China Jo-Jo Drugstores, Inc. Reports Fiscal Year 2014 First Quarter Earnings Results and Schedules Conference Call for August 19, 2013

HANGZHOU, China, Aug. 16, 2013 /PRNewswire/ --

Fiscal Year 2014 First Quarter Highlights:

  • Revenues from retail sales increased to $10.9 million, up 21.9% from the prior period
  • Gross profit from retail sales were $2.8 million, down 19.8% from the prior period
  • Revenue from wholesale operations decreased to $4.4 million, down 79.3% from the prior period
  • Net loss was $0.8 million
  • Diluted and basic loss per share was $0.06

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 three months ended June 30, 2013. The Company will hold a conference call on Monday, August 19, 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, "Since the end of 2012, we have been refocusing on our competitive advantages in the retail drugstore segment: hiring additional clinic staff to better advise on drug selection, exploring the opening of additional clinics next to our drugstores, and stocking each location to better cater to its neighborhood. Nevertheless, retail profit margin decreased slightly from the same period last year as we were forced to adjust prices by government price control and our competitors." As of August 14, 2013, the Company operated 51 pharmacies, including five stores in Shanghai.

Mr. Liu continued, "Since the third quarter of fiscal 2013, we have stopped low margin sales in our wholesale segment and are focusing on profitability over sales volume.  Although this strategy may impact our ability to achieve first-tier distributor status, we believe that this approach is critical for our overall operations going forward."

"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," concluded Mr. Liu.

Balance Sheet Highlights

As of June 30, 2013, the Company had $2.7 million of cash, $69.6 million in total assets and $31.5 million in total liabilities.

Fiscal Year 2014 First Quarter Results

Comparison of the three months ended June 30, 2013 and 2012

The following table summarizes our results of operations for the three months ended June 30, 2013 and 2012:



Three months ended June 30,



2013

2012



Amount


Percentage

of total

revenue


Amount


Percentage

of total

revenue

Revenue


$

15,336,519



100.0%


$

32,847,330



100.0%

Gross profit


$

3,601,169



23.5%


$

5,144,777



15.7%

Selling expenses


$

1,680,842



11.0%


$

1,858,225



5.7%

General and administrative expenses


$

2,640,818



17.2%


$

2,846,578



8.7%

(Loss) income from operations


$

(720,491)



(4.7)%


$

439,974



1.3%

Other (expense) income, net


$

(40,413)



(0.3)%


$

98,698



0.3%

Change in fair value of purchase option derivative liability


$

12,665



0.1%


$

(158)



(0.0)%

Income tax expense


$

39,520



0.3%


$

3,882



0.0%

Net income attributable to controlling interest


$

(787,516)



(5.1)%


$

534,887



1.6%

Net loss attributable to noncontrolling interest


$

(243)



(0.0)%


$

(255)



(0.0)%

Revenue  

Our revenue decreased by $17,510,811 or 53.3% period over period, primarily due to the decrease in our wholesale business and herb farming business, offset by an increase in our retail business:

(1)

Retail sales, which accounted for approximately 71.2% of total revenue for the three months ended June 30, 2013, increased by $1,957,934 or 21.9% to $10,912,390. Performance of many of our older stores have improved from concerted efforts to improve customer experience, such as hiring more physicians to increase availability of in-store consultation, and stocking each store location to better cater to its neighborhood. At the same time, many of the stores opened in the past two years are now maturing and able to accept state-sponsored medical insurance.  Same-store sales increased by approximately $2,151,250 or 25.6%, while online sales contributed approximately $1,264,172 in revenue, an increase of 125.2%.   The increase in same-store sales reflects implementation of our key drugstore operation strategy such as promoting sale through our doctors and clinics, as well as modest economic growth in China.  Retail margin, however, fell from 26.0% to 25.7% due to price adjustments caused by government drug price control.  Our store count decreased to 51 as of June 30, 2013, from 65 a year ago.  However, because the stores that we closed were underperforming with low sale volume, their closure had little effect on our overall retail sales.



