China Jo-Jo Drugstores Reports Third Quarter 2018 Financial Results

February 14, 2018 08:00

HANGZHOU, China, Feb. 14, 2018 /PRNewswire/ -- China Jo-Jo Drugstores, Inc. (NASDAQ: CJJD) ("Jo-Jo Drugstores" or the "Company"), a leading online and offline retailer and wholesale distributor of pharmaceutical and other healthcare products and a healthcare provider in China, today announced its financial results for the third quarter ended December 31, 2017.

Mr. Lei Liu, Chief Executive Officer and Chairman of Jo-Jo Drugstores, Inc., commented, "We are pleased to announce our strong retail sales growth in our most recent financial results. We will continue to pursue retail drugstore growth in Hangzhou as we continue to build strong relationships with our customers, suppliers, and other business partners in one of the highest income urban centers in China. We also remain optimistic regarding our ongoing transformation of our e-commerce business following the industry-wide suspension of OTC drug sales on e-commerce platforms in fiscal year 2017, as our efforts in reorganizing our product line shows further improvements."

Mr. Liu continued, "In the coming months we are strategically positioned to take advantage of the improving business environment in Hangzhou as the healthcare market continues to grow."

Third Quarter of Fiscal 2018 Financial Highlights

	For the Three Months Ended December 31,
($ millions, except per share data)		2017	2016	% Change
Revenue		26.81	20.61	30.1%
Retail drugstores		18.29	14.12	29.5%
Online pharmacy		3.40	3.44	(1.2)%
Wholesale		5.13	3.05	68.1%
Gross profit		5.57	4.18	33.2%
Gross margin		20.8%	20.3%	0.5%
Operating income loss		(2.19)	(0.84)	(160.9)%
Operating margin		(8.2)%	(4.1)%	(4.1)%
Net loss attributable to Jo-Jo Drugstores		(1.63)	(0.83)	(94.8)%
Loss per share		(0.07)	(0.04)	(75.0)%

Revenues increased by 30.1% to $26.81 million for the three months ended December 31, 2017 from $20.61 million for the same period of last year, mainly due to the increase in retail drugstores and wholesale business, partially offset by the decrease in online pharmacy business.
Gross profit increased by 33.2% to $5.57 million for the three months ended December 31, 2017 from $4.18 million for the same period of last year. Gross margin increased by 0.5 percentage points to 20.8% from 20.3% for the same period of last year.
Net loss attributable to Jo-Jo Drugstores increased by 94.8% to $1.63 million, or $0.07 per basic and diluted share, for the three months ended December 31, 2017 from $0.83 million, or $0.04 per basic and diluted share, for the same period of last year.

Three Months Ended December 31, 2017 Financial Results

Revenue

Revenue for the three months ended December 31, 2017 increased by $6.20 million, or 30.1%, to $26.81 million from $20.61 million for the same period of last year. The increase in revenue was primarily due to the increase in retail drugstores and wholesale business, partially offset by the decrease in online pharmacy business.

	For the Three Months Ended December 31,
	2017			2016
($ millions)	Revenues	Cost of Goods	Gross Margin	Revenues	Cost of Goods	Gross Margin
Retail drugstores	18.29	13.69	25.2%	14.12	10.49	25.7%
Online pharmacy	3.40	3.13	7.7%	3.44	3.08	10.4%
Wholesale	5.13	4.42	13.8%	3.05	2.85	6.5%
Total	26.81	21.24	20.8%	20.61	16.43	20.3%

Revenue from the retail drugstores segment increased by $4.17 million, or 29.5%, to $18.29 million for the three months ended December 31, 2017 from $14.12 million for the same period of last year. The increase was primarily due to the increased number of stores, more choices of commodity at lower prices through frequent price negotiation with suppliers, brand-name health product sales campaign in cooperation with brand name suppliers, and value-added customer services such as chronic disease monitoring.

