|
| [February 15, 2013] |
 |
China Jo-Jo Drugstores Reports Third Quarter Earnings Results
HANGZHOU, China --(Business Wire)--
China Jo-Jo Drugstores, Inc. (NASDAQ: CJJD), (the "Company"), a retail
and wholesale distributor of pharmaceutical and other healthcare
products in Zhejiang and Shanghai, today reported earnings results for
the third quarter of fiscal 2013 ended December 31, 2012. The Company
will hold its earnings call on Tuesday, February 19, 2013, at 8:00 a.m.
Eastern Time. Please see below for dial in information.
Third Quarter Highlights:
-
Revenue decreased 39.1% from a year ago to $15.6 million
-
Third quarter retail drugstore sales revenue improved 7.3% from the
second quarter fiscal year 2013
-
Wholesale business accounted for 28.0% of total revenue
-
Gross profit was $3.0 million and gross margin of retail business and
wholesale business was 23.3% and 8.6%, respectively
Mr. Lei Liu, the Company's Chairman and CEO, stated, "Despite tighter
budget for government-sponsored insurance and increased regulations of
retail pharmacies, we were able to improve retail sales from a quarter
ago. On the other hand, we are reconsidering our volume-driven strategy
for our wholesale business."
Dr. Liu continued, "Looking forward, we anticipate a transition in our
wholesale business strategy and a moderate growth in our retail
drugstores sales. We also anticipate to harvest Chinese Herbs in the
next twelve months and growth in our online drugstore business."
Comparison of three months ended December 31, 2012 and 2011
The following table summarizes our results of operations for the three
months ended December 31, 2012 and 2011:
|
|
|
|
|
Three months ended December 31,
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
of total
revenue
|
|
|
Amount
|
|
|
Percentage
of total
Revenue
|
|
|
Revenue
|
|
|
|
$
|
15,596,013
|
|
|
|
100.0
|
%
|
|
|
$
|
25,643,949
|
|
|
|
100.0
|
%
|
|
Gross profit
|
|
|
|
$
|
2,990,302
|
|
|
|
19.2
|
%
|
|
|
$
|
6,826,869
|
|
|
|
26.6
|
%
|
|
Selling expenses
|
|
|
|
$
|
3,179,168
|
|
|
|
20.4
|
%
|
|
|
$
|
2,498,892
|
|
|
|
9.7
|
%
|
|
General and administrative expenses
|
|
|
|
$
|
3,300,064
|
|
|
|
21.2
|
%
|
|
|
$
|
2,175,615
|
|
|
|
8.5
|
%
|
|
Income (loss) from operations
|
|
|
|
$
|
(3,488,930
|
)
|
|
|
(22.4
|
)%
|
|
|
$
|
2,152,362
|
|
|
|
8.4
|
%
|
|
Other (expense) income, net
|
|
|
|
$
|
(25,380
|
)
|
|
|
(0.2
|
)%
|
|
|
$
|
16,343
|
|
|
|
0.1
|
%
|
|
Impairment of goodwill
|
|
|
|
$
|
-
|
|
|
|
0.0
|
%
|
|
|
$
|
-
|
|
|
|
0.0
|
%
|
|
Change in fair value of purchase option derivative liability
|
|
|
|
$
|
(12,095
|
)
|
|
|
(0.1
|
)%
|
|
|
$
|
19,404
|
|
|
|
0.1
|
%
|
|
Income tax (benefits) expense
|
|
|
|
$
|
(39,613
|
)
|
|
|
(0.3
|
)%
|
|
|
$
|
610,910
|
|
|
|
2.4
|
%
|
|
Net (loss) income attributable to controlling interest
|
|
|
|
$
|
(3,486,521
|
)
|
|
|
(22.4
|
)%
|
|
|
$
|
1,573,982
|
|
|
|
6.1
|
%
|
|
Net (loss) attributable to noncontrolling interest
|
|
|
|
$
|
(271
|
)
|
|
|
(0.0
|
)%
|
|
|
$
|
(3,217
|
)
|
|
|
(0.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue. We had two revenue streams for the three months
ended December 31, 2012 and 2011: (i) store and online retail sales of
pharmaceutical and other healthcare products, and (ii) wholesale
distribution of pharmaceutical and other healthcare products, primarily
to third-party pharmaceutical trading companies. Included in our
wholesale revenue are wholesales of pharmaceutical and healthcare
products that we purchased from third-party manufacturers or suppliers.
We did not have any revenue from our farming business as there was no
harvest during the winter months.
