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: oRevenues from retail sales increased to $10.9 million, up 21.9% from the prior period oGross profit from retail saleswere $2.8 million, down 19.8% from the prior period oRevenue from wholesale operations decreased to $4.4 million, down 79.3% from the prior period oNet loss was $0.8 million oDiluted 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 onour competitive advantages in the retail drugstore segment: hiring additional clinic staff to better advise on drug selection,exploring the opening ofadditional 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 fromour 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 soin 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 fromfarming - -% 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 byselling 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 SA N DS 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 byfinancing (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, firstname.lastname@example.org
China Jo-Jo Drugstores, Inc. Reports Fiscal Year 2014 First Quarter Earnings Results and Schedules Conference Call for August
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