Qkl Stores (NASDAQ:QKLS)

Fourth Quarter 2012 Financial Results

• Revenue decreased by 17.1% to $86.0 million from $103.7 million in the fourth quarter of 2011.
• Gross profit decreased by 13.1% year over year to $14.6 million, compared to $16.8 million in the prior year period. Gross profit as a percentage of revenue for the fourth quarter of 2012 was 17.0%, compared to 16.2% for the fourth quarter of 2011.
• Net loss of $30.8 million in the fourth quarter of 2012 compared with net income of $18.4 million in the fourth quarter of 2011. Excluding the impairment of goodwill, we had a net loss of $4.1 million in the fourth quarter of 2012 compared with net income of $0.8 million in the fourth quarter of 2011.
• EPS Loss of  ($3.15) vs last years earnings of $0.61

Mr. Zhuangyi Wang, Chairman and CEO, said, "In the fourth quarter, we were more active with the level of promotional activities among our existing stores opened at least one year in order to strengthen our competitive position. Our 47 older stores that have been operating for more than one year have outperformed our younger stores as many of our new store locations are in new smaller markets which typically take longer to ramp up sales and profit. We believe our product quality, assortment and value can result in improved performance over time."

"In 2012, we opened up one new store that has approximately 5,700 square meters of space. During the fourth quarter, we closed three stores that have approximately 26,800 square meters of space. As of December 31, 2012, we operated 30 supermarkets, 14 hypermarkets, 4 department stores and 3 distribution centers situated in Daqing, Shenyang and Harbin, respectively.

As we advance into 2013, we plan to slow down the pace of our new store openings. Currently, we expect to open three new supermarket or hypermarket stores this year. We maintain confidence in our strategy of strengthening our store presence in Tier 4 and 5 cities in northeastern China as well as in our core region of operation around Daqing where the majority of our older stores are based."

On April 10, 2013, the Audit Committee of the Board of Directors of QKL Stores Inc. (the “Company”), after consultation with and upon recommendation from management of the Company, concluded that the Company’s financial statements for certain prior periods identified below, each as filed with the Securities and Exchange Commission, should be amended to correct accounting errors. The errors relate to the Company’s former practice of not consolidating Daqing Longqing Microcredit Co., Ltd., a People’s Republic company (the “QKL-LQ”) in its financial reports, which the Company controls, through arrangement that absorbs operations risk, as if QKL-LQ were a wholly-owned subsidiary of the Company, under ASC 810, “Variable Interest Entity”.

The Audit Committee concluded that, in light of the accounting errors discussed above, the previously issued unaudited interim financial statements for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012 included in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012 should no longer be relied upon.  The Company will file an amendment on Form 10-Q/A for each of the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012 as soon as practicable.

The Company’s authorized officers and the Audit Committee have discussed the foregoing matters with the Company’s current independent registered public accounting firm, Albert Wong & Co. LLP. The Board of Directors has authorized and directed that the officers of the Company take the appropriate and necessary actions to restate the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012. 

DAQING, China, February 22, 2013 /PRNewswire/ -- QKL Stores Inc. (the "Company") (Nasdaq: QKLS), a leading regional supermarket chain in Northeastern China, today announced that on February 20, 2013, it received a letter from The NASDAQ Stock Market LLC ("NASDAQ") notifying the Company that it has regained compliance with the minimum bid price requirement for continued listing set forth in NASDAQ Listing Rule 5550(a)(2), as its common stock has achieved a closing bid price of $1.00 or more for 10 consecutive business days.

On September 5, 2012, NASDAQ Staff notified the Company that its common stock failed to maintain a minimum bid price of $1.00 over the previous 30 consecutive business days as required by the Listing Rules of The NASDAQ Stock Market. The Staff also notified the Company that it had been granted a grace period of 180 calendar days in which to regain compliance. In the letter dated February 20, 2013, the Staff informed the Company that it had determined that for the last 10 consecutive business days, from February 5, 2013 to February 19, 2013, the closing bid price of the Company's common stock has been at $1.00 per share or greater. Accordingly, the Company has regained compliance with NASDAQ Listing Rules 5550(a)(2) and this matter is now closed.

Third Quarter 2012 Financial Results

• Revenue in the third quarter of 2012 increased by $2.2 million, or 2.8%, to $84.3 million for the three months endedSeptember 30, 2012 from $82.1 million for the three months ended September 30, 2011
• Gross profit decreased by 0.3% year-over-year to $14.15 million, compared to $14.19 million in the prior year period.
• Net loss was $1.1 million, or $(0.105) per diluted share, compared to $0.8 million, or ($0.082) per diluted share, for the three months ended September 30, 2011.

