CHINA
JO-JO DRUGSTORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash
|
|
$
|
11,858,985
|
|
|
$
|
9,322,463
|
|
Restricted cash
|
|
|
12,035,385
|
|
|
|
15,422,739
|
|
Financial assets available for sale
|
|
|
159,946
|
|
|
|
180,928
|
|
Notes receivable
|
|
|
48,768
|
|
|
|
177,278
|
|
Trade accounts receivable
|
|
|
11,465,402
|
|
|
|
8,692,514
|
|
Inventories
|
|
|
10,962,677
|
|
|
|
13,955,202
|
|
Other receivables, net
|
|
|
5,862,408
|
|
|
|
4,438,230
|
|
Advances to suppliers
|
|
|
1,393,247
|
|
|
|
1,950,252
|
|
Other current assets
|
|
|
1,505,995
|
|
|
|
2,063,375
|
|
Total current assets
|
|
|
55,292,813
|
|
|
|
56,202,981
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, net
|
|
|
8,097,428
|
|
|
|
8,727,358
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Long-term investment
|
|
|
9,846
|
|
|
|
24,243
|
|
Farmland assets
|
|
|
747,782
|
|
|
|
825,259
|
|
Long term deposits
|
|
|
1,481,929
|
|
|
|
2,157,275
|
|
Other noncurrent assets
|
|
|
1,134,643
|
|
|
|
1,196,197
|
|
Operating lease right-of-use assets
|
|
|
15,318,428
|
|
|
|
-
|
|
Intangible assets, net
|
|
|
3,715,629
|
|
|
|
3,597,323
|
|
Total other assets
|
|
|
22,408,257
|
|
|
|
7,800,297
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
85,798,498
|
|
|
$
|
72,730,636
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable, trade
|
|
|
15,870,874
|
|
|
|
23,106,230
|
|
Notes payable
|
|
|
21,758,227
|
|
|
|
25,951,673
|
|
Other payables
|
|
|
2,590,186
|
|
|
|
3,197,221
|
|
Other payables - related parties
|
|
|
375,068
|
|
|
|
795,179
|
|
Customer deposits
|
|
|
1,201,464
|
|
|
|
771,942
|
|
Taxes payable
|
|
|
433,026
|
|
|
|
125,859
|
|
Accrued liabilities
|
|
|
793,942
|
|
|
|
1,264,182
|
|
Long-term loan - current portion
|
|
|
2,302,924
|
|
|
|
-
|
|
Current portion of operating lease liabilities
|
|
|
409,756
|
|
|
|
-
|
|
Total current liabilities
|
|
|
45,735,467
|
|
|
|
55,212,286
|
|
|
|
|
|
|
|
|
|
|
Long-term loan
|
|
|
4,773,114
|
|
|
|
-
|
|
Long term operating lease liabilities
|
|
|
12,670,694
|
|
|
|
-
|
|
Purchase option and warrants liability
|
|
|
120,000
|
|
|
|
465,248
|
|
Financial liability
|
|
|
71,757
|
|
|
|
81,935
|
|
Total liabilities
|
|
|
63,371,032
|
|
|
|
55,759,469
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Common stock; $0.001 par value; 250,000,000 shares authorized; 32,936,786 and 28,936,778 shares issued and outstanding as of December 31, 2019 and March 31, 2019
|
|
|
32,937
|
|
|
|
28,937
|
|
Preferred stock; $0.001 par value; 10,000,000 shares authorized; nil issued and outstanding as of December 31, 2019 and March 31, 2019
|
|
|
-
|
|
|
|
-
|
|
Additional paid-in capital
|
|
|
54,209,301
|
|
|
|
44,905,664
|
|
Statutory reserves
|
|
|
1,309,109
|
|
|
|
1,309,109
|
|
Accumulated deficit
|
|
|
(33,415,600
|
)
|
|
|
(30,587,468
|
)
|
Accumulated other comprehensive income
|
|
|
1,926,259
|
|
|
|
2,508,964
|
|
Total stockholders’ equity
|
|
|
24,062,006
|
|
|
|
18,165,206
|
|
Noncontrolling interests
|
|
|
(1,634,540
|
)
|
|
|
(1,194,039
|
)
|
Total equity
|
|
|
22,427,466
|
|
|
|
16,971,167
|
|
Total liabilities and stockholders’ equity
|
|
$
|
85,798,498
|
|
|
$
|
72,730,636
|
|
The accompanying notes are an integral
part of these condensed consolidated financial statements.
CHINA JO-JO DRUGSTORES,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
|
For the three months ended
December 31,
|
|
|
For the nine months ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES, NET
|
|
$
|
33,363,282
|
|
|
$
|
30,916,549
|
|
|
$
|
86,997,845
|
|
|
$
|
81,098,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD
|
|
|
26,079,910
|
|
|
|
23,780,763
|
|
|
|
66,959,671
|
|
|
|
62,548,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
7,283,372
|
|
|
|
7,135,786
|
|
|
|
20,038,174
|
|
|
|
18,549,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SELLING EXPENSES
|
|
|
5,676,400
|
|
|
|
6,688,577
|
|
|
|
18,130,799
|
|
|
|
16,539,078
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
1,054,060
|
|
|
|
2,572,862
|
|
|
|
5,729,607
|
|
|
|
6,342,874
|
|
TOTAL OPERATING EXPENSES
|
|
|
6,730,460
|
|
|
|
9,261,439
|
|
|
|
23,860,406
|
|
|
|
22,881,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
552,912
|
|
|
|
(2,125,653
|
)
|
|
|
(3,822,232
|
)
|
|
|
(4,332,262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME
|
|
|
272,773
|
|
|
|
18,964
|
|
|
|
661,160
|
|
|
|
92,196
|
|
OTHER INCOME (LOSS), NET
|
|
|
(302,408
|
)
|
|
|
32,795
|
|
|
|
(437,118
|
)
|
|
|
12,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITIES
|
|
|
(65,172
|
)
|
|
|
(85,115
|
)
|
|
|
345,248
|
|
|
|
(173,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
458,105
|
|
|
|
(2,159,009
|
)
|
|
|
(3,252,942
|
)
|
|
|
(4,401,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
2,184
|
|
|
|
47,958
|
|
|
|
16,274
|
|
|
|
104,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
455,921
|
|
|
|
(2,206,967
|
)
|
|
|
(3,269,216
|
)
|
|
|
(4,506,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADD: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
|
|
|
75,861
|
|
|
|
528,736
|
|
|
|
441,084
|
|
|
|
594,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO CHINA JO-JO DRUGSTORES, INC.