Our revenue decreased by $10,047,936 or 39.2% period over period,
primarily due to decrease in both wholesale and retail businesses as
compared to the same period a year ago:
|
(1)
|
|
|
Wholesale, which represented approximately 28.0% of total revenue
for the three months ended December 31, 2012, decreased by
$3,041,477 or 61.5% to $4,368,398, from $7,409,875 primarily due
to a shift in our wholesale strategy. Since starting the wholesale
business in August 2011, we have been using competitive pricing to
stimulate sales and ramp up sales volume. The attendant low
margins from such practice hurt our profitability. Accordingly, we
ceased certain low margin sales in the quarter ended December 31,
2012 and are reconsidering our volume-driven wholesale strategy.
|
|
|
|
|
|
|
(2)
|
|
|
Retail sales, which accounted for approximately 72.0% of our total
revenue for the three months ended December 31, 2012, decreased by
$7,006,459 or 38.4% to $11,227,615 from $18,234,074, primarily as
a result of stricter government policies and an increasingly
competitive retail market. Our retail store count decreased to 52
as of December 31, 2012, from 60 stores a year ago. Such closings,
however, had little or no impact on our operations given the small
size of these stores and their operations when compared to the
whole of our pharmacy business. Same-store sales decreased by
approximately $7,156,174 or 41.6%, while new stores and online
pharmacy collectively contributed approximately $832,878 in
revenue. Our pharmacies usually perform better in the second half
of our fiscal year when more national holidays such as the Chinese
Spring Festival take place. Partially due to such seasonality, our
retail sales changed quarter by quarter within the fiscal 2013. 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 to price controls continue to rise.
|
|
|
|
|
|
Quarterly Revenue by Segment. The following
table breaks down the revenue for our three business segments for the
three months ended December 31, 2012 and 2011:
|
|
|
|
|
Three months ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total
|
|
|
|
|
|
% of total
|
|
|
Variance by
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
revenue
|
|
|
Amount
|
|
|
revenue
|
|
|
amount
|
|
|
% of change
|
|
|
Revenue from retail business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from drugstores
|
|
|
|
$
|
10,337,237
|
|
|
66.5
|
%
|
|
|
$
|
17,639,448
|
|
|
68.8
|
%
|
|
|
$
|
(7,262,211
|
)
|
|
|
(41.2
|
)%
|
|
Revenue from online sales
|
|
|
|
|
850,378
|
|
|
5.5
|
%
|
|
|
|
594,626
|
|
|
2.3
|
%
|
|
|
|
255,752
|
|
|
|
43.0
|
%
|
|
Sub-total of retail revenue
|
|
|
|
|
11,227,615
|
|
|
72.0
|
%
|
|
|
|
18,234,074
|
|
|
71.1
|
%
|
|
|
|
(7,006,459
|
)
|
|
|
(38.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from wholesale business
|
|
|
|
|
4,368,398
|
|
|
28.0
|
%
|
|
|
|
7,409,875
|
|
|
28.9
|
%
|
|
|
|
(3,041,477
|
)
|
|
|
(41.0
|
)%
|
|
Revenue from farming business
|
|
|
|
|
-
|
|
|
0.0
|
%
|
|
|
|
-
|
|
|
0.0
|
%
|
|
|
|
-
|
|
|
|
0.0
|
%
|
|
Total revenue
|
|
|
|
$
|
15,596,013
|
|
|
100
|
%
|
|
|
$
|
25,643,949
|
|
|
100
|
%
|
|
|
$
|
(10,047,936
|
)
|
|
|
(39.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The revenue fluctuation period over period reflected the following
combined factors:
|
(1)
|
|
|
Drugstore revenue decreased by approximately $7.3 million or 41.2%
quarter over quarter, primarily due to three reasons. First, local
government has been trying to control the costs of its insurance
program in the face of budgetary constraints, and is whittling
down the types and number of subsidized drugs. Second, as the
local government subjects more drugs to price control, we must in
turn either reduce our prices for the affected drugs or stop
carrying them at our pharmacies. Third, the retail drug market in
Hangzhou, where our stores are still predominantly located, has
become very competitive with many neighborhood drugstores. As a
result, we do not expect our retail sales to recover quickly in
the near future.
|
|
|
|
|
|
|
(2)
|
|
|
Our online pharmacy sales increased by $255,752 or 43.0% quarter
over quarter. Since cooperating with business-to-consumer online
vendors such as Taobao beginning in the second half of calendar
2011, our online pharmacy has gained wider recognition and we have
seen a steady growth in sales.