 Mr. Zhuangyi Wang, Chairman and CEO, said, "Our third quarter results generally met our levels of expectation. The variety, value and freshness of our products continue to resonate with our customers driving sales higher. This store growth was also driven by in-store promotional events such as store anniversary celebrations.

"We plan to open 1 additional store this year. The new stores we will open in the future will be located in Daqing City where we have stronger relationships with local vendors and the cost of goods is slightly lower than the other cities in which we operate."

"As our new store opening plan modifies from the first half of the year, we believe that preliminary new store opening expenses will decrease in the coming quarters as our total store sales rise, labor & utility costs stabilize and new store marketing expenses ease. For the remaining one quarters of 2012, we believe our gross margin will remain stable in the 16.8%-17.3% range, operating expenses as a percent of total revenue will move back into the 14.5%-15.5% range."

"We look forward to the upcoming holiday season as we have a number of exciting marketing initiatives planed. Our balance sheet is healthy with a strong cash position, low level of debt and stable flow of cash from operations. We continue to make progress with our store operations and that can result in greater sales and profits over time."

DAQING, China, October 17, 2012 /PRNewswire/ -- QKL Stores Inc. (the "Company") (Nasdaq: QKLS), a leading regional supermarket chain in Northeastern China, today announced that on October 16, 2012, China time, it received a letter from The Nasdaq Stock Market LLC ("Nasdaq") advising the Company that, as a result of the appointment of Jingyuan Gao on October 11, 2012 to the Company's Board of Directors and the Audit, Nominating and Corporate Governance, and Compensation Committees, the Company has regained compliance with the independent director and audit committee requirements for continued listing on Nasdaq Capital Market as set forth in the Nasdaq Listing Rules. With Mr. Gao's appointment to the Company's Board of Directors as an independent director, the Company's Board of Directors is again comprised of a majority of independent directors.

DAQING, China, September 7, 2012 /PRNewswire/ -- QKL Stores Inc. (the "Company") (Nasdaq: QKLS), a leading regional supermarket chain in Northeastern China, today announced that onSeptember 5, 2012, China time, it received a letter from Nasdaq Stock Market LLC ("Nasdaq"), indicating that based on the Company's closing bid price for the last 30 consecutive business days, the Company was not in compliance with the $1.00 minimum bid price requirement as set forth in Nasdaq Listing Rule 5550(a)(2). The Nasdaq notification letter has no immediate effect on the listing or trading of the Company's common stock on the Nasdaq Capital Market.

According to the Listing Rule 5810(c)(3)(A), the Company now has a period of 180 calendar days from such letter, or until March 4, 2013, to regain compliance. Compliance can be achieved by meeting the standard of a minimum bid price of $1 per share for a minimum of 10 consecutive business days at any time during the 180 day period. The Company is currently looking at all of the options available with respect to regaining such compliance.

DAQING, China, August 22, 2012 /PRNewswire-Asia/ -- QKL Stores Inc. (the "Company") (Nasdaq: QKLS), a leading regional supermarket chain in Northeastern China, today announced the opening of a new supermarket.

The Company's 54th new store, situated in Kaiyuan City, Liaoning Province, was opened on August 22, 2012. Kaiyuan City, with a population of approximately 580,000 residents, is known as the national grain producing base, and has a history of over 1300 years. The supermarket is located in the center of the commercial district of the city, serving about 200,000 potential Chinese customers. This supermarket occupies approximately 5,700 sq. meters of gross space.

Mr. Zhuangyi Wang, Chairman and CEO, said, "Kaiyuan City is a growing city in the Northeast China region that can benefit from the varied assortment of quality fresh food and grocery products that are carried within our store locations. We are pleased to open our first store in this location and are encouraged with the schedule of our 2012 store opening plan."

Financial Results for the Second Quarter

•  Revenue decreased by 0.3% to $83.2 million from $83.5 million
• Gross Profit decreased by 0.4% to $14.6 million from $14.6 million.

Mr. Zhuangyi Wang, Chairman and CEO, said, "The second quarter was a period in which we focused on improving efficiency in our business. Our existing stores opened for more than a year continued to show stable gross profit margin of 17.5% which helps support the ramp up period of our newer stores, which typically take longer to reach profitability. "We plan to open 3 additional stores this year. Most of the new stores we will open in the future will be located in the Heilongjiang Province where we have stronger relationships with local vendors and the cost of goods is slightly lower than the other two provinces (Liaoning and Jilin) in which we operate. "As our new store opening plan modifies from the first half of the year, we believe that preliminary new store opening expenses will decrease in the coming quarters as our total store sales rise, labor & utility costs stabilize and new store marketing expenses ease. For the remaining two quarters of 2012, we believe our gross margin will remain stable in the 17%-17.5% range, operating expenses as a percent of total revenue will move back into the 14%-15% range and we'll return to profitability with net income as a percent of total revenue in the 0.5%-1.0% range. "As QKL expands its market presence in northeast China, we are uniquely positioned against our local competitors through our large product offering, strong supplier relationships, efficient distribution network and state-of-the-art IT system. We are comfortable with our opportunities in the second half of the year and believe we'll see an improvement in operating expenses and profit growth from the current quarter."

