2014

China Jo-Jo Drugstores, Inc. Reports Fiscal Year 2013 Earnings Results and Schedules Conference Call for July 5, 2013

HANGZHOU, China, July 2, 2013 /PRNewswire/ --

Fiscal Year 2013 Highlights:

  • Revenues from retail sales decreased to $40.7 million, down 38.4% from the prior period
  • Gross profit was $14.6 million, down 46.9% from the prior year
  • Net loss was $14.3 million
  • Diluted and basic loss per share was $1.06
  • Retooling operations: closed 17 stores in and around Hangzhou and focusing on more profitable wholesale customers

China Jo-Jo Drugstores, Inc. (NASDAQ: CJJD) (the "Company"), a retail and wholesale distributor of pharmaceutical and other healthcare products in China, today reported earnings results for the fiscal year ended March 31, 2013.  The Company will hold a conference call on Friday, July 5, 2013, at 8:00 a.m. Eastern Time. Please see below for dial-in information.

Mr. Lei Liu, the Company's Chairman and CEO, stated, "During fiscal year 2013, our retail drugstore segment faced increased government price controls on over-the-counter and prescription drugs and stricter insurance requirements as well as increased competition from neighborhood drugstores and hospitals that received government subsidies."  As of June 28, 2013, the Company operated 51 pharmacies, including five stores in Shanghai.

Mr. Lei Liu continued, "Our net loss was not only due to the reserves related to our advances to suppliers and accounts receivable from our wholesale business, but also goodwill impairments related to two acquisitions and write-offs related to closing 17 drugstores. These items totaled $12.2 million and accounted for 85.1% of our total net loss. Consequently, we are retooling our business strategies going forward: we plan to open more clinics adjacent to our drugstores to boost sales, we are looking for ways to reduce our general and administrative expenses, and we are now focusing on more profitable wholesale customers rather than driving sales volume through low margin sales as we had previously done."

Mr. Liu continued, "For fiscal year 2013, we continued to harvest and sell herbs used in traditional Chinese medicine. Sales from our online drugstore also rose, as we actively promoted our online presence through cooperation with some of the larger online vendors in China."

"For Fiscal 2014, we are looking to stabilize and grow our revenue primarily through our retail operation, and we will continue our wholesale operations with an eye on bottom line results," stated Mr. Liu.

Balance Sheet Highlights

As of March 31, 2012, the Company had $4.5 million of cash, $67.8 million in total assets and $29.7 million in total liabilities.

Fiscal Year 2013 Full Year Results 

Comparison of years ended March 31, 2013 and 2012

The following table summarizes our results of operations for the years ended March 31, 2013 and 2012:



Years Ended March 31,



2013


2012




Amount


Percentage
of total
revenue



Amount


Percentage
of total
revenue

Revenues


$

89,495,546


100.0%


$

94,352,885


100.0%

Gross Profit


$

14,634,993


16.4%


$

27,562,801


29.2%

Selling Expenses


$

12,216,984


13.7%


$

8,498,240


9.0%

General and Administrative Expenses


$

15,000,364


16.8%


$

8,582,389


9.1%

Goodwill Impairment Loss


$

1,473,606


1.6%


$

-


-

(Loss) Income from Operations


$

(14,055,961)


(15.7)%


$

10,482,172


11.1%

Other Income (Expense)


$

56,428


0.1%


$

187,865


0.2%

Changes in Fair Value of Purchase Option Derivative Liability


$

18,810


0.0%


$

118,807


0.1%

Income Tax Expenses


$

353,802


0.4%


$

2,648,365


2.8%

Net (loss) income attributable to controlling interest


$

(14,334,525)


(16.0)%


$

8,141,626


8.6%

Net (loss) attributable to noncontrolling interest



(794)


(0.0)%



(1,147)


(0.0)%

 

Revenue.  

Revenue decreased by $4,857,339 or 5.1% year over year, primarily due to a decrease in our retail business, despite the fast expansion of our wholesale business and the addition of our herb farming business:

(1)     Retail sales, which accounted for approximately 45.5% of total revenue for the year ended March 31, 2013, decreased by $25,348,268 or 38.4% to $40,726,080, due to price control on many popular prescription drugs and an increasingly competitive retail market. Our retail margin also fell from 33.0% to 24.4%. Same-store sales decreased by approximately $22,489,343 or 36.2%, while new stores and online sales collectively contributed approximately $3,165,271 in revenue.  Our store count decreased to 51 as of March 31, 2013, from 61 a year ago. We do not expect same-store sales will recover quickly in the near future as the frequency of government-mandated price controls and the number of drugs subject thereto continue to increase.