(2)

Wholesale revenue, which represented 28.8% of total revenue for the three months ended June 30, 2013, decreased by $16,944,654 or 65.0%.  Such significant contraction resulted from ongoing implementation of our new wholesale strategy to focus on profitability rather than sales volume.  Thus, our wholesale profit margin increased from 2.5% to 18.6%. However, until we can achieve first-tier distributor status with more vendors, we will continue to have limited access to more lucrative sales channels such as hospitals, and do not expect our wholesale business to expand significantly in the immediate future.



(3)

Sales from our herb farming business amounted to $0 for the three months ended June 30, 2013 as compared to $2,524,091 a year ago. Because market prices were lower than anticipated, we decided to hold off harvesting certain herbs (such as ginkgo trees which, although can be harvested, will increase in value with age), and to keep what we have harvested in inventory, until prices reached an acceptable level. We generally plant herbs based on our best estimate as to future market demands, and harvest and sell them when market conditions are favorable. 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.

Quarterly Revenue by Segment

The following table breaks down the revenue for our three business segments for the three months ended June 30, 2013 and 2012:



Three months ended June 30,





2013


2012







Amount


% of total
revenue


Amount


% of total
revenue


Variance by
amount


% of
change

Revenue from retail business













     Revenue from drugstores


$

9,648,218



62.9%


$

8,393,098



25.6%


$

1,255,120



15.0%

     Revenue from online sales



1,264,172



8.2%



561,358



1.7%



702,814



125.2%

          Sub-total of retail revenue



10,912,390



71.1%



8,954,456



27.3%



1,957,934



21.9%




















Revenue from wholesale business



4,424,129



28.8%



21,368,783



65.0%



(16,944,654)



(79.3)%

Revenue from farming business



-



-%



2,524,091



7.7%



(2,524,091)



(100.0)%

Total revenue


$

15,336,519



100%


$

32,847,330



100%


$

(17,510,811)



(53.3)%

The revenue fluctuation period over period reflected the following:

(1)

Drugstore revenue increased by approximately $1.2 million or 15% period over period, primarily due to three factors. First, we reconfigured operating strategy to refocus on our strengths.  For example, by hiring additional doctors for our clinics, we were able to attract and serve more patients who in turn purchased their medication from our stores.  Second, all of the stores that we opened in Hangzhou during the past two years are now able to accept state-sponsored medical insurance, six of which were unable to do so a year ago.  Since insurance reimbursement accounted for approximately 50% our drugstore revenue from Hangzhou in the past year, the ability to accept medical insurance is a significant factor in a store's operating performance.  Third, the modest growth in Chinese economy has encouraged consumers to spend, so a modest increase in drug sales is expected.



(2)

Wholesale revenue decreased by $16,944,654 or 79.3% period over period. The drop in wholesale revenue is a reflection of our strategy to focus on profitability. Although we achieved our sales volume in the prior period quickly through competitive pricing, we incurred loss as result of low profit margin and rising overhead. Since our third fiscal quarter of fiscal 2013, we have ceased certain low margin sales and are focusing on profitability rather than sales volume.  Although this strategy may impact our ability to achieve first-tier distributor status, we believe that focusing on profitability rather than volume is critical for our overall operations going forward.



(3)

Online sales increased by $702,814 or 125.2% period over period.  We have been working with business-to-consumer online vendors, including Taobao, by posting our products on their online platforms, which direct customers back to our website.  Such arrangement has exposed our online presence to a wider consumer base.  In addition, since the end of 2012, we have expended considerable efforts in identifying popular products that can drive sales.  As a result, we have seen steady growth in online sales.

Gross Profit

Gross profit decreased by $1,543,608 or 30.0% period over period primarily as a result of the contraction in wholesale business.   At the same time, gross margin increased from 15.7% to 23.6% from higher wholesale profit margin, offset by a lower retail profit margin.  The average gross margin for each of our three business segments are as follows:



Three months ended

June 30,




2013



2012


Average gross margin for retail business 



25.7%




26.0%


Average gross margin for wholesale business 



18.6%




2.5%


Average gross margin for farming business 



N/A




90.9%


Retail gross margin decreased primarily due to price adjustments that we made. 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 at or near cost as their pharmacies are indirectly subsidized through the government. We also adjusted prices to match or better other competitors' prices. Accordingly, overall retail gross profit margin decreased. 