DAQING, China, June 27, 2012 /PRNewswire-Asia/ -- QKL Stores Inc. (the "Company") (Nasdaq: QKLS), a leading regional supermarket chain in Northeastern China, today announced that on June 26, 2012, China time, it received a letter from The NASDAQ Stock Market LLC ("NASDAQ") notifying the Company that it has regained compliance with the minimum bid price requirement for continued listing set forth in NASDAQ Listing Rule 5550(a)(2), as its common stock has achieved a closing bid price of $1.00 or more for 10 consecutive business days.

On December 28, 2011, NASDAQ Staff notified the Company that its common stock failed to maintain a minimum bid price of $1.00 over the previous 30 consecutive business days as required by the Listing Rules of The Nasdaq Stock Market. The Staff also notified the Company that it had been granted a grace period of 180 calendar days in which to regain compliance. In the letter dated June 26, 2012, the Staff informed the Company that it had determined that for the last 10 consecutive business days, from June 12, 2012 to June 25, 2012, the closing bid price of the Company's common stock has been at $1.00 per share or greater. Accordingly, the Company has regained compliance with NASDAQ Listing Rules 5550(a)(2) and this matter is now closed

DAQING, China, June 12, 2012 /PRNewswire-Asia/ -- QKL Stores Inc. (the "Company") (Nasdaq: QKLS), a leading regional supermarket chain in Northeastern China, today announced that on June 11, 2012, the Company filed a Certificate of Amendment to the Company's Certificate of Incorporation, as amended to date (the "Certificate of Amendment"), with the Secretary of State of the State of Delaware to effect a one-for-three reverse stock split (the "Reverse Split") of the issued and outstanding common stock of the Company, so that every three (3) outstanding shares of common stock before the Reverse Split represents one (1) share of common stock after the Reverse Split. The Reverse Split became effective on and as of June 11, 2012. The Reverse Split was duly approved by the Board of Directors of the Company and the Company's shareholders entitled to vote a majority of the shares of common stock pursuant to Delaware General Corporation Law.

As a result of the Reverse Split, the number of outstanding shares of common stock of the Company will be reduced to approximately 10.5 million shares. Fractional stockholdings will be rounded up to the nearest whole number. Each shareholder's percentage ownership interest in the Company and proportional voting power remains unchanged after the Reverse Split except for minor changes and adjustments resulting from rounding of fractional interests. The rights and privileges of the holders of common stock are substantially unaffected by the Reverse Split. The shareholders of common stock should contact their broker or the Company's transfer agent, Empire Stock Transfer Inc. at (702) 818-5898, for instruction relating to the reverse split procedures. The Reverse Split is part of the Company's strategy to maintain the listing of its shares on the NASDAQ Capital Market.

At the market opening on June 12, 2012, the Company's common stock expects to begin trading on The NASDAQ Stock Market on a post-split adjusted basis under a new CUSIP number. The Company's ticker symbol of "QKLS" will remain unchanged as a result of the Reverse Split, although it is expected that NASDAQ will append a "D" to the Company's ticker symbol for approximately 20 trading days following the effective date of the Reverse Split to indicate the completion of the Reverse Split.

DAQING, China, May 29, 2012 /PRNewswire-Asia/ -- QKL Stores Inc. (the "Company") (Nasdaq: QKLS), a leading regional supermarket chain in Northeastern China, today announced that on May 19, 2012, China time, it received a letter from Nasdaq Stock Market LLC ("Nasdaq") indicating that the Company no longer complies with Nasdaq's independent director and audit committee requirements as set forth in Listing Rule 5605 as a result of the vacancy caused by the resignation of Mr. Zhiguo Jin as a member of the Company's board of directors and the audit committee. Listing Rule 5605 requires that a majority of the Company's board of directors be comprised of independent members and its audit committee be comprised of three independent members. The letter also indicated that Nasdaq will provide the Company a cure period in accordance with Listing Rules 5605(b)(1)(A) and 5605(c)(4), respectively.

As we previously disclosed on April 25, 2012, Mr. Zhiguo Jin resigned as a member of the board of the Company on April 19, 2012. Mr. Jin also served as Chairman of the nominating and corporate governance committee and as a member of the audit and compensation committees.

The Company is conducting a search for a new director who meets the requirements of Nasdaq and is available for appointment to the Company's board of directors and audit committee within the cure period allowed under the Nasdaq Listing Rules.

