prepaid expenses, other current assets and other assets     346,620       (14,304 )
Value added tax receivable     301,220       (1,390,994 )
Other assets     -       (32,244 )
Accounts payable     2,226,743       1,952,284  
Line of credit related to financing services     393,687       (24,103,238 )
Notes payable to suppliers     (14,704,314 )     36,344,159  
Accrued expenses     23,302       318,354  
Accrued interest     -       897,826  
Customer deposits     (5,263,243 )     2,161,062  
Deferred revenue     1,899       (47,981 )
Income tax payable     (130,118 )     (62,549 )
Cash used in operating activities from continuing operations     (1,906,171 )     (51,395,675 )
Cash used in operating activities from discontinued operations     -       (1,299,109 )
Net cash used in operating activities     (1,906,171 )     (52,694,784 )
                 
Cash flows from investing activities                
Cash proceeds from sale of Zhonghe, net of cash at Zhonghe of $175,767 and amount owed to Zhonghe of $4,092,476     -       21,750,802  
Proceeds from disposal of property and equipment     5,247       8,563  
Purchase of property and equipment     (13,281 )     (342,435 )
Cash (used in) provided by investing activities from continuing operations     (8,034 )     21,416,930  
Cash provided by investing activities from discontinued operations     -       -  
Net cash (used in) provided by investing activities     (8,034 )     21,416,930  
                 
Cash flows from financing activities                
Bank overdraft     -       (2,117,974 )
Proceeds from short-term borrowings     19,726,363       84,846,873  
Repayments of short-term borrowings     (17,539,977 )     (57,538,686 )
Proceeds from director     2,551,427       484,919  
Payment to non controlling shareholders for Ganghui's book value at de-registration     (175,406 )     -  
Cash provided by financing activities from continuing operations     4,562,407       25,675,132  
Cash provided by financing activities from discontinued operations     -       -  
Net cash provided by financing activities     4,562,407       25,675,132  
                 
Effect of exchange rate change on cash     89,854       (126,192 )
                 
Net increase (decrease) in cash and cash equivalents     2,738,056       (5,728,914 )
                 
Cash and cash equivalents at the beginning of period     3,004,932       7,119,686  
Cash and cash equivalents at the end of period   $ 5,742,988     $ 1,390,772  
                 
Supplemental disclosure of cash flow information                
Interest paid   $ 1,272,773     $ 3,958,670  
Income taxes paid   $ -     $ 150,355  
                 
Non-cash activities:                
Assumption of outstanding payable to former owner of Zhonghe by Huitongto offset the sale price of Zhonghe   $ -     $ 36,755,594  
Issuance of 806,000 shares of common stock to settle debt owed to shareholder   $ 1,700,660     $ -  

CONTACT:

Ken Donenfeld
DGI Investor Relations Inc.
kdonenfeld@dgiir.com
Tel: 212-425-5700
Fax: 646-381-9727

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