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China Jo-Jo Drugstores, Inc. Reports Fiscal Year 2012 Earnings Results And Schedules Conference Call For July 3, 2012

“As we look to Fiscal 2013, we look to growing our revenue through our retail and wholesale operations while remaining focused on bottom line results,” concluded Mr. Liu.

Balance Sheet Highlights

As of March 31, 2012, the Company had $3.8 million of cash, $74.9 million in total assets and $22.6 million in total liabilities.

Fiscal Year 2012 Full Year Results

The following table summarizes our results of operations for the fiscal years ended March 31, 2012 and 2011.

    Years Ended March 31,
2012     2011
Amount    

Percentage of total revenue

Amount    

Percentage of total revenue

Revenues $ 94,352,885   100.0 % $ 69,969,479   100.0 %
Gross Profit $ 27,562,801 29.2 % $ 21,142,094 30.2 %
Selling Expenses $ 8,498,240 9.0 % $ 4,838,745 6.9 %
General and Administrative Expenses $ 8,582,389 9.1 % $ 4,723,943 6.8 %
Income from Operations $ 10,482,172 11.1 % $ 11,579,406 16.5 %
Other Income (Expense) $ 187,865 0.2 % $ 127,172 0.2 %
Changes in Fair Value of Purchase Option Derivative Liability $ 118,807 0.1 % $ 249,225 0.4 %
Income Tax Expenses $ 2,648,365 2.8 % $ 3,523,345 5.0 %
Net Income $ 8,140,479 8.6 % $ 8,432,458 12.1 %
 

Revenue. We had two revenue streams for the fiscal year ended March 31, 2012: (i) store and online retail sales of pharmaceutical and other healthcare products, and (ii) wholesale distribution of pharmaceutical and other healthcare products, as well as our self-cultivated TCM herbs, primarily to third-party pharmaceutical trading companies. Included in our wholesale revenue are: (i) wholesales of pharmaceutical and healthcare products that we purchased from third-party manufacturers or suppliers, (ii) wholesales of our cultivated TCM herbs, (iii) direct group sales or sales to non-distributors. Although the overall gross profit of our wholesale business is comparatively lower than that of our retail business, the volume of our wholesale business is significant.

Our total revenue for fiscal 2012 increased by $24,383,406, or 34.8%, from the prior fiscal year’s revenue. Such increase was primarily due to the following reasons:

(1)   During fiscal 2012, we opened several new “Jiuzhou Grand Pharmacy” drugstores and also started to expand our online drug sales. Our retail store count increased to 61 as of March 31, 2012, from 53 stores a year ago. The increased number of stores brought new opportunities to sell our products and services to retail customers. Retail sales accounted for about 70% of our total revenue for the year ended March 31, 2012. Same-store sales decreased by approximately $7.0 million or 10.1%, while our new stores contributed approximately $3.1 million to our revenue. We expect same-store sales will continue to decline as the frequency of government-mandated price controls and the number of drugs subject to price controls continue to rise and, to a lesser extent, with the shift of our group sales to our wholesale business.
(2)   We started our wholesale business after acquiring Jiuxin Medicine in August 2011, through which we have been distributing third-party pharmaceutical and healthcare products to pharmaceutical trading companies and other group customers. In the fourth quarter of fiscal 2012, we also began distributing the TCM herbs that we have been cultivating, also to third-party pharmaceutical trading companies. Our wholesale business increased rapidly during fiscal 2012 because we introduced very competitive pricing to customers to stimulate sales. Sales from the wholesale business accounted for about 30% of our total revenue for the fiscal year ended March 31, 2012.

Annual Revenue by Segment

The following table sets for the breakdown of our revenue for our two business lines for the years ended March 31, 2012 and 2011:

   

For the year endedMarch 31, 2012

   

For the year endedMarch 31, 2011

       
Amount    

% of totalrevenue

Amount    

% of totalrevenue

Variance byamount

% of change
Revenue from retail business
Revenue from drugstores $ 64,981,643   69 % $ 66,477,736   95 % $

(1,496,093

)   (2 )%
Revenue from liquor sales - - 3,491,743 5 % (3,491,743 ) (100 )%
Revenue from online sales   1,092,705   1 %   -   0 %   1,092,705     100 %
Sub-total of retail revenue 66,074,348 70 % 69,969,479 100 % (3,895,131 ) (6 )%
 
Revenue from wholesale business

 

Revenue from Jiuxin Medicine 24,060,963 26 % - 0 % 24,060,963 100 %
Revenue from harvested TCM herbs   4,217,574   4 %   -   0 %   4,217,574     100 %
Sub-total of wholesale revenue   28,278,537   30 %   -   0 %   28,278,537     100 %
Total revenue $ 94,352,885   100 % $ 69,969,479   100 % $ 24,383,406     35 %
 