First Quarter 2012 Financial Results

• Revenue in the first quarter of 2012 increased 10.6% to $112.0 million from $101.3 million in the first quarter of 2011.
• Gross profit increased 5.3% year over year to $19.1 million, compared to $18.1 million in the prior year period
• Operating expenses increased 18.8% to $17.5 million compared to $14.7 million in the prior year period.
• First quarter 2012 net income was approximately $0.8 million, or $0.02 per diluted share, compared with $2.6 million, or $0.07 per diluted share, for the same period in 2011.

Mr. Zhuangyi Wang, Chairman and CEO, said, "We finished the first quarter operating a total of 53 stores, comprised of 33 supermarkets, 16 hypermarkets and 4 department stores. As our new store opening plan slows for 2012, the new stores are going to open particularly in the second half of the year, we expect our profitability to improve as we benefit from our new store sales, increased same store sales at existing stores and reduced store opening and promotional expenses."

"We were also pleased with the improvement of our operating cash flows in the first quarter due to a reduction in inventory after the peak Chinese New Year season and a decrease in other receivables attributable to cash recovery from our vendors after the busy holiday season. We are pleased with our execution in the first quarter and are setting the stage for increased top and bottom line growth in the coming quarters."

On April 20, 2012, the board of directors (the “Board”) of QKL Stores Inc. (the “Company”) received a letter from Mr. Zhiguo Jin dated April 19, 2012, that he resigned as a member of the Board of the Company. At the time of his resignation, Mr. Jin also served as Chairman of the Nominating and Corporate Governance Committee and as a member of the Audit Committee and Compensation Committee.

Fourth Quarter 2011 Results

• Revenue in the fourth quarter of 2011 increased 20.9% to $103.7 million from $85.8 million in the fourth quarter of 2010
• Excluding the non cash impairment charge on goodwill and changes in the fair value of warrants, adjusted net income for the three months ended December 31, 2011 was $0.9 million, or $0.03 per diluted share, compared to $2.4 million, or $0.06 per diluted share, in the period prior year.

Mr. Zhuangyi Wang, Chairman and CEO, said, "In the fourth quarter, we were more active with the level of promotional activities among our existing stores opened at least one year in order to strengthen our competitive position. Our 35 older stores that have been operating for more than one year have outperformed our younger stores as many of our new store locations are in new smaller markets which typically take longer to ramp up sales and profit. We believe our product quality, assortment and value can result in improved performance over time."

"During the fourth quarter, we opened up one new store, a 2,400 sq. meter supermarket in Daqing City, Heilongjiang province. We successfully opened 14 new stores in 2011 bringing our store total to 54 locations, comprised of 34 supermarkets, 16 hypermarkets and 4 department stores. We opened a 9,000 sq. meter distribution center in the Liaoning province in the fourth quarter and now have 3 distribution centers situated in the Heilongjiang and Liaoning provinces to better support our growing base of stores."

As we advance into 2012, we plan to slow down the pace of our new store openings. Currently, we expect to open five new supermarket or hypermarket stores this year. We maintain confidence in our strategy of strengthening our store presence in Tier 4 & 5 cities in northeastern China as well as in our core region of operation around Daqing where the majority of our older stores are based."

Restatement of EPS Results for the Year Ended December 31, 2010 and First Two Quarters of 2011

The Company also announced estimated amounts for the restatement of its earnings per share information for the fiscal year ended December 31, 2010 and the first two quarters of 2011. The Company originally filed an 8-K related to this restatement with the SEC on February 23, 2012. This restatement will have no financial impact on the Company's historically reported revenue or net income for the preceding financial reporting periods.

This restatement occurred because the Company should have calculated earnings per share for the relevant periods in accordance with ASC 260, Earnings Per Share, which requires presentation of earnings per share using the two class method when a company has securities that participate in common stock dividends. Specifically, the Company's issued and outstanding convertible preferred stock, which participates in dividends of the Company on the same basis as holders of the Company's common stock, should have been but was not included in the calculation of basic earnings per share for the relevant periods using the two class method.

A summary of the restatement, which impacts fiscal quarters ended December 31, 2010, March 31, 2011 and June 30, 2011, is as follows:

• The estimated impact of the restatement for the full year 2010 resulted in a decrease in basic earnings per share from $0.59 to $0.47 and a decrease in diluted earnings per share from $0.44 to $0.24.
• The estimated impact of the restatement for the three months ended March 31, 2011 resulted in a decrease in basic earnings per share from $0.09 to $0.07. There was no change to diluted earnings per share for the period ended March 31, 2011.
• The estimated impact of the restatement for the three months ended June 30, 2011 resulted in a decrease in basic earnings per share from $0.07 to $0.06. There was no change to diluted earnings per share for the period ended June 30, 2011.
• The estimated impact of the restatement for the six months ended June 30, 2011 resulted in a decrease in basic earnings per share from $0.09 to $0.07. There was no change to diluted earnings per share for the six month period ended June 30, 2011.