Wholesale gross margin increased because we are now focused on profitability for this segment such as by selling high margin products.  By comparison, our drive to generate sales volume by selling very low margin products created the low gross margin a year ago.

Selling and Marketing Expenses

Sales and marketing expenses decreased by $177,383 or 9.5% period over period.  The decrease in absolute dollars is mainly due to the strict expense budget we implemented in 2013 as well as closure of low performing drugstores, which slowed down rental increase and lowered depreciation expense related to store improvement.  However, such expenses as a percentage of our revenue increased to 11.0%, from 5.7% for the same period a year ago as a result of significantly lower wholesale revenue.  We expect future sales and marketing expenses to not deviate significantly from its current levels.

General and Administrative Expenses

General and administrative expenses decreased by $205,760 or 7.2% period over period.  Such expenses as a percentage of revenue increased to 17.2% from 8.7% for the same period a year ago.  The decrease in absolute dollars reflects our tight budget control as well as closure of low performing drugstores, which stemmed related overhead. The increase in percentage of revenue is mainly a result of a lower overall revenue base for the three months ended June 30, 2013. We expect future general and administrative expenses to remain at its current levels.

(Loss) Income from Operations

As a result of decreased sales revenue, we had loss from operations of $720,491, as compared to income from operations of $439,974 a year ago.  Our operating margin for the three months ended June 30, 2013 and 2012 was (4.7)% and 1.3%, respectively.

Income Taxes

Our income tax expense increased by $35,638 period over period due to tax levied on Jiuzhou Pharmacy's profit.

Net Income

As a result of the foregoing, net income decreased by $1,322,391 period over period.

Conference Call Information

The Company will host a conference call to discuss its fiscal year 2014 first quarter results on Monday, August 19, 2013, at 8 a.m. Eastern Time. To participate in the conference call, please dial 1-877-941-2068 from North America. International participants can access the call by dialing 1-480-629-9712. 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 #4636469. 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 August 14, 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.

See Accompanying Tables

CHINA JO-JO DRUGSTORES, INC AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS


(UNAUDITED)






June 30,
2013



March 31,
2013









A S S E T S














CURRENT ASSETS







Cash


$

2,711,399



$

4,524,094


Notes receivable



291,600




-


Trade accounts receivable, net



11,912,337




12,978,808


Inventories



9,127,235




8,586,999


Other receivables, net



320,355




157,849


Advances to suppliers, net



17,175,750




15,523,034


Restricted cash



3,540,685




2,162,837


Other current assets



2,027,463




1,221,499


Total current assets



47,106,824




45,155,120











PROPERTY AND EQUIPMENT, net



13,071,698




13,288,652











OTHER ASSETS









Long term deposits



2,805,695




2,760,665


Other noncurrent assets



5,470,095




5,431,326


Intangible assets, net



1,182,433




1,202,258


Total other assets



9,458,223




9,394,249











Total assets


$

69,636,745



$

67,838,021











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









Short-term loan payable


$

162,000



$

-


Accounts payable, trade



15,374,922




13,780,211


Notes payable



7,136,683




7,186,453


Other payables



1,426,631




1,327,454


Other payables - related parties



1,419,650




1,224,417


Customer deposits



5,274,087




4,828,293


Taxes payable



375,473




371,633


Accrued liabilities



317,407




956,342


Total current liabilities



31,486,853




29,674,803











Purchase option derivative liability



2,944




15,609


Total liabilities



31,489,797




29,690,412











COMMITMENTS AND CONTINGENCIES


















STOCKHOLDERS' EQUITY









Preferred stock; $0.001 par value;  10,000,000 shares authorized; nil issued and

   outstanding as of June 30, 2013 and March 31, 2013



-




-


    Common stock; $0.001 par value; 250,000,000 shares authorized;  13,609,003
       shares issued and outstanding as of June 30, 2013 and March 31, 2013



