Unassociated Document

10-Q 1 v202325_10q.htm Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______.

Commission file number: 000-52625

CHINA AUTO LOGISTICS INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	20-2574314
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

No. 87 No. 8 Coastal Way, Floor 2
Construction Bank, FTZ
Tianjin Province
The People’s Republic of China 300461	300461
(Address of Principal Executive Offices)	(Zip Code)

(86) 22-2576-2771

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at November 12, 2010
Common Stock, $.001 par value per share		18,100,000 shares

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009 (Unaudited)	1
	Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2010 and 2009 (Unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended September 30, 2010 and 2009 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 (Unaudited)	4
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Default Upon Senior Securities	26
Item 4.	(Removed and Reserved)	26
Item 5.	Other Information	26
Item 6.	Exhibits	26

SIGNATURES		28

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CHINA AUTO LOGISTICS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	September 30,		December 31,
	2010		2009
ASSETS
Current assets
Cash and cash equivalents	$	4,242,314	$	2,255,058
Restricted cash		4,590,045		4,296,368
Accounts receivable – trade		84,890		-
Receivables related to financing services		20,095,614		9,499,219
Inventories		27,754,699		16,617,641
Advances to suppliers		18,084,307		18,151,077
Prepaid expenses		72,895		36,516
Value added tax refundable		1,656,385		368,272
Total current assets		76,581,149		51,224,151

Property and equipment, net		481,766		487,933
Other assets		22,384		-
Total Assets	$	77,085,299	$	51,712,084

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Lines of credit related to financing services	$	18,342,323	$	7,766,981
Bank loans payable		1,939,980		3,221,933
Draft notes payable		-		2,929,030
Accrued expenses		125,501		455,276
Customer deposits		19,713,016		5,857,640
Deferred revenue		109,755		82,185
Due to shareholder		1,379,517		975,920
Due to director		40,110		19,391
Income tax payable		854,498		2,132,891
Total current liabilities		42,504,700		23,441,247

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, 18,100,000 shares issued and outstanding		18,100		18,100
Additional paid-in capital		13,273,530		13,273,530
Accumulated other comprehensive income		2,880,748		2,278,788
Retained earnings		18,013,137		12,400,067
Total China Auto Logistics Inc. shareholders’ equity		34,185,515		27,970,485
Noncontrolling interests		395,084		300,352
Total equity		34,580,599		28,270,837

Total liabilities and shareholders’ equity	$	77,085,299	$	51,712,084

The accompanying notes form an integral part of these condensed consolidated financial statements

CHINA AUTO LOGISTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Net revenue	$	67,475,209		$	52,826,034		$	176,445,062		$	143,063,820
Cost of revenue		63,730,308			50,107,679			166,930,262			135,604,333
Gross profit		3,744,901			2,718,355			9,514,800			7,459,487

Operating expenses:
Selling and marketing		236,707			171,590			622,234			475,737
General and administrative		389,487			270,883			1,074,159			858,487
Total operating expenses		626,194			442,473			1,696,393			1,334,224

Income from operations		3,118,707			2,275,882			7,818,407			6,125,263

Other income (expenses):
Interest income		5,279			4,824			43,446			8,585
Interest expenses		(64,787	)		(45,690	)		(132,529	)		(152,107	)
Miscellaneous		(7,151	)		-			(1,223	)		-
Total other expenses		(66,659	)		(40,866	)		(90,306	)		(143,522	)

Income before income taxes		3,052,048			2,235,016			7,728,101			5,981,741

Income taxes		794,136			573,941			2,029,386			1,572,244

Net income		2,257,912			1,661,075			5,698,715			4,409,497


Less: Net income attributable to noncontrolling interests		34,494			53,429			85,645			315,441

Net income attributable to shareholders of China Auto Logistics Inc.	$	2,223,418		$	1,607,646		$	5,613,070		$	4,094,056


Earnings per share attributable to shareholders of China Auto Logistics Inc. – basic and diluted	$	0.12		$	0.09		$	0.31		$	0.23

Weighted average number of common share outstanding – basic and diluted		18,100,000			18,100,000			18,100,000			18,100,000

The accompanying notes form an integral part of these condensed consolidated financial statements

CHINA AUTO LOGISTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009

Net income	$	2,257,912	$	1,661,075	$	5,698,715	$	4,409,497

Other comprehensive income
Foreign currency translation adjustments		442,480		11,383		611,047		21,103

Comprehensive income		2,700,392		1,672,458		6,309,762		4,430,600

Less: Comprehensive income attributable to noncontrolling interests		41,254		26,328		94,732		318,957

Comprehensive income attributable to shareholders of China Auto Logistics Inc.	$	2,659,138	$	1,646,130	$	6,215,030	$	4,111,643

The accompanying notes form an integral part of these condensed consolidated financial statements

CHINA AUTO LOGISTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended September 30,
	2010			2009

Cash flows from operating activities
Net income	$	5,698,715		$	4,409,497

Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation and amortization		150,599			159,110
Change of inventory reserve		-			(146,257	)
Loss on disposal of property and equipment		9,646			-

Changes in operating assets and liabilities:
Restricted cash		(222,554	)		(4,318,845	)
Accounts receivable – trade		(83,322	)		(648	)
Receivables related to financing services		6,917			1,063,167
Inventories		(10,693,338	)		(133,523	)
Advances to suppliers		402,670			(641,885	)
Prepaid expenses		(35,538	)		(21,665	)
Value added tax refundable		(1,266,812	)		608,522
Deferred tax assets		-			36,564
Other assets		(22,325	)		-
Draft notes payable		(2,929,437	)		-
Accrued expenses		46,505			131,935
Customer deposits		13,583,647			540,484
Deferred revenue		25,159			111,233
Income tax payable		(1,298,384	)		(57,462	)
Net cash provided by operating activities		3,372,238			1,740,227

Cash flows from investing activities
Proceeds from disposal of property and equipment		70,232			-
Payments to acquire noncontrolling interests		-			(444,120	)
Purchase of property and equipment		(214,636	)		(58,078	)
Net cash used for investing activities		(144,404	)		(502,198	)

Cash flows from financing activities
Proceeds from short-term bank loans		-			2,633,819
Repayments of short-term bank loans		(1,318,247	)		(2,633,819	)
Repayments of lines of credit related to automobile purchases		-			(662,194	)
Advances from director		404,361			-
Repayments of advances from director		(383,815	)		-
Net cash flows used for financing activities		(1,297,701	)		(662,194	)

Effect of exchange rate change on cash		57,123			944

Net increase in cash and cash equivalents		1,987,256			576,779

Cash and cash equivalents at the beginning of period		2,255,058			1,598,781
Cash and cash equivalents at the end of period	$	4,242,314		$	2,175,560

CHINA AUTO LOGISTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Continued)

	Nine Months Ended September 30,
	2010		2009

Supplemental disclosure of cash flow information:
Interest paid	$	134,178	$	150,371
Income taxes paid	$	3,327,102	$	1,585,355

Non-cash activities:

Increase of borrowings on lines of credit for loans extended to the Company’s customers	$	10,206,472	$	10,094,783
Increase in balance due to shareholders for accrued expenses paid by shareholder	$	380,372	$	277,920

Increase of draft notes receivable for customer deposits	$	-	$	2,927,786

Increase of draft notes payable for advances to suppliers	$	-	$	2,927,786

The accompanying notes form an integral part of these condensed consolidated financial statements

CHINA AUTO LOGISTICS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) Summary of Significant Accounting Policies

Organization, Nature of Business and Basis of Presentation

China Auto Logistics Inc. (the "Company" or "China Auto") operates through its wholly-owned subsidiary Ever Auspicious International Limited, a Hong Kong corporation ("HKCo"), and its wholly-owned subsidiary Tianjin Seashore New District Shisheng Business Trading Group Co. Ltd. ("Shisheng"), a company established under the laws of the People's Republic of China ("PRC"). The Company's principal business includes (i) sales of both domestically manufactured and imported automobiles, (ii) financing services related to imported automobiles, (iii) automobile information websites and advertising services, (iv) logistics services related to the automobile importing process and other automobile import value added services, such as assistance with customs clearance, storage and nationwide delivery services ("Automobile Import Value Added Services") and (v) management services to an auto mall.

The accompanying condensed consolidated balance sheet as of December 31, 2009, which has been derived from the audited consolidated financial statements and the accompanying unaudited condensed consolidated financial statements, has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") have been condensed or omitted pursuant to those rules and regulations and the Company believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, these condensed consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly the financial position of China Auto as of September 30, 2010 and the results of operations for the three-month and nine-month periods ended September 30, 2010 and 2009, and the cash flows for the nine-month periods ended September 30, 2010 and September 30, 2009. These condensed consolidated financial statements and related notes should be read in conjunction with the Company's annual report on Form 10-K for the fiscal year ended December 31, 2009. The results of operations for the three months and nine months ended September 30, 2010 are not necessarily indicative of the results which may be expected for the entire fiscal year.