ITEM 4.02 NON-RELIANCE ON PREVIOUSLY ISSUED FINANCIAL STATEMENTS OR A RELATED AUDIT REPORT OR COMPLETED INTERIM REVIEW.

 

On February 17, 2012, the Audit Committee of the Board of Directors of QKL Stores Inc. (the “Company”), after consultation with and upon recommendation from management of the Company, concluded the Company’s previously issued audited financial statements for the year ended December 31, 2010 included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2011 and the unaudited financial statements for the three months ended March 31, 2011 and June 30, 2011 included in its Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission on May 16, 2011 and August 15, 2011 should no longer be relied upon and that disclosure should be made and action should be taken to prevent future reliance. The Company will restate its financial statements for the year ended December 31, 2010, the three months ended March 31, 2011 and the three and six months ended June 30, 2011 due to issues raised by the Staff of the SEC in a series of comment letters regarding the Company’s Annual Report and Quarterly Reports filed during 2011 relating to the calculation of earnings per share in the financial statements and related notes.

 

The reason for the conclusion regarding the non-reliance is that the Company should have calculated earnings per share in accordance with ASC 260, Earnings Per Share, which requires presentation of earnings per share using the two class method when a company has securities that participate in common stock dividends. Therefore, the Company’s issued and outstanding convertible preferred stock, which participates in dividends of the Company on the same basis as holders of the Company’s common stock, should have been but was not included in the calculation of basic earnings per share using the two class method.

 

The Company’s authorized officers and the Audit Committee, have discussed the foregoing matters with the Company’s former and current independent registered public accounting firms, BDO China Shu Lun Pan Certified Public Accountants LLP and Albert Wong & Co LLP. The Board of Directors has authorized and directed that the officers of the Company take the appropriate and necessary actions to restate the Annual Report on Form 10-K for the year ended December 31, 2010 and the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2011 and June 30, 2011.

Red Flag Alert: change in auditor after the conclusion of the company's 2011 year, but before its audit.

DAQING, China, February 14, 2012 /PRNewswire-Asia/ --QKL Stores Inc. (the "Company") (Nasdaq: QKLS), a leading regional supermarket chain in Northeastern China, today announced that in order to significantly reduce its accounting expenses, the Company has dismissed BDO China Shu Lun Pan Certified Public Accountants LLP ("BDO"), as its principal accountant, and engaged Albert Wong & Co LLP ("Albert Wong") as its new independent registered public accounting firm effective immediately. The Company has had no disagreements with BDO during their tenure.

Red Flag Alert: change in auditor after the conclusion of the company's 2011 year, but before its audit.

DAQING, China, February 14, 2012 /PRNewswire-Asia/ --QKL Stores Inc. (the "Company") (Nasdaq: QKLS), a leading regional supermarket chain in Northeastern China, today announced that in order to significantly reduce its accounting expenses, the Company has dismissed BDO China Shu Lun Pan Certified Public Accountants LLP ("BDO"), as its principal accountant, and engaged Albert Wong & Co LLP ("Albert Wong") as its new independent registered public accounting firm effective immediately. The Company has had no disagreements with BDO during their tenure.

Mr. Zhuangyi Wang, Chairman and CEO, said, "We are appreciative of BDO's service during their tenure and welcome Albert Wong as our new accounting firm. As we constantly monitor our business in an effort to manage costs and improve our profitability where appropriate, we believe the change of our accounting firm will significantly reduce our accounting expenses. We remain committed to improving the profitability of our company on behalf of our shareholders."

The Company and BDO have not had any disagreements on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures that, if not resolved to the satisfaction of BDO, would have caused BDO to make reference to the subject matter of the disagreement in connection with its report on the Company's consolidated financial statements. Further information is available in the Current Report on Form 8-K which was filed with the Securities and Exchange Commission on February 14, 2012.

DAQING, China, December 27, 2011 /PRNewswire-Asia/ -- QKL Stores Inc. (the "Company") (Nasdaq: QKLS), a leading regional supermarket chain in Northeastern China, today announced the opening of one supermarket in Heilongjiang Province.

The Company's 54th store, situated in Daqing city, Heilongjiang Province, was opened on December 24th, 2011. The Company's store is located in Daqing city and occupies approximately 2,400 sq. meters of gross space with capacity to serve over 30,000 customers.

Including its new supermarket, the Company now operates 54 stores totaling 324,400 sq. meters of store space. This is comprised of 34 supermarkets, 16 hypermarkets and 4 department stores.

