China Auto Logistics Reports Third Quarter and Nine Month 2016 Financial Results

TIANJIN, CHINA--(Marketwired - Nov 14, 2016) - 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 a net loss from continuing operations in its 2016 third quarter of $(200,000), or $(0.05) per share on lower sales in the period of $96,293,622, down approximately 36% from the same period a year earlier. In the 2015 third quarter the net loss from continuing operations attributable to shareholders was $(354,036) or $(0.09) per share. The year over year bottom line improvement despite lower year over year sales in the 2016 third quarter primarily reflected a substantial reduction in interest expense following the sale in the 2016 second quarter of the Company's Zhonghe subsidiary. 

In the second half of 2015 and early 2016, the Company believes CALI car dealer customers increased their purchases of luxury imported automobiles ahead of an anticipated and actual devaluation of China's RMB as the dealers expected the devaluation would lead to higher auto purchase costs and reduced profits. However, the currency changes began to moderate in the 2016 second quarter and continued to stabilize in the third quarter. While these currency changes resulted in increased sales initially, there was a concomitant fall off and then stabilization in sales in the 2016 third quarter which has since continued. 
Results in the third quarter of 2015 also included a gain from discontinued operations of $1,602,916 or $0.40 per share following the sale of Zhonghe. This resulted in total income attributable to shareholders for the period of $1,248,880 or $0.31 per share. There was no loss or gain from discontinued operations in the 2016 third quarter.

Nine Month Results

Through the first nine months ending September 30, 2016, net revenue of $327,177,025 was down slightly from net revenues of $331,209,443 in the same period in 2015. While automobile sales volume increased approximately 2% year over year, average unit selling prices and gross margins decreased over the same period. Additionally, the reduction in both interest and fee income from Financing Services resulted in a 22.65% decline in revenues from this business segment, although the gross margin increased approximately 46% when compared to the same period of the prior year. These results contributed to a net loss from continuing operations attributable to shareholders in the first nine months of 2016 of $(865,397) or $(0.21) per share which was an approximately 47% improvement over the net loss from continuing operations attributable to shareholders in the same period a year earlier of $(1,621,949) or $(0.40) per share.

Total reported income in the first nine months of 2016 included net income from discontinued operations of $4,790,709 or $1.19 per share, as compared with a loss from discontinued operations in the same period last year of $(2,040,975) or $(0.51) per share. Consequently, total net income in the nine months ended September 30, 2016 was $3,925,312 or $0.98 per share compared with a loss of ($3,662,924), or a loss of $(0.91) per share in the same period a year earlier. Upon the sale of Zhonghe on June 1, 2016, the Airport Automall Automotive Services of Zhonghe was discontinued. 

Positive Working Capital

As of September 30, 2016 the Company had working capital of $24,568,418, compared with a working capital deficit of ($30,801,730) as of December 31, 2015. This increase was primarily attributable to the approximately $21.9 million in net cash received from the disposition of Zhonghe as well as the relief of the payable related to the Zhonghe acquisition of approximately $36.8 million.

As of September 30, 2016 and December 31, 2015 the Company had an aggregate outstanding balance of lines of credit relating to financing services of $47,161,036 and $73,004,179, respectively, and outstanding balances of short term borrowings of $13,494,508 and $67,290,734. Bank overdrafts as of September 31, 2016 were reduced to zero.

Despite this improved financial picture, the Company's operating losses and negative operating cash flow as well as an accumulated cash deficit of approximately $3.4 million and, as of September 30, 2016, the year over year increased net cash used during the year for operating activities from continuing operations of approximately $51.4 million (largely for making deposits to suppliers related to inventory purchases in anticipation of future sales), were key factors in the decision to include a "going concern" paragraph in the Notes to the Company's condensed consolidated financial statements.

Management Comments

Mr. Tong Shiping, Chairman and CEO of the Company, commented, "In the first half of the year, we took the necessary step with the sale of Zhonghe to strengthen our financial situation and thereby create a new base for moving forward in a still highly competitive imported luxury auto market. At the current time our focus is on further strengthening and building our Auto Sales business, where we may see new opportunities for growth possible as a consequence of our leadership position and the "Parallel Imported Vehicles" scheme that has begun to be implemented in Tianjin and a few other large cities. We believe, too, that the currency situation has stabilized."

He added, "While over the near term we will focus mainly on our core auto sales business, we also are considering other possible higher margin opportunities, as both our auto sales and financial services business can be expected to remain highly competitive, with the former, in particular, not leaving a lot of room for margin expansion."

Conference Call Invitation

The Company will discuss 2016 third quarter results during a live conference call and webcast on Tuesday, November 15, 2016 at 8:00am EST.

