SOURCE: China Auto Logistics, Inc.

China Auto Logistics Reports Net Loss on Higher Revenues in 2014 Second Quarter

Auto Sales Margins Continued to Stabilize but Reduced Income From Higher Margin Services Businesses and Higher Interest and Depreciation Costs Related to the Airport International Auto Mall Acquisition Impacted Results as Anticipated

Company Is Optimistic About Future Outlook Particularly Given the Growth Potential It Sees in Recently Announced Strategic Cooperation Agreement Aimed at Greatly Expanding Luxury Imported Auto Sales and Services Throughout China

 

China Auto Logistics 2014 Q2 Investor Conference Call Scheduled for Thursday, August 14th at 8:00am ET

 

China Auto Logistics Inc. (the "Company" or "CALI") (NASDAQ: CALI), a top seller in China of luxury imported automobiles, a leading provider of auto-related services and a minority participant in a used car sales joint venture, today announced that in its second quarter ended June 30, 2014, it saw revenues increase 3.11% year over year to nearly $114 million as imported auto sales grew 3.21% in the same time frame. However, anticipated increased depreciation and interest costs related to its acquisition of the Tianjin Airport International Auto Mall, and a decreased contribution to the bottom line from its higher margin services businesses, combined with stabilized but slightly lower gross margins in Auto Sales, produced a net loss attributable to shareholders in the quarter of approximately $1.85 million. This included a small operating loss of just over $300,000.

 

Mr. Tong Shiping, Chairman and CEO of the Company commented, "From an operating standpoint, during the quarter we continued our strategy of selling cars with reduced margins to maintain and expand our leadership in imported high end auto sales and were pleased that changes in the mix of our sales and our customers continued to result in stabilized bottom line results. Over time, we believe this situation will improve in our favor, particularly as we execute plans to greatly expand our e-commerce based sales and services anchored by new automalls we expect will be built or acquired throughout China in cooperation with our new strategic partner, Tianjin Binhai International Automall, Ltd."

 

He added, "With our 40% interest in Car King Tianjin, we also have exposure to China's used car market and are reviewing other opportunities we envision through our acquisition of the Airport International Auto Mall, such as retail auto sales. While we have had to fight a difficult economic environment and new competition to reach this point, I can say once again we truly are excited about where the Company is headed and are working diligently to finalize and implement our growth strategy."

 

Financial Highlights

-Revenues in the second quarter increased to $113,686,767 from $110,256,310 in the same period last year. These results exclude revenues from the Company's 40% interest in Car King Tianjin, which is accounted for under the equity method of accounting. Sales of Automobiles accounted for 98.07% of all sales in the quarter.  

 

-Gross profit margins on sales of automobiles in the second quarter decreased to negative 0.06% from 0.26% a year earlier. However, this year's result included a $308,444 reserve for a batch of slow moving vehicles purchased in late 2012 and 2013. Excluding the reserve, the gross profit margin for auto sales would have been 0.21%, slightly lower than the comparable figure a year ago, but higher than the gross profit margin in the first quarter of 2014. 

 

-The Company's gross profit margin of 1.33% in the second quarter was the same as in the first quarter of the year, but lower than in the same period last year. This year over year decline was largely a consequence of a reduction in margins in Financing Services to 39.04% in the second quarter of 2014 compared to 62.57% in the second quarter of 2013. While revenue in this business declined less than 1% year over year in the quarter, the fee income portion of revenue declined approximately 38%, as the Company decided to temporarily cease providing certain Financing Services due to a reutilization of available funds to finance the Zhonghe acquisition and to provide a working capital loan to Car King Tianjin. 

 

-Income from the Company's Web-based Advertising Services and Value Added Auto Services declined in the quarter, while Airport Auto Mall Automotive Services made a small contribution to operating income. The Financial Services contribution in the second quarter of 2014 topped the operating income it generated in the same quarter last year. 

 

-Car King Tianjin, while still in a preliminary development stage, generated $604,766 in revenue in the second quarter from sales of used cars and agency commissions earned from selling automobiles owned by other Car King locations. However, it generated a loss in the quarter, of which the reported equity loss for the Company was $193,121, representing the Company's share of Car King Tianjin's losses. 

 

-The Company saw an increase in interest, depreciation and amortization costs relating to the Zhonghe acquisition. Interest expense in the second quarter was $1,719,897 related to the bank loans for working capital use and payables related to the Zhonghe acquisition. Depreciation and amortization expense in the quarter was $666,674. 

 

-The net loss attributable to shareholders in the second quarter was $1,846,254, or a $0.46 loss per share, compared with net income of $800,484, or $0.22 in earnings per share in the same period last year. 

