China Jo-Jo Drugstores Reports Third Quarter Fiscal Year 2016 Financial Results

HANGZHOU, China, February 12, 2016 /PRNewswire/ -- China Jo-Jo Drugstores, Inc. (NASDAQ CM: CJJD) (the "Company" or "China Jo-Jo"), a leading China-based pharmacy with retail, wholesale and online distribution of pharmaceutical and health care products, today announced financial results for the third-quarter ended December 31, 2015.

Third Quarter FY 2016 Highlights vs. the Comparable Period

• Revenues roughly totaled $24.7 million up 15.9%, consisting of segmental revenue:
  • Revenue from Retail Drugstores roughly totaled $12.9 million, down 2.7% and represents 52.3% of total revenues as compared to 62.3% in the prior year;
  • Revenue from Online Pharmacy roughly totaled $8.6 million, an increase of 96.7% and represents 35.0% of revenues as compared to 20.6% in the prior year;
  • Revenues from the Wholesale Business roughly totaled $3.1 million, a decrease of 13.8% and represents 12.7% of revenues as compared to 17.1% in the prior year.
• Gross profit of roughly $4.8 million, an increase of 52.3% as compared to the prior year
  • Retail drugstore gross profit increased 20.3% to roughly $2.8 million as compared to the prior year;
  • Online pharmacy gross profit increased 194.1% to roughly $1.8 million as compared to the prior year.
• Gross margin of 19.6% for the third quarter of fiscal 2016 as compared to 14.9% in the prior year
  • Retail drugstore gross margin increased to 21.6% as compared to 17.5% in the prior year;
  • Online pharmacy gross margin increased to 21.3% as compared to 14.2% in the prior year.
• Net loss of $0.62 million or ($0.04) per fully diluted share, compared with net income of $0.13 million or $0.01 per fully diluted share in the prior year.
• Non-GAAP* net loss of $0.38 million or ($0.02) per fully diluted share, compared with Non-GAAP net income of $0.65 million or $0.04 per fully diluted share in the prior year.

9 Months FY 2016 Financial Highlights vs. the Comparable Period

• First nine months FY 2016 revenue totaled $68.6 million up 22.0% from $56.2 million in the prior year;
• Gross profit roughly totaled $13.2 million up 56.1% from $8.5 million in the prior year;
• Gross margin of 19.2% as compared to 15.0% in the prior year;
• Net loss of $0.36 million or ($0.02) per fully diluted share, as compared with a net loss of $0..26 million or ($0.02) per fully diluted share in the prior year.
• Non-GAAP* net loss of $0.01 million or ($0.00) per fully diluted share, compared with Non-GAAP net income of $0.34 million or $0.02 per fully diluted share in the prior year.

*We make reference to certain non-GAAP financial measures, consisting of non-cash adjustments to net income which include, share based compensation and changes in the value of derivatives. Management believes that such adjusted financial results are useful to investors in evaluating our operating performance because it presents a meaningful measure of corporate performance. See the non-GAAP reconciliation table below. Any non-GAAP measures should not be considered as a substitute for, and should only be read in conjunction with measures of financial performance prepared in accordance with GAAP.

Reconciliation to non-GAAP Financial Measures

Management Comments

Mr. Lei Liu, Chairman and CEO commented, "We are pleased with China Jo-Jo's sales growth both in online and retail pharmacy sales. \We are seeing improvements in gross margin from increased volume in our online business as our revenue mix continues to shift to our fast growing online business. From a sequential perspective we are expecting a strong quarter to end the fiscal year, as efforts to monetize the growth opportunity in China's online pharmacy space continues. Our focus on exploring customers' needs in both offline and online platforms will help in maximizing the ways for which we leverage our cost basis across the businesses.

Mr. Liu continued, "While the Company implements operating strategies in line with China's secular consumer growth trends, China Jo-Jo draws closer to the tipping point for continuous GAAP operating profitability, and a fiscal run rate of over $100 million in annual organic revenues. The investments and efforts in building critical mass to service China's consumer needs in the pharmacy space is taking shape, creating new opportunities to diversify our revenue base while drawing on and retaining new customers. Closer collaborations with several large local pharmaceutical vendors are also providing cost advantages while enhancing China Jo-Jo's brand reputation through the selling of trusted, premium branded products.

"Synergies found in our ecosystem, are providing compelling solutions in answer to China's relentless call for healthcare reform including: ending hospital domination in prescription sales, broader access to pharmacy products and healthcare services including access to supplemental insurance benefits that cover social insurance shortfalls. On the consumer side, China Jo-Jo is utilizing its e-service platforms to drive segment revenue while promoting increased foot traffic to retail locations across Zhejiang province in a concerted effort to enhance same store sales. The end result is a steady expansion in gross profit from our retail drugstores and a step change in gross profit from our online pharmacy segment due to the Company's strategic initiatives to grow e-pharmacy. China Jo-Jo's customer loyalty program continues to expand and has grown to more than 2 million customers, as we seek innovative ways to provide pharmacy products and services that positively affect China Jo-Jo's bottom line," concluded Mr. Liu.

Third Quarter Financial Summary

Revenue increased by $3,388,007 or 15.9% for the three months ended December 31, 2015, as compared to the prior year, as a result of the rapid expansion of our online pharmacy business, partially offset by decline in our wholesale business.

Gross profit increased by $1,665,300 or 52.3% as compared to the prior year as a result of increased gross margin of retail and online drugstores and an increase in online pharmacy sales. At the same time, gross margin increased from 14.9% to 19.6% due to higher retail profit margins and better product mix.

