China Jo-Jo Drugstores (NASDAQ:CJJD)

Third Quarter 2012 Results

• Revenue increased 42.1% to a record high of $25.64 million
• Gross profit increased 28.1% to $6.83 million
• Net income attributable to controlling interest decreased 29.7% to $1.57 million
• Two new stores opened during the quarter, bring the store number to 60 by the end of the quarter, compared with 49 a year ago.
• EPS for the third quarter 2012 were $0.12 vs $0.17

Dr. Lei Liu, Chairman and CEO, stated, “We are pleased to report another record quarter in revenue with our excellent operational and financial performance in the fiscal third quarter, achieving double-digit sales growth. Because of our integrated business model, we were able to adjust our distribution channel and strike a good balance between product volume and selling prices.”

“Facing an economic slowdown and inflationary pressures in China, we have been closely monitoring market development and new growth opportunities. We are also controlling rental increases and other expenses,” stated Dr. Lei Liu, Chairman and CEO. “Our recent strategic initiatives include VIP clubs that cater to high-income customers with increasing healthcare needs. We are also developing more customized services in our stores.”

Dr. Liu continued, “I believe our online drugstore will bring new revenue sources and our expertise in traditional Chinese medicine will distinguish ourselves from our competitors. Going forward, we will continue to grow our business based on an integrated model. We also look to open more stores in both Zhejiang and Shanghai.”

Second Quarter 2012 Results

• Revenue increased 42% from a year ago to a record $22.2 million
• Gross profit increased 42% to $6.26 million; gross profit margin held steady at 28%
• Net income attributable to controlling interest rose to $1.634 million from $1.627 million
• Diluted and basic earnings attributable to controlling interest were $0.12 per share, unchanged from a year ago
• Opened one new store and acquired another one during the quarter, bringing total number of stores to 58 stores as of September 30, 2011, compared with 46 a year earlier
• Same-store sales increased 7.7% during the quarter from a year ago
• Generated $15.7 million cash flow from operations in the six months ended September 30, up from $157,924 a year ago

Dr. Lei Liu, Chairman and Chief Executive Officer, stated, “We are very pleased to present another quarter of record revenue. We expanded our chain to 58 stores from 46 a year ago, and we continued to generate robust cash flow while reinvesting in our business.”

During the fiscal second quarter, the Company prepared for the launch of its largest store, the 3,588-square-meter (38,620 square feet) Jiuyintang Store, in Zhejiang’s capital city of Hangzhou. The store, opened in October, combines western and Chinese traditional medicines, and features an in-store clinic, pharmacy, physicians, in-store health consulting and management. The store is developed towards serving affluent customers.

In August, the Company finished acquisition of Zhejiang Jiuxin Medicine Co., Ltd. Through the acquisition, the Company obtained a valuable license to purchase medicines and drugs directly from manufacturers, making an important step towards vertical integration.

Dr. Liu continued, “The Zhejiang provincial government has ceased to accept applications for such wholesale drug licenses. The acquisition should greatly improve the long-term efficiency of the Company’s supply-chain operation and reduce its supply costs.”

“Looking forward, we will continue our expansion in Zhejiang and Shanghai. We will also continue to expand our online drug store, the only licensed one in Zhejiang, to drive new growth and build long-term shareholder value.”