|
|
|
531,782
|
|
|
|
(1,678,231
|
)
|
|
|
(2,828,132
|
)
|
|
|
(3,911,501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
358,868
|
|
|
|
(130,619
|
)
|
|
|
(582,705
|
)
|
|
|
(957,646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
$
|
814,789
|
|
|
$
|
(2,337,586
|
)
|
|
$
|
(3,851,921
|
)
|
|
$
|
(5,463,943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF SHARES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
32,936,786
|
|
|
|
28,936,778
|
|
|
|
32,776,786
|
|
|
|
28,936,778
|
|
Diluted
|
|
|
32,936,786
|
|
|
|
28,936,778
|
|
|
|
32,776,786
|
|
|
|
28,936,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.14
|
)
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.14
|
)
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
CHINA JO-JO DRUGSTORES,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
Retained Earnings
|
|
|
other
|
|
|
Non-
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Paid-in
|
|
|
Statutory
|
|
|
|
|
|
comprehensive
|
|
|
controlling
|
|
|
|
|
|
|
shares
|
|
|
Amount
|
|
|
capital
|
|
|
reserves
|
|
|
Unrestricted
|
|
|
income/(loss)
|
|
|
interest
|
|
|
Total
|
|
BALANCE, March 31, 2018.
|
|
|
28,936,778
|
|
|
|
28,937
|
|
|
|
43,599,089
|
|
|
|
1,309,109
|
|
|
|
(29,661,190
|
)
|
|
|
3,586,460
|
|
|
|
-
|
|
|
|
18,862,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
49,140
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,140
|
|
Sale of 10% of Jiuxin Medicine
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(617,743
|
)
|
|
|
(617,643
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(645,852
|
)
|
|
|
-
|
|
|
|
(50,763
|
)
|
|
|
(696,615
|
)
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
621,634
|
|
|
|
-
|
|
|
|
621,634
|
|
BALANCE, June 30, 2018.
|
|
|
28,936,778
|
|
|
|
28,937
|
|
|
|
43,648,229
|
|
|
|
1,309,109
|
|
|
|
(30,307,042
|
)
|
|
|
4,208,094
|
|
|
|
(668,506
|
)
|
|
|
18,218,821
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
49,680
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,680
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,587,414
|
)
|
|
|
-
|
|
|
|
(15,298
|
)
|
|
|
(1,602,712
|
)
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,448,661
|
)
|
|
|
48,872
|
|
|
|
(1,399,789
|
)
|
BALANCE, September 30, 2018.
|
|
|
28,936,778
|
|
|
|
28,937
|
|
|
|
43,697,909
|
|
|
|
1,309,109
|
|
|
|
(31,894,456
|
)
|
|
|
2,759,433
|
|
|
|
(634,932
|
)
|
|
|
15,266,000
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
49,680
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,680
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,678,232
|
)
|
|
|
-
|
|
|
|
(528,736
|
)
|
|
|
(2,206,968
|
)
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(130,619
|
)
|
|
|
726,326
|
|
|
|
595,707
|
|
BALANCE, December 31, 2018.
|
|
|
28,936,778
|
|
|
|
28,937
|
|
|
|
43,747,589
|
|
|
|
1,309,109
|
|
|
|
(33,572,688
|
)
|
|
|
2,628,814
|
|
|
|
(437,342
|
)
|
|
|
13,704,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2019.
|
|
|
28,936,778
|
|
|
|
28,937
|
|
|
|
44,905,664
|
|
|
|
1,309,109
|
|
|
|
(30,587,468
|
)
|
|
|
2,508,964
|
|
|
|
(1,194,039
|
)
|
|
|
16,971,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
4,000,008
|
|
|
|
4,000
|
|
|
|
34,560
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,560
|
|
Financing of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
9,269,077
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,269,077
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,134,949
|
)
|
|
|
-
|
|
|
|
(241,604
|
)
|
|
|
(2,376,553
|
)
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(405,238
|
)
|
|
|
|
|
|
|
(405,238
|
)
|
BALANCE, June 30, 2019.
|
|
|
32,936,786
|
|
|
|
32,937
|
|
|
|
54,209,301
|
|
|
|
1,309,109
|
|
|
|
(32,722,416
|
)
|
|
|
2,103,726
|
|
|
|
(1,435,643
|
)
|
|
|
23,497,014
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,224,963
|
)
|
|
|
-
|
|
|
|
(122,004
|
)
|
|
|
(1,346,967
|
)
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(536,335
|
)
|
|
|
9,708
|
|
|
|
(526,630
|
)
|
BALANCE, September 30, 2019.
|
|
|
32,936,786
|
|
|
|
32,937
|
|
|
|
54,209,301
|
|
|
|
1,309,109
|
|
|
|
(33,947,382
|
)
|
|
|
1,567,391
|
|
|
|
(1,547,939
|
)
|
|
|
21,623,417
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
531,782
|
|
|
|
-
|
|
|
|
(75,861
|
)
|
|
|
455,921
|
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
358,868
|
|
|
|
(10,740
|
)
|
|
|
348,128
|
|
BALANCE, December 31, 2019.
