China Jo-Jo Drugstores Reports Third Quarter 2019 Financial Results

HANGZHOU,China,Feb. 14,2019 -- China Jo-Jo Drugstores,Inc. (NASDAQ: CJJD) ("Jo-Jo Drugstores" or the "Company"),a leading online and offline retailer,wholesale distributor of pharmaceutical and other healthcare products,and healthcare provider in China,announced today its financial results for its third fiscal quarter,ended December 31,2018.

Mr. Lei Liu,Chairman and Chief Executive Officer of Jo-Jo Drugstores,Inc.,commented,"Our third quarter results reflect solid revenue growth as we continue to improve our business. Our progress reinforces our confidence in our underlying business and growth strategy. We will continue to provide exceptional retail drugstore services as we adapt to a changing regulatory and technological environment,which is reflected in our new executive hires and the everyday experience such as value-added medical consultation and monitoring that our customers receive."

Third Quarter of Fiscal 2019 Financial Highlights

For the Three Months Ended December 31,

($ millions,except per share data)

2018

2017

% Change

Revenue

30.92

26.81

15.3%

Retail drugstores

20.87

18.29

14.1%

Online pharmacy

2.49

3.39

-26.6%

Wholesale

7.56

5.13

47.3%

Gross profit

7.14

5.57

28.1%

Gross margin

23.1%

20.8%

2.3 pp*

Loss from operations

(2.13)

(2.19)

-2.8%

Net loss

(2.21)

(1.63)

35.7%

Loss per share

(0.06)

(0.08)

-25.0%

*Notes: pp represents percentage points

Revenue increased by 15.3% to $30.92 million for the three months ended December 31,2018,from $26.81 million for the same period of last year.

Gross profit increased by 28.1% to $7.14 million for the three months ended December 31,from $5.57 million for the same period of last year.

Gross margin increased by 2.3percentage points to 23.1% for the three months ended December 31,from 20.8% for the same period of last year.

Net loss was $2.21 million,or $0.06 per basic and diluted share for the three months ended December 31,compared to $1.63 million,or $0.08 per basic and diluted share for the same period of last year.

Third Quarter of Fiscal 2019 Financial Results

Revenue

Revenue for the three months ended December 31,2018 increased by $4.10 million,or 15.3%,to $30.92 million,from $26.81 million for the same period of last year. The increase in revenue was primarily due to the increase in retail drugstores business and wholesale business,partially offset by the decrease in online pharmacy business.

For the Three Months Ended December 31,

2018

2017

($ millions)

Revenue

Cost of

Goods

Gross

Margin

Revenue

Cost of

Goods

Gross

Margin

Retail drugstores

20.87

14.90

28.6%

18.29

13.69

25.2%

Online pharmacy

2.49

2.23

10.4%

3.39

3.13

7.7%

Wholesale

7.56

6.65

12.1%

5.13

4.42

13.8%

Total

30.92

23.78

23.1%

26.81

21.24

20.8%

Revenue from the retail drugstores business increased by $2.58 million,or 14.1%,to $20.87 million for the three months ended December 31,from $18.29 million for the same period of last year. The increase was primarily due to consumer-facing benefits such as an emphasis on onsite medical care,chronic disease management services,incremental DTP (Direct-to-Patient) business caused by continuous hospital medical reform,promotional campaigns such as fifteen-year anniversary sales,and the maturation of stores opened a year ago.

Revenue from the online pharmacy business decreased by $0.90 million,or 26.5%,to $2.49 million for the three months ended December 31,from $3.39million for the same period of last year. The decrease was mainly caused by a decline in sales via e-commerce platformswhich suspended OTC drugsales on their sites directly,partially offset by the increase in business referred from Pharmacy Benefit Management ("PBM") providers. The Company is adding more non-medical health products such as nutritional supplements into its sales menu to counteract the decline in sale of OTC drug category.

Revenue from the wholesale business increased by $2.43 million,or 47.3%,to $7.56 million for the three months ended December 31,from $5.13 million for the same period of last year. The increase was primarily due tosale of certain medicines,whichthe Companysold in large quantities at its retail stores,to other vendors at competitive prices,as well as the sale of certain nutritional supplements as sales agents.

Gross profit and gross margin

The total cost of goods sold increased by $2.54 million,or 12.0%,to $23.78 million for the three months ended December 31,from $21.24 million for the same period last year. Gross profit increased by $1.56 million,or 28.1%,to $7.14 million for three months ended December 31,from $5.57 million for the same period last year.Overall gross margin increased by 2.3 percentage points to 23.1% for the three months ended December 31,from 20.8% for the same period of last year,due to higher retail and online profit margins.