• Revenue for the first quarter of fiscal 2012 increased 40.9% to $21.4 million compared to $15.2 million in the first quarter of fiscal 2011, while comparable store sales, which the Company defines as stores open for 15 months or more, increased 31.9%. The strength of sales during the period is primarily due to sales of pharmaceutical products covered under government-sponsored medical insurance programs. All of our store locations opened prior to April 1, 2010 are licensed to accept medical insurance, and sales at such locations have steadily increased as such insurance programs covered more drugs and participants. Revenue also increased from having more stores in operation. The Company operated 57 stores as of June 30, 2011 compared to 31 stores as of June 30, 2010. We opened 6 new locations during the three months ended June 30, 2011.
• First quarter gross profit increased 48.9% to $6.9 million from $4.6 million for the same period of fiscal year 2011, primarily reflecting greater sales of higher margin traditional Chinese medicine products during the period. Gross margin for the first quarter improved 180 basis points to 32.1%, which compares to 30.3% for the same period of fiscal 2011.
• Selling expense in the first quarter was $1.4 million versus $0.8 million in the same period of fiscal 2011. The year-over-year increase reflects an additional 26 stores in operation, as well as the Company’s ongoing efforts to build increased awareness of the China Jo-Jo Drugstores brand.
• General and administrative expenses were $1.1 million in the first quarter compared to $0.8 million for the first quarter of fiscal 2011, reflecting the support of an additional 26 stores in operation. As we continue to open new stores, further develop our infrastructure, and incur expenses related to being a public company, we anticipate that our general and administrative expenses will increase in absolute dollars as well as a percentage of total revenues.
• Income from operations in the first quarter totaled $4.4 million versus $3.0 million in the first quarter of fiscal 2011, while operating margin was 20.6% compared to 19.8%, respectively as a result of our increased gross profit.
• Net income for the first quarter of fiscal 2012 rose 50.7% to $3.2 million compared to $2.2 million last year.
• Basic and diluted earnings per share increased 41.2% to $0.24 versus $0.17 for the same period of fiscal 2011.

Dr. Lei Liu, Chairman and CEO, stated, “We are very pleased to deliver record operating results for the first quarter, which reflect strong sales and increased traffic at both new and existing stores. The substantial increase in sales primarily reflects our ability to accept medical insurance for an increased number of drugs, as well as a broader number of insured individuals under China’s government-sponsored insurance programs. All of our stores opened prior to April 1, 2010 are now able to accept government medical insurance. As we continue to apply to accept medical insurance as soon as our stores become eligible to do so, i.e. one year after opening, we anticipate that government-sponsored programs will continue to drive sales as our new stores mature.”

Dr. Liu further commented, “We are continuing to make progress towards our long-term goal to become vertically integrated. Specifically, we are in the process of acquiring a medical distributor and expect to close on the transaction in the second fiscal quarter; we plan to begin selling our own traditional Chinese medicines in Spring 2012; and we are selling through our online drugstore. We believe these initiatives will help us drive growth and build long-term shareholder value.”

Effective August 1, 2011, Mr. Bennet P. Tchaikovsky resigned as the registrant’s chief financial officer, and Mr. Shike Zhu resigned from the registrant’s board of directors. The decisions by Mr. Tchaikovsky and Mr. Zhu to resign from their respective positions were not the result of any material disagreement with the registrant on any matter relating to the registrant’s operations, policies or practices.

Effective August 1, 2011, the registrant’s board of directors appointed Mr. Frank Ming Zhao as the registrant’s new chief financial officer to replace Mr. Tchaikovsky.

Fourth Quarter Results:

• Revenues increased 29.0% to $21.0 million
• Gross profit increased 21.1% to $6.8 million; gross margin reaches 32.3%
• Diluted and basic earnings per share $0.18 vs $0.39

Dr. Lei Liu, Chairman and CEO, stated, "In fiscal 2011, we executed on a number of key operating initiatives designed to drive long-term growth and delivered financial results in line with our previously announced expectations. During the year, we expanded our footprint in Zhejiang Province with the opening of 25 new stores, extended the Company’s geographic reach with our strategic entry into Shanghai, one of the wealthiest cities in eastern China, and launched our online drugstore."

Dr. Liu concluded, "In fiscal year 2012, we expect to open additional locations in both Zhejiang Province and Shanghai, and plan to continue to develop our internet drugstore. We are continuing to build market share and drive growth through new store openings, while at the same time focusing on strategic initiatives that will strengthen our competitive position and enable us to operate more efficiently over the long-term."

The registrant terminated Frazer Frost, LLP (“Frazer Frost”) as our independent auditors effective as of April 19, 2011.  This action was approved by the Audit Committee of our Board of Directors and ratified by our Board.

The reports of Frazer Frost on our financial statements as of March 31, 2010 and 2009 and for the years ended March 31, 2010 and 2009 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles.

In connection with the audits of our financial statements for the fiscal periods ended March 31, 2010 and 2009 and through the date of this Form 8-K, there were: (i) no disagreements between the Company and Frazer Frost on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Frazer Frost, would have caused Frazer Frost to make reference to the subject matter of the disagreement in its reports on our financial statements for such periods, and (ii) no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.