|
|
|
32,936,786
|
|
|
|
32,937
|
|
|
|
54,209,301
|
|
|
|
1,309,109
|
|
|
|
(33,415,600
|
)
|
|
|
1,926,259
|
|
|
|
(1,634,540
|
)
|
|
|
22,427,466
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
CHINA JO-JO DRUGSTORES,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(UNAUDITED)
|
|
For the
nine months ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,269,216
|
)
|
|
$
|
(4,506,297
|
)
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Bad debt direct write-off and provision
|
|
|
(29,038
|
)
|
|
|
1,266,994
|
|
Depreciation and amortization
|
|
|
1,572,925
|
|
|
|
937,268
|
|
Stock based compensation
|
|
|
34,560
|
|
|
|
121,547
|
|
Change in fair value of purchase option derivative liability
|
|
|
(345,248
|
)
|
|
|
173,955
|
|
Accounts receivable, trade
|
|
|
(2,581,208
|
)
|
|
|
(4,061,698
|
)
|
Notes receivable
|
|
|
122,175
|
|
|
|
(43,024
|
)
|
Inventories and biological assets
|
|
|
2,484,432
|
|
|
|
1,828,232
|
|
Other receivables
|
|
|
(1,353,544
|
)
|
|
|
(681,667
|
)
|
Advances to suppliers
|
|
|
(222,928
|
)
|
|
|
(911,061
|
)
|
Other current assets
|
|
|
(1,758,533
|
)
|
|
|
476,909
|
|
Long term deposit
|
|
|
597,084
|
|
|
|
18,548
|
|
Other noncurrent assets
|
|
|
17,744
|
|
|
|
23,206
|
|
Accounts payable, trade
|
|
|
(6,397,104
|
)
|
|
|
(3,945,980
|
)
|
Other payables and accrued liabilities
|
|
|
(917,398
|
)
|
|
|
815,725
|
|
Customer deposits
|
|
|
458,415
|
|
|
|
(2,258,202
|
)
|
Taxes payable
|
|
|
312,192
|
|
|
|
422,665
|
|
Net cash used in operating activities
|
|
|
(11,274,690
|
)
|
|
|
(10,322,880
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Disposal of financial assets available for sale
|
|
|
14,370
|
|
|
|
87,471
|
|
Purchase of financial assets available for sale
|
|
|
-
|
|
|
|
(104,577
|
)
|
Acquisition of equipment
|
|
|
(561,677
|
)
|
|
|
(5,368,240
|
)
|
Increase in intangible assets
|
|
|
(461,013
|
)
|
|
|
(29,879
|
)
|
Investment in a joint venture
|
|
|
-
|
|
|
|
-
|
|
Additions to leasehold improvements
|
|
|
(705,856
|
)
|
|
|
(1,432,060
|
)
|
Net cash used in investing activities
|
|
|
(1,714,176
|
)
|
|
|
(6,847,285
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from third parties loan
|
|
|
7,085,406
|
|
|
|
-
|
|
Proceeds from notes payable
|
|
|
36,537,832
|
|
|
|
32,903,549
|
|
Repayment of notes payable
|
|
|
(39,784,592
|
)
|
|
|
(24,930,903
|
)
|
Increase in financial liability
|
|
|
(7,185
|
)
|
|
|
82,167
|
|
Proceeds from equity financing
|
|
|
9,273,077
|
|
|
|
7,544
|
|
Repayment of other payables-related parties
|
|
|
(406,506
|
)
|
|
|
(82,866
|
)
|
Net cash provided by financing activities
|
|
|
12,698,032
|
|
|
|
7,979,491
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE ON CASH
|
|
|
(559,998
|
)
|
|
|
(1,653,988
|
)
|
|
|
|
|
|
|
|
|
|
DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
|
|
|
(850,832
|
)
|
|
|
(10,844,662
|
)
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
|
|
|
24,745,202
|
|
|
|
31,452,191
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, end of period
|
|
$
|
23,894,370
|
|
|
$
|
20,607,529
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
17,215
|
|
|
$
|
56,539
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
Note 1 – DESCRIPTION OF BUSINESS
AND ORGANIZATION
China Jo-Jo Drugstores, Inc. (“Jo-Jo
Drugstores” or the “Company”), was incorporated in Nevada on December 19, 2006, originally under the name of
“Kerrisdale Mining Corporation”. On September 24, 2009, the Company changed its name to “China Jo-Jo Drugstores,
Inc.” in connection with a share exchange transaction as described below.
On September 17, 2009, the Company completed
a share exchange transaction with Renovation Investment (Hong Kong) Co., Ltd. (“Renovation”), whereby 7,900,000 shares
of the Company’s common stock were issued to the stockholders of Renovation in exchange for 100% of the capital stock of
Renovation. The completion of the share exchange transaction resulted in a change of control. The share exchange transaction was
accounted for as a reverse acquisition and recapitalization and, as a result, the consolidated financial statements of the Company
(the legal acquirer) are, in substance, those of Renovation (the accounting acquirer), with the assets and liabilities, and revenues
and expenses, of the Company being included effective from the date of the share exchange transaction. Renovation has no substantive
operations of its own except for its holdings of Zhejiang Jiuxin Investment Management Co., Ltd. (“Jiuxin Management”),
Zhejiang Shouantang Medical Technology Co., Ltd. (“Shouantang Technology”), Hangzhou Jiutong Medical Technology Co.,
Ltd (“Jiutong Medical”), and Hangzhou Jiuyi Medical Technology Co. Ltd. (“Jiuyi Technology”), its wholly-owned
subsidiaries.
