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China Jo-Jo Drugstores Inc. Reports Financial Results For Second Quarter Fiscal 2013 And Announces Second Quarter Fiscal 2013 Conference Call

Our wholesale gross margin for the six months ended September 30, 2012 was 3.0% as compared to 4.1% for the six months ended September 30, 2011. Because we introduced very competitive prices to stimulate sales, our traditional wholesale business, where we purchase from third-party manufacturers or suppliers and resell, has a low profit margin.

Our profit margin for our harvested TCM sold was approximately 90.9% for the six months ended September 30, 2012. We are able to control quality through monitoring which, in turn, enable 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 decreased by $128,949 or 3.2% period over period due to less promotional activities because of restrictions by the local government, offset by increased rent and depreciation and amortization expense. Such expenses as a percentage of our revenue decreased to 6.7%, from 9.4% for the same period a year ago as our wholesale business contributed significant sales revenue.

General and Administrative Expenses. Our general and administrative expenses increased by $1,761,587 or 73.5% period over period. Such expenses as a percentage of our revenue increased to 7.0% from 5.5% for the same period a year ago. The increase in absolute dollars as well as a percentage of revenue related to professional fees incurred as a U.S. publicly traded company, more reserves for accounts receivables and advances to suppliers, increased salaries, and administration costs related to our new businesses such as Jiuxin Medicine. For example, due to the expansion of our wholesale business, we had significant amount of accounts receivable and advances to customers as of September 30, 2012. As a result, we incurred approximately $680,000 of additional bad debts expense, which is included in the general and administration expense. As we continue to open drugstores, further develop our infrastructure, and incur expenses related to being a U.S. public company, we anticipate that our general and administrative expenses will increase in absolute dollars.

Impairment of Goodwill. During the six months ended September 30, 2012, we recorded a goodwill impairment charge of $1,473,606 that was previously recognized in the acquisitions of Jiuxin Medicine and Shanghai Zhongxin. The impairment to goodwill was made after we estimated the fair values of businesses acquired and determined that the implied fair value of goodwill was lower than the carrying value of goodwill for the two businesses. Accordingly, we recorded our best impairment estimates of $1,403,933 for Jiuxin Medicine and $69,673 for Shanghai Zhongxin.

Income from Operations. As a result of lower profit margins, decreases in selling and marketing expenses, and increases in general and administration expenses, our income from operations decreased by $6,192,884 or 93.2% period over period. Our operating margin for the six months ended September 30, 2012 and 2011 was 0.8% and 15.2%, respectively.

Income Taxes. Our income tax expense decreased by $2,069,661 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 $5,870,004 period over period.

Balance Sheet Highlights

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