On April 19, 2011, we engaged Friedman, LLP (“Friedman”) as our independent registered accounting firm.  During our two (2) most recent fiscal periods ended March 31, 2010 and 2009, we did not consult with Friedman on (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that may be rendered on the registrant’s financial statements, and Friedman did not provide either a written report or oral advice to the registrant that was an important factor considered by the registrant in reaching a decision as to any accounting, auditing, or financial reporting issue; or (ii) the subject of any disagreement, as defined in Item 304 (a)(1)(iv) of Regulation S-K and the related instructions, or a reportable event within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.

We provided Frazer Frost a copy of the disclosures contained herein and requested that Frazer Frost furnish us with a letter addressed to the Securities and Exchange Commission stating whether or not Frazer Frost agrees with our statements in this Item 4.01.  A copy of the letter dated April 25, 2011, furnished by Frazer Frost in response to that request, is filed as Exhibit 16.1 to this Current Report.

The Registrant will deliver a presentation at the 2011 Rodman & Renshaw Annual China Investment Conference in Shanghai, China on March 7, 2011.

Part 1

Part 2

Rodman and Renshaw on CJJD                                                     2/23/2011

CJJD: F’3Q11 symptomatic of near-term growing pains; TCM recovery in sight; Maintain MO Rating                                                         

China Jo-Jo Drugstores (NASDAQ: CJJD) reported F’3Q11 (Q ended December 31, 2010) EPS of $0.17, a penny below our and the consensus EPS estimate, and vs. $0.26 LY, as softer than expected sales and operating expense deleverage were only partly offset by a higher than anticipated gross margin. Note that the year-over-year decline in EPS is in large part attributable to the company’s $17.5MM equity issuance earlier in April 2010. Importantly, the F’4Q11 sales and EPS guidance range of $68-$70MM and $0.62-$0.64, respectively, fell below our previous expectation of $72.0MM and $0.71. In addition, total store count of 49 was a tad lower than the 51 we were expecting, which was a strategic decision to delay lease-signing as commercial rents are beginning to soften in Zhejiang. 

Dissecting the topline shortfall; recovery in TCM likely in F’4Q11. The lower-than-expected sales occurred as a result of the perfect storm of declining same-store sales at its mature locations combined with a slower-than-expected ramp up for the new stores, and fewer stores and lower square footage than what we were expecting. The 6.6% decline in comparable store sales (for stores open more than 15-months) was both a reflection of the competitive pricing environment and the fact that Jo-Jo had transferred its most experienced store management personnel to its new stores. Categorically, high-margin TCM fell 10.5% YoY to $2.5MM (anniversarying a strong flu season in F’3Q10), while growth in prescription drugs (rose 20.9% YoY to $6.5MM) and OTC drugs (increased 13.4% to $5.1MM) fell short of our expectations. That said, we believe that there may be some recovery in TCM in F’4Q11 given the flu epidemic that broke out in China in January 2011. Documented cases of the H1N1 flu virus increased sequentially to 3,833 cases from 146 in December 2010, which will likely contribute to TCM sales.[1]

The answer is in the margin. Stubborn adherence towards margin maintenance also appears to have impacted its topline. Mounting competitive pressures from CHC’s, combined with the lower prices at new stores (used to attract a regular customer base) were expected to pressure the gross margin significantly. However, the gross margin actually came in above our expectation, implying that store managers may need to ease up on retail prices to drive volume. Note that industry-wide net margins average only mid-to-high single-digits vs. 12.4% for Jo-Jo in F’3Q11. Therefore, margin maintenance is challenging and requires store managers to have considerable degree of familiarity with local competition and local consumer shopping habits. 