The Company is an online and offline retailer
and wholesale distributor of pharmaceutical and other healthcare products in the People’s Republic of China (“China”
or the “PRC”). The Company’s offline retail business is comprised primarily of pharmacies, which are operated
by Hangzhou Jiuzhou Grand Pharmacy Chain Co., Ltd. (“Jiuzhou Pharmacy”), a company that the Company controls through
contractual arrangements. On March 31, 2017, Jiuxin Management established a subsidiary, Lin’An Jiuzhou Pharmacy Co., Ltd
(“Lin’An Jiuzhou”) to operates drugstores in Lin’an City.
During the nine months ended December 31,
2019, the Company dissolved eight independent pharmacies. Among the eight dissolved pharmacies, two stores have merged into Jiuzhou
Pharmacy and became Jiuzhou Pharmacy stores in Hangzhou. The other six stores’ licenses of government medical insurance,
which qualify the stores for government reimbursement, were transferred to six Jiuzhou Pharmacy stores in Hangzhou City.
The Company’s offline retail business
also includes three medical clinics through Hangzhou Jiuzhou Clinic of Integrated Traditional and Western Medicine (“Jiuzhou
Clinic”) and Hangzhou Jiuzhou Medical and Public Health Service Co., Ltd. (“Jiuzhou Service”), both of which
are also controlled by the Company through contractual arrangements. In May 2014, Shouantang Technology established Hangzhou Shouantang
Bio-technology Co., Ltd. (“Shouantang Bio”). In May 2016, Shouantang Bio set up and held 49% of Hangzhou Kahamadi Bio-technology
Co., Ltd.(“Kahamadi Bio”), a joint venture specializing in brand name development for nutritional supplements. In 2018,
Jiuzhou Pharmacy invested a total of $741,540 (RMB5,100,000) in and held 51% of Zhejiang Jiuzhou Linjia Medical Investment and
Management Co. Ltd (“Linjia Medical”), which operates two new clinics in Hangzhou as of March 31, 2019. On March 29,
2019, Jiuzhou Pharmacy formed and currently holds 51% of the equity of Zhejiang AyiGe Medical Health Management Co., Ltd.(“Ayi
Health”), which is intended to provide technical support such as IT and customer support to our health management business
in the future.
The Company currently conducts its online
retail pharmacy business through Jiuzhou Pharmacy, which holds the Company’s online pharmacy license. On September 10, 2015,
Renovation set up Jiuyi Technology to provide additional technical support such as webpage development to our online pharmacy business.
In November 2015, the technical support function was transferred back to Jiuzhou Pharmacy, which hosts our online pharmacy.
The Company’s wholesale business
is primarily conducted through Zhejiang Jiuxin Medicine Co., Ltd. (“Jiuxin Medicine”), which is licensed to distribute
prescription and non-prescription pharmaceutical products throughout China. Jiuzhou Pharmacy acquired Jiuxin Medicine on August
25, 2011. On April 20, 2018, 10% of Jiuxin Medcine shares were sold to Hangzhou Kangzhou Biotech Co. Ltd. for a total proceeds
of $79,625 (RMB 507,760).
The Company’s herb farming business
is conducted by Hangzhou Qianhong Agriculture Development Co., Ltd. (“Qianhong Agriculture”), a wholly-owned subsidiary
of Jiuxin Management. Due to the complexity of the cultivation business, Qianhong Agriculture has not grown herbs in the nine months
ended December 31, 2019.
The accompanying condensed consolidated
financial statements reflect the activities of the Company and each of the following entities:
Entity Name
|
|
Background
|
|
Ownership
|
Renovation
|
|
● Incorporated in Hong Kong SAR on September 2, 2008
|
|
100%
|
|
|
|
|
|
Jiuxin Management
|
|
● Established in the PRC on October 14, 2008
|
|
100%
|
|
|
|
|
|
|
|
● Deemed a wholly foreign owned enterprise (“WFOE”) under PRC law
|
|
|
|
|
|
|
|
|
|
● Registered capital of $14.5 million fully paid
|
|
|
|
|
|
|
|
Shouantang Technology
|
|
● Established in the PRC on July 16, 2010 by Renovation with registered capital of $20 million
|
|
100%
|
|
|
|
|
|
|
|
● Registered capital requirement reduced by the SAIC to $11 million in July 2012 and is fully paid
|
|
|
|
|
|
|
|
|
|
● Deemed a WFOE under PRC law
|
|
|
|
|
|
|
|
|
|
● Invests and finances the working capital of Quannuo Technology
|
|
|
|
|
|
|
|
Qianhong Agriculture
|
|
● Established in the PRC on August 10, 2010 by Jiuxin Management
|
|
100%
|
|
|
|
|
|
|
|
● Registered capital of RMB 10 million fully paid
|
|
|
|
|
|
|
|
|
|
● Carries out herb farming business
|
|
|
|
|
|
|
|
Jiuzhou Pharmacy (1)
|
|
● Established in the PRC on September 9, 2003
|
|
VIE by contractual arrangements (2)
|
|
|
|
|
|
|
|
● Registered capital of RMB 5 million fully paid
|
|
|
|
|
|
|
|
|
|
● Operates the “Jiuzhou Grand Pharmacy” stores in Hangzhou
|
|
|
|
|
|
|
|
Jiuzhou Clinic (1)
|
|
● Established in the PRC as a general partnership on October 10, 2003
|
|
VIE by contractual arrangements (2)
|
|
|
|
|
|
|
|
● Operates a medical clinic adjacent to one of Jiuzhou Pharmacy’s stores
|
|
|
|
|
|
|
|
Jiuzhou Service (1)
|
|
● Established in the PRC on November 2, 2005
|
|
