China Auto Logistics Reports Profitable Third Quarter on Advances in Net Income and Increased Sales of Luxury Autos; Company Also Reaches Agreement to Extend November Due Date of $17 Million Zhonghe Acquisition Payment

Reversal of Reserve Due from Car King Tianjin and Recognition of Previously Due Rental Income also were Factors in Improved Results; Investor Conference Call Scheduled for Tuesday, November 17th at 8:00am EST

TIANJIN, CHINA / ACCESSWIRE / November 16, 2015 / 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 that an approximately 64% year over year increase in 2015 third quarter luxury auto sales contributed to profit growth in the quarter of approximately 170% over the reported third quarter loss last year. Other key contributors to the improved results included two significant items: a reversal of reserves for amounts due from its used car joint venture, and previously deferred rental income that it was able to record as revenues in the quarter.

Through the first nine months of 2015, while year over year net revenue grew over 6 %, and the Company achieved a narrowing in the net loss in the period, the operating loss remained substantial and, together with negative operating cash flows, led the Company to continue to include a “going concern” note in the Notes to its financial statements.

The Company also reported that on November 10, 2015 it entered into a Payment Extension Agreement with Hezhong (Tianjin) International Development Ltd. Co., the former owner of Zhonghe. This extends the due date for the approximately $17 million installment payment due under its “Auto Mall Acquisition Agreement” from November 30, 2015 to May 31, 2016, with a 6% annual interest on the unpaid amount.

Mr. Tong Shiping, Chairman and CEO of the Company commented, “We were pleased to be able to generate positive results in the quarter. While they were generated in large part by one-time events, and a still very small though slightly improved operating margin, I believe they point to our long term potential earning power if and when we can improve our sales in an improved economy, and build our margins as envisioned in our growth strategy.”

Financial Highlights

– Net revenues in the third quarter ended September 30, 2015 grew 64.13% over the prior year quarter to $151,621,754 of which 98.01% was contributed by Sales of Automobiles.

– The gross profit margin in this year’s third quarter increased to 1.64% generating a gross profit of approximately $2.49 million. This was up from a gross profit margin of 1.19% in the same period last year and gross profit of approximately $1.10 million.

– Income from operations in the third quarter of 2015 was $2,844,810 compared with a year earlier loss in the period of $(226,243). Included in operating expenses and losses in the 2015 third quarter was a “Recovery of reserve due from Car King Tianjin” totaling $(1,524,894), as increased liquidity at the used car joint venture permitted it to pay back a substantial portion of the amount owed to the Company.

– Other income and expenses in the period included interest expense of $(1,727,801), mainly related to the Zhonghe acquisition, a loss of $(209,638) from the sale of the Company’s equity interest in Zhengji during the quarter, and $73,878 for reversal of “previously reduction” due from Car King.

– Net income attributable to shareholders in the 2015 third quarter grew to $1,248,880, or $0.31 per share, from a loss of ($1,770,213), or ($0.44) per share in the prior year third quarter.

– EBITDA (Earnings before interest, tax, depreciation and amortization) in the 2015 third quarter was $3,297,844, up substantially from $181,976 in the same period last year.

– For the first nine months of 2015, net revenues increased to $332,660,329 from $313,038,947 a year earlier, and gross profit in the period was $3,806,551, up from $3,541,250 a year earlier.

– Primarily reflecting a gain in operating income to $1,777,448 and interest expense through the first nine months of 2015 of $(5,540,821), compared with an operating loss of $(534,241) and interest expense of $(4,812,998) in the year earlier period, the net loss attributable to shareholders in the first nine months of 2015 was $(3,662,924) or $(0.91) per share, down from a net loss of $(4,962,635) or $(1.23) per share a year earlier.

– Net cash used in operating activities for the nine months ended September 30, 2015, was $(6,424,832). Net cash provided by investing activities was $3,037,260, primarily reflecting proceeds from the sale of the Company’s equity interest in Zhengji (which had no material operations in 2015). Cash flow provided by financing activities was $2,231,452, and cash and cash equivalents at the end of the period was $6,438,003.