The preparation of condensed consolidated financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Basis of Consolidation

The condensed consolidated financial statements include the financial statements of China Auto and its wholly-owned and majority-owned subsidiaries. All inter-company transactions and balances have been eliminated in preparation of the condensed consolidated financial statements.

Currency Reporting

The Company's operations in the PRC use the local currency, Renminbi ("RMB"), as their functional currency, whereas amounts reported in the accompanying condensed consolidated financial statements and disclosures are stated in U.S. dollars, the reporting currency of the Company, unless stated otherwise. As such, the condensed consolidated balance sheets of the Company have been translated into U.S. dollars at the current rates as of September 30, 2010 and December 31, 2009 and the condensed consolidated statements of income have been translated into U.S. dollars at the weighted average rates during the periods the transactions were recognized.

The resulting translation gain adjustments are recorded as other comprehensive income in the condensed consolidated statements of comprehensive income and as a separate component of equity in the condensed consolidated balance sheets.

Revenue Recognition

The Company’s main source of income was generated through (1) sales of automobiles, (2) service fees for assisting customers in obtaining bank financing for purchases of automobiles, (3) web-based advertising service fees, including fees from (a) displaying graphic advertisements on the Company’s websites and (b) web-based listing services that allow customers to place automobile related information on the Company’s websites, (4) automobile import value added services, and (5) auto mall management services. The financing services are provided to customers for automobiles not sold by the Company. The Company recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred upon shipment or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectibility is reasonably assured.

The Company recognizes the sales of automobiles upon delivery and acceptance by customers and where collectibility is reasonably assured.

Service revenue related to financing services is recognized ratably over the financing period.

Service fees for graphic advertisements on the Company’s websites are charged on a fixed fee basis. The Company recognizes the advertising revenue when the service is performed over the service term.

The Company charges a monthly fee for listing services and recognizes the revenue when services are performed.

The Company recognizes revenue from automobile import value added services when such services are performed.

Revenue from auto mall management services is recognized ratably over the service period.

Value Added Taxes represent amounts collected on behalf of specific regulatory agencies that require remittance by a specified date. These amounts are collected at the time of sales and are detailed on invoices provided to customers. The Company accounts for Value Added Taxes on a net basis. The Company records and pays business taxes based on a percentage of the net service revenues and reports the service revenues net of the business taxes and other sales related taxes.

Receivables Related to Financing Services

The Company records receivables related to financing services when cash is loaned to customers to finance their purchases of automobiles. Upon repayment by customers, the Company records the amounts as reductions of receivables related to financing services. Receivables related to financing services represent the aggregate outstanding balance of loans from customers related to their purchases of automobiles and are considered receivables held for investment. The Company charges a fee for providing loan services and such fees are prepaid by customers. The Company amortizes these fees over the receivable term, which is typically 90 days, using the straight-line method. The Company records such amortized amounts as financing fee income and the unamortized amount is classified as deferred revenue on the Company’s condensed consolidated balance sheets.

The Company evaluates the collectibility of outstanding receivables at the end of each of the reporting periods and makes estimates for potential credit losses. The Company has not experienced any losses on its accounts receivable historically and accordingly did not record any allowance of credit losses as of September 30, 2010 and December 31, 2009.

Basic and Diluted Earnings Per Share

Basic earnings per common share is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per common share is computed similarly to basic earnings per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of September 30, 2010 and 2009, the Company did not have any common stock equivalents, therefore, the basic earnings per share is the same as the diluted earnings per share.

Reclassifications

Certain prior period amounts included in selling and marketing expenses and general and administrative expenses in condensed consolidated statements of income have been reclassified to cost of revenue, and an amount of investing activities in condensed consolidated statements of cash flow has been reclassified to operating activities to conform to the current period presentation.

New Accounting Pronouncements Not Yet Adopted

In September 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13 “Revenue Recognition (Topic 605): Multiple Deliverable Revenue Element Arrangements – a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”). The new guidance states that if vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, companies will be required to develop a best estimate of the selling price to separate deliverables and allocate arrangement consideration using the relative selling price method. ASU 2009-13 will be applied prospectively and will become effective during the first quarter of 2011. Early adoption is allowed. The Company does not expect the adoption of this guidance to have a significant effect on its consolidated financial position or results of operations.

(2) Property and Equipment

A summary of property and equipment is as follows:

	September 30,		December 31,
	2010		2009

Computer	$	214,439	$	210,448
Office equipment, furniture and fixtures		172,851		125,676
Automobiles		1,051,415		1,029,631
		1,438,705		1,365,755
Less: Accumulated depreciation		956,939		877,822
	$	481,766	$	487,933

Depreciation and amortization expense for property and equipment amounted to approximately $50,550 and $50,616 for the three months ended September 30, 2010 and 2009, respectively, and $150,599 and $159,110 for the nine months ended September 30, 2010 and 2009, respectively.

(3) Lines of Credit Related to Financing Services

The Company provides financing services to its customers using the Company’s bank facility lines of credit. The Company earns a service fee for drawing its facility lines related to its customers’ purchases of automobiles and payment of import taxes. Customers bear all the interest and fees charged by the banks and prepay those fees upon the execution of their service contracts with the Company. Customers are also required to make a deposit in the range of 15% to 30% of the purchase price of the automobiles. If customers default on payment, the banks take custody of the automobiles until the borrowings are fully repaid.

China Merchants Bank

In June 2010, the Company entered into a facility line of credit agreement with China Merchants Bank. Under the terms of the agreement, the Company could borrow a maximum amount of $11,192,192 (RMB75,000,000) as of September 30, 2010. As of September 30, 2010, the Company had outstanding balances of $4,743,875. The facility line of credit matures in June 2011 and is guaranteed by a director and a non-related entity.

In May 2009, the Company entered into a facility line of credit agreement with China Merchants Bank. Under the terms of the agreement, the Company could borrow a maximum amount of $13,180,633 (RMB 90,000,000) as of December 31, 2009. As of December 31, 2009, the Company had outstanding balances of $3,739,100. This facility line of credit matured in May 2010 and was guaranteed by a director and a non-related entity.

Agricultural Bank of China

In January 2010, the Company entered into a facility line of credit agreement with Agricultural Bank of China to facilitate its financing services. Under the terms of the agreement, the Company could borrow a maximum amount of $17,161,362 (RMB115,000,000) as of September 30, 2010. The Company had an outstanding balance of $8,801,065 as of September 30, 2010. This facility line of credit is guaranteed by three non-related entities.

In January and February 2009, the Company entered into two facility lines of credit with Agricultural Bank of China to facilitate its financing service business. Under the terms of the engagements, the Company could borrow a maximum amount of $13,619,988 (RMB93,000,000) prior to the expiration of the facilities lines in December 2009 to facilitate its financing business. The Company had an outstanding balance of $99,635 as of December 31, 2009. These facility lines of credit expired in December 2009 and were guaranteed by non-related entities.

PuDong Development Bank

In June 2010, the Company entered into a facility line of credit agreement with PuDong Development Bank. Under the terms of the agreement, the Company could borrow a maximum amount of $14,922,923 (RMB100,000,000) as of September 30, 2010. As of September 30, 2010, the Company had outstanding balances of $3,995,058. The facility line of credit matures in June 2011 and is guaranteed by a director and a non-related entity.

In June 2009, the Company entered into a facility line of credit agreement with PuDong Development Bank related to its financing services. Under the terms of the agreement, the Company could borrow a maximum amount of $8,787,089 (RMB 60,000,000) as of December 31, 2009. As of December 31, 2009, the Company had outstanding balances of $3,928,246. This facility line of credit expired in May 2010 and was guaranteed by a non-related entity.

ZheJiang Commercial Bank

In April 2010, the Company entered into a facility line of credit agreement with ZheJiang Commercial Bank. Under the terms of the agreement, the Company could borrow a maximum amount of $7,461,462 (RMB50,000,000) as of September 30, 2010. As of September 30, 2010, the Company had outstanding balances of $802,325. The facility line of credit matures in June 2012 and is guaranteed by two directors and two non-related entities.

(4) Short-term Bank Loans

Short-term bank loans as of September 30, 2010 and December 31, 2009 consist of the following:

	September 30,		December 31,
	2010		2009

Loan from Agricultural Bank of China, with interest rate of 5.841% guaranteed by non-related entities, and matures in November 2010	$	1,343,063	$	1,318,063

Loan from Agricultural Bank of China, with interest rate of 5.841% guaranteed by non-related entities, and matures in November 2010		596,917		585,807

Loan from Agricultural Bank of China, with interest rate of 5.346% guaranteed by non-related entities, and matured in March 2010		-		1,318,063
	$	1,939,980	$	3,221,933

Weighted average interest rates for these bank loans were 5.481% and 5.663% at September 30, 2010 and December 31, 2009, respectively.