|
|
|
|
|
|
Gross Profit. Our gross profit decreased by $3,836,567 or
56.2% quarter over quarter due to the significant drop in sales at our
retail locations. Our gross margin also decreased, from 26.6% to
19.2%, as a result of lower retail and wholesale profit margins. The
average gross margin of each of our three business segments for the
three months ended December 31, 2012 are as follows:
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
|
Average gross margin for retail business
|
|
|
|
|
|
23.3
|
%
|
|
36.7
|
%
|
|
Average gross margin for wholesale business
|
|
|
|
|
|
8.6
|
%
|
|
1.9
|
%
|
|
Average gross margin for farming business
|
|
|
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our retail gross margin decreased to 23.3% in the three months ended
December 31, 2012 from 36.7% in the three months ended December 31,
2011. The Chinese government has included more and more prescription and
OTC drugs in the price control list. Some of our products' prices were
higher than the prices set by the Chinese government. Hence, we had to
adjust these products' prices. As a result, the profit margin for these
products declined. In addition, due to the economic slowdown and
stricter government policies such as stricter insurance reimbursement
policy and the expansion of Essential Drug List (EDL), the retail
drugstore market became much more competitive. For example, drugs listed
in the EDL were being sold at a price close to its cost at local
community hospitals which, in turn, receive government subsidies.
Correspondently, we had to either abandon sale of these drugs or sell
them at minimal profit margins. Furthermore, in order to keep
competitive in the competitive drug retail market, we had to cut prices
of certain drugs. As a result, our overall retail gross profit margin
decreased.
Our wholesale gross margin for the three months ended December 31, 2012
was 8.6% as compared to 1.9% for the three months ended December 31,
2011. We ceased certain low profit margin wholesale business in the
three months ended December 31, 2012, and are reconsidering our
volume-driven sales strategy. In addition, in our efforts to become a
first-tier distributor for certain medicines, and thus able to purchase
them at lower costs, we advanced payments to certain vendors. Such
advances are refundable if we do not purchase an equal amount of
inventory from these vendors later on. As a result, our overall
wholesale business profit margin increased.
Selling and Marketing Expenses. Our sales and
marketing expenses increased by $680,276 or 27.2% period over period
primarily due to promotional activities and advertising, as well as
year-end employee bonuses. We spent approximately $290,000 on
promotional activities such as leaflets and product give-aways, and
approximately $240,000 on related advertising in newspapers. Given the
increased competition amongst employers for top performing employees, we
also awarded approximately $570,000 in year-end bonuses to our
employees. Coupled with smaller revenue, selling and marketing expenses
as a percentage of our revenue increased to 20.4%, from 9.7% for the
same period a year ago.
General and Administrative Expenses. Our general and
administrative expenses increased by $1,124,449 or 51.7% period over
period primarily due to additional bad debt expense of approximately
$1,173,959 we accrued for advance to suppliers during the three months
ended December 31, 2012. As a percentage of our revenue, general and
administrative expenses increased to 21.2% from 8.5% for the same period
a year ago also due to our smaller revenue.
Income (Loss) from Operations. Mainly as a result of lower
profit margins and higher selling and general and administrative
expenses, our income from operations decreased by $5,641,292 period over
period, resulting in an operating loss of $3,488,930. Our operating
margin for the three months ended December 31, 2012 and 2011 was (22.4)%
and 8.4%, respectively.
Income Taxes. For the current period, our income tax
expense decreased by $650,523, primarily as a result of our net loss.
Net Income (Loss). As a result of the foregoing, our net
income decreased by $5,060,503 period over period, to a net loss of
$3,486,792.