To participate in the call, interested participants should call 1-877-419-6594 when calling within the United States or 1-719-325-4747 when calling internationally. Please ask for the Conference ID: 2783813. There will be a playback available until 11/22/16. 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: 2783813.

This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link http://public.viavid.com/index.php?id=121974 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, 2016 (Unaudited)			December 31, 2015
ASSETS:
Current assets:
	Cash and cash equivalents			$	1,390,772		$	7,119,686
	Restricted cash				24,978,329			23,799,346
	Receivable related to financing services				48,607,894			82,105,826
	Inventories				19,382,417			12,163,511
	Advances to suppliers				63,333,915			100,807,121
	Prepaid expenses				41,153			29,372
	Recoverable and accrued value added tax receivable				1,725,419			369,940
		Total current assets			159,459,899			226,394,802
Property, plant, and equipment, net					352,929			72,742
Other assets					31,577			-
Non current assets of discontinued operations					-			61,755,609
		Total assets		$	159,844,405		$	288,223,153
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
	Bank overdraft			$	-		$	2,131,009
	Lines of credit related to financing services				47,161,036			73,004,179
	Short term borrowings				13,494,508			67,290,734
	Accounts payable				3,210,172			1,334,829
	Notes payable to suppliers				26,989,015			33,509,483
	Accrued expenses				109,365			273,497
	Customer deposits				39,976,474			39,901,621
	Deferred revenue				71,061			121,456
	Due to former shareholder				2,037,104			2,093,182
	Due to director				1,265,476			722,028
	Income tax payable				577,270			656,098
	Deferred tax liability				-			246,745
	Current liabilities of discontinued operations				-			35,911,671
		Total current liabilities			134,891,481			257,196,532
Non current liability of discontinued operations					-			9,248,814
	Total liabilities				134,891,481			266,445,346
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, 4,034,394 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively				4,034			4,034
	Additional paid-in capital				22,979,734			22,979,734
	Accumulated other comprehensive income				5,026,061			5,776,306
	Accumulated deficit				(3,421,910	)		(7,347,222	)
		Total China Auto Logistics Inc. shareholders' equity			24,587,919			21,412,852
Noncontrolling interests					365,005			364,955
		Total equity			24,952,924			21,777,807
		Total liabilities and shareholders' equity		$	159,844,405		$	288,223,153

CHINA AUTO LOGISTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
				Three Months Ended September 30,								Nine Months Ended September 30,
				2016				2015				2016				2015
Net revenue				$	96,293,622			$	150,170,868			$	327,177,025			$	331,209,443
Cost of revenue					95,671,721				149,129,426				324,958,268				328,853,778
		Gross profit			621,901				1,041,442				2,218,757				2,355,665
Operating expenses:
	Selling and marketing				180,371				209,190				532,676				570,719
	General and administrative				460,664				375,992				1,374,340				1,167,947
		Total operating expenses			641,035				585,182				1,907,016				1,738,666
(Loss) income from continuing operations					(19,134	)			456,260				311,741				616,999
	Other income (expenses)
	Interest income				18,811				99,754				233,274				214,122
	Interest expense				(202,803	)			(622,156	)			(1,331,835	)			(2,050,389	)
	Gain on sale of property and equipment				-				-				2,707				(8,254	)
	Loss on sale of equity interest in subsidiary				-				(209,638	)			-				(209,638	)
	Miscellaneous				3,091				(29	)			6,546				133
		Total other expenses			(180,901	)			(732,069	)			(1,089,308	)			(2,054,026	)
Loss from continuing operations before income taxes					(200,035	)			(275,809	)			(777,567	)			(1,437,027	)
Income tax expense					-				78,350				87,737				186,022
Net loss from continuing operations					(200,035	)			(354,159	)			(865,304	)			(1,623,049	)
Discontinued operations:
	Income (loss) from operations of discontinued Airport Automall Automotive Services (including gain on disposal of $6,701,350 for the nine months ended September 30, 2016)				-				1,373,179				4,543,918				(2,734,650	)
	Income tax benefit				-				(229,737	)			(246,791	)			(693,675	)
Net income (loss) from discontinued operations					-				1,602,916				4,790,709				(2,040,975	)
Net loss (income)					(200,035	)			1,248,757				3,925,405				(3,664,024	)
Less: Net (loss) income attributable to noncontrolling interests					(35	)			(123	)			93				(1,100	)
Net (loss) income attributable to shareholders of China Auto Logistics Inc.				$	(200,000	)		$	1,248,880			$	3,925,312			$	(3,662,924	)
Net (loss) income attributable to shareholders of China Auto Logistics Inc.
	- continuing operations			$	(200,000	)		$	(354,036	)		$	(865,397	)		$	(1,621,949	)
	- discontinued operations				-				1,602,916				4,790,709				(2,040,975	)
				$	(200,000	)		$	1,248,880			$	3,925,312			$	(3,662,924	)
(Loss) income per share attributable to shareholders of China Auto Logistics Inc. from
	- continuing operations - basic and diluted			$	(0.05	)			(0.09	)		$	(0.21	)		$	(0.40	)
	- discontinued operations - basic and diluted			$	-			$	0.40			$	1.19			$	(0.51	)
	Total (loss) income per share attributable to shareholders of China Auto Logistics Inc.			$	(0.05	)		$	0.31			$	0.98			$	(0.91	)
Weighted average number of common shares Outstanding
	- basic and diluted				4,034,494				4,034,494				4,034,494				4,034,494