(5) Draft Notes Payable

The Company issued certain notes payable to suppliers, which notes are guaranteed by the Company’s banks. These notes payable were issued as replacements of the accounts payable. The terms of these draft notes payable vary depending on negotiations with specific suppliers. Typical terms are in the range of three to six months. On the maturity dates, the note holders present these notes to the banks to draw cash based on the note amounts. The Company is subject to a bank fee of 0.05% on notes payable amounts.

As of December 31, 2009, the Company had a draft note payable in the amount of $2,929,030 (RMB 20,000,000). This note was guaranteed by ZheJiang Commercial Bank and matured in March 2010. The Company was required to maintain $2,929,030 as guaranteed funds, which was classified as restricted cash as of December 31, 2009. As of September 30, 2010, the Company had no outstanding draft notes payable.

The purpose of this type of arrangement is to provide additional time to the Company to remit payments while allowing vendors to avoid any credit risk since the vendors are guaranteed payment by the bank.

(6) Major Customers and Suppliers

No customer had more than 10% of the Company’s sales during the three months ended September 30, 2010 and the sales to the Company’s two largest customers accounted for 32% of the Company’s sales during the three months ended September 30, 2009. During the nine months ended September 30, 2010 and 2009, sales to the Company’s largest customer accounted for 19% and 23%, respectively, of the Company’s sales.

Purchases from the Company’s largest supplier during the three months ended September 30, 2010 and purchases from its three largest suppliers during the three months ended September 30, 2009 accounted for 10% and 58%, respectively, of the Company’s total purchases. And, during the nine months ended September 30, 2010 and 2009, purchases from the Company's three largest suppliers accounted for 33% and 59%, respectively, of the Company’s purchases.

(7) Related Party Balances and Transactions

Cheng Weihong (the Secretary, Senior Vice President and Chairwoman of Shisheng and wife of China Auto’s President and Chief Executive Officer, Mr. Tong Shiping) made non-interest bearing loans to the Company from time to time to meet working capital needs of the Company. As of September 30, 2010 and December 31, 2009, the outstanding balances due to Cheng Weihong were $40,110 and $19,391, respectively.

The Company’s shareholder, Sino Peace Limited, paid on behalf of the Company accrued expenses of $173,965 and $85,000 during the three months ended September 30, 2010 and 2009, respectively, and $380,372 and $277,920 during the nine months ended September 30, 2010 and 2009, respectively. As of September 30, 2010 and December 31, 2009, outstanding balances due to Sino Peace Limited were $1,379,517 and $975,920, respectively.

(8) Segment Information

The Company has five principal operating segments: (1) sales of automobiles, (2) financing services, (3) web-based advertising services, (4) automobile import value added services, and (5) auto mall management services. These operating segments were determined based on the nature of services offered. Operating segments are defined as components of an enterprise about which separate financial information is available and that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company's Chief Executive Officer and Chief Operating Officer have been identified as the chief operating decision makers. The Company's chief operating decision makers direct the allocation of resources to operating segments based on the profitability and cash flows of each respective segment.

The Company evaluates performance based on several factors, including net revenue, cost of revenue, operating expenses, and income from operations. The following tables show the operations of the Company's operating segments:

Three Months Ended September 30, 2010	Sales of Automobiles		Financing Services		Web-based Advertising Services		Automobile Import Value Added Services		Auto Mall Management Services		Corporate			Total

Net revenue	$	64,878,374	$	461,007	$	1,697,522	$	198,831	$	239,475	$	-		$	67,475,209

Cost of revenue		63,666,549		6,887		38,805		7,828		10,239		-			63,730,308

Operating expenses
Selling and marketing		84,722		47,894		69,097		10,817		24,177		-			236,707
General and administrative		47,529		32,415		13,806		5,164		16,363		274,210			389,487
Total operating expenses		132,251		80,309		82,903		15,981		40,540		274,210			626,194

Income (loss) from operations	$	1,079,574	$	373,811	$	1,575,814	$	175,022	$	188,696	$	(274,210	)	$	3,118,707

Three Months Ended September 30, 2009	Sales of Automobiles		Financing Services		Web-based Advertising Services		Automobile Import Value Added Services		Auto Mall Management Services		Corporate			Total

Net revenue	$	51,394,023	$	342,639	$	933,472	$	155,900	$	-	$	-		$	52,826,034

Cost of revenue		50,076,877		3,705		21,148		5,949		-		-			50,107,679

Operating expenses
Selling and marketing		65,784		24,638		67,194		13,974		-		-			171,590
General and administrative		46,480		16,428		15,657		5,545		-		186,773			270,883
Total operating expenses		112,264		41,066		82,851		19,519		-		186,773			442,473

Income (loss) from operations	$	1,204,882	$	297,868	$	829,473	$	130,432	$	-	$	(186,773	)	$	2,275,882

Nine Months Ended September 30, 2010	Sales of Automobiles		Financing Services		Web-based Advertising Services		Automobile Import Value Added Services		Auto Mall Management Services		Corporate			Total

Net revenue	$	170,044,880	$	1,241,058	$	3,942,372	$	643,169	$	573,583	$	-		$	176,445,062

Cost of revenue		166,748,310		18,415		103,593		23,523		36,421		-			166,930,262

Operating expenses
Selling and marketing		207,213		123,250		192,531		46,238		53,002		-			622,234
General and administrative		190,655		137,445		43,212		32,151		54,150		616,546			1,074,159
Total operating expenses		397,868		260,695		235,743		78,389		107,152		616,546			1,696,393

Income (loss) from operations	$	2,898,702	$	961,948	$	3,603,036	$	541,257	$	430,010	$	(616,546	)	$	7,818,407

Nine Months Ended September 30, 2009	Sales of Automobiles		Financing Services		Web-based Advertising Services		Automobile Import Value Added Services		Auto Mall Management Services		Corporate			Total

Net revenue	$	139,344,343	$	960,406	$	2,278,890	$	480,181	$	-	$	-		$	143,063,820

Cost of revenue		135,496,604		8,931		82,857		15,941		-		-			135,604,333

Operating expenses
Selling and marketing		225,149		74,761		145,949		29,878		-		-			475,737
General and administrative		169,792		51,015		45,028		17,006		-		575,646			858,487
Total operating expenses		394,941		125,776		190,977		46,884		-		575,646			1,334,224

Income (loss) from operations	$	3,452,798	$	825,699	$	2,005,056	$	417,356	$	-	$	(575,646	)	$	6,125,263

Following are total assets by segment:

Total Assets	Sales of Automobiles		Financing Services		Web-based Advertising Services		Automobile Import Value Added Services		Auto Mall Management Services		Corporate		Total
As of September 30, 2010	$	49,414,181	$	25,405,205	$	1,199,244	$	719,546	$	84,890	$	262,233	$	77,085,299

As of December 31, 2009	$	36,248,793	$	14,212,513	$	694,877	$	416,926	$	-	$	138,975	$	51,712,084

(9) Subsequent Event

On November 1, 2010, Shisheng entered into a Share Transfer Agreement (“Agreement”) with the equity interest owners of Chongqing Qizhong Technology Development Corporation (“goodcar.com”) to acquire 100% of equity interest of goodcar.com for a price equal to the sum of (a) approximately $2.69 million (RMB18 million) and (b) 1.08 million shares of common stock of the Company with approximate fair value of $3.29 million. The cash portion of purchase price is payable in the following payment schedule (i) $448,000 within three days of the execution of the Agreement date, (ii) $299,000 within one month after the registration of ownership change as a result of this acquisition, (iii) $1,943,000 within 6 months after the completion of the aforementioned ownership change.

The Company designated Mr. Li Yangqian (“Mr. Li”) as the general manager of goodcar.com and committed to issue to Mr. Li the Company’s common stock worth $1,000,000 if the annual net income of goodcar.com reaches $2,000,000. The number of such shares shall be determined according to the closing price of the last trading day of the fiscal year when the net income generated from goodcar.com reaches the aforementioned performance target.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Except as otherwise indicated by the context, references in this Quarterly Report to “we”, “us”, “our” or the “Company” are to the consolidated businesses of China Auto Logistics Inc. and its wholly-owned direct and indirect subsidiaries, Ever Auspicious International Limited and Tianjin Seashore New District Shisheng Business Trading Group Co. Ltd., except that references to “our common stock” or “our capital stock” or similar terms refer to the common stock, par value $0.001 per share, of China Auto Logistics Inc., a Nevada corporation (the “Registrant”). “China” or “PRC” refers to the People’s Republic of China. References to “RMB” refer to the Chinese Renminbi, the currency of the primary economic environment in which the Company operates.

Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide information that is supplemental to, and should be read together with, the Company’s condensed consolidated financial statements and the accompanying notes contained in this Quarterly Report. Information in this Item 2 is intended to assist the reader in obtaining an understanding of the condensed consolidated financial statements, the changes in certain key items in those financial statements from quarter to quarter, the primary factors that accounted for those changes, and any known trends or uncertainties that the Company is aware of that may have a material effect on the Company’s future performance, as well as how certain accounting principles affect the condensed consolidated financial statements. This includes discussion of (i) Liquidity, (ii) Capital Resources, (iii) Results of Operations, and (iv) Off-Balance Sheet Arrangements, and any other information that would be necessary to an understanding of the company’s financial condition, changes in financial condition and results of operations.