Comparison of nine months ended December 31, 2012 and 2011
The following table summarizes our results of operations for the nine
months ended December 31, 2012 and 2011:
|
|
|
|
|
|
Nine months ended December 31,
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
of total
revenue
|
|
|
Amount
|
|
|
Percentage
of total
Revenue
|
|
|
Revenue
|
|
|
|
|
$
|
75,108,458
|
|
|
|
100.0
|
%
|
|
|
$
|
69,296,755
|
|
|
|
100.0
|
%
|
|
Gross profit
|
|
|
|
|
$
|
11,557,276
|
|
|
|
15.4
|
%
|
|
|
$
|
19,954,088
|
|
|
|
28.8
|
%
|
|
Selling expenses
|
|
|
|
|
$
|
7,140,013
|
|
|
|
9.5
|
%
|
|
|
$
|
6,588,686
|
|
|
|
9.5
|
%
|
|
General and administrative expenses
|
|
|
|
|
$
|
7,456,956
|
|
|
|
9.9
|
%
|
|
|
$
|
4,570,919
|
|
|
|
6.6
|
%
|
|
(Loss) income from operations
|
|
|
|
|
$
|
(3,039,693
|
)
|
|
|
(4.0
|
)%
|
|
|
$
|
8,794,483
|
|
|
|
12.7
|
%
|
|
Other (expense) income, net
|
|
|
|
|
$
|
(75,178
|
)
|
|
|
(0.1
|
)%
|
|
|
$
|
222,929
|
|
|
|
0.3
|
%
|
|
Impairment of goodwill
|
|
|
|
|
$
|
1,473,606
|
|
|
|
(2.0
|
)%
|
|
|
$
|
-
|
|
|
|
0.0
|
%
|
|
Change in fair value of purchase option derivative liability
|
|
|
|
|
$
|
13,652
|
|
|
|
0.0
|
%
|
|
|
$
|
116,392
|
|
|
|
0.2
|
%
|
|
Income tax (benefit) expense
|
|
|
|
|
$
|
(93,886
|
)
|
|
|
(0.1
|
)%
|
|
|
$
|
2,684,463
|
|
|
|
3.9
|
%
|
|
Net (loss) income attributable to controlling interest
|
|
|
|
|
$
|
(4,480,083
|
)
|
|
|
(6.0
|
)%
|
|
|
$
|
6,450,424
|
|
|
|
9.3
|
%
|
|
Net (loss) attributable to noncontrolling interest
|
|
|
|
|
$
|
(856
|
)
|
|
|
(0.0
|
)%
|
|
|
$
|
(1,083
|
)
|
|
|
(0.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue. We had three revenue streams for the nine months
ended December 31, 2012: (i) store and online retail sales of
pharmaceutical and other healthcare products, and (ii) wholesale
distribution of pharmaceutical and other healthcare products, and (iii)
sales of our self-cultivated TCM herbs, primarily to third-party
pharmaceutical trading companies. In contrast, retail sales and
wholesale provided all of our revenue for the nine months ended December
31, 2011.
Our revenue increased by $5,811,703 or 8.4% period over period,
primarily due to the expansion of our wholesale business and the
addition of our farming business, offset by a decrease in our retail
business:
|
(1)
|
|
|
Since its start, our wholesale business expanded rapidly through
competitive pricing, from approximately 16.4% of total revenue for
the 2011 period to approximately 55.8% for the 2012 period. However,
the low margins from such practice hurt our profitability. As a
result, in the three months ended December 31, 2012, we ceased
certain low margin sales and are reconsidering our wholesale
strategy. Hence, we had declined sales as compared with the same
period a year ago. In addition, until we are able to achieve
first-tier distributor status for more than one or two vendors, we
do not expect our wholesale business to grow quickly in the
immediate future.
|
|
|
|
|
|
|
(2)
|
|
|
During the three months ended March 31, 2012, we began
distributing the TCM herbs such as Peucedanum that we have been
cultivating, to third-party pharmaceutical trading companies.
Although we have hired several specialists to oversee our farming
business, we are mainly relying on the local village government to
manage the cultivation process. For example, the local government
organizes local farmers to plant, fertilize and harvest. In turn,
we pay for the expenses incurred by the local farmers based on our
agreements with the local government. Sales from our farming
business accounted for $2,524,091 or approximately 3.4% of our
total revenue for the nine months ended December 31, 2012. In
calendar 2012, we planted certain new herbs and continued to
cultivate grown herbs. We usually harvest and sell herbs when they
become mature and market demands are high. We anticipate that we
will harvest and sell herbs again in approximately six months.
|
|
|
|
|
|
|
(3)
|
|
|
Our retail sales, which accounted for approximately 40.8% of total
revenue for the nine months ended December 31, 2012, decreased by
$27,264,887 or 47.1% to $30,680,020, primarily as a result of
stricter government policies and a competitive retail market. Our
retail store count decreased to 52 as of December 31, 2012, from
60 stores a year ago. Such closings, however, had little or no
impact on our operations given the small size of these stores and
their operations when compared to the whole of our pharmacy
business. Same-store sales decreased by approximately $29,795,922
or 52.2%, while new stores and online pharmacy collectively
contributed approximately $2,507,927 in revenue. 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 to price control continue to rise.