Gross margin for retail drugstores increased by 3.4 percentage points to 28.6% for the three months ended December 31,from 25.2% for the same period of last year,primarily as a result of the introduction of new suppliers,and the continuing renegotiation of prices with the Company's suppliers.

Gross margin for the online pharmacy increased by 2.7 percentage points to 10.4% for the three months ended December 31,from 7.7% for the same period of last year,primarily due to the increase in sales via the Company's own official website,offset by a decrease in sales via third-party platforms,which are usually subject to low profit margins.

Gross margin for wholesale decreased by 1.7 percentage to 12.1% for the three months ended December 31,from 13.8% for the same period of last year,primarily as a result of different products the Company carries and sells to certain pharmaceutical vendors.

Loss from operations

Selling and marketing expenses increased by $1.67 million,or 33.2%,to $6.69 million for the three months ended December 31,from $5.02 million for the same period of last year. The increase in selling and marketing expenses was primarily due to increases in marketing and sales staff expenses and rental expenses related to store expansions.

General and administrative expenses decreased by $0.16 million,or 6.0%,to $2.57 million for the three months ended December 31,from $2.74 million for the same period of last year. The decrease in general and administrative expenses was primarily caused by a decrease in bad debt expenses.

Loss from operations totaled $2.13 million for the three months ended December 31,compared to $2.19 million for the same period of last year. Operating margin was negative 6.9% for the three months ended December 31,compared to negative 8.2% for the same period of last year.

Net loss

The Company's net loss was $2.21 million,or $0.08 per basic and diluted share for the same period of last year.

Nine Months Ended December 31,2018 Financial Highlights

For the Nine Months Ended December 31,except per share data)

2018

2017

% Change

Revenue

81.10

71.97

12.7%

Retail drugstores

54.97

46.36

18.6%

Online pharmacy

6.64

9.59

-30.8%

Wholesale

19.49

16.02

21.6%

Gross profit

18.55

15.31

21.2%

Gross margin

22.9%

21.3%

1.6 pp*

Loss from operations

(4.33)

(5.30)

-18.3%

Net loss

(4.51)

(4.21)

6.9%

Loss per share

(0.14)

(0.17)

-19.1%

*Notes: pp represents percentage points

Revenue increased by 12.7% to $81.10 million for the nine months ended December 31,from $71.97 million for the same period of last year.

Gross profit increased by 21.2% to $18.55 million for the nine months ended December 31,from $15.31 million for the same period of last year.

Gross margin increased by 1.6 percentage points to 22.9% for the nine months ended December 31,from 21.3% for the same period of last year.

Net loss was $4.51 million,or $0.14 per basic and diluted share for the nine months ended December 31,compared to $4.21 million,or $0.17 per basic and diluted share for the same period of last year.

Nine Months Ended December 31,2018 Financial Results

Revenue

Revenue for the nine months ended December 31,2018 increased by $9.12 million,or 12.7%,to $81.10 million from $71.97 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,

2018

2017

($ millions)

Revenue

Cost of

Goods

Gross

Margin

Revenue

Cost of

Goods

Gross

Margin

Retail drugstores

54.97

39.35

28.4%

46.35

34.23

26.2%

Online pharmacy

6.64

5.88

11.4%

9.60

8.65

9.9%

Wholesale

19.49

17.32

11.1%

16.02

13.79

13.9%

Total

81.10

62.55

22.9%

71.97

56.67

21.3%

Revenue from the retail drugstores business increased by $8.61million,or 18.6%,to $54.97 million for the nine months ended December 31,from $46.36 million for the same period of last year. The increase was primarily due to consumer-facing benefits such as emphasis on onsite medical care,chronic disease management,and the maturation of stores opened a year ago.

Revenue from the online pharmacy business decreased by $2.95million,or 30.8%,to $6.64 million for the nine months ended December 31,from $9.59million for the same period of last year. The decrease was mainly caused by a decline in sales via e-commerce platformswhich suspended the direct sale of OTC drugs on their sites,and was partially offset by the increase in business referred to the Company from PBM providers. The Company is adding more non-medical health products such as nutritional supplements into its sales menu to counteract the decline in sale of OTC drug category.

Revenue from the wholesale business increased by $3.47 million,or 21.6%,to $19.49 million for the nine months ended December 31,from $16.02 million for the same period of last year. The increase was primarily a result of the Company's ability to sell certainmedicines,which the Company sold in large quantities in its retail stores,as well as the sale of certain nutritional supplements as sales agents.