13,609




13,609


Additional paid-in capital



16,637,085




16,609,747


Statutory reserves



1,309,109




1,309,109


Retained earnings



16,307,853




17,095,369


Accumulated other comprehensive income



3,881,445




3,121,654


Total stockholders' equity



38,149,101




38,149,488











Noncontrolling interests



(2,153)




(1,879)


Total equity



38,146,948




38,147,609











Total liabilities and stockholders' equity


$

69,636,745



$

67,838,021



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

 

CHINA JO-JO DRUGSTORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)










For the three months ended

June 30,




2013



2012


REVENUES, NET


$

15,336,519



$

32,847,330











COST OF GOODS SOLD



11,735,350




27,702,553











GROSS PROFIT



3,601,169




5,144,777











SELLING EXPENSES



1,680,842




1,858,225


GENERAL AND ADMINISTRATIVE EXPENSES



2,640,818




2,846,578


TOTAL OPERATING EXPENSES



4,321,660




4,704,803











(LOSS) INCOME FROM OPERATIONS



(720,491)




439,974











OTHER (LOSS) INCOME, NET



(40,413)




98,698


CHANGE IN FAIR VALUE OF PURCHASE OPTION DERIVATIVE LIABILITY



12,665




(158)











(LOSS) INCOME BEFORE INCOME TAXES



(748,239)




538,514











PROVISION FOR INCOME TAXES



39,520




3,882











NET (LOSS) INCOME



(787,759)




534,632











ADD: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST



243




255











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



(787,516)




534,887











OTHER COMPREHENSIVE INCOME









Foreign currency translation adjustments



759,791




55,270











COMPREHENSIVE (LOSS) INCOME


$

(27,725)



$

590,157











WEIGHTED AVERAGE NUMBER OF SHARES:









Basic



13,609,003




13,557,496


Diluted



13,609,003




13,598,686











EARNINGS PER SHARES:









Basic


$

(0.06)



$

0.04


Diluted


$

(0.06)



$

0.04




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


 

 CHINA JO-JO DRUGSTORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)










Three months ended

June 30,




2013



2012


CASH FLOWS FROM OPERATING ACTIVITIES:







Net (loss) income


$

(787,759)



$

534,632


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

 operating activities:


Depreciation and amortization



588,936




610,866


Stock compensation



27,338




49,758


Bad debt write-off and provision



1,181,478




1,114,673


Change in fair value of purchase option derivative liability



(12,665)




158


Change in operating assets:









Accounts receivable, trade



(190,989)




(7,712,451)


Notes receivable



(290,214)




(926,315)


Inventories



(398,271)




(526,099)


Other receivables



(159,171)




(236,873)


Advances to suppliers



(1,111,259)




(2,859,522)


Other current assets



(782,304)




17,561


Long term deposit



-




355,151


Other noncurrent assets



49,586




140,067


Change in operating liabilities:









Accounts payable, trade



1,363,429




5,201,905


Other payables and accrued liabilities



(570,952)




650,956


Customer deposits



365,295




695,089


Taxes payable



(2,212)




67,114


Net cash used in operating activities



(729,734)




(2,823,330)











CASH FLOWS FROM INVESTING ACTIVITIES:









Purchase of equipment



(2,934)




(216,454)


Additions to leasehold improvements



(3,958)




(90,313)


Payments on construction-in-progress



(111,152)




-


Net cash used in investing activities



(118,044)




(306,767)











CASH FLOWS FROM FINANCING ACTIVITIES:









Proceeds from short-term bank loan



161,230




-


Change in restricted cash



(1,336,189)




1,410,499


Change in notes payable



(166,196)




1,396,914


Change in other payables-related parties



194,973




99,996


Net cash (used in) provided by financing activities



(1,146,182)




2,907,409











EFFECT OF EXCHANGE RATE ON CASH



181,265




173,021











DECREASE IN CASH



(1,812,695)




(49,667)











CASH, beginning of period



4,524,094




3,833,216











CASH, end of period


$

2,711,399



$

3,783,549











SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:






Cash paid for income taxes


$

9,529



$

14,713


Transfer from construction-in-progress to leasehold improvement



-




1,985,391




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


SOURCE China Jo-Jo Drugstores, Inc.



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