Revenue from the online pharmacy segment decreased by $0.04 million, or 1.2%, to $3.40 million for the three months ended December 31, 2017 from $3.44 million for the same period of last year. The decrease was mainly caused by a decline in our sales via e-commerce platforms. The decline in sales was due to the suspension of OTC drug sales on e-commerce platforms in the second quarter of fiscal year 2017 by the CFDA. The Company is adding more non-medical health products such as nutritional supplements into our sales menu to counteract the decline in sales of OTC drug category via e-commerce platforms.

Revenue from the wholesale segment increased by $2.08 million, or 68.1%, to $5.13 million for the three months ended December 31, 2017 from $3.05 million for the same period of last year. The increase was primarily a result of the Company's ability to resell certain products, which our retail stores made large orders on, to other vendors at competitive prices.

Gross profit and gross margin

Total cost of goods sold increased by $4.81 million, or 29.3%, to $21.24 million for the three months ended December 31, 2017 from $16.43 million for the same period of last year. Gross profit increased by $1.39 million, or 33.2%, to $5.57 million for the three months ended December 31, 2017 from $4.18 million for the same period of last year. Overall gross margin increased by 0.5 percentage points to 20.8% for the three months ended December 31, 2017, compared to 20.3% for the same period of last year.

Gross margins for retail drugstores, online pharmacy and wholesale were 25.2%, 7.7%, and 13.8%, respectively, for the three months ended December 31, 2017. This compared to gross margins for retail drugstores, online pharmacy and wholesale of 25.7%, 10.4%, and 6.5%, respectively, for the same period of last year.

Operating income (loss)

Sales and marketing expenses increased by $1.45 million, or 40.6%, to $5.02 million for the three months ended December 31, 2017 from $3.57 million for the same period of last year, primarily due to commissions payable to wholesale contractors, rent and expenditures for new retail stores, and the reclassification of certain staff salaries to selling and marketing expenses in the wholesale business.

General and administrative expenses increased by $1.29 million, or 88.6%, to $2.74 million for the three months ended December 31, 2017 from $1.45 million for the same period of last year. The increase in general and administrative expenses was primarily due to additional accounts receivable and advances to vendors allowance of $0.82 million in the three months ended December 31, 2017 as compared to a reversal of $0.4 million in the three months ended December 31, 2016.

Operating loss increased by $1.35 million, or 160.9%, to $2.19 million for the three months ended December 31, 2017 from $0.84 million for the same period of last year. Operating margin was negative 8.2% for the three months ended December 31, 2017, compared to negative 4.1% for the same period of last year.

Net loss

Net loss attributable to common shareholders for the three months ended December 31, 2017 was $1.63 million, or $0.07 per basic and diluted share. This compared to net loss attributable to common shareholders of $0.83 million, $0.04 per basic and diluted share, for the same period of last year.

Nine Months Ended December 31, 2017 Financial Results

	For the Nine Months Ended December 31,
($ millions, except per share data)		2017	2016	% Change
Revenue		71.97	61.71	16.6%
Retail drugstores		46.36	39.64	17.0%
Online pharmacy		9.60	12.29	(21.9)%
Wholesale		16.02	9.78	63.9%
Gross profit		15.31	13.02	17.6%
Gross margin		21.3%	21.1%	0.2%
Operating loss		(5.30)	(1.01)	(424.5)%
Operating margin		(7.4)%	(1.6)%	(5.8)%
Net loss attributable to Jo-Jo Drugstores		(4.21)	(0.61)	(595.6)%
Loss per share		(0.17)	(0.03)	(466.7)%

Revenue

Revenue for the nine months ended December 31, 2017 increased by $10.26 million, or 16.6%, to $71.97 million from $61.71 million for the same period of last year. The increase in revenue was primarily due to the increase in retail drugstores and wholesale business, partially offset by the decrease in online pharmacy business.

	For the Nine months Ended December 31,
	2017			2016
($ millions)	Revenues	Cost of Goods	Gross Margin	Revenues	Cost of Goods	Gross Margin
Retail drugstores	46.36	34.23	26.2%	39.64	28.62	27.8%
Online pharmacy	9.60	8.64	9.9%	12.29	10.88	11.5%
Wholesale	16.02	13.80	13.9%	9.78	9.19	6.0%
Total	71.97	56.67	21.6%	61.71	48.69	21.5%

Revenue from retail drugstores segment increased by $6.72 million, or 17.0%, to $46.36 million for the nine months ended December 31, 2017 from $39.64 million for the same period of last year. The increase was primarily due to the increase in number of stores, more choices of commodity at lower prices through frequent price negotiation with suppliers, brand-name health product sales campaign in cooperation with brand name suppliers, and value-added customer services such as chronic disease monitoring.