Forward Looking Statements

This periodic report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing products, plans and objectives of management. Statements in this periodic report that are not historical facts are hereby identified as "forward-looking statements" for the purpose of the safe harbor provided by Section 21E of the Exchange Act and Section 27A of the Securities Act. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the SEC from time to time, which could cause actual results or outcomes to differ materially from those projected.

Prospective shareholders should understand that several factors govern whether any forward-looking statements contained herein will be or can be achieved. Any one of those factors could cause actual results to differ materially from those projected herein. These forward-looking statements include plans and objectives of management for future operations, including plans and objectives relating to the products and the future economic performance of the Company. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, future business decisions, and the time and money required to successfully complete development projects, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of those assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in any of the forward-looking statements contained herein will be realized. Based on actual experience and business development, the Company may alter its marketing, capital expenditure plans or other budgets, which may in turn affect the Company’s results of operations. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of any such statement should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our condensed consolidated financial statements and their related notes included in this Quarterly Report and our Annual Report on Form 10-K as filed with the SEC for the year ended December 31, 2009.

BUSINESS OVERVIEW

Prior Operations of China Auto Logistics Inc.

China Auto Logistics Inc., formerly Fresh Ideas Media, Inc., was incorporated in the State of Nevada on February 22, 2005. Fresh Ideas Media, Inc. was engaged in the advertising and consulting business. In February 2005, Fresh Ideas Media, Inc. formed a wholly-owned subsidiary, Community Alliance, Inc. (“Community Alliance”), an entity which markets sub-licenses for take-home school folders. Fresh Ideas Media, Inc. had only commenced limited operations and had not yet generated significant revenues, and was therefore considered a development stage company.

The Exchange and the Spin-Off

On November 10, 2008, Fresh Ideas Media, Inc. entered into an Exchange Agreement (the “Exchange”) with Ever Auspicious International Limited, a Hong Kong corporation (“HKCo”), whereby Fresh Ideas Media, Inc. acquired all of the issued and outstanding securities of HKCo in exchange for the issuance by Fresh Ideas Media, Inc. of 11,700,000 newly-issued shares of our common stock. The closing of the Exchange (the “Closing”) occurred on the same day, immediately following the cancellation of an aggregate of 1,135,000 shares of Fresh Ideas Media, Inc.’s common stock held by Phillip E. Ray and Ruth Daily, Fresh Ideas Media, Inc.’s principal stockholders immediately prior to the Closing. Prior to the Exchange, Phillip E. Ray and Ruth Daily owned approximately 23.89% and 16.58%, respectively, of the issued and outstanding common stock of Fresh Ideas Media, Inc. As of the Closing, HKCo beneficially owned approximately 64.64% of the voting capital stock of Fresh Ideas Media, Inc. As a result of the Exchange, HKCo became a wholly owned subsidiary of Fresh Ideas Media, Inc. and Fresh Ideas Media, Inc.’s primary business operations are those of HKCo. Shortly after the Closing, Fresh Ideas Media, Inc. changed its name to China Auto Logistics Inc.

In connection with the consummation of the Exchange, Fresh Ideas Media, Inc. agreed to complete the spin-off of Community Alliance through a dividend of all of the issued and outstanding capital stock of Community Alliance to holders of Fresh Ideas Media, Inc.’s common stock as of September 9, 2008. The spin-off was approved by the Board of Directors of Fresh Ideas Media, Inc. on September 9, 2008. As a result of the spin-off, the business and operations of HKCo are the sole business and operations of Fresh Ideas Media, Inc.

HKCo was incorporated in Hong Kong on October 17, 2007. Prior to December 25, 2007, HKCo had minimal assets and no operations. On December 25, 2007, Tianjin Seashore New District Shisheng Business Trading Group Co. Ltd. (“Shisheng”), a company established under the laws of the People’s Republic of China, became a wholly-owned foreign enterprise of HKCo. This arrangement was approved by the relevant ministries of the PRC government.

Upon the completion of the above-mentioned transactions on December 25, 2007 and November 10, 2008, the Company owned 100% of HKCo which owned 100% of Shisheng, the operating entity of HKCo. For financial reporting purposes, these transactions were classified as a recapitalization of Shisheng and the historical financial statements of Shisheng were reported as the Company’s historical financial statements.

Shisheng’s businesses include sales of both domestically manufactured automobiles and imported automobiles, providing financing services related to imported automobiles, and providing logistic services relating to the automobile importing process and other automobile import value added services such as assistance with customs clearance, storage and nationwide delivery services. Shisheng holds 98% equity ownership in Hengjia Port Logistics Corp. (“Hengjia”), Ganghui Information Technology Corp. (“Ganghui”) and Zhengji International Trading Corp. (“Zhengji”). Hengjia’s business is to provide web-based advertising services and automobile import value added services to wholesalers and distributors in the imported vehicle trading industry. Ganghui’s business is to provide web-based, real-time information on imported automobiles. Zhengji’s is engaged in sales of both domestically manufactured automobiles and imported automobiles.

Listing on NASDAQ

Effective January 8, 2010, the Company commenced trading of its shares of common stock on the NASDAQ Global Market under the trading symbol CALI.

Current Business of the Company

The Company, through its website www.at188.com, engages in automobile sales, customs clearance services, storage services and national transportation services. The Company is the only one-stop automobile service provider in Tianjin which also provides dealer financing to its customers. Additionally, the Company’s website www.at160.com, which covered 15 cities in the beginning of 2010 and currently covers 29 cities, targets domestically manufactured automobile dealers and traders with an effective and efficient quoting platform and a user-friendly interface for the customers to identity the best quotes and packages.

On April 23, 2010, the Company launched its new website www.cali.com.cn to integrate and meet on a single site the needs of the full spectrum of the PRC’s dynamic automotive public, including dealers, suppliers, auto purchasers and drivers of both foreign and domestically manufactured automobiles. On April 21, 2010, the Company entered into a memorandum of understanding with Chongqing Qizhong Technology Development Corporation (“Chongqing Qizhong”) to acquire www.goodcar.cn and the related business (“Goodcar”). Goodcar is in the business of providing consumers with information and discounted services relating to automobiles, including discounted gas, parking, car washes, body-shop repair and car maintenance. On November 1, 2010, Shisheng entered into a share transfer agreement with Long Jiegui, representing all shareholders of Chongqing Qizhong, to purchase all of the shares of Chongqing Qizhong for $5.99 million (RMB 40 million), consisting of $2.69 million (RMB 18 million) in cash and $3.29 million (RMB 22 million) in shares of common stock of the Company.

The Company believes the integration of these wide ranging sites and services in a single portal serving a broad spectrum of China's auto living public, as well as the addition of new web-based auto-related services, for businesses and consumers, will drive future growth.

Critical Accounting Policies, Estimates and Assumptions

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements. These financial statements are prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of our assets and liabilities and revenues and expenses, to disclose contingent assets and liabilities on the date of the financial statements, and to disclose the reported amounts of revenues and expenses incurred during the financial reporting periods. The most significant estimates and assumptions include revenues recognition, valuation of inventories and provisions for income taxes. We continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe critical accounting policies as disclosed in this Form 10-Q reflect the more significant judgments and estimates used in preparation of our condensed consolidated financial statements. We believe there have been no material changes to our critical accounting policies and estimates.

The following critical accounting policies rely upon assumptions and estimates and were used in the preparation of our condensed consolidated financial statements:

Revenue Recognition

The Company’s main source of income was generated through (1) sales of automobiles, (2) service fees for assisting customers in obtaining bank financing on purchases of automobiles, (3) web-based advertising service fees, including fees from (a) displaying graphic advertisements on the Company’s websites and (b) web-based listing services that allow customers to place automobile related information on the Company’s websites, (4) automobile import value added services, and (5) auto mall management services. The financing services are provided to customers on automobiles not sold by the Company. The Company recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred upon shipment or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectibility is reasonably assured.

The Company recognizes the sales of automobiles upon delivery and acceptance by the customers and where collectibility is reasonably assured.

Service revenue related to financing services is recognized ratably over the financing period.

The Company charges a monthly fee for listing services and recognizes the revenue when services are performed.

The Company recognizes revenue from automobile import value added services when such services are performed.

Revenue from auto mall management services is recognized ratably over the service period.

Value Added Taxes represent amounts collected on behalf of specific regulatory agencies that require remittance by a specified date. These amounts are collected at the time of sales and are detailed on invoices provided to customers. The Company accounts for Value Added Taxes on a net basis. The Company records and pays business taxes based on a percentage of the net service revenues and reports the service revenue net of the business taxes and other sales related taxes.