|
Nine-Month Revenue by Segment. The following
table breaks down the revenue for our two business segments for the nine
months ended December 31, 2012 and 2011:
|
|
|
|
|
|
Nine months ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total
|
|
|
|
|
|
% of total
|
|
|
Variance by
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
revenue
|
|
|
Amount
|
|
|
revenue
|
|
|
amount
|
|
|
% of change
|
|
|
Revenue from retail business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from drugstores
|
|
|
|
|
$
|
28,411,652
|
|
|
37.9
|
%
|
|
|
$
|
57,173,648
|
|
|
82.5
|
%
|
|
|
$
|
(28,761,996
|
)
|
|
|
(50.3
|
)%
|
|
Revenue from online sales
|
|
|
|
|
|
2,268,368
|
|
|
2.9
|
%
|
|
|
|
771,259
|
|
|
1.1
|
%
|
|
|
|
1,497,109
|
|
|
|
194.1
|
%
|
|
Sub-total of retail revenue
|
|
|
|
|
|
30,680,020
|
|
|
40.8
|
%
|
|
|
|
57,944,907
|
|
|
83.6
|
%
|
|
|
|
(27,264,887
|
)
|
|
|
(47.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from wholesale business
|
|
|
|
|
|
41,904,347
|
|
|
55.8
|
%
|
|
|
|
11,351,848
|
|
|
16.4
|
%
|
|
|
|
30,552,499
|
|
|
|
72.9
|
%
|
|
Revenue from farming business
|
|
|
|
|
|
2,524,091
|
|
|
3.4
|
%
|
|
|
|
-
|
|
|
0.0
|
%
|
|
|
|
2,524,091
|
|
|
|
N/A
|
|
|
Total revenue
|
|
|
|
|
$
|
75,108,458
|
|
|
100.0
|
%
|
|
|
$
|
69,296,755
|
|
|
100.0
|
%
|
|
|
$
|
5,811,703
|
|
|
|
8.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The revenue fluctuation period over period reflected the following
combined factors:
|
(1)
|
|
|
Drugstore revenue decreased by approximately $28.8 million or
50.3% period over period for the same reasons that revenue
declined during the quarter, as a result: (a) smaller pool of
insurance-subsidized medicines, (b) government-mandated price
control, and (c) increasing competition.
|
|
|
|
|
|
|
(2)
|
|
|
The growth of our wholesale business is a reflection of the second
half of fiscal 2012, and as discussed earlier, we ceased certain
low margin sales in the three months ended December 31, 2012, and
are reconsidering our volume-driven wholesale strategy.
|
|
|
|
|
|
|
(3)
|
|
|
Our online pharmacy sales increased by $1,497,109 or 194.1% period
over period, 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. Our gross profit decreased by $8,396,812 or
42.1% period over period from substantial decline in retail sales. Our
gross margin also decreased, from 28.8% to 15.4%, as a result of lower
retail and wholesale profit margins. The average gross margin of our
three business segments for the nine months ended December 31, 2012 are
as follows:
|
|
|
|
|
|
|
Nine months ended
December 31,
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
|
Average gross margin for retail business
|
|
|
|
|
|
25.2
|
%
|
|
33.9
|
%
|
|
Average gross margin for wholesale business
|
|
|
|
|
|
3.6
|
%
|
|
2.7
|
%
|
|
Average gross margin for farming business
|
|
|
|
|
|
90.9
|
%
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our retail gross margin decreased to 25.2% in the nine months ended
December 31, 2012 from 33.9% in the nine months ended December 31, 2011.
The Chinese government has included more and more prescription and OTC
drugs in the price control list. Some of our products' prices were
higher than the prices set by the Chinese government. Hence, we had to
adjust these products' prices. As a result, the profit margin for these
products declined. In addition, due to the economic slowdown and
stricter government policies such as stricter insurance reimbursement
policy and the expansion of Essential Drug List (EDL), the retail
drugstore market became much more competitive. For example, drugs listed
in the EDL were being sold at a price close to its cost at local
community hospitals which, in turn, receive government subsidies.
Correspondently, we had to either abandon sale of these drugs or sell
them at minimal profit margins. Furthermore, in order to keep
competitive in the competitive drug retail market, we had to cut prices
of certain drugs. As a result, our overall retail gross profit margin
decreased.
Our wholesale gross margin for the nine months ended December 31, 2012
was 3.6% as compared to 2.7% for the nine months ended December 31,
2011. Because we introduced very competitive prices to stimulate sales
when we started our wholesale business, where we purchase from
third-party manufacturers or suppliers and resell, such business has had
a low profit margin. We ceased certain low profit margin wholesale
business in the three months ended December 31, 2012, and are
reconsidering our volume-driven sales strategy. In addition, in our
efforts to become first-tier distributor for certain medicines, we
advanced payments to certain vendors. As a result, our overall wholesale
business profit margin increased.
The gross margin for our farming business is achieved through our
ability to control quality through monitoring which, in turn, enables us
to command good pricing. In addition, as we are also a drug distributor,
we are able to internalize distribution costs more efficiently. As a
result, we expect the profit margin for our farming business to remain
high.
Selling and Marketing Expenses. Our sales and
marketing expenses increased by $551,327 or 8.4% period over period
primarily due to promotional activities and advertising, as well as
year-end employee bonuses. We spent approximately $290,000 on promotion
activities and approximately $240,000 on related advertising costs. We
also awarded approximately $570,000 year-end bonuses to our employees.