– As of September 30, 2015 the Company had a working capital deficit of $17,334,399, including $68,740,591 in current liabilities for short term borrowings due between January and August in 2016. Additionally, $17,294,134 related to the “Zhonghe Acquisition” is payable to Hezhong. This amount, as previously noted, is now payable by May 30, 2016, rather than November 30, 2015.

Operating Highlights

– Sales of Automobiles – The continuing highly competitive market for imported luxury automobiles in the 2015 third quarter resulted in a continuation of the Company’s strategy to sell its autos at a low gross margin in order to maintain or expand its market share and retain its market leader status. The Company’s strategy also focuses on selling higher end luxury models where it sees an opportunity for somewhat higher margins. During the third quarter of 2015, the Company achieved a year over year 61% increase in sales volume, selling 1,418 automobiles compared with 881 a year earlier. The average unit selling price of these autos also grew slightly year over year, from $103,000 to $105,000 which increased gross margin to 0.29% as compared with 0.02% for the full year of 2014. The Company believes that the devaluation of the Renminbi during the quarter spiked sales as some customers increased their orders in anticipation of increased prices, and this may be a short term trend.

– Financing Services – In the third quarter of 2015 net revenues from this business decreased 23.31% compared with the same period in 2014, and the fee income portion of revenues declined approximately 32%. Following the need to reutilize its capital following the Zhonghe acquisition and the startup of Car King Tianjin, the Company limited the provision of its very popular temporary credit service for auto dealers, and this has been a key reason for the decline in fee income from Financing Services. Going forward, the Company aims to generate additional fee income via better management of its future cash flow. Facility lines of credit available to the Company for its Financing Services were approximately $104 million as of September 30, 2015. Its aggregate credit lines were approximately $170 million as of that date, at which time it had approximately $66.2 million drawn against them. Gross margin for Financing Services in the 2015 third quarter was 38.6% compared with 42.85% in the year earlier quarter.

– Airport Auto Mall Automotive Services – The two businesses operated by Zhonghe are 1) selling used cars through Car King Tianjin (a joint venture with Car King in which the Company owns 40%) and 2) leasing a portion of the Airport International Auto Mall. During the third quarter of 2015, the used car business continued to grow. Revenues (which are not included in the Company’s consolidated revenues) reached $1,904,293, up from a year earlier $1,169,322. 441 autos were sold through Car King Tianjin in this year’s third quarter compared with 278 a year earlier. In order to increase sales, the company employed mark downs, which resulted in an increased loss. In the third quarter of 2015, Car King Tianjin remitted approximately $1.84 million to the Company, which was recorded as a recovery of reserve due from Car King Tianjin in the amount of $1,524,894. The Company recognized rental income on Car King’s rental of space at the Airport International Mall which previously had been deferred in the amount of $1,462,877. Rent income will not be recognized until the cash is collected.

Looking Ahead

Mr. Tong concluded, “Our key intermediate goal is completing our payments for the Zhonghe acquisition so we can pursue the growth goals that are tied to it. These include development and expansion of retail luxury auto sales, as well as sales of used cars. We believe there will be continuing demand for both as China’s growth outlook improves. Some of the steps being taken by the government to stimulate growth, such as lower interest rates, should benefit us directly. The additional time we have to pay the next installment on the acquisition will be used well to secure the needed financing on the best available terms. We remain confident in our ability to do this.”

Conference Call Invitation

The Company will discuss 2015 third quarter and nine month results during a live conference call and webcast on Tuesday, November 17th at 8:00am EST.

To participate in the call, interested participants should call 1-888-329-8893 when calling within the United States or 1-719-457-2697 when calling internationally. Please ask for the China Auto Logistics 2015 Third Quarter Investor Conference Call. Conference ID: 194304. There will be a playback available until 11/24/15. 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: 194304.

This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link http://public.viavid.com/index.php?id=117196 or at ViaVid’s website at http://viavid.com.

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