(2)     Since inception, our wholesale business expanded rapidly through competitive pricing and represented 51.7% of total revenue for the year ended March 31, 2013, up from 26.0% a year ago.   However, our wholesale margin is significantly lower than our other operating segments, and fell from 7.4% to 5.2%.  Since our third fiscal quarter, we have ceased certain low margin sales and are focusing on profitability rather than sales volume, and our wholesale margin rose to over 10% in the fourth fiscal quarter. Because we have little access to lucrative sales channels such as hospitals, we have qualified as a first-tier distributor with only a limited number of vendors thus far. Until we are able to achieve first-tier distributor status with more vendors, we do not expect our wholesale business to significantly expand in the immediate future.

(3)     Sales from our herb farming business accounted for $2,534,380 or approximately 2.8% of our total revenue for the year ended March 31, 2013 as compared to $4,217,574 a year ago. Our margin from this business is significant: 91.2% for fiscal 2013 and 94.9% for fiscal 2012. In fiscal 2013, we planted and harvested herbs based on our best estimate as to future market demands. We anticipate that we will continue doing so in upcoming fiscal year, but do not expect a significant increase from fiscal 2013 in terms of revenue or gross profit.

Revenue by Segment. 

The following table breaks down the revenue for our three business segments for the years ended March 31, 2013 and 2012:

 


Years ended December 31,







2013


2012







Amount


  % of total revenue


 

Amount


  % of total revenue


 

Variance by amount


  % of change

Revenue from retail business















     Revenue from drugstores

$

37,678,835


42.1%


$

64,981,643


69%


$

(27,302,808)


(42.0)%

     Revenue from online sales


3,047,245


3.4%



1,092,705


1%



1,954,540


178.9%

          Sub-total of retail revenue


40,726,080


45.5%



66,074,348


70%



(25,348,268)


(38.4)%
















Revenue from wholesale business


46,235,086


51.7%



24,060,963


26%



22,174,123


92.2%

Revenue from herb farming business


2,534,380


2.8%



4,217,574


4%



(1,683,194)


(39.9)%

Total revenue

$

89,495,546


100%


$

94,352,885


100.0%


$

(4,857,339)


(5.1)%

The revenue fluctuation year over year reflected the following combined factors:

(1)     Drugstore revenue decreased by approximately $27.3 million or 42.0% year over year, primarily due to three factors.   Local government has been controlling the cost of its insurance programs by reducing the number and types of subsidized drugs. In addition, as more drugs are subject to price control, we must either reduce our prices accordingly or stop carrying the affected drugs. The retail drug market in Hangzhou, where our stores are still predominantly located, has also become very competitive with many neighborhood drugstores opening.  Accordingly, we do not expect our retail sales to recover quickly in the near future.

(2)     The growth in wholesale revenue is a reflection of our volume-driven strategy during the first half of fiscal 2013. Sales during that period amounted to approximately $37,535,949, or 81.2% of total wholesale revenue. Starting in the third quarter of fiscal 2013, however, we have halted efforts to achieve sales volume through low margin sales and are focusing on profitability. Wholesale revenue for fiscal 2012 was also less because we only had eight months of wholesale operation, as Jiuxin Medicine was acquired in August 2011.

(3)     Online sales increased by $1,954,540 or 178.9% year over year, and we expect the business to grow as we gain wider consumer awareness through our continuing cooperation with business-to-consumer online vendors such as Taobao.

Gross Profit.  

Gross profit decreased by $12,927,808 or 46.9% year over year from substantial decline in retail sales.  Gross margin also decreased, from 29.2% to 16.4%, as a result of lower retail and wholesale profit margins.  The average gross margin for each of our three business segments for the years ended March 31, 2013 and 2012 are as follows:



Years ended

March 31,




2013



2012


Retail business 



24.4%




33.0%


Wholesale business 



5.2%




7.4%


Herb farming business 



91.2%




94.9%


Retail gross margin decreased primarily due to price adjustments we were forced to make. Some adjustments were made to comply with government price controls. Others were made to stay competitive with local community hospitals that are able to sell near cost due to government subsidies. We also adjusted prices to match or beat other competitors. As a result, our overall retail gross profit margin decreased.

