China Logistics Group Reports Financial Results for the Second Quarter of 2010

SOURCE: China Logistics Group, Inc.

SHANGHAI, CHINA–(Marketwire – August 18, 2010) –  China Logistics Group, Inc. (OTCBB: CHLO), an international freight forwarder and logistics management company, announced today its financial results for the second quarter of 2010.

Financial Highlights
– 2nd quarter 2010 revenue increases to $5.8 million, up 25.6% from $4.6 Million in the 2nd quarter of 2009
– Revenues for the six months ended June 30, 2010 reached $11.2 million, up 43.6% from $7.8 million recorded in the same period in 2009

Net revenues for the second quarter of 2010 were $5.8 million, an increase of 25.6% compared to the $4.6 million recorded in the second quarter of 2009. Revenues for the six months ended June 30, 2010 reached $11.2 million, up 43.6% from the $7.8 million recorded in the comparable period in 2009. The increase in revenue is largely attributable to a strong rebound in the shipping industry in China when compared to the same period in 2009 coupled with an aggressive pricing strategy. In the second quarter of 2010 our gross margins were 0.6%, a direct result of a very competitive shipping and logistics market where we made price concessions in an effort to garner new customers and increase shipping volumes. Our gross margins were 6.8% in the same period in 2009. Operating expenses for the second quarter of 2010 were $678,000, as compared to $207,000 in the second quarter of 2009. The increase in operating expenses is primarily due to stock based incentive compensation expenses to an officer and director as well as one time issuance of stock based compensation for consulting services. 

On a non-GAAP basis, net loss for the second quarter of 2010 was ($378,000) after excluding non-cash items including $464,000 related to the stock-based compensation expenses and $215,000 related to the change in fair value of derivative liability. This compares to non-GAAP income of $70,000 in the second quarter of 2009, excluding non-cash items. This resulted in non-GAAP basic and diluted EPS of ($0.01) in the second quarter of 2010 as compared to non-GAAP basic and diluted EPS of ($0.00) in the second quarter of 2009. On a GAAP basis the Company recorded a net loss of ($1.1 million) as compared to net income of $60,000 in the second quarter of 2009. This resulted in GAAP basic and diluted EPS of ($0.03) as compared to basic and diluted GAAP EPS of $0.00 in the second quarter of 2009.

At June 30, 2010 the Company had cash of $1.1 million compared to $1.7 million at December 31, 2009. Total Assets at June 30, 2010 improved to $6.5 million from $6.4 million at December 31, 2009 while total liabilities decreased to $6.2 million at June 30, 2010 from $8.7 million at December 31, 2009.

Commenting on China Logistics Group’s financial performance, Wei Chen, its CEO and Chairman, stated, “We are pleased with our top line performance in the second quarter. We have worked very hard to increase sales in a very competitive environment and attempt to add additional customers. While this has resulted in lower gross margins we are confident that it will lead to better overall performance as the demand for logistic services in and out of China continues to grow and we intend to work diligently on behalf of our company and its shareholders.”

About China Logistics Group, Inc.
China Logistics Group, Inc. is a U.S. company doing business in China through its 51% ownership in its subsidiary Shandong Jiajia International Freight & Forwarding Co., Ltd. (Shandong Jiajia). Established in 1999; Shandong Jiajia is an international freight forwarder and logistics manager located in China. Shandong Jiajia acts as an agent for international freight and shipping companies. It sells cargo space and arranges land, maritime, and air international transportation for clients seeking primarily to export goods from China.

Since its formation in 1999, Shandong Jiajia has offered its clients a comprehensive service package which includes receipt of goods, warehousing, transporting shipments, consolidation of freight, customs declaration, inspection declaration, multimodal transport, and combined large-scale logistics.

The Company has established relationships with both domestic and international transportation service providers. Shandong Jiajia has been an agent of world known shipping companies including NYK (Nippon Yusen Kaisha), P&O (Nedlloyd), and RCL (Regional Container Lines). Shandong JiaJia has branch offices in major seaport cities in China including Shanghai, Qingdao, Xiamen, and Lianyungang.