Such expenses as a percentage of our revenue kept at 9.5% as the same
period a year ago.
General and Administrative Expenses. Our general and
administrative expenses increased by $2,886,037 or 63.1% period over
period. Such expenses as a percentage of our revenue increased to 9.9%
from 6.6% for the same period a year ago. The increase in absolute
dollars as well as a percentage of revenue relates to professional fees
incurred as a U.S. publicly traded company, additional reserves for
accounts receivables and advances to suppliers, increased compensation,
and administration costs for new businesses such as Jiuxin Medicine.
Included in general and administrative expenses is $1,980,318 of bad
debt expense related to our wholesale operations. As we have closed
store locations and implemented stricter budgets, we anticipate that
general and administrative expenses will not increase significantly in
the future.
Impairment of Goodwill. During the nine months ended
December 31, 2012, we recorded a goodwill impairment charge of
$1,473,606 previously recognized in connection with the acquisitions of
Jiuxin Medicine and Shanghai Zhongxing. The impairment to goodwill was
made after we estimated the fair values of these businesses and
determined that the implied fair value of goodwill was lower than the
carrying value of goodwill. 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. As a result of lower profit
margins, increase in selling and marketing expenses and in general and
administration expenses, our income from operations decreased by
$11,834,176 period over period, resulting in an operating loss of
$3,039,693. Our operating margin for the nine months ended December 31,
2012 and 2011 was (4.0)% and 12.7%, respectively.
Income Taxes. Our income tax expense decreased by
$2,778,349 period over period, as a result of lower taxable income and
an income tax waiver granted to Qianhong Agriculture.
Net Income. As a result of the foregoing, our net income
decreased by $10,930,507 period over period, to a net loss of
$(4,480,083).
Balance Sheet Highlights
As of December 31, 2012, the Company had $3.8 million of cash, $58.0
million in current assets and $33.0 million in total liabilities.
Conference Call Information
The Company will host a conference call to discuss its third quarter
fiscal year 2013 results on Tuesday, February 19, 2012, at 8 a.m.
Eastern Time. To participate in the conference call, 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 Investors 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 11a.m. Eastern Time by dialing 1-877-870-5176 or
1-858-384-5517 with pin # 4601251. The replay will also be available on
the company website.
|
|
|
|
|
CHINA JO-JO DRUGSTORES, INC AND SUBSIDIARIES
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
|
|
2012
|
|
|
2012
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
|
$
|
3,795,628
|
|
|
|
$
|
3,833,216
|
|
|
Restricted cash
|
|
|
|
2,825,899
|
|
|
|
|
2,818,449
|
|
|
Trade accounts receivable, net
|
|
|
|
20,472,706
|
|
|
|
|
16,516,671
|
|
|
Inventories
|
|
|
|
7,636,141
|
|
|
|
|
6,875,574
|
|
|
Other receivables
|
|
|
|
1,485,760
|
|
|
|
|
603,294
|
|
|
Advances to suppliers, net
|
|
|
|
19,490,650
|
|
|
|
|
14,347,557
|
|
|
Other current assets
|
|
|
|
2,255,924
|
|
|
|
|
2,853,301
|
|
|
Total current assets
|
|
|
|
57,962,708
|
|
|
|
|
47,848,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, net
|
|
|
|
14,132,691
|
|
|
|
|
15,647,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
|
|
Long term deposits
|
|
|
|
2,460,396
|
|
|
|
|
2,872,219
|
|
|
Other noncurrent assets
|
|
|
|
5,466,837
|
|
|
|
|
5,776,667
|
|
|
Intangible assets, net
|
|
|
|
1,228,260
|
|
|
|
|
2,816,945
|
|
|
Total other assets
|
|
|
|
9,155,493
|
|
|
|
|
11,465,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
|
81,250,892
|
|
|
|
$
|
