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



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

PR Newswire

HANGZHOU, China, Aug. 16, 2013

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

Fiscal Year 2014 First Quarter Highlights:

  o Revenues from retail sales increased to $10.9 million, up 21.9% from the
    prior period
  o Gross profit from retail sales were $2.8 million, down 19.8% from the
    prior period
  o Revenue from wholesale operations decreased to $4.4 million, down 79.3%
    from the prior period
  o Net loss was $0.8 million
  o 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
                                       Percentage                Percentage

                         Amount        of total    Amount        of total

                                       revenue                   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              $ 2,640,818      17.2%    $ 2,846,578      8.7%
administrative expenses
(Loss) income from       $ (720,491)      (4.7)%   $ 439,974        1.3%
operations
Other (expense) income,  $ (40,413)       (0.3)%   $ 98,698         0.3%
net
Change in fair value of
purchase option          $ 12,665         0.1%     $ (158)          (0.0)%
derivative liability
Income tax expense       $ 39,520         0.3%     $ 3,882          0.0%
Net income attributable  $ (787,516)      (5.1)%   $ 534,887        1.6%
to controlling interest
Net loss attributable
to noncontrolling        $ (243)          (0.0)%   $ (255)          (0.0)%
interest

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:

    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
(1) 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.
    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
(2) 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.
    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
(3) 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
                                   % of                   % of     Variance by     % of
                     Amount        total    Amount        total    amount          change
                                   revenue                revenue
Revenue from retail
business
     Revenue from    $ 9,648,218     62.9%  $ 8,393,098     25.6%  $ 1,255,120      15.0%
drugstores
     Revenue from      1,264,172     8.2%     561,358       1.7%     702,814        125.2%
online sales
          Sub-total    10,912,390    71.1%    8,954,456     27.3%    1,957,934      21.9%
of retail revenue
Revenue from           4,424,129     28.8%    21,368,783    65.0%    (16,944,654)   (79.3)%
wholesale business
Revenue
from farming           -             -%       2,524,091     7.7%     (2,524,091)    (100.0)%
business
Total revenue        $ 15,336,519    100%   $ 32,847,330    100%   $ (17,510,811)   (53.3)%

The revenue fluctuation period over period reflected the following:

    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
(1) 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.
    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
(2) 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.
    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
(3) 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,       March 31,
                                                  2013           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                      13,609         13,609
       shares issued and outstanding as of June
30, 2013 and March 31, 2013
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          12,665            (158)
DERIVATIVE LIABILITY
(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                    243               255
NONCONTROLLING INTEREST
NET (LOSS) INCOME ATTRIBUTABLE TO CHINA          (787,516)         534,887
JO-JO DRUGSTORES, INC.
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           (12,665)        158
derivative liability
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          (1,146,182)     2,907,409
activities
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         -               1,985,391
leasehold improvement
The accompanying notes are an integral part of these condensed consolidated
financial statements.

SOURCE China Jo-Jo Drugstores, Inc.

Website: http://www.chinajojodrugstores.com
Contact: China Jo-Jo Drugstores, Inc., Ming Zhao, Chief Financial Officer,
+1-561-372-5555, frank.zhao@jojodrugstores.com
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