  
  
CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS 
  
  June 30, 2010  December 31, 2009 
  Unaudited    
ASSETS    
Current assets:      
Cash $1,078,577  $1,720,838 
Accounts receivable, net  3,257,683   2,923,990 
Other Receivables  1,435,692   1,100,662 
Advance to vendors and other prepaid expenses  210,782   146,062 
Due from related parties  464,689   447,032 
  Total current assets  6,447,423   6,338,584 
Property and equipment, net  25,052   39,748 
  Total assets $6,472,475  $6,378,332 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY     
Current liabilities:        
Accounts payable – trade  2,756,601   2,733,820 
Accrued registration rights penalty  1,597,000   1,597,000 
Other accruals and current liabilities  683,020   535,576 
Advances from customers  771,244   475,358 
Due to related parties  411,237   814,226 
Foreign tax payable  18,555   18,784 
  Total current liabilities  6,237,657   6,174,764 
Derivative liability     2,535,505 
Total liabilities  6,237,657   8,710,269 
         
Equity:        
 China Logistics Group, Inc. shareholders’ equity        
Preferred stock – $0.001 par value, 10,000,000 shares authorized        
  Series B convertible preferred stock – 450,000 issued and outstanding at June 30, 2010 and December 31, 2009  450   450 
Common stock, $.001 par value, 500,000,000 shares authorized; 39,508,203 and 34,508,203 shares issued and outstanding at June 30, 2010 and December 31, 2009  39,508   34,508 
Additional paid-in capital  20,498,979   17,057,203 
Accumulated deficit  (20,453,837)  (19,541,703)
Accumulated other comprehensive loss  (169,902)  (178,505)
   Total China Logistics Group, Inc. shareholders’ equity (deficit)  (84,802)  (2,628,047)
Noncontrolling interest  319,620   296,110 
  Total equity  234,818   (2,331,937)
  Total liabilities and equity $6,472,475  $6,378,332 
         
See notes to unaudited consolidated financial statements. 
  
  
CHINA LOGISTICS GROUP, INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF OPERATIONS 
             
  For the Three Months Ended June 30,  For the Six Months Ended June 30, 
  2010  2009  2010  2009 
  Unaudited  Restated  Unaudited  Restated 
Sales $5,788,599  $4,607,989  $11,212,756  $7,806,561 
Cost of sales  5,755,453   4,293,127   10,768,978   7,582,716 
  Gross profit  33,146   314,862   443,778  $223,845 
                 
Operating expenses:                
  Selling, general and administrative  676,080   201,880   874,959   518,288 
  Depreciation and amortization  2,248   4,735   5,146   7,085 
  Bad debt expense (recovery of bad debt)           1,244 
   Total operating expenses  678,328   206,615   880,105   526,617 
(Loss) income from operations  (645,182)  108,247   (436,327)  (302,772)
                 
Other income (expenses):                
                 
   Realized exchange gain (loss)     35,957      35,957 
  Other income  (69,427)     (68,152)   
  (Loss) gain on change in fair value of derivative liability  (214,873)  (5,293)  (447,059)  3,383,700 
  Interest (expense) income  (2,253)  (210)  (3,282)  813 
   Total other (expenses) income  (286,553)  30,454   (518,493)  3,420,470 
                 
(Loss) income before income taxes  (931,350)  138,701   (954,821)  3,117,698 
 Foreign taxes  5,615   6,314   10,808   8,140 
Net (loss) income  (937,350)  132,387   (965,629)  3,109,558 
 Less: Net income (loss) attributable to the noncontrolling interest  122,031   72,670   15,213   (71,909)
Net (loss) income attributable to China Logistics Group, Inc. $(1,059,381) $59,717  $(980,841) $3,181,467 
                 
Earnings (loss) per common share:                
  Basic $(0.03) $0.00  $(0.02) $0.09 
  Diluted $(0.03) $0.00   (0.02) $0.08 
                 
Weighted average number of shares outstanding:                
  Basic  38,815,895   34,508,203   36,673,949   34,508,203 
  Diluted  38,815,895   39,008,203   36,673,949   39,008,203 
                 
 See notes to unaudited consolidated financial statements.         
 

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME
The following table reconciles the calculation of net income per share on a basic and fully diluted basis from the amounts reported in accordance with generally accepted accounting principles (“GAAP”) to such amounts before giving effect to the following non-cash items: depreciation and amortization and gain or loss due to the change in fair value of derivative liability. This disclosure is being provided as we believe it is meaningful to our investors and other interested parties to understand our operating performance on a consistent basis without regard to the impact of expenses linked to market fluctuations. The presentation of the non-GAAP information titled “Non-GAAP net income,” “Non-GAAP net loss,” “Non-GAAP basic EPS” and “Non-GAAP diluted EPS” is not meant to be considered in isolation or as a substitute for net income or diluted income per share prepared in accordance with GAAP.