Revenue from the online pharmacy segment decreased by $2.70 million, or 21.9%, to $9.60 million for the nine months ended December 31, 2017 from $12.29 million for the same period of last year. The decrease was mainly caused by decline in our sales via e-commerce platforms. The decline in sales was due to the suspension of OTC drug sales on e-commerce platforms in the second quarter of fiscal year 2017 by the CFDA. The Company is adding more non-medical health products such as nutritional supplements into our sales menu to counteract the decline in sale of OTC drug category.

Revenue from the wholesale segment increased by $6.24 million, or 63.9%, to $16.02 million for the nine months ended December 31, 2017 from $9.78 million for the same period of last year. The increase was primarily a result of the Company's ability to resell certain products, which our retail stores made large orders on, to other vendors at competitive prices.

Gross profit and gross margin

Total cost of goods sold increased by $7.98 million, or 16.4%, to $56.67 million for the nine months ended December 31, 2017 from $48.69 million for the same period of last year. Gross profit increased by $2.29 million, or 17.6%, to $15.31 million for the nine months ended December 31, 2017 from $13.02 million for the same period of last year. Overall gross margin increased by 0.2 percentage points to 21.3% for the nine months ended December 31, 2017, compared to 21.1% for the same period of last year.

Gross margins for retail drugstores, online pharmacy and wholesale were 26.2%, 9.9%, and 13.9%, respectively, for the nine months ended December 31, 2017. This compared to gross margins for retail drugstores, online pharmacy and wholesale of 27.8%, 11.5%, and 6.0%, respectively, for the same period of last year.

Operating loss

Sales and marketing expenses increased by $4.01 million, or 43.3%, to $13.29 million for the nine months ended December 31, 2017 from $9.28 million for the same period of last year, primarily due to commissions payable to wholesale sales contractors, rent and expenditures for new retail stores, and reclassification of certain staff's salaries to selling and marketing expenses in wholesale business.

General and administrative expenses increased by $2.57 million, or 54.0%, to $7.32 million for the nine months ended December 31, 2017 from $4.75 million for the same period of last year. The increase in general and administrative expenses was primarily due to additional accounts receivable and advances to vendors allowance of $2.34 million in the nine months ended December 31, 2017 as compared to a reversal of $0.5 million in the nine months ended December 31, 2016.

Operating loss increased by $4.29 million, or 424.5%, to $5.30 million for the nine months ended December 31, 2017 from $1.01 million for the same period of last year. Operating margin was negative 7.4% for the nine months ended December 31, 2017, compared to negative 1.6% for the same period of last year.

Net loss

Net loss attributable to common shareholders for the nine months ended December 31, 2017 was $4.21 million, or $0.17 per basic and diluted share, compared to net loss attributable to common shareholders of $0.61 million, $0.03 per basic and diluted share, for the same period of last year.

Financial Condition

As of December 31, 2017, the Company had cash of $8.40 million, compared to $18.36 million as of March 31, 2017. Net cash used in operating activities was $9.80 million for the nine months ended December 31, 2017, compared to $1.79 million for the same period of last year. Net cash used in investing activities was $1.76 million for the nine months ended December 31, 2017, compared to net cash provided by investing activities of $0.13 million for the same period of last year. Net cash used in financing activities was $0.17 million for the nine months ended December 31, 2017, compared to net cash provided by financing activities of $0.02 million for the same period of last year.

About China Jo-Jo Drugstores, Inc.

China Jo-Jo Drugstores, Inc. ("Jo-Jo Drugstores" or the "Company"), is a leading online and offline retailer and wholesale distributor of pharmaceutical and other healthcare products in China. Jo-Jo Drugstores currently operates retail drugstores and an online pharmacy. It is also a wholesale distributor of products similar to those carried in its pharmacies and it cultivates and sells herbs used for traditional Chinese medicine. For more information about the Company, please visit http://www.chinajojodrugstores.com/. The Company routinely posts important information on its website.