VIE by contractual arrangements (2)
|
|
|
|
|
|
|
|
● Registered capital of RMB 500,000 fully paid
|
|
|
|
|
|
|
|
|
|
● Operates a medical clinic adjacent to one of Jiuzhou Pharmacy’s stores
|
|
|
|
|
|
|
|
Jiuxin Medicine
|
|
● Established in PRC on December 31, 2003
● Acquired by Jiuzhou Pharmacy in August 2011
|
|
VIE by contractual arrangements as a wholly-owned subsidiary of Jiuzhou Pharmacy (2)
|
|
|
|
|
|
|
|
● 10% of shares sold
|
|
|
|
|
|
|
|
|
|
● Registered capital of RMB 10 million fully paid
|
|
|
|
|
|
|
|
|
|
● Carries out pharmaceutical distribution services
|
|
|
|
|
|
|
|
Jiutong Medical
|
|
● Established in the PRC on December 20, 2011 by Renovation
|
|
100%
|
|
|
|
|
|
|
|
● Registered capital of $2.6 million fully paid
|
|
|
|
|
|
|
|
|
|
● Currently has no operation
|
|
|
Entity Name
|
|
Background
|
|
Ownership
|
Shouantang Bio
|
|
● Established in the PRC in October, 2014 by Shouantang Technology
|
|
100%
|
|
|
|
|
|
|
|
● 100% held by Shouantang Technology
|
|
|
|
|
|
|
|
|
|
● Registered capital of RMB 1,000,000 fully paid
|
|
|
|
|
|
|
|
|
|
● Sells nutritional supplements under its own brand name
|
|
|
|
|
|
|
|
Jiuyi Technology
|
|
● Established in the PRC on September 10, 2015
|
|
100%
|
|
|
|
|
|
|
|
● 100% held by Renovation
|
|
|
|
|
|
|
|
|
|
● Technical support to online pharmacy
|
|
|
|
|
|
|
|
Kahamadi Bio
|
|
● Established in the PRC in May 2016
|
|
49%
|
|
|
|
|
|
|
|
● 49% held by Shouantang Bio
|
|
|
|
|
|
|
|
|
|
● Registered capital of RMB 10 million
|
|
|
|
|
|
|
|
|
|
● Develop brand name for nutritional supplements
|
|
|
|
|
|
|
|
Lin’An Jiuzhou
|
|
● Established in the PRC in March 31, 2017
|
|
100%
|
|
|
|
|
|
|
|
● 100% held by Jiuxin Management
|
|
|
|
|
|
|
|
|
|
● Registered capital of RMB 5 million
|
|
|
|
|
|
|
|
|
|
● Explore retail pharmacy market in Lin’An City
|
|
|
|
|
|
|
|
Linjia Medical
|
|
● Established in the PRC in September 27, 2017
● 51% held by Jiuzhou Pharmacy
|
|
VIE by contractual arrangements as a controlled subsidiary of Jiuzhou Pharmacy (2)
|
|
|
|
|
|
|
|
● Registered capital of RMB 20 million
|
|
|
|
|
|
|
|
|
|
● Operates local clinics
|
|
|
|
|
|
|
|
Ayi Health
|
|
● Established in the PRC in March 29, 2019
● 51% held by Jiuzhou Pharmacy
|
|
VIE by contractual arrangements as a controlled subsidiary of Jiuzhou Pharmacy (2)
|
|
|
|
|
|
|
|
● Registered capital of RMB 10 million
|
|
|
|
|
|
|
|
|
|
● Provide technical Support for medial service
|
|
|
(1)
|
Jiuzhou Pharmacy, Jiuzhou Clinic and Jiuzhou Service had been under the common control of Mr. Lei Liu, Mr. Chong’an Jin and Ms. Li Qi, (the three shareholders, collectively, the “Owners”) since their respective establishment dates, pursuant to agreements among the Owners to vote their interests in concert as memorialized in a voting rights agreement. Based on such voting agreement, the Company has determined that common control exists among these three companies. The Owners have operated these three companies in conjunction with one another since each company’s respective establishment date. Jiuxin Medicine is also deemed under the common control of the Owners as a subsidiary of Jiuzhou Pharmacy.
|
|
|
(2)
|
To comply with certain foreign ownership restrictions of pharmacy and medical clinic operators, Jiuxin Management entered into a series of contractual arrangements with Jiuzhou Pharmacy, Jiuzhou Clinic and Jiuzhou Service on August 1, 2009. These contractual arrangements are comprised of five agreements: a consulting services agreement, operating agreement, equity pledge agreement, voting rights agreement and option agreement. Because such agreements obligate Jiuxin Management to absorb all of the risks of loss from the activities of Jiuzhou Pharmacy, Jiuzhou Clinic and Jiuzhou Service, and enable the Company (through Jiuxin Management) to receive all of their expected residual returns, the Company accounts for each of the three companies (as well as subsidiaries of Jiuzhou Pharmacy) as a variable interest entity (“VIE”) under the accounting standards of the Financial Accounting Standards Board (“FASB”). Accordingly, the financial statements of Jiuzhou Pharmacy, Jiuzhou Clinic and Jiuzhou Service, as well as the subsidiary under the control of Jiuzhou Pharmacy, Jiuxin Medicine and Shouantang Bio are consolidated into the financial statements of the Company.
|
Note 2 – LIQUIDITY
Our accounts have been prepared in accordance
with the accounting principles generally accepted in the United States of America (“US GAAP”) on a going concern basis.
The going concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at
amounts disclosed in the financial statements. Our ability to continue as a going concern depends upon aligning our sources of
funding (debt and equity) with our expenditure requirements and repayment of the short-term debts as and when they become due.
The drug retail business is a highly competitive
industry in the PRC. Several large drugstore chains and a variety of single stores operate in Hangzhou City and Zhejiang Province.