Regulatory environment update. There are currently 307 kinds of medication currently on the nationwide Essential Drug List (“EDL”), in addition to 150 types on the Zhejiang provincial EDL. The EDL had been implemented in three phases, and drugs on this list must be sold at cost at the community health centers (“CHC’s). [to be continued on page 2-->] 

[1]http://www.menet.com.cn/Articles/IEconomy/201102/201102171131573157_5952.html


Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Third Quarter FY 2011 Results:

• Third quarter revenue increased 20.9% to $18.0 million compared to $14.9 million in the third quarter of fiscal 2010.
• Third quarter gross profit increased 11.8% to $5.3 million from $4.8 million a year ago.
• 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
• 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.

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. During fiscal year 2012, the Company expects to open between 20-30 new stores.

• 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

Dr. Lei Liu, Chairman and CEO, stated, "Although the competitive environment is challenging, we are taking steps to innovate and differentiate our brand," "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."

Rodman & Renshaw on CJJD                                                                      November 30, 2010

We are reinstating our Market Outperform Rating on China Jo-Jo Drugstores (NASDAQ: CJJD), but are lowering our 12-month price target to $7 from $8 on the back of softer than expected topline growth and gross margin, which have tempered our outlook.

Box sizes of new stores are trending smaller. Real estate is scarce, and the new stores have, on average, been smaller than Jo-Jo’s existing store base. While the average box size had been ~3,592 sq. ft. as of June 2010, newer stores have generally trended around ~2,000 sq. ft. This translates to lower than expected total selling sq. ft. added, contributing to somewhat softer than expected topline in F’2Q11.

Gross margin under pressure from aggressive price teasers. Higher-margin TCM and nutritional products accounted for 20.1% of sales in F’2Q11 compared with 24.2% LY. In addition, we expect low-price teasers, which are reflected in the gross margin, to perpetuate while Jo-Jo is still rapidly expanding its store base and establishing its everyday low-price/value positioning in new cities and neighborhoods. Looking forward into F’3Q11 and F’4Q11, as Ginseng (a traditional Chinese nutritional supplement that is more popular in the winter and are common gifts for CNY) should help support the GM over the next two quarters. We have modeled in GM of 28.1% in F’3Q11 (ending in December 2010) and 29.9% for F’4Q11 (ending March 2011). Longer-term, possible benefits to the gross margin include whether the pharmaceutical sales representatives are replaced with Jo-Jo’s own employees, which would help boost the GM but raise selling expenses – should this be optimized, there could be some upside in the operating margin.

Lowering our F’3Q11, FY 2011, and FY2012 EPS estimates. We are lowering our F’3Q11, FY 2011, and FY 2012 EPS estimates to $0.18, $0.71, and $1.07, respectively, from $0.23, $0.90, and $1.25 previously.

Valuation. We are reinstating our Market Outperform Rating, as we still find CJJD shares compelling, trading at 4.4x our FY’12 (ending March 2012) EPS estimate of $1.07. However, we are lowering our 12-month price target to $7 (assumes 6.5x our 2011 EPS est.) from $8, as we expect that longer-term, Jo-Jo will to some extent succumb to the lower average margins of the drugstore space. Note that at the industry level, net margins are on average 3.0% (vs. 10.4% for Jo-Jo in F’2Q11), mostly attributable to intense competition.

Risks. 1) Industry implications of healthcare reform; 2) Idiosyncratic risk of regional drug preferences; 3) larger and financially stronger competitors yielding intense price competition; 4) lack of quality control over third-parties from which Jo-Jo sources its products; 5) potential inability to acquire locations that are as ideal as its existing store base as the chain expands further outside of Hangzhou.


Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman & Renshaw on CJJD

WHAT HAPPENED? 

China Jo-Jo Drugstores (NASDAQ: CJJD) this reported F’2Q11 (quarter ended September 30, 2010) EPS of $0.12, below our and the consensus EPS estimate of $0.17 and vs. $0.21 LY, driven by lower than expected sales contribution from new stores, and slight gross margin contraction. Operating expense dollars were roughly inline. Seven new stores were opened in F’2Q11, bringing the total store count to 38 at the end of the quarter (September 2010). For F’3Q11 (ends December) QTD, it appears that 11 more stores have opened, bringing the total store count to 49 as of November 12, 2010. While we still believe that Jo-Jo is on-track to meet or beat the stated guidance of 60 stores by the end of March 2011, the sales productivity ramp-up of the newer stores are not as quick as we originally anticipated. 