 

-For the first six months of 2014, revenues increased to $220,661,817 from $217,881,376 a year earlier. The net loss attributable to shareholders was $3,192,422, or a $0.79 loss per share, compared with net income of $1,807,819, or $0.49 in earnings per share in the first six months of 2013. 

 

-Diluted weighted average common shares outstanding were 4,034,494 for the second quarter of 2014, compared with 3,694,394 for the same period of 2013. 

 

Operational Highlights

Steep competition and a slower economy were the key factors affecting results in the second quarter. However, an improved sales mix contributed to the growth reported in revenues in the period. While sales volume decreased approximately 15% from 1,240 automobiles sold in the second quarter last year, to 1,048 automobiles in the second quarter of 2014, the average selling price per automobile increased to $106,000 from $87,000 year over year. Of further note, during the second quarter, the Company's top three customers, all car dealers, accounted for 19% of sales, as compared with 30% of sales a year earlier. The Company continues to seek to enlarge its customer base while maintaining strong relationships with its top customers.

 

While, as described above, Financing Services revenue was down only slightly year over year, the key contribution to this result was interest income generated rather than fees for services. Nevertheless, Financing Services continued to be the top contributor to operating income.

 

A small amount of revenue was generated during the second quarter by leasing space in the recently acquired Airport International Automall to Car King Tianjin. As previously announced, the Company is aiming to determine how to best utilize this facility in the second half of 2014 and hopes that it may begin contributing to the Company's financial results. 

 

After the end of the quarter, on August 6, 2014, the Company made a major announcement of a new strategic cooperation agreement with a leading auto dealer leasing and development company, Tianjin Binhai International Automall. It is anticipated this new cooperation will greatly expand the Company's high end imported auto business with a new e-commerce platform anchored by the purchase and construction of new automalls throughout China. One of the key drivers of this new arrangement was a recent revision of governmental rules on imported cars, which the Company believes will provide it with a much higher degree of flexibility in operating this business.

 

Outlook

As noted earlier, the Company's optimism with respect to its long term growth has increased measurably in recent weeks as it has pursued the diversification it has been seeking with the acquisition of the Airport International Auto Mall, and with the significant potential for expansion it envisions as a consequence of the strategic cooperation agreement it has entered into.

 

Recently, the Company also has encountered a major challenge in the form of a notice from the Depository Trust Company of plans to impose a "global lock" on the Company's common shares. The Company is responding vigorously to this challenge which it views as unfairly harming shareholders even though the Company itself has not been charged with any wrongdoing. It has hired special counsel to handle the matter and is determined to do everything possible to protect shareholders, and will continue to update shareholders whenever new information on the matter becomes available. 

 

Conference Call Invitation

The Company will discuss 2014 Second Quarter results during a live conference call and webcast on Thursday, August 14, 2014 at 8:00 am Eastern Time. This will follow distribution of a news release with the Company's 2014 second quarter results on Wednesday, August 13, 2014.

 

To participate in the call, interested participants should call 1-888-438-5524 when calling within the United States or 1-719-457-2627 when calling internationally. Please ask for theChina Auto Logistics 2014 Second Quarter Earnings Conference Call, Conference ID: 3136573. There will be a playback available until August 21, 2014. To listen to the playback, please call 1-877-870-5176 when calling within the United States or 1-858-384-5517 when calling internationally. Use the Replay Pin Number: 3136573.

 

This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link http://public.viavid.com/index.php?id=110599 or at ViaVid's website athttp://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 growing variety of "one stop" automobile related services such as short term dealer financing. Additionally, in November, 2013, it acquired the owner and operator of the 26,000 square meter Airport International Auto Mall in Tianjin for $91.4 million, with plans to develop the auto mall, among other things, as the flagship site for a joint venture with Car King (China) Used Car Trading Co., Ltd. Most recently, in August, 2014, the Company entered into a strategic cooperation agreement with a leading auto dealer leasing and development company, through which the Company hopes it may substantially expand e-commerce sales of high end luxury imported automobiles.

 

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

 

 

 

June 30,
2014
(Unaudited)

 

December 31,
 2013

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,823,512

 

$

15,041,505

 

Restricted cash

 

 

46,515,415

 

 

29,665,536

 

Accounts receivable - trade, Car King Tianjin

 

 

649,857

 

 

-

 

Receivable related to auto mall management fees

 

 

-

 

 

255,712

 

Receivables related to financing services

 

 

101,530,958

 

 

68,568,562

 

Inventories

 

 

14,708,838

 

 

15,343,671

 

Advances to suppliers

 

 

58,261,106

 

 

38,074,096

 

Prepaid expenses

 

 

26,742

 

 

12,311

 

Value added tax refundable

 

 

185,054

 

 

283,478

 

Deferred tax assets

 

 

12,671

 

 

48,345

 

 

Total current assets

 

 

223,714,153

 