In order to increase our competitive advantages and gain more local retail pharmacy market share, during fiscal year 2018, we opened
fifty-seven new stores in Hangzhou. As a result, we incurred significant incremental expense related to rental, labor hiring and
training, and marketing activities. As the retail pharmaceutical market becomes more competitive in recent years, a new store usually
cannot make profit in its operation until a year later. In fact, we incurred significant expense with limited incremental revenue
in the period we opened new stores. At their openings, except for four stores, almost all of the new stores were without government
insurance reimbursement certificates. In fact, it usually takes more than one year for a new store to apply for and obtain the
local government insurance reimbursement certificate. As of December 31, 2019, we have obtained thirty-five reimbursement certificates
for stores opened in fiscal 2018 and later. Historically, sales reimbursed from the government insurance agency contributed more
than half of total revenue in a mature store. We are in the process of actively applying certificates for all of our new stores.
In the future, as more and more stores obtain certificates, we expect our new store revenue to increase and eventually contribute
positive operating cash flow.
The Company’s principal sources of
liquidity consist of existing cash, equity financing, bank facilities from local banks as well as personal loans from its principal
shareholders if necessary. On April 15, 2019, the Company closed a registered direct offering of 4,000,008 shares of common stock
at $2.50 per share with gross proceeds of $10,000,020 from its effective shelf registration statement on Form S-3 pursuant to a
Securities Purchase Agreement dated April 11, 2019 (the “2019 Securities Purchase Agreement”), by and among the Company
and the investors named therein. The Company has a credit line agreement from a local bank as displayed in detail in Note 14. As
of December 31, 2019, approximately $3.05 million of the aforementioned bank credit line was still available for further borrowing.
Additionally, Jiuzhou Pharmacy obtained a credit line of approximately $7,175,000 (RMB50,000,000) from Haihui Commercial Factoring
(Tianjin) Co. Ltd. (“Haihui Commercial”) for three years beginning July 26, 2019. Any borrowing thereunder is guaranteed
by a third-party guarantor company, and secured by the Company’s assets pursuant to a collateral agreement, as well as personal
guarantees of some of its principal shareholders.
The Company has also obtained additional
government insurance reimbursement certificates for its stores opened in the last two years. As the sales reimbursed from the government
account for more than half of sales in a mature store, the certificates may significantly increase the sales of these stores in
the next 12 months. Additionally, with the proceeds from the registered direct financing closed on April 15, 2019 and increased
credit line, the Company believes it can support its operations for at least the next 12 months. However, in the event the banks
withdraw their credit lines with us, or our existing store performance suddenly deteriorates due to unexpected government policy
change, possible deterioration of the new coronavirus outbreak in China, including Hangzhou, where the Company is headquartered,
or our operating license is canceled as a result of violation of industry regulation, the Company may or may not obtain alternative
financing resources to support its continuing operation. At that time, the Company may not be able to continue to present itself
on a going concern basis.
Note 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of presentation and consolidation
The accompanying condensed consolidated
financial statements are prepared in accordance with US GAAP. The condensed consolidated financial statements include the financial
statements of the Company, its wholly-owned subsidiaries and VIEs. All significant inter-company transactions and balances between
the Company, its subsidiaries and VIEs are eliminated upon consolidation.
Consolidation of variable interest entities
In accordance with accounting standards
regarding consolidation of variable interest entities, VIEs are generally entities that lack sufficient equity to finance their
activities without additional financial support from other parties or whose equity holders lack adequate decision making ability.
All VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of
the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
The Company has concluded, based on the
contractual arrangements, that Jiuzhou Pharmacy (including its subsidiaries and controlled entities), Jiuzhou Clinic and Jiuzhou
Service are each a VIE and that the Company’s wholly-owned subsidiary, Jiuxin Management, absorbs a majority of the risk
of loss from the activities of these companies, thereby enabling the Company, through Jiuxin Management, to receive a majority
of their respective expected residual returns.
Control and common control are defined
under the accounting standards as “an individual, enterprise, or immediate family members who hold more than 50 percent of
the voting ownership interest of each entity.” Because the Owners collectively own 100% of Jiuzhou Pharmacy, Jiuzhou Clinic
and Jiuzhou Service, and have agreed to vote their interests in concert since the establishment of each of these three companies
as memorialized in the voting rights agreement, the Company believes that the Owners collectively have control and common control
of the three companies. Accordingly, the Company believes that Jiuzhou Pharmacy, Jiuzhou Clinic and Jiuzhou Service were constructively
held under common control by Jiuxin Management as of the time the Contractual Agreements were entered into, establishing Jiuxin
Management as their primary beneficiary. Jiuxin Management, in turn, is owned by Renovation, which is owned by the Company.
Risks and Uncertainties
The operations of the Company are located
in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political,
economic, and legal environments in the PRC, as well as by the general state of the PRC economy. The Company’s operations
in the PRC are subject to special considerations and significant risks not typically associated with companies in North America
and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign
currency exchange. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions
in the PRC. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing
laws and regulations including its organization and structure disclosed in Note 1, this may not be indicative of future results.
The Company has significant cash deposits
with suppliers in order to obtain and maintain inventory. The Company’s ability to obtain products and maintain inventory
at existing and new locations is dependent upon its ability to post and maintain significant cash deposits with its suppliers.
In the PRC, many vendors are unwilling to extend credit terms for product sales that require cash deposits to be made. The Company
does not generally receive interest on any of its supplier deposits, and such deposits are subject to loss as a result of the creditworthiness
or bankruptcy of the party who holds such funds, as well as the risk from illegal acts such as conversion, fraud, theft or dishonesty
associated with the third party. If these circumstances were to arise, the Company would find it difficult or impossible, due to
the unpredictability of legal proceedings in China, to recover all or a portion of the amount on deposit with its suppliers.