Receivables Related to Financing Services

The Company records receivables related to Financing Services when cash is loaned to customers to finance their purchases of automobiles. Upon repayment by customers, the Company records the amounts as reductions of receivables related to Financing Services. Receivables related to Financing Services represent the aggregate outstanding balance of loans from customers related to their purchases of automobiles and are considered receivables held for investment. The Company charges a fee for providing loan services and such fees are prepaid by customers. The Company amortizes these fees over the receivable term, which is typically 90 days, using the straight-line method. The Company records such amortized amounts as financing fee income and the unamortized amount is classified as deferred revenue on the Company’s consolidated balance sheets.

Inventories

Inventory is stated at the lower of cost (using the first-in-first-out method) or market. We continually evaluate the composition of our inventory, assessing slow-moving and ongoing products. Our inventory is comprised of the purchase cost of automobiles, which declines in value over time. We continuously evaluate our inventory to determine the reserve amount for slow-moving inventory.

Currency Reporting

Amounts reported are stated in U.S. Dollars, unless stated otherwise. Our functional currency is Renminbi (“RMB”). Foreign currency transactions (outside the PRC) are translated into RMB according to the prevailing exchange rate at the transaction dates. Assets and liabilities denominated in foreign currencies at the balance sheet dates are translated into RMB at period-end exchange rates. For the purpose of preparing the condensed consolidated financial statements, the condensed consolidated balance sheets of our Company have been translated into U.S. dollars at the current rates as of the end of the respective periods and the condensed consolidated statements of income have been translated into U.S. dollars at the weighted average rates during the periods the transactions were recognized. The resulting translation gain adjustments are recorded as other comprehensive income in the condensed consolidated statements of comprehensive income and as a separate component of equity in the condensed consolidated balance sheets.

Income taxes

Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, net operating loss carry forwards and credits by applying enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

The FASB prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company did not incur any interest or penalties related to potential underpaid income tax expenses.

New Accounting Pronouncements Not Yet Adopted

The following is management’s discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying condensed consolidated financial statements, as well as information relating to the plans of our current management and should be read in conjunction with the accompanying condensed consolidated financial statements and their related notes included in this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS

Results of Operations for the Three Months Ended September 30, 2010 Compared to the Three Months Ended September 30, 2009

The following table sets forth certain information relating to our results of operations, and our condensed consolidated statements of operations as a percentage of net revenue, for the periods indicated:

	Three Months Ended September 30, 2010		% of net revenue			Three Months Ended September 30, 2009		% of net revenue			Change in %
Net revenue	$	67,475,209		100.00	%	$	52,826,034		100.00	%		27.73	%
Cost of revenue		63,730,308		94.45	%		50,107,679		94.85	%		27.19	%
Gross profit		3,744,901		5.55	%		2,718,355		5.15	%		37.76	%
Operating expenses		626,194		0.93	%		442,473		0.83	%		41.52	%
Income from operations		3,118,707		4.62	%		2,275,882		4.32	%		37.03	%
Other expenses		66,659		0.10	%		40,866		0.08	%		63.12	%
Income before income taxes and noncontrolling interests		3,052,048		4.52	%		2,235,016		4.24	%		36.56	%
Net income		2,257,912		3.35	%		1,661,075		3.16	%		35.93	%
Net income attributable to shareholders of China Auto Logistics Inc.	$	2,223,418		3.30	%	$	1,607,646		3.06	%		38.30	%

For the three months ended September 30, 2010, our net revenue increased 27.73% to $67,475,209, from $52,826,034 for the same period in 2009, and our cost of revenue increased 27.19% to $63,730,308 from $50,107,679 for the same period in 2009. Gross profit margin increased 39 basis points from 5.16% for the three months ended September 30, 2009 to 5.55% for the same period in 2010. As compared to the same period in 2009, our gross profit, income from operations and net income for the three months ended September 30, 2010 increased 37.76% to $3,744,901, 37.03% to $3,118,707 and 35.93% to $2,257,912, respectively, primarily due to an increase in our web-based advertising service revenue and auto mall management service revenue.

Net income attributable to shareholders of China Auto Logistics Inc. increased 38.30% from $1,607,646 for the three months ended September 30, 2009 to $2,223,418 for the three months ended September 30, 2010. The increase was primarily due to an increase in web-based advertising service revenue and auto mall management service revenue, as discussed above, and the Company’s increased share of its subsidiaries’ profits following the increase in Shisheng’s equity ownership of each of Hengjia, Ganghui and Zhengji to 98% on July 23, 2009. Previously, Shisheng held equity interests in those companies of 80%, 80% and 86.4%, respectively.

Net Revenue

The following table sets forth a summary of our net revenue by category for the periods indicated, in dollars and as a percentage of total net revenue:

	Three Months Ended September 30, 2010		% of net revenue			Three Months Ended September 30, 2009		% of net revenue			Change in %
Net revenue	$	67,475,209		100.00	%	$	52,826,034		100.00	%		27.73	%
- Sales of Automobiles		64,878,374		96.15	%		51,394,023		97.28	%		26.24	%
- Financing Services		461,007		0.68	%		342,639		0.65	%		34.55	%
- Web-based Advertising Services		1,697,522		2.52	%		933,472		1.77	%		81.85	%
- Automobile Import Value Added Services		198,831		0.29	%		155,900		0.30	%		27.54	%
- Auto Mall Management Services		239,475		0.36	%		-		0.00	%		N/A

Sales of Automobiles

Net revenue from sales of automobiles increased 26.24% to $64,878,374 for the three months ended September 30, 2010 from $51,394,023for the same period in 2009. During the three months ended September 30, 2010 and 2009, the Company sold 670 automobiles and 697 automobiles, respectively, representing a decrease of 3.87% in volume. The average unit selling price per automobile for the three months ended September 30, 2010 increased 31.87% to $96,833 from $73,443 for the same period in 2009. The Company will continue its focus on the marketing of higher-end luxury automobiles.

Sales to the Company’s top three customers, each of which are car dealers, accounted for 18% and 39% of the Company’s sales during the three months ended September 30, 2010 and 2009, respectively. The Company will continue to maintain close working relationships with its top customers while attempting to reduce the concentration of revenues among these top customers by actively looking for new customers to enlarge its customer base.

Financing Services

The Company provides financing services (“Financing Services”) to its customers using the Company’s bank facility lines of credit. The Company earns a service fee for drawing its facility lines related to its customers’ purchases of automobiles and payment of import taxes. Customers bear all the interest and fees charged by the banks and prepay those fees upon the execution of their service contracts with the Company.

Net revenue from Financing Services for the three months ended September 30, 2010 increased 34.55% to $461,007 from $342,639 for the same period in 2009. The Company has expanded its aggregate credit lines by approximately $15 million to $51 million as of September 30, 2010, from approximately $36 million as of December 31, 2009. As a result of the increase in credit lines during the period, revenue from financing services increased.

Our revenue growth from financing services is heavily dependent on overall industry growth and economic market conditions in the PRC. A factor that affects our revenue from financing services is our relationship with major commercial banks, with whom we have established good credit. Any decrease of credit limits or expiration of credit lines or other bank facilities may temporarily reduce our capacity to provide financing services or affect our purchasing power. However, we have not experienced any difficulties in accessing credit lines and loan facilities with banks in the past. Therefore, we do not foresee any difficulty at this time in obtaining credit lines and loan facilities from our banks.

We provide Financing Services to our customers with our lines of credit with major commercial banks in the PRC, including the Agriculture Bank of China, China Merchants Bank, PuDong Development Bank and ZheJiang Commercial Bank. We continue to strengthen our relationship with these banks and aim to negotiate with additional banks for higher lines of credit at more favorable terms. Based on the Company’s business relationships with certain financial institutions, we are able to obtain financing on an “as-needed” basis and we are in negotiations for a number of new credit lines. As of September 30, 2010, the Company had aggregate credit lines of $51 million (RMB340 million). Although all of our lines of credit have maturities of less than two years and may not be renewed on the same terms, if at all, we do not expect that the expiration of our lines of credit with any one of our existing banks will have a material adverse effect on our ability to provide Financing Services. However, if the automobile market in the PRC, and in particular the market for imported automobiles, slows down in the future, our revenue from Financing Services would be materially and adversely affected by a decreased number of transactions.

We view the business of Financing Services and Automobile Import Value Added Services, discussed below, as closely related, and both are heavily dependent upon market conditions. In particular, a tightening of the credit market in the PRC, to the extent it impacts our ability to obtain lines of credit from our banks or other additional financing, will also limit our ability to provide Financing Services to our customers.

Web-based Advertising Services

Revenue generated from advertisements on our websites (“Web-based Advertising Services”) has experienced continuous growth in recent periods as a result of the expanded coverage and increased popularity of our websites. Our revenue from Web-based Advertising Services increased 81.85%, from $933,472 for the three months ended September 30, 2009 to $1,697,522 for the three months ended September 30, 2010.