The first half of fiscal 2013 is responsible for the decrease in wholesale gross margin. As we were relying on very competitive prices to stimulate sales during that period, our profit margin from that period is only 3.0%. We ceased certain low profit margin wholesale business since then, and profit margin accordingly improved in the second half of fiscal 2013. Profit margin was over 10% in the fourth fiscal quarter.

The gross margin for our herb farming business is achieved through our ability to control quality through monitoring the cultivation process which, in turn, has enabled us to command good pricing. Provided that market demands remain robust, we expect profit margin to remain high even if we continue to sell our harvests to just the vendor that we have been selling to.

Selling and Marketing Expenses.

Sales and marketing expenses increased by $3,718,744 or 43.8% year over year primarily due to promotional activities and advertising, as well as $573,461 in year-end employee bonuses to retain talent and address labor cost inflation. Included in selling and marketing expense is one-time leasehold improvement impairment of $275,805 and $1,993,483 related to store closings and the termination of a new store project, respectively, and $384,276 in amortization of leasehold improvement for Jiuxin Medicine. In fiscal 2013, we closed 17 stores and charged the residual value of store improvements (such as immovable store decoration) into expense. We also shut down construction for a new pharmacy and terminated the project when the scheduled paving for a nearby thoroughfare to the city center was suspended indefinitely by the Hangzhou government. As a result, we recorded a direct write-off of a construction-in-progress. Rental expense in fiscal 2013 was also $273,599 more than in fiscal 2012 due to the booming Chinese real estate market. We expect our labor and rental cost will continue to rise in the future.

General and Administrative Expenses.

General and administrative expenses increased by $6,417,975 or 74.8% year over year. Such expenses as a percentage of our revenue increased to 16.8% from 9.1% for the same period a year ago. The increase in absolute dollars as well as a percentage of revenue mainly resulted from write-offs and allowances of bad debt, including $846,094 of direct write-offs from government health insurance, as well as allowances from our wholesale operations, including $4,700,924 related to accounts receivable and $2,846,822 related to advances to suppliers. Because most aged receivables were reserved in fiscal 2013, we anticipate that general and administrative expenses should decrease in the future.

Impairment of Goodwill.

During the year ended March 31, 2013, we recorded a goodwill impairment charge of $1,473,606 previously recognized in connection with the acquisitions of Jiuxin Medicine and Shanghai Zhongxing. Such impairment was made after we estimated the fair value of each of these businesses and determined that the implied fair value was lower than the carrying value.  Accordingly, we fully impaired goodwill by writing down goodwill of $1,403,933 for Jiuxin Medicine and $69,673 for Shanghai Zhongxing.

Income (Loss) from Operations.  

Income from operations decreased by $24,538,133 year over year, resulting in operating loss of $14,055,961 for the year ended March 31, 2013, as compared to operating income of $10,482,172 a year ago.   Operating margin for the fiscal years ended March 31, 2013 and 2012 was (25.1)% and 11.1%, respectively.

Income Taxes.  

Income tax expense decreased by $2,294,563 year over year, as a result of our operating loss and an income tax waiver granted to Qianhong Agriculture.

Net Loss.   

For the fiscal year ended March 31, 2013, we recorded net loss of $14,334,525. Included in net loss are bad debt allowances of $7,615,067, bad debt write-offs of $846,094, goodwill impairment of $1,473,606, and a charge to expense of $2,269,288 in leasehold improvement for our closed stores.

Conference Call Information

The Company will host a conference call to discuss its fiscal year 2013 results on Friday, July 5, 2013, at 8 a.m. Eastern Time. To participate in the conference call (identification number 4628401), please dial 1-877-941-1427 from North America. International participants can access the call by dialing 1-480-629-9664. A live audio webcast of this conference call will be available under the Investor Relations section of the Company's website at http://www.chinajojodrugstores.com. A replay of the call will be available beginning the same day at approximately 11 a.m. Eastern Time by dialing 1-877-870-5176 or 1-858-384-5517 with pin # 4628401. The replay will also be available on the company website.

About China Jo-Jo Drugstores, Inc.

China Jo-Jo Drugstores, Inc., through its subsidiaries and contractually controlled affiliates, is a retailer and wholesale distributor of pharmaceutical and other healthcare products in the People's Republic of China. As of June 28, 2013, the Company had 51 retail pharmacies in Hangzhou and Shanghai.