74,961,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, trade
|
|
|
$
|
20,855,018
|
|
|
|
$
|
13,906,383
|
|
|
Notes payable
|
|
|
|
6,739,164
|
|
|
|
|
4,208,928
|
|
|
Other payables
|
|
|
|
1,643,921
|
|
|
|
|
782,586
|
|
|
Other payables - related parties
|
|
|
|
1,066,827
|
|
|
|
|
1,458,441
|
|
|
Customer deposit
|
|
|
|
2,093,059
|
|
|
|
|
1,332,141
|
|
|
Taxes payable
|
|
|
|
329,315
|
|
|
|
|
469,606
|
|
|
Accrued liabilities
|
|
|
|
269,150
|
|
|
|
|
417,184
|
|
|
Total current liabilities
|
|
|
|
32,996,454
|
|
|
|
|
22,575,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase option derivative liability
|
|
|
|
20,767
|
|
|
|
|
34,419
|
|
|
Total liabilities
|
|
|
|
33,017,221
|
|
|
|
|
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 December 31, 2012 and March 30, 2012
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Common stock; $0.001 par value; 250,000,000 shares authorized;
13,609,002 and 13,589,621 shares issued and outstanding as of
December 31, 2012 and March 31, 2012
|
|
|
|
13,609
|
|
|
|
|
13,589
|
|
|
Additional paid-in capital
|
|
|
|
16,988,127
|
|
|
|
|
16,853,039
|
|
|
Statutory reserves
|
|
|
|
1,309,109
|
|
|
|
|
1,309,109
|
|
|
Retained earnings
|
|
|
|
26,949,017
|
|
|
|
|
31,429,100
|
|
|
Accumulated other comprehensive income
|
|
|
|
2,975,743
|
|
|
|
|
2,747,561
|
|
|
Total stockholders' equity
|
|
|
|
48,235,605
|
|
|
|
|
52,352,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
|
(1,934
|
)
|
|
|
|
(1,073
|
)
|
|
Total equity
|
|
|
|
48,233,671
|
|
|
|
|
52,351,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
|
$
|
81,250,892
|
|
|
|
$
|
74,961,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHINA JO-JO DRUGSTORES, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
(LOSS)
|
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
For the nine months ended
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
REVENUES, NET
|
|
|
|
$
|
15,596,013
|
|
|
|
$
|
25,643,949
|
|
|
$
|
75,108,458
|
|
|
|
$
|
69,296,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD
|
|
|
|
|
12,605,711
|
|
|
|
|
18,817,080
|
|
|
|
63,551,182
|
|
|
|
|
49,342,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
|
|
2,990,302
|
|
|
|
|
6,826,869
|
|
|
|
11,557,276
|
|
|
|
|
19,954,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SELLING EXPENSES
|
|
|
|
|
3,179,168
|
|
|
|
|
2,498,892
|
|
|
|
7,140,013
|
|
|
|
|
6,588,686
|
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
|
|
3,300,064
|
|
|
|
|
2,175,615
|
|
|
|
7,456,956
|
|
|
|
|
4,570,919
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
|
|
6,479,232
|
|
|
|
|
4,674,507
|
|
|
|
14,596,969
|
|
|
|
|
11,159,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
|
|
(3,488,930
|
)
|
|
|
|
2,152,362
|
|
|
|
(3,039,693
|
)
|
|
|
|
8,794,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE), NET
|
|
|
|
|
(25,380
|
)
|
|
|
|
16,343
|
|
|
|
(75,178
|
)
|
|
|
|
222,929
|
|
|
GOODWILL IMPAIRMENT LOSS
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
(1,473,606
|
)
|
|
|
|
-
|
|
|
CHANGE IN FAIR VALUE OF PURCHASE OPTION DERIVATIVE LIABILITY
|
|
|
|
|
(12,095
|
)
|
|
|
|
19,404
|
|
|
|
13,652
|
|
|
|
|
116,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
|
|
(3,526,405
|
)
|
|
|
|
2,188,109
|
|
|
|
(4,574,825
|
)
|
|
|
|
9,133,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR (BENEFITS FROM) INCOME TAXES
|
|
|
|
|
(39,613
|
)
|
|
|
|
610,910
|
|
|
|
(93,886
|
)
|
|
|
|
2,684,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME
|
|
|
|
|
(3,486,792
|
)
|
|
|
|
1,577,199
|
|
|
|
(4,480,939
|
)
|
|
|
|
6,449,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS: NET (LOSS) INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST
|
|
|
|
|
(271
|
)
|
|
|
|
3,217
|
|
|
|
(856
|
)
|
|
|
|
(1,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME ATTRIBUTABLE TO CHINA JO-JO DRUGSTORES, INC.