The revenue fluctuation between fiscal years ended March 31, 2012 and 2011 reflected the following combined factors:

(1)  

Revenue from ”Jiuzhou Grand Pharmacy” stores decreased by approximately $3.9 million or 6% year over year, mainly due to two reasons. Since the second quarter of 2011, the Hangzhou government has been gradually restricting retail drugstores within the city from organizing large-scale marketing promotions on the streets to give further rebate or discount to customers making purchases with government-sponsored medical insurance card. Our promotional activities were curtailed accordingly, which impacted our retail sales revenue, especially from sales of certain prescription drugs covered by the medical insurance card. In addition, the government subjected more drugs to price control in October 2011, which caused us to reduce prices for some of the affected drugs and stop carrying others at our pharmacies, which especially impacted our revenue for the three months ended March 31, 2012.

(2)   The decrease in retail revenue was also affected by the relocation of three retail stores due to building demolishment ordered by the local government. As a result of the time lost to relocating to and readying the new store locations, sales from these three stores were down for the fiscal year ended March 31, 2012.
(3)   Another factor for the decreased retail revenue is the shift of group sales from Jiuzhou Pharmacy’s retail business to Jiuxin Medicine’s wholesales business. We originally recorded group sales under Jiuzhou Pharmacy’s retail system in the prior year. But starting in August 2011, such sales have been recorded under Jiuxin Medicine’s wholesale system because we believe group sales are essentially wholesale in nature. Accordingly, $15.5 million in group sales that would have otherwise been recorded under Jiuzhou Pharmacy have now been recorded under Jiuxin Medicine, including $8.9 million during the fourth quarter of fiscal 2012. Such internal re-allocation of sales revenue between our retail and wholesale businesses affected the comparison of our retail sales for fiscal 2012 versus fiscal 2011, but has no impact on our consolidated financial statements.

Revenue by Segment and Quarter

The following table sets for the breakdown of our revenue for our two business lines for the years ended March 31, 2012 and 2011:

  Year ended March 31,     Variance by     % of
2012     2011 amount change
Revenue from retail business
First quarter ended June 30, 2011 21,427,859 15,207,428 6,220,431   41 %
Second quarter ended September 30, 2011 18,799,919 15,678,170 3,121,749 20 %
Third quarter ended December 31,2011 18,123,907 18,042,309 81,598 0 %
Fourth quarter ended March 31, 2012   7,722,663   21,041,572   (13,318,909 )   (63 )%
Total revenue from retail business   66,074,348   69,969,479   (3,895,131 )   (6 )%
 
Revenue from wholesale business
First quarter ended June 30, 2011 - - - N/A
Second quarter ended September 30, 2011 3,425,028 - 3,425,028 N/A

Third quarter ended December 31, 2011

7,520,042 - 7,520,042 N/A
Fourth quarter ended March 31, 2012   17,333,467   -   17,333,467     N/A  
Total revenue from wholesale business   28,278,537   -   28,278,537     N/A  
 
Total revenue $ 94,352,885 $ 69,969,479 $ 24,383,406     35 %
 

The primary reason for the 6% decline in our retail revenue from fiscal 2011 to fiscal 2012 is the almost 63%, or $13,318,909, drop in retail revenue for the three months ended March 31, 2012 as compared to the same period last fiscal year. Such decline is primarily attributed to the government subjecting additional drugs to price control in October 2011, which affected some of our selling prices. In response, we reduced our prices in some instances and ceased carrying products in other instances. The significance of this decline has offset all previous quarterly increases during fiscal 2012. During the three months ended March 31, 2012, we also fully shifted our entire group sales previously recorded in our retail business to our wholesale business. In addition, our three store relocations during the fourth quarter of fiscal 2012 resulted in a $1.5 million period-over-period decline in sales. Another reason for the decline of our fourth quarter retail sales on a year-to-year basis was the termination of our white liquor sales in fiscal 2012, which contributed $3.4 million for the fourth quarter of fiscal 2011. Despite the significant decline of our retail sales, however, we were able to make up lost grounds with our entry into, and expansion of, the wholesale business. As a result, our overall revenue for the year ended March 31, 2012 increased from the prior year, and we believe we are in position to continue to grow our wholesale business to hedge against any further decline to our retail business, especially if Jiuxin Medicine can become qualified to supply to hospital-affiliated pharmacies. We intend, however, to remain competitive with our retail business, and plan to open more upscale, service-oriented pharmacies to further differentiate ourselves from our competitors.

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