Forward Looking Statement

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Certain of the statements made in the press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology. Such statements typically involve risks and uncertainties and may include financial projections or information regarding the progress of new product development. Actual results could differ materially from the expectations reflected in such forward-looking statements as a result of a variety of factors, including the risks associated with the effect of changing economic conditions in The People's Republic of China, variations in cash flow, reliance on collaborative retail partners and on new product development, variations in new product development, risks associated with rapid technological change, and the potential of introduced or undetected flaws and defects in products, and other risk factors detailed in reports filed with the Securities and Exchange Commission from time to time.

Contact:

China Jo-Jo Drugstores, Inc.
Ming Zhao, Chief Financial Officer
561-372-5555
frank.zhao@jojodrugstores.com

See Accompanying Tables

CHINA JO-JO DRUGSTORES, INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


March 31,


March 31,


2013


2012













A S S E T S












CURRENT ASSETS






    Cash

$

4,524,094


$

3,833,216

    Restricted cash


2,162,837



2,818,449

    Trade accounts receivables, net


12,978,808



16,516,671

    Inventories


8,586,999



6,875,574

    Other receivables, net


157,849



603,294

    Advances to suppliers, net


15,523,034



14,347,557

    Other current assets


1,221,499



2,853,301

        Total current assets


45,155,120



47,848,062







PROPERTY AND EQUIPMENT, net


13,288,652



15,647,120







OTHER ASSETS






    Long term deposits


2,760,665



2,872,219

    Other noncurrent assets


5,431,326



5,776,667

    Intangible assets, net


1,202,258



2,816,945

        Total other assets


9,394,249



11,465,831







            Total assets

$

67,838,021


$

74,961,013







L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y












CURRENT LIABILITIES






    Accounts payable, trade

$

13,780,211


$

13,906,383

    Notes payable


7,186,453



4,208,928

    Other payables


1,327,454



782,586

    Other payables - related parties


1,224,417



1,458,441

    Customer deposits


4,828,293



1,332,141

    Taxes payable


371,633



469,606

    Accrued liabilities


956,342



417,184

        Total current liabilities


29,674,803



22,575,269







    Purchase option derivative liability


15,609



34,419

             Total liabilities


29,690,412



22,609,688







COMMITMENTS AND CONTINGENCIES












STOCKHOLDERS' EQUITY






Preferred stock; $0.001 par value;  10,000,000 shares authorized; nil issued and outstanding as of March 31, 2013 and 2012 


-



-

Common stock; $0.001 par value; 250,000,000 shares authorized;  13,609,002 and 13,589,621 shares issued and outstanding 


13,609



13,589

    Additional paid-in capital


16,609,747



16,853,039

    Statutory reserves


1,309,109



1,309,109

    Retained earnings


17,095,369



31,429,100

    Accumulated other comprehensive income


3,121,654



2,747,561

        Total stockholders' equity


38,149,488



52,352,398







    Noncontrolling interests


(1,879)



(1,073)

        Total equity


38,147,609



52,351,325







            Total liabilities and stockholders' equity

$

67,838,021


$

74,961,013

 

 

 

CHINA JO-JO DRUGSTORES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME



For the years ended March 31,



2013


2012








REVENUES, NET


$

89,495,546


$

94,352,885








COST OF GOODS SOLD



74,860,553



66,790,084








GROSS PROFIT



14,634,993



27,562,801








SELLING EXPENSES



12,216,984



8,498,240

GENERAL AND ADMINISTRATIVE EXPENSES



15,000,364



8,582,389

GOODWILL IMPAIRMENT LOSS



1,473,606



-

TOTAL OPERATING EXPENSES



28,690,954



17,080,629








(LOSS) INCOME FROM OPERATIONS



(14,055,961)



10,482,172








OTHER INCOME, NET



56,428



187,865

CHANGE IN FAIR VALUE OF PURCHASE OPTION DERIVATIVE LIABILITY



18,810



118,807








(LOSS) INCOME BEFORE INCOME TAXES



(13,980,723)



10,788,844








PROVISION FOR INCOME TAXES



353,802



2,648,365








NET (LOSS) INCOME



(14,334,525)



8,140,479








ADD: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST



794



1,147








NET (LOSS) INCOME ATTRIBUTABLE TO CHINA JO-JO DRUGSTORES, INC.