Mr. Zhuangyi Wang, Chairman and CEO, said, "We are delighted to open another store in our 'home' city of Daqing city, where the QKL brand is widely recognized. Our business has developed rapidly since we opened our first store in Daqing city in 1999 and we believe the value and convenience of our stores in Daqing has resulted in strong customer loyalty in the local community. Our new store will provide the opportunity to introduce our broad assortment of high quality products and unique shopping experience to a new group of customers in Daqing city, and we are pleased to open our final store to be opened in 2011 before the Chinese holiday season, our busiest time of year.

On October 28, 2011, QKL Stores Inc. (the “Company) received a letter from the Nasdaq Stock Market LLC (“Nasdaq”). Nasdaq indicated in its letter that as a result of the resignation of Mr. Gary Crook from the Company’s Board of Directors, effective October 21, 2011, the Company no longer complies with Nasdaq’s independent director and audit committee requirements as set forth in Listing Rule 5605.

The Company had provided Nasdaq with notice of such non-compliance with Listing Rule 5605 in a letter dated October 24, 2011. The Company intends to fill the vacancy on its board of directors no later than the earlier of the Company’s next annual shareholders’ meeting or October 21, 2012.

Third Quarter 2011 Results

• Revenue in the third quarter of 2011 increased 26.5% to $82.1 million from $64.9 million in the third quarter of 2010.
• The Company reported a net loss of approximately $(0.8) million, or $(0.03) per diluted share, compared with net income of $1.0 million, or $0.03 per diluted share, for the same period in 2010.

Mr. Zhuangyi Wang, Chairman and CEO, said, "Our third quarter results generally met our levels of expectation. Of the 33 stores opened at least one year, we achieved same store sales growth of 9.3% on sales of $67.5 million. The variety, value and freshness of our products continue to resonate with our customers driving sales higher. This store growth was also driven by in-store promotional events such as store anniversary celebrations. Our membership club continues to grow and now has over 650,000 members. This is our highest level yet and highlights the loyalty of our growing customer base."

Many of our new store locations are in new markets which typically take longer on average to ramp up sales and profit. Through our marketing/advertising efforts, we believe our market share will build over time as the smaller market consumer becomes more educated and increasingly understands our product quality, assortment and value. As this occurs, we expect these locations to become more productive and generate higher levels of sales, gross margin and profit."

"We plan to open our new Shenyang distribution center by the end of November. This 9,000 sq. meter facility which primarily stores non-food and grocery products, will serve as a central location for our two existing stores in Liaoning Province as well as future stores in the region. We also opened up two new stores in the third quarter. The first store is a 15,000 sq. meter hypermarket in Da'an which is in the Jilin province. The second store opened is a 6,600 sq. meter supermarket in Zhalannuoer County located in Inner Mongolia."

"We look forward to the upcoming holiday season as we have a number of exciting marketing initiatives planned. Our balance sheet is healthy with a strong cash position, low level of debt and stable flow of cash from operations. We continue to make progress with our store operations and that can result in greater sales and profits over time."

On October 21, 2011, the board of directors (the “Board”) of QKL Stores Inc. (the “Company”) received notification from Mr. Gary Crook, that he resigned as a member of the Board of the Company, effective immediately. At the time of his resignation, Mr. Crook also served as Chairman of the Audit Committee and as a member of the Compensation Committee and Corporate Governance Committee.

First Quarter 2011 Financial Results

• Revenue in the first quarter of 2011 increased 24.1% to $101.3 million from $81.6 million in the first quarter of 2010.

Revenue performance reflected the growth of 34 comparable stores, which are stores that have been open for at least one year before the beginning of the comparison period, or by January 1, 2010, as well as sales from the opening of 15 new stores since January1, 2010. Same-store sales were approximately $84.1 million in the first quarter of 2011, an increase of 8.5% from $77.5 million in the first quarter of 2010.The 15 new stores opened since January 1, 2010 generated approximately $17.2 million in the first quarter of 2011.

• Gross profit increased 24.6% year over year to $18.1 million, compared to $14.5 million in the prior year period. Gross margin for the first quarter of 2011 was 17.9%, compared to 17.8% for the first quarter of 2010. The increase in gross profit was primarily attributable to the increase in net sales over the prior year period.

• Operating expenses increased 63.2% to $14.7 million compared to $9.0 million in the prior year period.

This was primarily a result of additional salary, rent and utility expenses, the hiring of more employees, and other operating costs related to the Company's increased store count over the past year as well as from pre-opening expenses from six new stores opened in the 2011 first quarter.

• Operating income was $3.4 million, or 3.3% of sales, from $5.5 million, or 6.7% of total sales, in the first quarter of 2010. 
  
• First quarter 2011 net income was approximately $2.6 million, or $0.07 per diluted share, compared with $11.9 million, or $0.29 per diluted share, for the same period in 2010.