 

167,293,216

 

 

 

 

 

 

 

Property and equipment, net

 

 

71,167,042

 

 

72,977,985

Ownership interest in Car King Tianjin

 

 

86,952

 

 

577,904

Due from Car King Tianjin

 

 

1,380,946

 

 

-

Goodwill

 

 

20,012,637

 

 

20,159,365

Intangible assets, net

 

 

487,934

 

 

547,155

 

 

Total Assets

 

$

316,849,664

 

$

261,555,625

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Bank overdraft

 

$

2,418,079

 

$

2,439,429

 

Lines of credit related to financing services

 

 

88,192,066

 

 

66,173,312

 

Short term borrowings

 

 

53,446,006

 

 

6,259,598

 

Accounts payable

 

 

1,118,103

 

 

-

 

Notes payable to suppliers

 

 

8,935,534

 

 

21,275,203

 

Accrued expenses

 

 

632,969

 

 

236,599

 

Customer deposits

 

 

34,838,101

 

 

35,205,567

 

Deferred revenue

 

 

160,897

 

 

202,428

 

Rental deposits

 

 

81,232

 

 

-

 

Payable related to acquisition of Zhonghe - current portion, net

 

 

16,213,975

 

 

15,706,581

 

Due to former shareholder

 

 

2,207,275

 

 

2,223,458

 

Due to director

 

 

499,459

 

 

597,393

 

Income tax payable

 

 

296,155

 

 

174,540

 

Deferred tax liability

 

 

656,347

 

 

786,413

 

 

Total current liabilities

 

 

209,696,198

 

 

151,280,521

 

 

 

 

 

 

 

Payable related to acquisition of Zhonghe, excluding current portion, net

 

 

36,410,075

 

 

35,306,223

Deferred tax liability

 

 

11,677,488

 

 

12,239,842

 

 

Total liabilities

 

 

257,783,761

 

 

198,826,586

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 June 30, 2014 and December 31, 2013

 

 

4,034

 

 

4,034

 

Additional paid-in capital

 

 

22,979,734

 

 

22,979,734

 

Accumulated other comprehensive income

 

 

7,180,105

 

 

7,642,886

 

Retained earnings

 

 

28,338,247

 

 

31,530,669

 

 

Total China Auto Logistics Inc. shareholders' equity

 

 

58,502,120

 

 

62,157,323

Noncontrolling interests

 

 

563,783

 

 

571,716

 

 

Total equity

 

 

59,065,903

 

 

62,729,039

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders' equity

 

$

316,849,664

 

$

261,555,625

 

 

 

 

 

 

 

 

 

 

CHINA AUTO LOGISTICS INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

113,686,767

 

 

$

110,256,310

 

 

$

220,661,817

 

 

$

217,881,376

 

Cost of revenue

 

 

112,665,784

 

 

 

108,441,227

 

 

 

218,217,037

 

 

 

213,838,574

 

 

 

Gross profit

 

 

1,020,983

 

 

 

1,815,083

 

 

 

2,444,780

 

 

 

4,042,802

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

199,272

 

 

 

192,808

 

 

 

385,799

 

 

 

362,842

 

 

General and administrative

 

 

1,122,147

 

 

 

359,336

 

 

 

2,366,979

 

 

 

952,699

 

 

 

Total operating expenses

 

 

1,321,419

 

 

 

552,144

 

 

 

2,752,778

 

 

 

1,315,541

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income from operations

 

 

(300,436

)

 

 

1,262,939

 

 

 

(307,998

 

 

 

2,727,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

198,010

 

 

 

20,358

 

 

 

258,909

 

 

 

242,646

 

 

Interest expense

 

 

(1,719,897

)

 

 

(142,439

)

 

 

(3,042,480

)

 

 

(219,075

)

 

Gain on disposal of property and equipment

 

 

246

 

 

 

-

 

 

 

11,940

 

 

 

-

 

 

Equity loss - share of investee company loss

 

 

(193,121

)

 

 

-

 

 

 

(488,385

)

 

 

-

 

 

Foreign exchange loss

 

 

(72,318

)

 

 

(20,219

)

 

 

(72,414

)

 

 

(186,370

)

 

 

Total other expenses

 

 

(1,787,080

)

 

 

(142,300

)

 

 

(3,332,430

)

 

 

(162,799

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

 

(2,087,516

)

 

 

1,120,639

 

 

 

(3,640,428

)

 

 

2,564,462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes (benefits) expense

 

 

(234,537

)

 

 

321,148

 

 

 

(440,410

)

 

 

756,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

 

(1,852,979

)

 

 

799,491

 

 

 

(3,200,018

)

 

 

1,807,814

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Net loss attributable to noncontrolling interests

 

 


(6,725

)

 

 


(993

)

 

 


(7,596

)

 

 


(5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to shareholders of China Auto Logistics Inc.