Members of the current management team
own controlling interests in the Company and are also the Owners of the VIEs in the PRC. The Company only controls the VIEs through
contractual arrangements which obligate it to absorb the risk of loss and to receive the residual expected returns. As such, the
controlling shareholders of the Company and the VIEs could cancel these agreements or permit them to expire at the end of the agreement
terms, as a result of which the Company would not retain control of the VIEs.
Use of estimates
The preparation of unaudited condensed
consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period. The significant estimates made in the preparation
of the accompanying unaudited condensed consolidated financial statements relate to the assessment of the carrying values of accounts
receivable, advances to suppliers and related allowance for doubtful accounts, useful lives of property and equipment, inventory
reserve and fair value of its purchase option derivative liability. Because of the use of estimates inherent in the financial reporting
process, actual results could materially differ from those estimates.
Fair value measurements
The Company establishes a three-level valuation
hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include
the following:
Level 1 – Quoted prices in active
markets for identical assets or liabilities.
Level 2 – Inputs other than Level
1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
Level 3 – Unobservable inputs that
are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Classification within the hierarchy is
determined based on the lowest level of input that is significant to the fair value measurement.
The Company’s financial assets and
liabilities, which include financial instruments as defined by FASB ASC 820, include cash and cash equivalents, accounts receivable,
accounts payable, long-term debt and derivatives. The carrying amounts of cash and cash equivalents, financial assets available
for sales, accounts receivable, notes receivables, and accounts payable are a reasonable approximation of fair value due to the
short maturities of these instruments (Level 1). The carrying amount of notes payable approximates fair value based on borrowing
rates of similar bank loan currently available to the Company (Level 2) (See Note 14). The carrying amount of the Company’s
derivative instruments is recorded at fair value and is determined based on observable inputs that are corroborated by market data
(Level 2). The carrying amount of the Financial assets available for sale is recorded at fair value and is determined based on
unobservable inputs (Level 3). As of December 31, 2019, the fair values of our derivative instruments were carried at fair value
(See Note 19). As of December 31, 2019, the fair values of our financial liability were carried at fair value (See Note 20)
|
|
Active
Market
for Identical
Assets
(Level 1)
|
|
|
Observable
Inputs
(Level 2)
|
|
|
Unobservable
Inputs
(Level 3)
|
|
|
Total
Carrying
Value
|
|
Cash and cash equivalents and restricted cash
|
|
|
23,894,370
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
23,894,370
|
|
Financial assets available for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
159,946
|
|
|
|
159,946
|
|
Notes payable
|
|
|
-
|
|
|
|
21,758,227
|
|
|
|
-
|
|
|
|
21,758,227
|
|
Financial liability
|
|
|
-
|
|
|
|
-
|
|
|
|
71,757
|
|
|
|
71,757
|
|
Warrants liability
|
|
|
-
|
|
|
|
120,000
|
|
|
$
|
-
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
23,894,370
|
|
|
|
21,878,227
|
|
|
$
|
231,703
|
|
|
|
46,004,300
|
|
Revenue recognition
Effective March 31, 2018, the Company began
recognizing revenue under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers
(“ASC 606”), using the modified retrospective transition method. The impact of adopting the new revenue standard was
not material to the Company’s consolidated financial statements. The core principle of this new revenue standard is that
a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the Company expects to be entitled in exchange for those goods or services. The following five steps
are applied to achieve that core principle:
|
●
|
Step 1: Identify the contract with the customer
|
|
●
|
Step 2: Identify the performance obligations in the contract
|
|
|
|
|
●
|
Step 3: Determine the transaction price
|
|
●
|
Step 4: Allocate the transaction price to the performance obligations in the contract
|
|
●
|
Step 5: Recognize revenue when the company satisfies a performance obligation
|
In order to identify the performance obligations
in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised
good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or
service (or bundle of goods or services) if both of the following criteria are met:
|
●
|
The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct).
|
|
|
|
|
●
|
The entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
|
If a good or service is not distinct, the
good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
The transaction price is the amount of
consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer,
excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration promised in a contract
with a customer may include fixed amounts, variable amounts, or both. Variable consideration is included in the transaction price
only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur
when the uncertainty associated with the variable consideration is subsequently resolved.
The transaction price is allocated to each
performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation
is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
The Company’s revenue is net of value
added tax (“VAT”) collected on behalf of the PRC tax authorities with respect to the sales of merchandise. VAT collected
from customers, net of VAT paid for purchases, is recorded as a liability in the accompanying consolidated balance sheets until
it is paid to the relevant PRC tax authorities.
Certain contract liabilities primarily
represent the Company’s obligation to transfer additional goods or services to a customer for which the Company has received
consideration, for example, membership points. The consideration received remains a contract liability until goods or services
have been provided to the retail customer. The estimated amount based on accrued membership points was deducted from sales revenue.
The following is a discussion of the Company’s
revenue recognition policies by segment under the new revenue recognition accounting standard:
Pharmacy retail sales
The physical pharmacies sell prescription
drugs, over-the-counter (“OTC”) drugs, traditional Chinese medicine, nutritional supplements, medical devices and sundry
products. Revenue from sales of prescription medicine at drugstores is recognized when the prescription is filled and the customer
picks up and pays for the prescription. Revenue from sales of other merchandise at drugstores is recognized at the point of sale,
which is when a customer pays for and receives the merchandise. Usually the majority of our merchandise, such as prescription and
OTC drugs, are not refundable after the customers leave the counter. Returns of other products, such as sundry products, are minimal.