• Excluding changes in the fair value of warrants, adjusted net income for the three months ended March 31, 2011 was $2.6 million, or $0.07 per diluted share, compared to $4.1 million, or $0.10 per diluted share, in the period prior year.

Mr. Zhuangyi Wang, Chairman and CEO, said, "We made a lot of progress in the first quarter with our store opening activity. The opening of six new stores in the first quarter was our most active store opening quarter to date. We have since opened another five stores in April which brings us close to completing our plan to open twelve new stores for the year. While this has resulted in higher pre-opening expenses, we believe we are setting the stage for increased top and bottom line growth in the coming quarters. We finished the first quarter operating a total of 49 stores, comprised of 33 supermarkets, 13 hypermarkets and 3 department stores. As our new store opening plan slows for the remainder of the year, particularly in the second half, we expect capex spending to slow and our profitability to improve as we benefit from our new store sales, increased same store sales at existing stores and reduced store opening and promotional expenses."

"We were also pleased with the improvement of our operating cash flows in the first quarter due to a reduction in inventory after the peak Chinese New Year season and a decrease in other receivables attributable to cash recovery from our vendors after the busy holiday season. We are pleased with our execution in the first quarter and are setting the stage for increased top and bottom line growth in the coming quarters."

Fourth Quarter Results:

• Revenue in the fourth quarter of 2010 increased 17.3% to $85.8 million from $73.2 million in the fourth quarter of 2009.
• Gross profit increased 18.6% year over year to $15.4 million, compared to $13.0 million in the prior year period.
• Excluding changes in the fair value of warrants, adjusted net income for the three months ended December 31, 2010 was $2.4 million, or $0.06 per diluted share, compared to $2.6 million, or $0.07 per diluted share, in the period prior year.

"As we enter 2011, we believe the northeast China region will continue to benefit from solid economic growth, increased urbanization and growing levels of disposable income which bodes well for our existing retail stores and new stores we plan on opening. We have already opened 6 new stores in the first quarter and the plan to add 12 total new store locations for an aggregate total of approximately 70,000 square meters of space in 2011.  We believe our full year gross margin trends can gradually increase as we benefit from greater sales of non-food items, a larger size store format, bulk buying power, greater private label sales and the opening of our second distribution center.  We also will continue to focus on minimizing our expenses to generate additional profit growth opportunities."

Our principal liquidity requirements are for working capital, capital expenditures and cash dividends. We fund our liquidity requirements primarily through cash on hand, cash flow from operations and borrowings from our revolving credit facility. We believe our cash on hand, future funds from operations and borrowings from our revolving credit facility will be sufficient to fund our cash requirements for at least the next twelve months.

We had cash on hand of $17.5 million at December 31, 2010. We expect capital expenditures for fiscal 2011 primarily to fund the opening of new stores, store-related remodeling and relocation. We anticipate an opening of 70,000 square meters of new stores in fiscal 2011 compared to 74,189 square meters of new stores in fiscal 2010.

We believe we will be able to fund our cash requirements, for at least the next twelve months, from cash on hand, operating cash flows and borrowings from our revolving credit facility.

DAQING, China, March 21, 2011 /PRNewswire-Asia/ -- QKL Stores Inc today announced the opening of a new supermarket store.

The Company's 49th store, situated in Shuangcheng City, Heilongjiang Province, was opened on March 20th, 2011. Shuangcheng City, with a population of approximately 820,000 residents, is well known for its food industry, represented by Nestle, Wahaha, and Huiyuan factories among others. QKL's supermarket utilizes approximately 3,300 sq. meters of gross space and is located in a new shopping mall center in the business district which can serve over 300,000 potential customers.

Mr. Zhuangyi Wang, Chairman and CEO, said, "We are excited to bring our concept of offering high quality, fresh and nutritious food at affordable prices to customers in Shuangcheng City. This is our first store in this city, where we plan on opening another two stores this year. This store opening brings the total number of Company store locations to 49 for an aggregate total of approximately 260,000 sq. meters of store space. This is comprised of 33 supermarkets, 13 hypermarkets and three department stores. We look forward to additional store openings this year."

Preliminary Fourth Quarter 2010 Financial Results

• Revenue in the fourth quarter of 2010 to be in the range of $83-85 million compared to $71.7 million in the fourth quarter of 2009.
• Gross margin to be in the range of 17.8%-17.9% compared to 17.4% for the third quarter of 2010 and 17.8% in the fourth quarter of 2009.
• Net income margin to be in the range of 2.5%-2.7% compared to 1.5% in the third quarter of 2010.
• Same-store sales increased 8% to approximately $72 million compared to the fourth quarter period of the prior year.