(14,333,731)



8,141,626








OTHER COMPREHENSIVE INCOME







Foreign currency translation adjustments



374,093



1,627,728








COMPREHENSIVE (LOSS) INCOME


$

(13,959,638)


$

9,769,354








WEIGHTED AVERAGE NUMBER OF SHARES:







    Basic



13,580,731



13,568,481

    Diluted



13,580,731



13,569,995








EARNINGS PER SHARES:







    Basic


$

(1.06)


$

0.60

    Diluted


$

(1.06)


$

0.60

 

 

CHINA JO-JO DRUGSTORES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
























Common Stock





Retained Earnings



Accumulated other








Number of shares



Amount



Paid-in capital


Statutory reserves



Unrestricted



comprehensive
income/(loss)



Noncontrolling
interest



Total













































BALANCE, March 31, 2011

13,530,477


$

13,530


$

16,333,956


1,309,109


$

23,287,474


$

1,119,848


$

-


$

42,063,917























Cash injection contributed by shareholders

-



-



406,546


-



-



-



-



406,546

Stock based compensation

59,144



59



118,993


-



-



-



-



119,052

Closing of subsidiary Kuaileren

-



-



(6,456)


-



-



-



-



(6,456)

Non-controlling interest in acquiree

-



-



-


-



-



-



59



59

Net income

-



-



-


-



8,141,626



-



(1,147)



8,140,479

Foreign currency translation gains

-



-



-


-



-



1,627,713



15



1,627,728

BALANCE, March 31, 2012

13,589,621


$

13,589


$

16,853,039


1,309,109


$

31,429,100


$

2,747,561


$

(1,073)


$

52,351,325























Closing of VIE Jiuying Pharmacy

-



-



(406,546)


-



-



-



-



(406,546)

Stock based compensation

19,381



20



163,254


-



-



-



-



163,274

Net loss

-



-



-


-



(14,333,731)


-




(794)



(14,334,525)

Foreign currency translation gain (loss)

-



-



-


-



-



374,093



(12)



374,081

BALANCE, March 31, 2013

13,609,002


$

13,609


$

16,609,747


1,309,109



17,095,369


$

3,121,654


$

(1,879)


$

38,147,609

 

 

 

CHINA JO-JO DRUGSTORES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



For the years ended March 31,



2013


2012








CASH FLOWS FROM OPERATING ACTIVITIES:







Net (loss) income


$

(14,334,525)


$

8,140,479

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







    Depreciation and amortization



2,764,144



2,340,865

    Leasehold improvement impairment



2,269,288



-

    Stock compensation



163,274



119,052

    Bad debt write-off and provision - trade accounts receivables,
advance to suppliers and other receivables



8,184,909



1,669,864

    Goodwill Impairment



1,473,606




    Change in fair value of purchase option derivative liability



(18,810)



(118,807)

    Change in operating assets:







    Accounts receivable, trade



(1,045,689)



(14,179,193)

    Inventories



(1,646,583)



2,018,848

    Other receivables



(503,613)



(372,660)

    Advances to suppliers



(3,584,443)



2,132,100

    Other current assets



1,646,935



5,860,584

    Long term deposit



134,493



(238,630)

    Other noncurrent assets



390,869



350,885

    Change in operating liabilities:







    Accounts payable, trade



(239,313)



15,792,680

    Other payables and accrued liabilities



665,735



(1,626,827)

    Customer deposits



3,467,706



(768,651)

    Taxes payable



(101,323)



(1,153,346)

        Net cash (used in) provided by operating activities



(313,340)



19,967,243








CASH FLOWS FROM INVESTING ACTIVITIES:







    Purchase of equipment



(415,152)



(4,915,241)

    Additions to leasehold improvements



(1,989,207)



(6,639,268)

    Net payments for business acquisitions



-



(3,308,158)

        Net cash used in investing activities



(2,404,359)



(14,862,667)








CASH FLOWS FROM FINANCING ACTIVITIES:







    Change in restricted cash



675,380



(1,840,419)

    Change in notes payable



2,928,146



(7,077,596)

    Change in other payables-related parties



(234,404)



577,183

    Proceeds from shareholders contribution



-



406,546

        Net cash (used in) provided by financing activities



3,369,122



(7,934,286)








EFFECT OF EXCHANGE RATE ON CASH



39,455



173,021








(DECREASE) INCREASE IN CASH



690,878



(2,656,689)








CASH, beginning of year



3,833,216



6,489,905








CASH, end of year


$

4,524,094


$

3,833,216








SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:







    Cash paid for income taxes


$

70,725


$

4,113,553

    Transfer from construction-in-progress to leasehold improvement


$

2,707,183


$

2,890,399

    Non-cash financing activities







        Notes payable transferred to accounts payable vendors


$

-


$

8,468,458

 

 

SOURCE China Jo-Jo Drugstores, Inc.



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