Forward-Looking Statements

This press release contains information about the Company's view of its future expectations, plans and prospects that constitute forward-looking statements. Actual results may differ materially from historical results or those indicated by these forward-looking statements as a result of a variety of factors including, but not limited to, risks and uncertainties associated with its ability to raise additional funding, its ability to maintain and grow its business, variability of operating results, its ability to maintain and enhance its brand, its development and introduction of new products and services, the successful integration of acquired companies, technologies and assets into its portfolio of products and services, marketing and other business development initiatives, competition in the industry, general government regulation, economic conditions, dependence on key personnel, the ability to attract, hire and retain personnel who possess the technical skills and experience necessary to meet the requirements of its clients, and its ability to protect its intellectual property. The Company's encourages you to review other factors that may affect its future results in the Company's annual reports and in its other filings with the Securities and Exchange Commission.

For more information, please contact:

Company Contact:
Frank Zhao
Chief Financial Officer
+86-571-88077108
frank.zhao@jojodrugstores.com

Steve Liu
Investor Relations Director
steve.liu@jojodrugstores.com

Investor Relations Contact:
Tina Xiao
Ascent Investor Relations LLC
+1-917-609-0333
tina.xiao@ascent-ir.com

CHINA JO-JO DRUGSTORES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	December 31,		March 31,
	2017		2017
ASSETS
CURRENT ASSETS
Cash	$	8,396,060	$	18,364,424
Restricted cash		15,822,446		9,431,386
Financial assets available for sale		230,472		87,068
Notes receivable		187,759		253,394
Trade accounts receivable		12,840,099		8,561,596
Inventories		13,500,428		9,923,101
Other receivables, net		2,793,851		2,269,193
Advances to suppliers		5,564,703		5,504,141
Other current assets		1,086,982		1,566,155
Total current assets		60,422,800		55,960,458

PROPERTY AND EQUIPMENT, net		3,823,681		4,263,157

OTHER ASSETS
Long-term investment		47,550		46,152
Farmland assets		761,058		718,787
Long term deposits		3,797,139		2,294,848
Other noncurrent assets		1,310,513		1,177,005
Intangible assets, net		3,933,234		2,712,611
Total other assets		9,849,494		6,949,403

Total assets	$	74,095,975	$	67,173,018

LIABILITIES AND STOCK HOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade		21,451,969		19,441,195
Notes payable		19,383,898		12,691,575
Other payables		2,989,453		2,916,283
Other payables - related parties		680,834		927,052
Customer deposits		3,226,095		2,675,030
Taxes payable		496,229		681,939
Accrued liabilities		683,743		679,350
Total current liabilities		48,912,221		40,012,424

Purchase option and warrants liability		75,607		496,217
Total liabilities		48,987,828		40,508,641

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
Common stock; $0.001 par value; 250,000,000 shares authorized; 25,214,678 and 25,214,678 shares issued and outstanding as of December 31, 2017 and March 31, 2017		25,215		25,215
Preferred stock; $0.001 par value; 10,000,000 shares authorized; nil issued and outstanding as of December 31, 2017 and March 31, 2017		-		-
Additional paid-in capital		37,558,064		36,581,248
Statutory reserves		1,309,109		1,309,109
Accumulated deficit		(16,815,100)		(12,601,257)
Accumulated other comprehensive income		3,030,858		1,350,062
Total stockholders' equity		25,108,146		26,664,377

Total liabilities and stockholders' equity	$	74,095,974	$	67,173,018

CHINA JO-JO DRUGSTORES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

	For the three months ended December 31,				For the nine months ended December 31,
	2017		2016		2017		2016

REVENUES, NET	$	26,812,242	$	20,610,024	$	71,973,653	$	61,706,774

COST OF GOODS SOLD		21,240,629		16,426,153		56,666,782		48,688,092

GROSS PROFIT		5,571,613		4,183,871		15,306,871		13,018,682

SELLING EXPENSES		5,020,971		3,570,182		13,288,602		9,276,225
GENERAL AND ADMINISTRATIVE EXPENSES		2,737,782		1,451,849		7,318,780		4,752,981
TOTAL OPERATING EXPENSES		7,758,753		5,022,031		20,607,382		14,029,206