Sales and marketing expenses increased by $1,102,453 or 50.5% as compared to the prior year. The increase is attributable to increases in labor cost, service fees incurred from e-commerce platforms and commercial health insurance providers which direct insured sales to our own official website. As a result, such expenses as a percentage of our revenue increased to 13.3%, from 10.2% as compared to the same year ago period. We expect future sales and marketing expenses to grow as our online business continues to expand.

General and administrative expense increased by $1,246,335 or 200.3% as compared to the prior year. Such expenses as a percentage of revenue increased to 7.6% from 2.9% for the prior year. General and administrative expenses reflects variance of accounts receivable and advances to vendors allowance as stated in the Company's 10Q, including a reversal of approximately $1.4 million allowance in the three months ended December 31, 2014. Excluding such an effect, general and administrative expense actually decreased.

Net loss from operations was $307,752, as compared to income from operations of $375,736 in the year ago period. Diluted loss per share is ($0.04), as compared to 0.01 in the prior year.

As of December 31, 2015, we had cash of approximately $4,339,272. The Company's total current assets as of December 31, 2015, were $44,473,871 and total current liabilities were $40,768,247, which resulted in a positive net working capital of $3,705,624.

9 Months Segmental Business Update

Retail drugstore sales accounted for approximately 55.7% of total revenue for the nine months ended December 31, 2015, increased by $1,913,789, or 5.3%, to $38,202,495. Same-store sales decreased by approximately $758,296, or 2.2%, while new stores contributed approximately $2,377,789 in revenue in the nine months ended December 31, 2015. Other growth in sales revenue is attributed to growth in clinic sales and China Jo-Jo branded nutritional supplement sales. In recent quarter, same store sales growth has been impeded due to due to government budget control. However, same store sales growth is expected to grow due to increasing demand for healthcare products over time. The Company continues to adapt its operating strategies to maximize same store sales growth including: product adaptability to community demand; mobile device product search; close monitoring of chronicle disease customers, and cooperation with certain large reputable vendors to promote sales of their brand name products. One retail location was closed in the period as it was the last remaining store without government insurance coverage in Hangzhou. The Company hopes to open or acquire news stores over time.

Online pharmacy sales increased by approximately $11,252,275, or 113.5% for the nine months ended December 31, 2015, as compared to the prior year. For the nine months period, cooperation with business-to-consumer online vendors have expanded to include Taobao, JD and www.yhd.com, our product details are listed on their online platforms, directing customers back to our website. China Jo-Jo's own official website sales in the nine months ended December 31, 2015 has increased by 456.9% as compared to the prior year. The Company continues to benefit from cooperation with large insurance companies such as The People's Insurance Company (Group) of China. The expansion of commercial health insurance in China continues to expand as a supplementary insurance as often times China's social health insurance does not provide complete insurance coverage to consumers.

Wholesale revenue decreased by $792,436 or 7.9% primarily as a result of discontinuing volume-driven sales strategy.

Use of non-GAAP financial measures

To supplement China Jo-Jo's consolidated financial results presented in accordance with GAAP, China Jo-Jo uses the following measures defined as non-GAAP financial measures by the SEC: net income (loss) excluding share-based compensation expenses and change in fair value of derivative liabilities, and diluted net income (loss) per share excluding share-based compensation expenses and change in the fair value of derivatives liabilities. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

China Jo-Jo believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based compensation expenses and change in fair value of derivative liabilities that may not be indicative of its operating performance from a cash perspective. China Jo-Jo believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to China Jo-Jo's historical performance and liquidity. China Jo-Jo computes its non-GAAP financial measures using the same consistent method from quarter to quarter. China Jo-Jo believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using these non-GAAP measures is that they exclude share-based compensation and change in fair value of derivative liabilities charge that has been and will continue to be for the foreseeable future a significant recurring expense in our business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The table under the heading Reconciliation to non-GAAP Financial Measures in the beginning of the release has more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

Forward Looking Statement
Statements in this press release regarding the Company that are not historical facts are forward-looking statements and are subject to risks and uncertainties that could cause actual future events or results to differ materially from such statements. Any such forward-looking statements, including, but not limited to, financial guidance, are made pursuant to the safe harbor provisions 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," "estimate," "may," "will," "should," "project," "plan," "seek," "intend," "anticipate," the negatives 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. It is routine for the Company's internal projections and expectations to change as the quarter and year progresses, and therefore it should be clearly understood that the internal projections and beliefs upon which the Company bases its expectations may change. Although these expectations may change, the Company is under no obligation to inform you if they do. Actual results could differ materially from the expectations reflected in such forward-looking statements as a result of numerous 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. Readers are referred to the reports and documents filed from time to time by the Company with the Securities and Exchange Commission for a discussion of these and other important risk factors that could cause actual results to differ from those discussed in forward-looking statements. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

About China Jo-Jo Drugstores, Inc.

China Jo-Jo Drugstores, Inc., through its own retail drugstores, wholesale distributor and online pharmacy, is a leading retailer and wholesale distributor of pharmaceutical and healthcare products in China. As of December 31, 2015, the Company had 59 retail pharmacies in Zhejiang Province, China. The Company's wholesale subsidiary not only supplies its retail stores, but also distributes drug and other healthcare products to other drugstores and drug vendors. The Company routinely posts important information on its corporate websites at www.jiuzhou-drugstore.com (Chinese) and www.chinajojodrugstores.com (English).

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