Currently, our websites have over 190 paid subscribers and over 1,200 advertisers, and cover 29 cities in the PRC. Our www.at188.com and www.at160.com are two of the most popular websites in China dealing with imported and domestic cars. Currently, our revenue from our websites is mainly generated from advertisements. We aim to generate 50% of revenues from our websites subscription fees and advertisements, and 50% from other auto related services sold over the Internet. We are rapidly developing our websites and expect continuous growth in revenue from our websites as a result of expanding our reach from 15 cities at the beginning of 2010 to currently 29 cities throughout the PRC, representing increased coverage in an additional 14 cities as compared to its presence in 15 cities for the three months ended September 30, 2009. The Company aims to reach 70% of the auto buying public in the PRC by the end of 2011.

Automobile Import Value Added Services

Revenue generated through our customs clearance, storage and nationwide delivery services (“Automobile Import Value Added Services”) increased 27.54%, from $155,900 for the three months ended September 30, 2009 to $198,831 for the three months ended September 30, 2010 due to more transactions in the three months ended September 30, 2010.

Auto Mall Management Services

Pursuant to a services agreement entered into by and between the Company and Tianjin Prominent Hero International Logistics Co., Ltd., dated as of March 1, 2010, the Company agreed to provide services to manage Tianjin FTZ International Automobile Exhibition and Sales Center (“Auto Mall Management Services”) for a one-year period for an aggregate consideration of $1,000,000. The Company started to provide such services on March 1, 2010 and the related services fee is recognized ratably over the service period. The related revenue earned in the period is included under our Auto Mall Management Services segment.

Our Auto Mall Management Services revenue for the three months ended September 30, 2010 was $239,475 and there was no such revenue in the same period of 2009.

Cost of Revenue

	Three Months Ended September 30, 2010		% of net revenue			Three Months Ended September 30, 2009		% of net revenue			Change in %
Net revenue	$	67,475,209		100.00	%	$	52,826,034		100.00	%		27.73	%
Cost of revenue		63,730,308		94.45	%		50,107,679		94.85	%		27.19	%

Our cost of revenue primarily consisted of the cost of automobiles imported from foreign automobile manufacturers and certain direct labor and overhead costs related to our Financing Services, Web-based Advertising Services, Automobile Import Value Added Services and Auto Mall Management Services. Our cost of revenue increased 27.19%, from $50,107,679 for the three months ended September 30, 2009 to $63,730,308 for the three months ended September 30, 2010. The increase was primarily due to an increase in the purchase price of imported automobiles and the number of automobiles sold in the period, which is consistent with our net revenue growth rate.

As our cost of revenue consists primarily of the purchase price of imported automobiles, we have limited control over such costs. The prices of imported automobiles are determined solely by suppliers and are dependent upon market conditions. We will continue to work on obtaining more favorable terms and discounts by strengthening our relationship with suppliers and placing more batch orders.

Operating Expenses

	Three Months Ended September 30, 2010		% of total			Three Months Ended September 30, 2009		% of total			Change in %
Operating Expenses
- Selling and Marketing	$	236,707		37.80	%	$	171,590		38.83	%		37.95	%
- General and Administrative		389,487		62.20	%		270,883		61.22	%		43.78	%
Total	$	626,194		100.00	%	$	442,473		100.00	%		41.52	%

During the three months ended September 30, 2010, our total operating expenses increased 41.52% to $626,194 from $442,473 for the same period in 2009. This increase was a combination of a 37.95% increase in selling and marketing expenses to $236,707 for the three months ended September 30, 2010 from $171,590 for the same period in 2009, and a 43.78% increase in general and administrative expenses (“G&A”) to $389,487 for the three months ended September 30, 2010 from $270,883 for the same period in 2009.

The following table sets forth a breakdown of the primary selling and marketing expenses of the Company:

	Three Months Ended September 30,				Change in %
	2010		2009
Primary selling and marketing expenses
- Payroll	$	55,967	$	17,483		220.12	%
- Office supplies		42,747		31,579		35.37	%
- Entertainment		8,622		5,993		43.87	%
- Rent		52,846		42,365		24.74	%

Payroll expenses increased 220.12% to $55,967 for the three months ended September 30, 2010 from $17,483 for the same period in 2009 due to the cost of additional staff for the new segment of Auto Mall Management Services and the rising costs of remuneration packages related to recruiting and maintaining skilled employees. Office supplies were higher in the three months ended September 30, 2010 as a result of the Company’s acquisition of certain low value office equipment.

The following table sets forth a breakdown of the primary G&A expenses of the Company:

	Three Months Ended September 30,				Change in %
	2010		2009
Primary general and administrative expenses
- Payroll	$	88,978	$	38,527		130.95	%
- Entertainment		23,150		14,224		62.75	%
- Depreciation		49,410		45,335		8.99	%
- Legal and professional fees		158,933		102,662		54.81	%

Payroll expenses increased 130.95% to $88,978 for the three months ended September 30, 2010 from $38,527 for the same period in 2009 primarily due to the rising costs of offering competitive remuneration packages to maintain qualified management staff. Entertainment expenses increased by 62.75% from the same period in 2009, primarily due to increase of company events in the three months ended September 30, 2010. Legal and professional fees increased 54.81% for the three months ended September 30, 2010 to $158,933 from $102,662 in the same period of 2009, related to the increased costs in relation to the Company’s acquisition of Goodcar.

Depreciation and Amortization

In order to meet the needs of the expansion of its operations, the Company steadily purchased office equipment and updated computer and server hardware and software. As a result of certain office equipment and automobiles being fully depreciated, depreciation and amortization decreased 0.13% for the three months ended September 30, 2010 to $50,550 from $50,616 in the same period of 2009. As of September 30, 2010, the Company does not own any real property.

We depreciate our property and equipment under the straight-line method over the economic useful lives of the assets.

Income from Operations

Income from operations increased 37.03% for the three months ended September 30, 2010 to $3,118,707 from $2,275,882 in the same period of 2009, which is primarily attributable to growth in revenue and gross profit, as discussed above.

Gross profits increased 37.79% for the three months ended September 30, 2010 to $3,744,901 from $2,717,780 in the same period of 2009, due to an increase in net revenues of 28.23% from $52,621,903 to $67,475,209.

In the future, in our automobiles sales business, we aim to improve profitability. We expect to strengthen relationships with our major suppliers to obtain more favorable terms such as freight exemptions and discounts. We also expect increased profit from continued growth in our website services and auto-related services business.

Other Income and Expenses

Other income and expenses consist primarily of interest income and interest expenses. The Company’s interest income is generated by interest earned through bank deposits while interest expenses are amounts paid by the Company with respect to its borrowings from banks.

Results of Operations for the Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009

	Nine Months Ended September 30, 2010		% of net revenue			Nine Months Ended September 30, 2009		% of net revenue			Change in %
Net revenue	$	176,445,062		100.00	%	$	143,063,820		100.00	%		23.33	%
Cost of revenue		166,930,262		94.61	%		135,604,333		94.79	%		23.10	%
Gross profit		9,514,800		5.39	%		7,459,487		5.21	%		27.55	%
Operating expenses		1,696,393		0.96	%		1,334,224		0.93	%		27.14	%
Income from operations		7,818,407		4.43	%		6,125,263		4.28	%		27.64	%
Other expenses		90,306		0.05	%		143,522		0.10	%		(37.08	)%
Income before income taxes and noncontrolling interests		7,728,101		4.38	%		5,981,741		4.18	%		29.19	%
Net income		5,698,715		3.23	%		4,409,497		3.08	%		29.24	%
Net income attributable to shareholders of China Auto Logistics Inc.	$	5,613,069		3.18	%	$	4,094,056		2.86	%		37.10	%

For the nine months ended September 30, 2010, our net revenue increased 23.33% to $176,445,062, from $143,063,820 for the same period in 2009, and our cost of revenue increased 23.10% to $166,930,262 from $135,604,333 for the same period in 2009. Gross profit margin increased 18 basis points from 5.21% for the nine months ended September 30, 2009 to 5.39% for the same period in 2010. As compared to the same period in 2009, our gross profit, income from operations and net income for the nine months ended September 30, 2010 increased 27.56% to $9,514,800, 27.64% to $7,818,407 and 29.24% to $5,698,715, respectively primarily due to an increase in our web-based advertising service revenue and auto mall management service revenue.

Net income attributable to shareholders of China Auto Logistics Inc. increased 37.10% from $4,094,056 for the nine months ended September 30, 2009 to $5,613,069 for the nine months ended September 30, 2010. The increase was primarily due to an increase in web-based advertising service revenue and auto mall management services revenue, as discussed above, and the Company’s increased share of its subsidiaries’ profit following its further acquisitions of equity holdings in each of three subsidiaries to 98% on July 23, 2009.