(LOSS) FROM OPERATIONS		(2,187,140)		(838,160)		(5,300,511)		(1,010,524)

INTEREST INCOME		76,266		54,003		479,509		339,460
INTEREST EXPENSE		-		(415)		-		(1,285)
OTHER INCOME(LOSS), NET		301,292		(99,485)		263,241		5,139

CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITIES		221,859		67,296		420,610		125,389

(LOSS) BEFORE INCOME TAXES		(1,587,723)		(816,761)		(4,137,151)		(541,821)

PROVISION FOR INCOME TAXES		38,106		18,045		76,691		63,963

NET (LOSS) INCOME		(1,625,829)		(834,806)		(4,213,842)		(605,784)

OTHER COMPREHENSIVE (LOSS) INCOME
Foreign currency translation adjustments		588,543		(1,768,854)		1,680,796		(1,741,706)

COMPREHENSIVE (LOSS) INCOME	$	(1,037,286)	$	(2,603,660)	$	(2,533,046)	$	(2,347,490)

WEIGHTED AVERAGE NUMBER OF SHARES:
Basic		19,941,439		19,941,439		25,214,678		19,188,867
Diluted		19,941,439		19,941,439		25,214,678		19,188,867

EARNINGS PER SHARES:
Basic	$	(0.07)	$	(0.04)	$	(0.17)	$	(0.03)
Diluted	$	(0.07)	$	(0.04)	$	(0.17)	$	(0.03)

CHINA JO-JO DRUGSTORES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine months ended December 31,
	2017		2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		(4,213,842)		(605,784)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Depreciation and amortization		1,063,170		891,542
Stock-based compensation		976,816		1,907,582
Bad debt provision		1,948,887		(505,117)
Change in fair value of purchase option derivative liability		(420,610)		(125,441)

Change in operating assets:
Accounts receivable, trade		(4,830,933)		(1,130,490)
Notes receivable		79,250		(29,484)
Inventories		(2,945,926)		(555,388)
Other receivables		(149,447)		64,419
Advances to suppliers		(990,309)		(683,980)
Other current assets		562,148		(76,656)
Other noncurrent assets		(63,263)		(330,217)
Long term deposit		(1,345,486)
Change in operating liabilities:
Accounts payable, trade		853,598		(1,119,770)
Other payables and accrued liabilities		(127,969)		296,298
Customer deposits		387,458		64,508
Taxes payable		(222,207)		150,910
Net cash (used in) provided by operating activities		(9,438,665)		(1,787,068)

CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of financial assets available for sale		-		449,403
Purchase of financial assets available for sale		(136,074)
Purchase of equipment		(237,108)		(115,463)
Purchase of intangible assets		(1,125,110)
Termination of a joint venture				69,802
Investment in a joint venture		(9,601)		(74,900)
Additions to leasehold improvements		(249,097)		(200,428)
Net cash (used in) provided by investing activities		(1,756,990)		128,414

CASH FLOWS FROM FINANCING ACTIVITIES:
Change in restricted cash		(5,743,155)		3,939,366
Repayments of notes payable		(22,501,743)		(24,600,434)
Proceeds from notes payable		28,352,683		20,309,469
Change in other payables-related parties		(278,691)		375,395
Net cash (used in) provided by financing activities		(170,906)		23,796

EFFECT OF EXCHANGE RATE ON CASH		1,398,197		(393,666)
DECREASE IN CASH		(9,968,364)		(2,028,524)
CASH, beginning of period		18,364,424		6,671,873
CASH, end of period	$	8,396,060	$	4,643,349

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	-	$	1,348
Cash paid for income taxes	$	27,856	$	57,688
Issuance of common stocks in exchange of debts		-		1,603,810

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SOURCE China Jo-Jo Drugstores, Inc.

China Jo-Jo Drugstores Reports Third Quarter 2018 Financial Results

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