Mr. Zhuangyi Wang, Chairman and CEO, said, "We are pleased to have either met or exceeded the fourth quarter analyst consensus forecast for revenue, gross margin and net income margin.  This strong performance was driven by solid same store sales growth as well as from the new stores opened in recent months.  We look forward to providing our investors with further updates on our business when we report our official fourth quarter and full year financial results toward the end of March."

On October 18, 2010, Ms. Crystal Chen resigned from her position as Chief Financial Officer of QKL Stores Inc . On October 18, 2010, the Company, through Daqing QKL Chain Commerce & Trade Co., Ltd., a company that the Company controls through a series of contractual arrangements, entered into an employment contract  with Mr. Tsz-Kit (Jerry) Chan to serve as Chief Financial Officer of the Company. The appointment of Mr. Chan was unanimously approved by the Company’s Board of Directors and Compensation Committee.

QKL Stores Inc., today announced the opening of one department store and one supermarket in Jilin Province.

The openings of the two new stores bring the total number of the Company's store locations to 39 for an aggregate total of 188,000 sq. meters of store space. This is comprised of 30 supermarkets totaling 93,000 sq. meters, six hypermarkets totaling 43,000 sq. meters and three department stores totaling 43,000 sq. meters.  

Mr. Zhuangyi Wang, Chairman and CEO, said, "We are excited about the new store openings and are confident our two new stores in Ji'an will prove to be an outstanding addition to our existing retail locations. We are on track with our expansion plan of completing 20 new store openings totaling 100,000 sq meters of new store space in 2010, which will provide a solid base for revenue and profit growth as we head into the 2011 fiscal year. We continue our focus on fresh and high quality products, further operational efficiency and store expansion in northeastern China and Inner Mongolia."

As previously announced, the Company opened two stores in the first quarter of 2010, compared to none in the first quarter of 2009. Its 35th supermarket, opened on March 24th, 2010, is located in Tangyuan, Heilongjiang, and has floor space of approximately 6,200 square meters. The Company's 36th supermarket, opened on March 31, 2010, is located in Daqing, Heilongjiang and has floor space of approximately 2,655 square meters. Both stores carry items in all three of the Company's core product categories.

Mr. Wang continued, "Our store opening plan, which targets opening 20 locations and a minimum total of 100,000 sq. meters of new store space in 2010, remains on track and should accelerate as we move into the second half of this year. We are confident that our strategic operational initiatives and store growth plan can expand our position as a leading chain in northeast China."

"We remain quite excited about the future prospects for our company. We have a highly capable management team, a sound balance sheet, and a profitable enterprise with strong top-line revenue growth. We have a solid retail growth plan and uniquely differentiated product offering which provide us with a strong foundation to leverage a growing market opportunity and enhance our future growth. We have the capability to establish QKL Stores as the leading supermarket chain in northeast China."

"We remain highly encouraged with our opportunities in 2010. We plan to open 20 new stores having an aggregate of 100,000 sq. meters of new store space this year. We opened our first store of the year in March and believe our store opening schedule will rapidly accelerate as we head into the warmer weather months as well as open our second distribution center. This second distribution center, to be located in Harbin, is scheduled to open in April. Having a second distribution center will allow us to better support our retail locations with fresher products and greater selection, strengthen supplier relationships and lower our cost of goods sold thereby enhancing gross margin. We have a tremendous market opportunity to further expand our business and ensure that we enhance our position as the leading supermarket and hypermarket retail chain serving tier 2 and tier 3 cities in the northeast China region. We are well capitalized to achieve our store growth targets this year and look forward to achieving many positive developments in 2010."

Source: PR Newswire (April 1, 2010)

In connection with the Share Exchange Agreement, management has placed 9,117,647 million of its shares into an escrow to secure its obligations to meet specific financial targets for 2008 and 2009. If the targets are not achieved, a number of shares derived from a formula will be transferred pro-rata to certain investors involved in the reverse merger transaction..

Financial Targets:

1. 2008 will be satisfied if the Company achieves (i) both net income and cash from operations greater than $9.4 million and (ii) earnings per share equal to or greater than $0.23.

2. 2009 will be satisfied if the Company achieves, without additional financing, (i) both net income and cash from operations greater than $11.15 million and (ii) earnings per share equal to or greater than $0.27.

Source SEC form 8-K ( April 3, 2008 )

GeoTeam Note: These targets assume the Company's current tax rate of 25%


Financial Targets adjusted for a fully taxed scenario:

1. 2008 will be satisfied if the Company achieves (i) both net income and cash from operations greater than $8.36 million and (ii) earnings per share equal to or greater than $0.20.

2. 2009 will be satisfied if the Company achieves, without additional financing, (i) both net income and cash from operations greater than $9.92 million and (ii) earnings per share equal to or greater than $0.24.