Net Revenue

The following table sets forth a summary of our net revenue by category for the periods indicated, in dollars and as a percentage of total net revenue:

	Nine Months Ended September 30, 2010		% of net revenue			Nine Months Ended September 30, 2009		% of net revenue			Change in %
Net revenue	$	176,445,062		100.00	%	$	143,063,820		100.00	%		23.33	%
- Sales of Automobiles		170,044,880		96.37	%		139,344,343		97.40	%		22.03	%
- Financing Services		1,241,058		0.70	%		960,406		0.67	%		29.22	%
- Web-based Advertising Services		3,942,372		2.23	%		2,278,890		1.60	%		73.00	%
Automobile Import Value Added Services		643,169		0.36	%		480,181		0.33	%		33.94	%
- Auto Mall Management Services		573,583		0.34	%		-		0.00	%		N/A

Sales of Automobiles

Net revenue from sales of automobiles increased 22.03% to $170,044,880 for the nine months ended September 30, 2010 from $139,344,343 for the same period in 2009. During the nine months ended September 30, 2010 and 2009, the Company sold 1,977 automobiles and 1,778 automobiles, respectively, representing an increase of 11.19% in volume. The average unit selling price per automobile for the nine months ended September 30, 2010 increased 9.91% to $86,012 from $78,257 for the same period in 2009. The Company will continue its focus on the marketing of luxury high-end automobiles.

Sales to the Company’s top three customers, each of which are car dealers, accounted for 29% and 33% of the Company’s sales during the nine months ended September 30, 2010 and 2009, respectively. The Company will continue to maintain close working relationships with its top customers while attempting to reduce the concentration of revenues among these top customers actively looking for new customers to enlarge its customer base.

Financing Services

Net revenue from Financing Services for the nine months ended September 30, 2010 increased 29.22% to $1,241,058 from $960,406 for the same period in 2009. Our revenue growth from financing services is heavily dependent on overall industry growth and economic market conditions in the PRC. The Company has expanded its aggregate credit lines by approximately $15 million to $51 million as of September 30, 2010, from approximately $36 million as of December 31, 2009. Revenue from Financing Services increased as a result of the increase in credit lines during the period.

Web-based Advertising Services

Our revenue from Web-based Advertising Services increased 73.00%, from $2,278,890 for the nine months ended September 30, 2009 to $3,942,372 for the nine months ended September 30, 2010. This increase is primarily due to the increased advertisement services rendered following the expanded coverage and increased popularity of our websites as a result of expanding our reach from 15 cities at the beginning of 2010 to currently 29 cities throughout the PRC, representing increased coverage in an additional 14 cities as compared to its presence in 15 cities for the three months ended September 30, 2009.

Automobile Import Value Added Services

Our Automobile Import Value Added Services revenue increased 33.94%, from $480,181 for the nine months ended September 30, 2009 to $643,169 for the nine months ended September 30, 2010. The increase is primarily in line with the increase in sales of automobiles.

Auto Mall Management Services

Our Auto Mall Management Services revenue for the nine months ended September 30, 2010 was $573,583, which represented revenue from a service agreement entered into with Tianjin Prominent Hero International Logistics Co., Ltd. dated March 1, 2010. There was no such revenue in the same period of 2009.

Cost of Revenue

	Nine Months Ended September 30, 2010		% of net revenue			Nine Months Ended September 30, 2009		% of net revenue			Change in %
Net revenue	$	176,445,062		100.00	%	$	143,063,820		100.00	%		23.33	%
Cost of revenue		166,930,262		94.61	%		135,604,333		94.79	%		23.10	%

Our cost of revenue primarily consisted of the cost of automobiles imported from foreign automobile manufacturers and certain direct labor and overhead costs related to our Financing Services, Web-based Advertising Services, Automobile Import Value Added Services and Auto Mall Management Services. Our cost of revenue increased 23.10%, from $135,604,333 for the nine months ended September 30, 2009 to $166,930,262 for the nine months ended September 30, 2010. The increase was primarily due to an increase in the purchase price of imported automobiles and the number of automobiles sold in the period, which is consistent with our net revenue growth rate.

Operating Expenses

	Nine Months Ended September 30, 2010		% of total			Nine Months Ended September 30, 2009		% of total			Change in %
Operating Expenses
- Selling and Marketing	$	622,234		36.68	%	$	475,737		35.66	%		30.79	%
- General and Administrative		1,074,159		63.32	%		858,487		64.34	%		25.12	%
Total	$	1,696,393		100.00	%	$	1,334,224		100.00	%		27.14	%

During the nine months ended September 30, 2010, our total operating expenses increased 27.14% to $1,696,393 from $1,334,224 for the same period in 2009. This increase was a combination of a 30.79% increase in selling and marketing expenses to $622,234 for the nine months ended September 30, 2010 from $475,737 for the same period in 2009, and a 25.12% increase in general and administrative expenses (“G&A”) to $1,074,159 for the nine months ended September 30, 2010 from $858,487 for the same period in 2009.

The following table sets forth a breakdown of the primary selling and marketing expenses of the Company:

	Nine Months Ended September 30,				Change in %
	2010		2009
Primary selling and marketing expenses
- Payroll	$	132,682	$	65,552		102.41	%
- Office supplies		97,278		58,605		66.00	%
- Motor vehicle expenses		106,520		86,475		23.18	%
- Rent		139,606		126,358		10.48	%

Payroll expenses increased 102.41% to $132,682 for the nine months ended September 30, 2010 from $65,552 for the same period in 2009 due to the cost of additional staff for the new segment of Auto Mall Management Services and the rising costs of remuneration packages related to recruiting and maintaining skilled employees. Office supplies are higher in the nine months ended September 30, 2010 as a result of the Company’s acquisition of certain low value office equipment.

The following table sets forth a breakdown of the primary G&A expenses of the Company:

	Nine Months Ended September 30,				Change in %
	2010		2009
Primary general and administrative expenses
- Payroll	$	257,762	$	122,990		109.58	%
- Entertainment		65,400		63,128		3.60	%
- Depreciation		145,957		139,827		4.38	%
- Legal and professional fees		418,719		292,864		42.97	%

Payroll expenses increased 109.58% to $257,762 for the nine months ended September 30, 2010 from $122,990 for the same period in 2009 primarily due to the rising costs of offering competitive remuneration packages to maintain qualified management staff. Legal and professional fees increased 42.97% for the nine months ended September 30, 2010 to $418,719 from $292,864 in the same period of 2009, due to the increased costs of handling U.S. reporting matters and the costs incurred in relation to our acquisition of Goodcar.

Depreciation and Amortization

In order to meet the needs of its expanding operations, the Company steadily purchased office equipment and updated computer and server hardware and software. As a result of certain office equipment and automobiles being fully depreciated, depreciation and amortization decreased 5.35% for the nine months ended September 30, 2010 to $150,600 from $159,110 in the same period of 2009.

Income from Operations

Income from operations increased 27.64% for the nine months ended September 30, 2010 to $7,818,407 from $6,125,264 in the same period of 2009, which is primarily attributable to growth in revenue and gross profit. Gross profit increased 27.56% for the nine months ended September 30, 2010 to $9,514,800 from $7,458,912 in the same period of 2009, due to an increase in net revenues of 23.51% from $142,859,689 to $176,445,062.

Inflation

We believe that inflation has had a negligible effect on operations for the three and nine month periods ended September 30, 2010 and 2009. However, overall commodity inflation is an ongoing concern for our business and has been a considerable operational and financial focus for the Company. We continue to monitor commodity costs and work with our suppliers and customers to manage changes in commodity costs.

LIQUIDITY AND CAPITAL RESOURCES

We generally finance our operations through a combination of operating profit, short-term borrowing from banks and shareholder loans. During the reporting periods, we arranged a number of bank loans to satisfy our financing needs. As of the date of this Form 10-Q, we have not experienced any difficulty in raising funds through bank loans, and we have not experienced any liquidity problems in settling our payables in the ordinary course of business and repaying our bank loans when they come due.

We believe that the level of financial resources is a significant factor for our future development and accordingly we may determine from time to time to raise capital through private debt or equity financings to strengthen the Company’s financial position, to expand our facilities and to provide the Company with additional flexibility to take advantage of business opportunities. No assurances can be given that we will be successful in raising such additional capital on terms acceptable to the Company.

The following table sets forth a summary of our cash flows for the nine months ended September 30, 2010 and 2009.

	Nine Months Ended September 30,
	2010			2009
Net cash provided by operating activities	$	3,372,238		$	1,740,227
Net cash used for investing activities		(144,404	)		(502,198	)
Net cash used for financing activities		(1,297,701	)		(662,194	)
Effect on exchange rate change on cash		57,123			944
Cash and cash equivalents at beginning of period		2,255,058			1,598,781
Cash and cash equivalents at end of period		4,242,314			2,175,560

Operating Activities

During the nine months ended September 30, 2010, we generated net cash from operating activities of $3,372,238, as compared to net cash provided by operating activities of $1,740,227 in the same period of 2009. The increase in net cash from operating activities is primarily a result of our increased net income during the period and a decrease in net cash flows used for working capital as compared to the same period in 2009. This decrease in net cash flows used for working capital is primarily comprised of a $13,583,647 increase in customer deposits, which was partly offset by an increase in value added tax refundable of $1,266,812, an increase in inventories of $10,693,338, a decrease in draft notes payable of $2,929,437 and a decrease in income tax payable of $1,298,384 as compared to the same period in 2009.