• FY’2Q11 revenues rose 27.9% YoY to $15.7MM, driven by 15.8% increase in same-store sales. Note that this is the first quarter in which Jo-Jo has released a same-store sales figure. 
• The gross margin contracted 43 bps YoY to 28.1% vs. our 28.6% estimate, likely attributable to aggressively low teaser prices used in new stores to establish Jo-Jo’s value positioning in new markets. 
• The operating expense rate came in at 12.4% vs. 9.5% LY due to additional administrative fees, additional selling expenses associated with new stores, and some fixed cost deleverage off of lower sales. Operating expense dollars of $1.9MM were roughly inline. 
• FY’2Q11 net income margin contracted 352 bps to 10.4% and fell below our 12.7% estimate, reflecting the aggressive price teasers in new stores that cut into the gross margin and fixed cost deleverage off of lower sales. 

OUTLOOK 

In addition to the generally disappointing financial results, we are a bit surprised by the lack of color on historical results. While we respect the lack of EPS guidance due to the timing uncertainties of new store openings and sales ramp up of those new stores, the company has been indicating, for several months now, that EPS guidance for FY2011 will be given. For U.S. companies, quarterly EPS guidance is typically issued to shed visibility on the future outlook. For U.S.-listed Chinese companies, the convention is to issue sales and net income guidance range for the current fiscal year. In the absence of EPS guidance, we believe that Jo-Jo should at least provide color on the drivers of historical results and communicate a view on its financial outlook. Based on YTD trends, we now expect a more moderate topline growth rate along with flattish to modestly contracting margins, given the accelerated store count growth (at least 11 in F’3Q11 vs. 7 in F’2Q11) and aggressive price teasers, which will likely continue to temper the GM. Our EPS ests. are under review. 

Investment Rating Under Review. We are placing our Investment Rating under review until the earnings call on Tuesday morning November 16, 2010.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

GeoTeam® September 2010 Rodman & Renshaw notes:

China Jo-Jo Drugstores (NASDAQ:CJJD)

• Believes SEC filings match local PRC filings. (We are in the process of verifying).
• Hope to have 49 stores by end of October and on pace to have 60 stores by end of fiscal 2011.
• Plans to issue guidance in near future.
• Possible 10 to 15% dilution, over time, from employee compensation plan.
• Margins are roughly 22%, but temporarily declined to around 17% due to going public expenses.

Rodman & Renshaw is  initiating coverage on China Jo-Jo Drugstores, Inc. (NASDAQ: CJJD, $75.9mm mkt cap) with a Market Outperform / Speculative Risk rating and a 12-month Price Target of $8.00.

Investment Thesis

China Jo-Jo Drugstores is a chain of 42 drugstores in Zhejiang Province with a distinctive ‘doctor + medicine’ concept, essentially a one-stop shop for basic healthcare needs. Its appeal lies in the availability of on-site physicians, which allows patients to bypass the long lines typical of hospitals, and provides a significant boost to sales productivity, currently at roughly $688 per square foot, meaningfully above the industry average. Following its $17.5MM equity raise in April 2010, China Jo-Jo announced that it plans to expand to 60 doors by the end of FY 2011 (March 31, 2011), and reach its potential of an estimated 200-300 stores in Zhejiang by FY’14-FY’15, which implies 35-80 openings annually for the next several years. Given CJJD’s capable management team with prior drug retail operating experience, a track record of zero underperforming stores to date, visible and prudent capital deployment towards additional store openings, and longer-term, its attractiveness as an acquisition target for strategic players looking to gain instant presence in Zhejiang, we are a supporter of the stock at current levels.