|
|
|
|
|
(3,486,521
|
)
|
|
|
|
1,573,982
|
|
|
|
(4,480,083
|
)
|
|
|
|
6,450,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
120,634
|
|
|
|
|
262,923
|
|
|
|
228,181
|
|
|
|
|
1,346,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE (LOSS) INCOME
|
|
|
|
$
|
(3,365,887
|
)
|
|
|
$
|
1,836,905
|
|
|
$
|
(4,251,902
|
)
|
|
|
$
|
7,796,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF SHARES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
13,584,172
|
|
|
|
|
13,557,379
|
|
|
|
13,571,479
|
|
|
|
|
13,546,570
|
|
|
Diluted
|
|
|
|
|
13,584,172
|
|
|
|
|
13,557,379
|
|
|
|
13,571,479
|
|
|
|
|
13,546,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) EARNINGS PER SHARES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
$
|
(0.26
|
)
|
|
|
$
|
0.12
|
|
|
$
|
(0.33
|
)
|
|
|
$
|
0.48
|
|
|
Diluted
|
|
|
|
$
|
(0.26
|
)
|
|
|
$
|
0.12
|
|
|
$
|
(0.33
|
)
|
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHINA JO-JO DRUGSTORES, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended December 31,
|
|
|
|
|
|
2012
|
|
2011
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net (loss) income
|
|
|
$
|
(4,480,939
|
)
|
|
$
|
6,449,341
|
|
|
Adjustments to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
2,118,133
|
|
|
|
2,065,451
|
|
|
Stock compensation
|
|
|
|
135,107
|
|
|
|
75,616
|
|
|
Bad debt expense
|
|
|
|
2,165,822
|
|
|
|
543,435
|
|
|
Goodwill Impairment
|
|
|
|
1,482,327
|
|
|
|
-
|
|
|
Change in fair value of purchase option derivative liability
|
|
|
|
(13,652
|
)
|
|
|
(116,392
|
)
|
|
Change in operating assets:
|
|
|
|
|
|
|
|
|
|
Accounts receivable, trade
|
|
|
|
(5,581,444
|
)
|
|
|
(5,082,547
|
)
|
|
Notes receivable
|
|
|
|
-
|
|
|
|
-
|
|
|
Inventories
|
|
|
|
(734,011
|
)
|
|
|
1,497,076
|
|
|
Other receivables
|
|
|
|
(1,035,445
|
)
|
|
|
(636,952
|
)
|
|
Advances to suppliers
|
|
|
|
(5,404,917
|
)
|
|
|
3,000,229
|
|
|
Other current assets
|
|
|
|
607,793
|
|
|
|
5,635,292
|
|
|
Long term deposit
|
|
|
|
422,457
|
|
|
|
(17,790
|
)
|
|
Other noncurrent assets
|
|
|
|
331,544
|
|
|
|
153,828
|
|
|
Change in operating liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable, trade
|
|
|
|
6,891,514
|
|
|
|
5,554,243
|
|
|
Other payables and accrued liabilities
|
|
|
|
708,621
|
|
|
|
(862,802
|
)
|
|
Customer deposits
|
|
|
|
755,387
|
|
|
|
(213,660
|
)
|
|
Taxes payable
|
|
|
|
(141,984
|
)
|
|
|
(366,393
|
)
|
|
Net cash (used in) provided by operating activities
|
|
|
|
(1,773,687
|
)
|
|
|
17,677,975
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
|
(252,128
|
)
|
|
|
(11,727,452
|
)
|
|
Additions to leasehold improvements
|
|
|
|
(253,515
|
)
|
|
|
-
|
|
|
Net payments for business acquisitions
|
|
|
|
-
|
|
|
|
(3,297,561
|
)
|
|
Net cash used in investing activities
|
|
|
|
(505,643
|
)
|
|
|
(15,025,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Change in restricted cash
|
|
|
|
3,244
|
|
|
|
(496,520
|
)
|
|
Payments on notes payable
|
|
|
|
-
|
|
|
|
(4,452,229
|
)
|
|
Increase in notes payable
|
|
|
|
2,512,678
|
|
|
|
-
|
|
|
Decrease in other payables- related parties
|
|
|
|
(391,664
|
)
|
|
|
-
|
|
|
Net cash provided by (used in) financing activities
|
|
|
|
2,124,258
|
|
|
|
(4,948,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE ON CASH
|
|
|
|
117,484
|
|
|
|
145,548
|
|
|
|
|
|
|
|
|
|
|
|
|
DECREASE IN CASH
|
|
|
|
(37,588
|
)
|
|
|
(2,150,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH, beginning of Period
|
|
|
|
3,833,216
|
|
|
|
6,489,905
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, end of Period
|
|
|
$
|
3,795,628
|
|
|
$
|
4,339,666
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
|
$
|
72,024
|
|
|
$
|
3,254,843
|
|
|
Non-cash investing activities
|
|
|
|
|
|
|
|
|
|
Charge of property and equipment into disposal loss at store closing
|
|
|
$
|
76,368
|
|
|
$
|
-
|
|
|
Transfer from construction-in-progress to leasehold improvement
|
|
|
$
|
2,707,183
|
|
|
$
|
-
|
|
|
Non-cash financing activities
|
|
|
|
|
|
|
|
|
|
Notes payable transferred to accounts payable vendors
|
|
|
$
|
-
|
|
|
$
|
6,480,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2012, the Company has 52 retail pharmacies
throughout Zhejiang Province and Shanghai.
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.
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