CHINA AUTO LOGISTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
			Three Months Ended September 30,								Nine Months Ended September 30,
			2016				2015				2016				2015
Net (loss) income			$	(200,035	)		$	1,248,757			$	3,925,405			$	(3,664,024	)
Other comprehensive (loss) income
	Foreign currency translation adjustments			(111,136	)			(1,407,306	)			(750,288	)			(1,117,777	)
Comprehensive (loss) income				(311,171	)			(158,549	)			3,175,117				(4,781,801	)
Less: Comprehensive (loss) income attributable to noncontrolling interests				(99	)			(93	)			50				(838	)
	Comprehensive (loss) income attributable to shareholders of China Auto Logistics Inc.		$	(311,072	)		$	(158,456	)		$	3,175,067			$	(4,780,963	)

CHINA AUTO LOGISTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
		Nine Months Ended September 30,
		2016				2015
Cash flows from operating activities
Net income (loss)		$	3,925,405			$	(3,664,024	)
Add: loss from discontinued operations			1,910,641				2,040,975
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation on property, plant and equipment			58,532				49,164
Amortization on customer relations			-				82,799
(Gain) loss on disposal of property and equipment			(5,702	)			8,254
Loss on sale of equity interest in subsidiary			-				209,638
Change in allowance for receivable related to financing services			(68,813	)			-
Change in Inventory reserve			-				692
Change in reserve for advances to suppliers			(76,554	)			104,719
Gain on sale of Zhonghe			(6,701,350	)			-
Changes in operating assets and liabilities:
Restricted cash			(35,507,788	)			(29,328,731	)
Accounts receivable			-				1,291
Receivables related to financing services			31,710,041				12,822,334
Inventories			(7,938,670	)			(1,215,690	)
Advances to suppliers			(54,723,792	)			(42,899,839	)
Prepaid expenses, other current assets and other assets			(14,304	)			(8,933	)
Value added tax receivable			(1,390,994	)			226,351
Other assets			(32,244	)			-
Accounts payable			1,952,284				1,553,900
Line of credit related to financing services			(24,103,238	)			6,160,561
Notes payable to suppliers			36,344,159				36,809,837
Accrued expenses			318,354				(59,694	)
Accrued interest			897,826				(1,570,313	)
Customer deposits			2,161,062				13,588,419
Deferred revenue			(47,981	)			(724,987	)
Income tax payable			(62,549	)			29,376
Cash used in operating activities from continuing operations			(51,395,675	)			(5,783,901	)
Cash used in operating activities from discontinued operations			(1,299,109	)			(640,931	)
Net cash used in operating activities			(52,694,784	)			(6,424,832	)
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			8,563				9,275
Proceeds from sale of equity interest in Zhengji, net			-				3,030,303
Purchase of property and equipment			(342,435	)			(2,318	)
Cash provided by investing activities from continuing operations			21,416,930				3,037,260
Cash provided by investing activities from discontinued operations			-				-
Net cash provided by investing activities			21,416,930				3,037,260
Cash flows from financing activities
Bank overdraft			(2,117,974	)			(91,222	)
Proceeds from short-term borrowings			84,846,873				88,339,880
Repayments of short-term borrowings			(57,538,686	)			(86,160,953	)
Proceeds from director			484,919				599,120
Repayments to director			-				(455,373	)
Cash provided by financing activities from continuing operations			25,675,132				2,231,452
Cash provided by financing activities from discontinued operations			-				-
Net cash provided by financing activities			25,675,132				2,231,452
Effect of exchange rate change on cash			(126,192	)			(199,829	)
Net decrease in cash and cash equivalents			(5,728,914	)			(1,355,949	)
Cash and cash equivalents at the beginning of period			7,119,686				7,793,952
Cash and cash equivalents at the end of period		$	1,390,772			$	6,438,003
Supplemental disclosure of cash flow information
Interest paid		$	3,958,670			$	8,369,596
Income taxes paid		$	150,355			$	149,194
Non-cash activities:
Assumption of outstanding payable to former owner of Zhonghe by Huitongto offset the sale price of Zhonghe		$	36,755,594			$	-