We rate CJJD Market Outperform; $8 PT. CJJD is currently trading at 6.0x our CY 2010 EPS estimate of $0.93, compared to 23.4x consensus estimates for China Nepstar Chain Drugstore (NYSE: NPD, unrated) (pureplay drugstore chain) and 5.9x for China BCT Pharmacy (OTCBB: CNBI, unrated) (drug manufacturer/distributor/retailer). CJJD’s current CY 2011E P/E-to-LTG is 17%, a 94% discount to Nepstar’s 299%. Owing to its relatively small size, we see China Jo-Jo’s long-term growth (LTG) prospects at 30%, ~15 pts above that of the overall industry, for which we project mid-teens growth over the next several years. We believe the valuation gap will narrow over time as management establishes a track record of successful replication of its winning formula into new cities, and ramps up on its responsibilities as a publicly traded company, such as strengthening internal controls and providing timely updates to investors. Our 12-month price target of $8 assumes nearly 9x our CY 2010 EPS, which we are comfortable despite its small size, given its significantly above-industry growth rate. Note that in calculating CJJD’s P/E, we have adjusted for its March 31st fiscal year-end to calendar year-end to allow for an apples-to-apples comparison with its peers.

CJJD shares are beginning to gain momentum, possibly due to two factors:

• The company announced that it had applied to list on NASDAQ
  
• The company has filed an amended S-1 where it disclosed more information on its growth tract than in its original S-1 filing:
  
  
  • Disclosure of an additional three pharmacies in operation
  • Plans to have another five pharmacies in operation by April 2010

This would bring the total store count to 30 vs. , 22 in the original S-1, before taking into account additional pharmacies constructed/acquired from proceeds of $23.5 million from its proposed offering.

Offering details:

4,350,000 shares of common stock may be issued in the offering at an assumed public offering price of $6.00 per share (after a reverse split), which is the midpoint of our expected offering range, after deducting the estimated underwriting discount and commissions and estimated offering expenses payable by us and application of net proceeds.

CJJD currently has 20 million shares outstanding.

Using the following information:

"We are planning to build additional drugstores throughout Zhejiang province organically as well as by acquisition. To build a 3,000 square foot store, we estimate that our initial cash outlay will be approximately RMB 3.0 million ($0.44 million) which includes initial inventory stocking (approximately 1.2 million RMB), first year lease prepayment (0.7 million RMB), pre-marketing costs (0.5 million RMB) and leasehold improvements (0.6 million RMB). Note that these are general estimates and the actual cost may vary depending upon the location."

We calculated that CJJD could build another 20 stores. This may be conservative as some stores will likely be less than 3000 square feet (However, smaller pharmacy foot prints contribute less to revenues).

Incremental pharmacy count= additional three pharmacies in operation + five pharmacies in operation by April 2010 + 20 newly constructed pharmacies= 28

Once all new pharmacies begin contributing to operations we are assuming that they can minimally add another $17 million in annual revenues and $3.0 million in net income ($.13 EPS).  CJJD seems on track to report fiscal 2009 net income of $8.5 million on revenues of $54 million.  (Year ends in March) 

Please note that it generally takes 120 days for a new pharmacy to contribute to operations.

We also need to perform further due diligence on the number of pharmacies that CJJD can add from $12.7 million that we are assuming can be used to:

• Acquire operating pharmacies
• Acquire retail locations that it will convert to pharmacies

The cost of these endeavors can vary.  As such, we cannot use the $440,000 cash outlay figure to estimate store opening from acquisitions.  We also need to consider when CJJD's expansion efforts will be accretive to EPS.

We will provide further details if warranted.

China Jo-Jo Drugstores Completes Reverse Acquisition

Details:

• China Jo-Jo operates a retail pharmacy chain in the PRC offering both western and traditional Chinese medicine.
• The pharmacy chain currently operates 20 stores throughout Hangzhou, the provincial capital of the Zhejiang Province
• After opening, a location may take up to one hundred twenty days to achieve projected revenue goals for that particular location.
• One of the strategies of China Jo-Jo is to grow its business is through acquisition.
• Post-merger outstanding Shares: 20 million

Financails:

Management commented,

As of June 30, 2009, we had RMB 8.7 million (US $1.3 million) in cash. Based on our current operating plans, we expect our existing resources, including our current cash and cash flows from operations, to be sufficient to fund our anticipated cash needs, including for working capital and capital expenditures for at least the next 12 months

Pursuant to the terms of our Consulting Services Agreement, such agreements are subject to automatic termination on May 1, 2010 unless the Registrant completes a financing of $25 million and its common stock becomes listed on the NASDAQ Capital Market by such date.

Source: Super 8K (Filed September 28, 2009. Page 5)