Gross profit and gross margin

The total cost of goods sold increased by $5.88 million,or 10.4%,to $62.55 million for the nine months ended December 31,from $56.67 million for the same period of last year. Gross profit increased by $3.24 million,or 21.2%,to $18.55 million for nine months ended December 31,from $15.31 million for the same period of last year.Overall gross margin increased by 1.6 percentage points to 22.9% for the nine months ended December 31,from 21.3% for the same period of last year,due to higher retail profit margins.

Gross margin for retail drugstores increased by 2.2 percentage points to 28.4% for the nine months ended December 31,from 26.2% for the same period of last year,primarily because of the introduction of new suppliers,and the continuing renegotiating of prices with the Company's suppliers.

Gross margin for online pharmacy increased by 1.5 percentage points to 11.4% for the nine months ended December 31,from 9.9% for the same period of last year. The increase was due to the increase in sales via the Company's own official website,offset by the decrease in sales via third-party platforms,which are usually subject to low profit margin.

Gross margin for wholesale decreased by 2.8 percentage points to 11.1% for the nine months ended December 31,from 13.9% for the same period of last year,primarily as a result of different products the Company carried and sold to certain pharmaceutical vendors.

Loss from operations

Selling and marketing expenses increased by $3.25 million,or 24.5%,to $16.54 million for the nine months ended December 31,2018 from $13.29 million for the same period of last year. The increase in selling and marketing expenses was primarily due to an increase in marketing and sales staff expense and rental expense related to store expansion.

General and administrative expenses decreased by $0.98 million,or 13.3%,to $6.34 million for the nine months ended December 31,from $7.32 million for the same period of last year. The decrease in general and administrative expenses was primarily caused by a decrease inbad debt expense.

Loss from operations was $4.33 million for the nine months ended December 31,compared to $5.30 million for the same period of last year. Operating margin was negative 5.3% for the nine months ended December 31,compared to negative 7.4% for the same period of last year.

Net loss

Net loss totaled $4.51 million,or $0.17 per basic and diluted share for the same period of last year.

Financial Condition

As of December 31,the Company had cash andrestricted cashof $20.61million,compared to $24.22million as of March 31,2018. Net cash used in operating activities totaled $10.32 million for the nine months ended December 31,compared to $9.80 million for the same period of last year. Net cash used in investing activities was $6.85 million for the nine months ended December 31,compared to $1.76 million for the same period of last year. Net cash provided by financing activities was $7.98million for the nine months ended December 31,compared to net cash provided by financing activities of $5.57million 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://jiuzhou360.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)

December31,

March31,

2018

2018

ASSETS

CURRENT ASSETS

Cash

$

5,619,051

$

15,132,640

Restricted cash

14,988,478

16,319,551

Financial assets available for sale

176,560

175,140

Notes receivable

296,687

279,082

Trade accounts receivable

10,637,316

8,322,393

Inventories

10,483,059

13,429,568

Other receivables,net

3,718,546

3,098,079

Advances to suppliers

3,489,010

3,447,452

Other current assets

1,468,188

2,116,237

Total current assets

50,876,895

62,320,142

PROPERTY AND EQUIPMENT,net

8,427,870

2,843,640

OTHER ASSETS

Long-term investment

34,208

40,890

Farmland assets

727,064

796,286

Long term deposits

2,266,420

2,501,968

Other noncurrent assets

1,121,814

1,253,352

Intangible assets,570,986

4,056,414

Total other assets

7,720,492

8,648,910

Total assets

$

67,025,257

$

73,812,692

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable,trade

19,223,835

25,259,526

Notes payable

25,271,064

19,180,200

Other payables

3,851,366

4,272,523

Other payables - related parties

726,219

850,342

Customer deposits

1,492,122

4,040,867

Taxes payable

745,518

366,040

Accrued liabilities

1,618,006

841,993

Total current liabilities

52,928,130

54,811,491

Financial liability

79,957

Purchase option and warrants liability

312,751

138,796

Total liabilities

53,838

54,950,287

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY

Common stock; $0.001 par value; 250,000,000 shares authorized; 28,936,778 and 28,778 shares issued and outstanding as of December31,2018 and March 31,2018

28,937

28,937

Preferred stock; $0.001 par value; 10,000 shares authorized; nil issued and outstanding as of December31,2018

-

-

Additional paid-in capital

43,747,589

43,599,089

Statutory reserves

1,309,109

1,109

Accumulated deficit

(33,572,688)

