China Jo-Jo Drugstores revenues increase 20.9% to $18.0 million

China Jo-Jo Drugstores, Inc., which operates retail pharmacies in the People's Republic of China, reported financial results for the third quarter and nine-month period of fiscal 2011 ended December 31, 2010.

Third Quarter Highlights:

• Revenues increased 20.9% to $18.0 million
• Introduction of alcohol sales contributed $2.2 million to Q3 revenue
• Gross profit rose 11.8% to $5.3 million resulting in gross margin of 29.5%
• 3 new stores opened bringing fiscal year-to-date total to 24 new locations

Third Quarter Results

Third quarter revenue increased 20.9% to $18.0 million compared to $14.9 million in the third quarter of fiscal 2010. The year-over-year increase is primarily attributable to the introduction of alcohol sales in 40 locations, as well as sales from new stores. Comparable store revenues, which the Company defines as stores open for 15 months or more, decreased 6.6%, primarily reflecting a decline in sales of Medical Devices and Traditional Chinese Medicine during the quarter.

Third quarter gross profit increased 11.8% to $5.3 million from $4.8 million a year ago. Third quarter gross margin was 29.5%, which is in line with the Company's previously stated expectations and compares to 31.9% in the 2010 quarter.

Selling expense was $1.3 million in the third quarter of fiscal 2011 versus $0.9 million in the same period of fiscal 2010. The year-over-year increase reflects an additional 27 stores in operation during the quarter, as well as the Company's ongoing efforts to build increased awareness of the China Jo-Jo Drugstores brand.

Third quarter general and administrative expenses were $1.2 million compared to $0.4 million in the year ago period, reflecting the support of an additional 27 stores in operation during the quarter, as well as additional costs associated with being a publicly traded company.

Income from operations in the third quarter of fiscal 2011 totaled $2.8 million versus $3.4 million in the third quarter of fiscal 2010, while operating margin was 15.3% compared to 22.9%, respectively.

Net income for the period was $2.2 million, or basic and diluted earnings of $0.17 per share, compared to $2.6 million, or basic and diluted earnings of $0.26 per share, a year ago. The decline is primarily attributable to an additional 3.5 million basic and diluted shares outstanding, as well as higher operating expenses, on a year-over-year basis. The increase in the basic and diluted share count from 10.0 million in the fiscal 2010 period to 13.5 million in the fiscal 2011 period reflects the issuance of common shares in connection with the Company's April 2010 public stock offering.

As of December 31, 2010, the Company had $6.8 million of cash, $37.7 million in current assets and $9.8 million in total liabilities.

Dr. Lei Liu, Chairman and CEO, stated, "Although the competitive environment is challenging, we are taking steps to innovate and differentiate our brand," stated Dr. Lei Liu, Chairman and CEO. "Recent initiatives include the roll-out of our online drugstore and the addition of new clinics. We are also remaining focused on our core operating strategy to provide our customers with high quality products at an excellent value."

Dr. Liu continued, "We are continuing to see a good pipeline of real estate opportunities and expect to have 60 stores in operation by March 31, 2011. Looking ahead, we expect to open between 20-30 new locations in fiscal 2012. We will continue to be highly disciplined and selective in choosing new locations, pursuing only those opportunities that meet our strict criteria for long-term profitability and returns."

New Store Openings and Fiscal 2011 Financial Guidance

During the third quarter of fiscal 2011, the Company opened 3 new stores, bringing the fiscal year-to-date total to 24 new locations. As of December 31, 2010 the Company operated 49 stores.

The Company expects to have 60 locations open by the close of its 2011 fiscal year ending March 30, 2011. Total revenue for the year is expected to be between $68.0 million and $70.0 million and basic and diluted earnings per share are expected to be in the range of $0.62 to $0.64. During fiscal year 2012, the Company expects to open between 20-30 new stores.

Nine Month Results

Revenue for the nine months ended December 31, 2010 increased 25.9% to $48.9 million compared to $38.9 million in the year ago period. Comparable store sales for the nine month period increased 7.8%, reflecting an increase in Prescription and Over-The-Counter drug sales, partially offset by a decrease in Traditional Chinese Medicine and Medical Device sales.

Gross profit for the nine month period increased 25.0% to $14.1 million compared to $11.3 million a year ago. Gross margin was 28.8% in the fiscal 2011 period versus 29.0% in the fiscal 2010 period.

Selling expense was $3.3 million for the nine months ended December 31, 2010 versus $2.0 million in the year ago period. The increase reflects an additional 27 stores in operation during the period, as well as the Company's ongoing efforts to build increased awareness of the China Jo-Jo Drugstores brand.

General and administrative expenses for the nine month period were $2.8 million compared to $1.4 million in first nine months of fiscal 2010, reflecting operational support for additional stores open during the period, as well as increased costs associated with being a publicly traded company.

Income from operations in the fiscal 2011 period totaled $8.4 million versus $7.9 million in the first nine months of fiscal 2010, while operating margin was 16.9% compared to 20.4% a year ago.

Net income for the fiscal 2011 nine month period was $6.0 million, or basic and diluted earnings of $0.46 per share, compared to $5.9 million, or diluted and basic earnings of $0.68 per share, a year ago. The decline is primarily attributable to an additional 4.5 million basic and diluted shares outstanding, as well as higher operating expenses on a year-over-year basis. The increase in basic and diluted share count from 8.7 million in the fiscal 2010 period to 13.2 million in the fiscal 2011 period reflects the issuance of common shares in connection with the Company's April 2010 public stock offering.