During the nine months ended September 30, 2009, net cash used for operating activities was primarily comprised of an increase in restricted cash of $4,318,845, which was partially offset by a decrease in receivables relating to Financing Services of $1,063,167.

Investing Activities

During the nine months ended September 30, 2010, net cash used for investing activities was $144,404. This was primarily attributable to cash used for purchases of property and equipment of $214,636 and the proceeds from disposals of property and equipment of $70,232.

During the nine months ended September 30, 2009, net cash used for investing activities was $502,198. This was primarily attributable to cash used for purchases of noncontrolling interests and property and equipment of $444,120 and $58,078, respectively .

Financing Activities

During the nine months ended September 30, 2010, net cash used for financing activities was $1,297,701, as compared to $662,194 of net cash used for financing activities in the same period of 2009. The net cash used for financing activities mainly represents the repayments of short-term bank loans and lines of credit related to automobile purchases and the net advances from Cheng Weihong, a director of the Company.

Our total cash and cash equivalents increased to $4,242,314 as of September 30, 2010, as compared to $2,175,560 as of September 30, 2009.

Working Capital

As of September 30, 2010, the Company had working capital of $34,076,449 compared to working capital of $27,782,904 as of December 31, 2009.

The Company’s general cash needs have been to finance the accumulation of inventory and the build-up in accounts receivable and advances to suppliers. As of September 30, 2010, the Company’s inventories increased by $11,137,058 or 67.02%, compared to inventory balances as of December 31, 2009, its receivables related to Financing Services increased by $10,596,395 or 111.55% and its customer deposits increased by $13,855,376 or 236.54%, as compared with those as of December 31, 2009. The Company had outstanding borrowings of $20,282,303, representing 1.85 times of its borrowings as of December 31, 2009.

We aim to continue to improve the level of working capital through increased revenue and efficiently controlling costs. The Company adopted measures to lower holding costs of inventories and to develop and maintain good relationships with banks for favorable financing terms.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any outstanding derivative financial instruments, off-balance sheet guarantees or interest rate swap transactions of foreign currency forward contracts. The Company does not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. The Company does not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to the Company or that engages in leasing, hedging or research and development services with the Company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

A. Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures and internal controls designed to ensure that information required to be disclosed in the Company's filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. The Company's management, with the participation of its principal executive and financial officers, has evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The Company's principal executive and financial officers have concluded, based on such evaluation, that such disclosure controls and procedures were effective for the purpose for which they were designed as of the end of such period.

B. Changes in Internal Control over Financial Reporting

There was no change in the Company's internal control over financial reporting that was identified in connection with such evaluation that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

There have been no material developments in any legal proceedings since the disclosures contained in the Registrant’s Form 10-K for the year ended December 31, 2009.

Item 1A. Risk Factors.

Not required.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The Company has committed to issue 1.08 million shares of the Company’s common stock as part of the acquisition of Goodcar. The issuance of such shares will be exempt from registration in accordance with Section 4(2) of the Securities Act of 1933 as transactions by an issuer not involved in a public offering. The issuance is expected to be completed soon after the filing of this Quarterly Report on Form 10-Q.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. (Removed and Reserved).

Item 5. Other Information.

(a) On July 1, 2010, Shisheng entered into a lease agreement with Tianjin ShiMao BaoShui Area Car Logistics Co Ltd. attached hereto as Exhibit 10.8.

The lease term commenced on July 1, 2010 and expires on June 30, 2015. Pursuit to the lease agreement, the Company is obligated to pay base rents and the following table sets forth the Company’s minimum annual lease payment to Tianjin ShiMao BaoShui Area Car Logistics Co Ltd. for the auto exhibition mall during the term of the lease.

Year
1	$	179,075
2		179,075
3		188,029
4		206,832
5		227,515
Total	$	980,526

(b) There were no material changes to the procedures by which security holders may recommend nominees to the registrant’s board of directors during the quarter ended September 30, 2010.

Item 6. Exhibits.

The following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are filed herewith or, as noted, incorporated by reference herein:

Index to Exhibits

Exhibit Number		Exhibit Description

2.1 (1)		Share Exchange Agreement, dated as of November 10, 2008, between USCo, the Company and Stockholder.

2.2 (1)		Share Exchange Agreement, dated as of November 1, 2007, among Ever Auspicious International Limited, Cheng Weihong, Xia Qiming, and Qian Yuxi.

2.3 (1)		Supplementary Agreement to Share Exchange Agreement, dated as of November 1, 2007, among Ever Auspicious International Limited, Cheng Weihong, Xia Qiming, and Qian Yuxi.

3.1 (2)		Amended Articles of Incorporation of the Company

3.2 (2)		Amended and Restated Bylaws of the Company

10.1 (1)		Lease Agreement, effective as of September 30, 2003, between China Construction Bank Tianjin Tariff-free Zone Branch and Tianjin Shisheng Investment Group Ltd.

10.2 (1)		Supplementary Agreement, dated as of December 8, 2007, between Tianjin Port International Car Exhibit Centre and Tianjin Shisheng Investment Group Ltd.

10.3 (1)		Form of Employment Contract

10.4 (3)		Audit Committee Charter

10.5 (3)		Compensation Committee Charter

10.6 (3)		Corporate Governance and Nominating Committee Charter

10.7(4)		Share Transfer Agreement, dated November 1, 2010, by and between Long Jiegui and Tianjin Seashore New District Shisheng Business Trading Group Co. Ltd.

10.8*		Car Exhibition Hall Lease Contract, dated July 1, 2010, by and between Tianjin World Trading Bonded Automobile Distribution Center Co., Ltd and Tianjin Seashore New District Shisheng Business Trading Group Co., Ltd.

14.1 (3)		Code of Business Conduct and Ethics

21.1 (1)		Subsidiaries

31.1*		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith.

(1) Incorporated by reference to the Company’s Form 8-K, filed with the Securities and Exchange Commission on November 10, 2008.

(2) Incorporated by reference to the Company’s Definitive Schedule 14C Information Statement, filed with the Securities and Exchange Commission on December 5, 2008.

(3) Incorporated by reference to the Company’s Form 8-K, filed with the Securities and Exchange Commission on December 24, 2008.

(4) Incorporated by reference to the Company’s Form 8-K, filed with the Securities and Exchange Commission on November 5, 2010.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		CHINA AUTO LOGISTICS INC.

	By:	/s/ Tong Shiping
		Tong Shiping
		Chief Executive Officer

Date: November 15, 2010

Index to Exhibits

Exhibit Number		Exhibit Description

2.1 (1)		Share Exchange Agreement, dated as of November 10, 2008, between USCo, the Company and Stockholder.

2.2 (1)		Share Exchange Agreement, dated as of November 1, 2007, among Ever Auspicious International Limited, Cheng Weihong, Xia Qiming, and Qian Yuxi.

2.3 (1)		Supplementary Agreement to Share Exchange Agreement, dated as of November 1, 2007, among Ever Auspicious International Limited, Cheng Weihong, Xia Qiming, and Qian Yuxi.

3.1 (2)		Amended Articles of Incorporation of the Company

3.2 (2)		Amended and Restated Bylaws of the Company

10.1 (1)		Lease Agreement, effective as of September 30, 2003, between China Construction Bank Tianjin Tariff-free Zone Branch and Tianjin Shisheng Investment Group Ltd.

10.2 (1)		Supplementary Agreement, dated as of December 8, 2007, between Tianjin Port International Car Exhibit Centre and Tianjin Shisheng Investment Group Ltd.

10.3 (1)		Form of Employment Contract

10.4 (3)		Audit Committee Charter

10.5 (3)		Compensation Committee Charter

10.6 (3)		Corporate Governance and Nominating Committee Charter

10.7(4)		Share Transfer Agreement, dated November 1, 2010, by and between Long Jiegui and Tianjin Seashore New District Shisheng Business Trading Group Co. Ltd.

10.8*		Car Exhibition Hall Lease Contract, dated July 1, 2010, by and between Tianjin World Trading Bonded Automobile Distribution Center Co., Ltd and Tianjin Seashore New District Shisheng Business Trading Group Co., Ltd.

14.1 (3)		Code of Business Conduct and Ethics

21.1 (1)		Subsidiaries

31.1*		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith.

(1) Incorporated by reference to the Company’s Form 8-K, filed with the Securities and Exchange Commission on November 10, 2008.

(2) Incorporated by reference to the Company’s Definitive Schedule 14C Information Statement, filed with the Securities and Exchange Commission on December 5, 2008.

(3) Incorporated by reference to the Company’s Form 8-K, filed with the Securities and Exchange Commission on December 24, 2008.

(4) Incorporated by reference to the Company’s Form 8-K, filed with the Securities and Exchange Commission on November 5, 2010.