(29,661,190)

Accumulated other comprehensive income

2,628,814

3,586,460

Total stockholders' equity

14,141,761

18,862,405

Noncontrolling interests

(437,342)

-

Total equity

13,704,419

18,405

Total liabilities and stockholders' equity

$

67,692

CHINA JO-JO DRUGSTORES,INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

For the three months ended

December31,

For the nine months ended

December31,

2018

2017

2018

2017

REVENUES,NET

$

30,916,549

$

26,242

$

81,161

$

71,973,653

COST OF GOODS SOLD

23,780,763

21,240,629

62,548,471

56,666,782

GROSS PROFIT

7,135,786

5,571,613

18,549,690

15,306,871

SELLING EXPENSES

6,688,577

5,020,971

16,539,078

13,288,602

GENERAL AND ADMINISTRATIVE EXPENSES

2,862

2,737,782

6,342,874

7,318,780

TOTAL OPERATING EXPENSES

9,261,439

7,758,753

22,881,952

20,607,382

LOSS FROM OPERATIONS

(2,125,653)

(2,187,140)

(4,332,262)

(5,300,511)

INTEREST INCOME

18,964

76,266

92,196

479,509

OTHER INCOME,NET

32,795

301,292

12,436

263,241

CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITIES

(85,115)

221,859

(173,955)

420,610

LOSS BEFORE INCOME TAXES

(2,159,009)

(1,587,723)

(4,401,585)

(4,137,151)

PROVISION FOR INCOME TAXES

47,958

38,106

104,712

76,691

NET LOSS

(2,206,967)

(1,625,829)

(4,506,297)

(4,213,842)

OTHER COMPREHENSIVE (LOSS) INCOME

Foreign currency translation adjustments

(130,619)

588,543

(957,646)

1,680,796

COMPREHENSIVE LOSS

$

(2,337,586)

$

(1,037,286)

$

(5,463,943)

$

(2,533,046)

WEIGHTED AVERAGE NUMBER OF SHARES:

Basic

28,778

25,214,678

28,678

Diluted

28,678

EARNINGS PER SHARES:

Basic

$

(0.06)

$

(0.08)

$

(0.14)

$

(0.17)

Diluted

$

(0.06)

$

(0.08)

$

(0.14)

$

(0.17)

CHINA JO-JO DRUGSTORES,INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Nine months ended December31,

2018

2017

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$

(4,297)

$

(4,842)

Adjustments to reconcile net loss to net cash used in operating activities:

Bad debt direct write-off and provision

1,994

1,948,887

Depreciation and amortization

937,268

1,063,170

Impairment of leasehold improvement

-

(362,737)

Stock based compensation

121,547

976,816

Change in fair value of purchase option derivative liability

173,955

(420,610)

Accounts receivable,trade

(4,061,698)

(4,830,933)

Notes receivable

(43,024)

79,250

Inventories and biological assets

1,828,232)

(2,945,926)

Other receivables

(681,667)

(149,447)

Advances to suppliers

(911,061)

(990,309)

Other current assets

476,909

562,148

Long term deposit

18,548

(1,345,486)

Other noncurrent assets

23,206

(63,263)

Accounts payable,trade

(3,980)

853,598

Other payables and accrued liabilities

815,725

(127,969)

Customer deposits

(2,258,202)

387,458

Taxes payable

422,665

(222,207)

Net cash used in operating activities

(10,880)

(9,801,402)

CASH FLOWS FROM INVESTING ACTIVITIES:

Disposal of financial assets available for sale

87,471

-

Purchase of financial assets available for sale

(104,577)

(136,074)

Acquisition of equipment

(5,368,240)

(237,108)

Increase in construction-in-progress

-

(1,110)

Increase intangible assets

(29,879)

-

Investment in a joint venture

-

(9,601)

Additions to leasehold improvements

(1,432,060)

(249,097)

Net cash used in investing activities

(6,847,285)

(1,756,990)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from notes payable

32,903,549

28,352,683

Repayment of notes payable

(24,930,903)

(22,743)

Increase in financial liability

82,167

-

Proceeds from equity and debt financing

7,544

-

Repayment of other payables-related parties

(82,866)

(278,691)

Net cash used in financing activities

7,979,491

5,249

EFFECT OF EXCHANGE RATE ON CASH

(1,653,988)

2,408,839

INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

(10,844,662)

(3,577,304)

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH,beginning of year

31,452,191

27,795,810

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH,end of period

$

20,529

$

24,218,506

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for income taxes

$

56,539

$

27,856

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