 

$


(1,846,254

)

 

$


800,484

 

 

$


(3,192,422

)

 

$


1,807,819

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per share attributable to shareholders of China Auto Logistics Inc. - basic and diluted

 

$



(0.46

)

 

$



0.22

 

 

$



(0.79

)

 

$



0.49

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares Outstanding - basic and diluted

 

 

4,034,494

 

 

 

3,694,394

 

 

 

4,034,494

 

 

 

3,694,394

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHINA AUTO LOGISTICS INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2014

 

 

2013

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(3,200,018

)

 

$

1,807,814

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net (loss) income to net cash provided by(used in) operating activities

 

 

 

 

 

 

 

 

Depreciation on property and equipment

 

 

1,283,899

 

 

 

56,661

 

Amortization on intangible assets

 

 

55,380

 

 

 

-

 

Gain on disposal of property and equipment

 

 

(11,940

)

 

 

-

 

Equity loss - share of investee company loss

 

 

488,385

 

 

 

-

 

Change of Inventory reserve

 

 

166,241

 

 

 

-

 

Change of deferred tax assets

 

 

35,551

 

 

 

-

 

Change of deferred tax liabilities

 

 

(189,768

)

 

 

-

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Restricted cash

 

 

15,794,841

 

 

 

(19,633,033

)

Accounts receivable - trade, Car King Tianjin

 

 

(651,524

)

 

 

-

 

Receivable related to auto mall management fees

 

 

255,494

 

 

 

-

 

Receivables related to financing services

 

 

(33,700,611

)

 

 

(4,444,767

)

Notes receivable

 

 

-

 

 

 

1,631,363

 

Inventories

 

 

335,161

 

 

 

12,896,225

 

Advances to suppliers

 

 

(20,471,286

)

 

 

(22,846,983

)

Prepaid expenses, other current assets and other assets

 

 

(14,761

)

 

 

72,991

 

Value added tax receivable

 

 

92,836

 

 

 

145,902

 

Accounts payable

 

 

1,117,510

 

 

 

624,299

 

Line of credit related to financing services

 

 

22,692,784

 

 

 

22,862,005

 

Notes payable to suppliers

 

 

(12,244,657

)

 

 

-

 

Accrued expenses

 

 

398,833

 

 

 

(43,416

)

Accrued interest

 

 

1,578,200

 

 

 

-

 

Value added tax payable

 

 

-

 

 

 

(1,572

)

Customer deposits

 

 

(98,091

)

 

 

15,626,790

 

Deferred revenue

 

 

(40,168

)

 

 

(40,399

)

Rental deposits

 

 

81,123

 

 

 

-

 

Income tax payable

 

 

123,169

 

 

 

(12,445

)

Net cash (used in) provided by operating activities

 

 

(26,123,417

)

 

 

8,701,435

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Proceeds from disposal of property and equipment

 

 

17,954

 

 

 

-

 

Purchase of property and equipment

 

 

(6,802

)

 

 

(10,873

)

Advances to Car King Tianjin

 

 

(1,389,253

)

 

 

-

 

Acquisition deposit for Zhonghe

 

 

-

 

 

 

(16,122,531

)

Net cash used in investing activities

 

 

(1,378,101

)

 

 

(16,133,404

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Bank overdraft

 

 

(3,615

)

 

 

2,409,457

 

Proceeds from short-term borrowings

 

 

59,796,676

 

 

 

22,152,978

 

Repayments of short-term borrowings

 

 

(12,405,885

)

 

 

(19,944,736

)

(Increase) decrease in restricted cash related to short-term borrowings

 

 

(32,905,773

)

 

 

(2,866,586

)

Proceeds from director

 

 

405,942

 

 

 

402,203

 

Repayments to director

 

 

(513,820

)

 

 

(396,537

)

Net cash provided by financing activities

 

 

14,373,525

 

 

 

1,756,779

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate change on cash

 

 

(90,000

)

 

 

76,647

 

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(13,217,993

)

 

 

(5,598,543

)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at the beginning of period

 

 

15,041,505

 

 

 

8,888,749

 

Cash and cash equivalents at the end of period

 

$

1,823,512

 

 

$

3,290,206

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Interest paid

 

$

3,298,777

 

 

$

1,538,774

 

Income taxes paid

 

$

-

 

 

$

744,203

 

 

 

 

 

 

 

 

 

 

 

Contacts:

 

Sun Jiazhen

sjz_cali@126.com 

 

Ken Donenfeld

DGI Investor Relations Inc.

kdonenfeld@dgiir.com 

Tel: 212-425-5700

Fax: 646-381-9727

 

 

SOURCE: China Auto Logistics Inc.