CHLO GAAP to Non-GAAP Reconciliation Three Months Ended June 30, 2010  Three Months Ended June 30, 2009  Six Months Ended June 30, 2010  Six Months Ended June 30, 2009 
  Unaudited  Unaudited  Unaudited  Unaudited 
     Restated     Restated 
GAAP net income attributable to CHLO common stockholders $(1,059,381) $59,717  $(980,841)  3,181,467 
Depreciation and Amortization expense  2,248   4,735   5,146   7,085 
Share-based compensation expense  464,000       464,000     
Change in fair value of derivative liability  214,873   5,293   447,059   (3,383,700)
Non-GAAP net income attributable to CHLO common stockholders  (378,260)  69,745   (64,636)  (195,148)
 Weighted Average Common Shares Outstanding – basic and diluted  38,815,895   34,508,203   36,673,949   34,508,203 
GAAP Earnings applicable to common stockholders $(1,059,381) $59,717   (980,841)  3,181,467 
 GAAP Basic EPS  (0.03)  0.00   (0.03)  0.09 
 GAAP Diluted EPS  (0.03)  0.00   (0.03)  0.08 
Non-GAAP Earnings applicable to common stockholders  (378,260)  69,745   (64,636)  (195,148)
 Non-GAAP Basic EPS  (0.01)  0.00   (0.00)  (0.01)
 Non-GAAP Diluted EPS $(0.01) $0.00   (0.00)  (0.01)
Shares used in basic net income per-share calculation – GAAP  38,815,895   34,508,203   36,673,949   34,508,203 
Shares used in basic net income per-share calculation – Non-GAAP  38,815,895   34,508,203   36,673,949   34,508,203 
Shares used in diluted net income per-share calculation – GAAP  38,815,895   39,008,203   36,673,949   39,008,203 
Shares used in diluted net income per-share calculation – Non-GAAP  38,815,895   39,008,203   36,673,949   39,008,203 

Safe Harbor Statement
In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, China Armco Metals, Inc., is hereby providing cautionary statements identifying important factors that could cause our actual results to differ materially from those projected in forward-looking statements (as defined in such act). Any statements that are not historical facts and that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, indicated through the use of words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “intends,” “plans,” “believes” and “projects”) may be forward-looking and may involve estimates and uncertainties which could cause actual results to differ materially from those expressed in the forward-looking statements. These statements include, but are not limited to, our guidance and expectations regarding revenues, net income and earnings. In addition, any such statements are qualified in their entirety by reference to, and are accompanied by, the following key factors that have a direct bearing on our results of operations:

  • our ability to continue as a going concern;
  • risks from Securities and Exchange Commission litigation;
  • the loss of the services of any of our executive officers or the loss of services of any of our key persons responsible for the management, sales, marketing and operations efforts of our subsidiaries;
  • continuing material weaknesses in our disclosure controls and procedures and internal control over financial reporting which may lead to additional restatements of our financial statements;
  • our dependence upon advisory services provided by a U.S. company due to our management’s location in the PRC;
  • Our reliance on overseas cargo agents to provide services to us and to our customers;
  • Significant credit risks in the operation of our business;
  • Difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based on United States or other foreign laws;
  • Fluctuation in the value of the renminbi (rmb); 
  • Substantially all of our assets and all of our operations are located in the PRC and are subject to changes resulting from the political and economic policies of the Chinese government;
  • The Chinese government exerts substantial influence over the manner in which we must conduct our business activities;
  • A slowdown in the Chinese economy or an increase in its inflation rate;
  • Any recurrence of severe acute respiratory syndrome, or SARS, or another widespread public health problem;
  • Restrictions on currency exchange;
  • Chinese laws and regulations governing our business operations are sometimes vague and uncertain and the effects of any changes in such laws and regulations;
  • Our ability to enforce our rights due to policies regarding the regulation of foreign investments in the PRC;
  • The dilutive effects of an exercise of our outstanding warrants and the possible conversion of our Series B Convertible Preferred stock;
  • Our lack of various corporate governance measures, in the absence of which, shareholders may have more limited protections against interested director transactions, conflicts of interest and similar matters;
  • The impact of “penny stock” status and lack of liquidity of our stock which currently trades and is quoted on the OTC bulletin board; and
  • The impact of the cashless exercise provisions of our outstanding warrants.

We caution that the factors described herein could cause actual results to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. This press release is qualified in its entirety by the cautionary statements and risk factor disclosure contained in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the year ended December 31, 2009.

Contact:
China Logistics Group, Inc.
Lillian Wong
Investor Relations
954-363-7333
[email protected]

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