Sales of drugs reimbursed by the local government medical insurance agency and receivables from the agency are recognized when
a customer pays for the drugs at a store. Based on historical experience, a reserve for potential losses from denial of reimbursement
on certain unqualified drugs is made to the receivables from the government agency. Additionally, several onsite clinics adjacent
to our pharmacies provide limited medical services. Revenue from medical services is recognized after the service has been rendered
to a customer. As revenue from medical services is minimal compared to pharmacy retail sales, it is included as part of the pharmacy
retail sales.
Online pharmacy sales
The online pharmacy sells various health
products except for prescription drugs. Revenue from online pharmacy sales is recognized when merchandise is shipped to customers.
While most deliveries take one day, certain deliveries may take longer depending on a customer’s location. Any loss caused
in a shipment will be reimbursed by the Company’s courier company. Our sales policy allows for the return of certain merchandises
without reason within seven days after a customer’s receipt of the applicable merchandise. Historically, sales returns seven
days after merchandise receipts have been minimal.
Wholesale
Jiuxin Medicine purchases medicine in quantity
and distributes products primarily to local pharmacies and medical products dealers. Revenue from sales of merchandise to non-retail
customers is recognized when the merchandise is transferred to customers. Historically, sales returns have been minimal.
The Company’s revenue is net of VAT
collected on behalf of PRC tax authorities in respect to the sales of merchandise. VAT collected from customers, net of VAT paid
for purchases, is recorded as a liability in the accompanying consolidated balance sheets until it is paid to the relevant PRC
tax authorities.
Disaggregation of Revenue
The following table disaggregates the Company’s
revenue by major source in each segment for the three and nine months ended December 31, 2019:
For the three months ended December 31
|
|
2019
|
|
|
2018
|
|
Retail drugstores
|
Prescription drugs
|
|
$
|
7,496,469
|
|
|
$
|
6,756,073
|
|
OTC drugs
|
|
|
10,260,883
|
|
|
|
9,393,148
|
|
Nutritional supplements
|
|
|
1,602,407
|
|
|
|
1,869,351
|
|
TCM
|
|
|
1,416,126
|
|
|
|
1,342,768
|
|
Sundry products
|
|
|
188,484
|
|
|
|
248,729
|
|
Medical devices
|
|
|
611,597
|
|
|
|
1,257,180
|
|
Total retail revenue
|
|
$
|
21,575,966
|
|
|
$
|
20,867,249
|
|
Online pharmacy
|
|
|
|
|
|
|
|
|
Prescription drugs
|
|
$
|
-
|
|
|
$
|
-
|
|
OTC drugs
|
|
|
1,981,871
|
|
|
|
837,126
|
|
Nutritional supplements
|
|
|
245,249
|
|
|
|
220,776
|
|
TCM
|
|
|
42,331
|
|
|
|
28,785
|
|
Sundry products
|
|
|
729,179
|
|
|
|
573,993
|
|
Medical devices
|
|
|
966,393
|
|
|
|
832,526
|
|
Total online revenue
|
|
$
|
3,965,023
|
|
|
$
|
2,493,206
|
|
Drug wholesale
|
|
|
|
|
|
|
|
|
Prescription drugs
|
|
$
|
6,358,031
|
|
|
$
|
3,933,441
|
|
OTC drugs
|
|
|
1,310,927
|
|
|
|
3,341,676
|
|
Nutritional supplements
|
|
|
47,736
|
|
|
|
167,069
|
|
TCM
|
|
|
67,507
|
|
|
|
77,216
|
|
Sundry products
|
|
|
19,789
|
|
|
|
5,949
|
|
Medical devices
|
|
|
18,303
|
|
|
|
30,743
|
|
Total wholesale revenue
|
|
$
|
7,822,293
|
|
|
$
|
7,556,094
|
|
Total revenue
|
|
$
|
33,363,282
|
|
|
$
|
30,916,549
|
|
For the nine months ended December 31
|
|
2019
|
|
|
2018
|
|
Retail drugstores
|
Prescription drugs
|
|
$
|
19,214,689
|
|
|
$
|
17,835,700
|
|
OTC drugs
|
|
|
24,964,312
|
|
|
|
24,018,263
|
|
Nutritional supplements
|
|
|
4,510,514
|
|
|
|
4,750,013
|
|
TCM
|
|
|
4,474,676
|
|
|
|
4,615,033
|
|
Sundry products
|
|
|
777,432
|
|
|
|
799,554
|
|
Medical devices
|
|
|
2,370,604
|
|
|
|
2,953,326
|
|
Total retail revenue
|
|
$
|
56,312,227
|
|
|
$
|
54,971,889
|
|
Online pharmacy
|
|
|
|
|
|
|
|
|
Prescription drugs
|
|
$
|
-
|
|
|
$
|
-
|
|
OTC drugs
|
|
|
4,133,128
|
|
|
|
2,412,057
|
|
Nutritional supplements
|
|
|
488,956
|
|
|
|
575,862
|
|
TCM
|
|
|
77,981
|
|
|
|
54,417
|
|
Sundry products
|
|
|
1,542,372
|
|
|
|
2,128,282
|
|
Medical devices
|
|
|
2,517,455
|
|
|
|
1,467,304
|
|
Total online revenue
|
|
$
|
8,759,892
|
|
|
$
|
6,637,922
|
|
Drug wholesale
|
|
|
|
|
|
|
|
|
Prescription drugs
|
|
$
|
18,054,557
|
|
|
$
|
11,708,683
|
|
OTC drugs
|
|
|
3,433,730
|
|
|
|
7,246,356
|
|
Nutritional supplements
|
|
|
104,475
|
|
|
|
240,666
|
|
TCM
|
|
|
247,465
|
|
|
|
156,525
|
|
Sundry products
|
|
|
30,809
|
|
|
|
21,479
|
|
Medical devices
|
|
|
54,690
|
|
|
|
114,641
|
|
Total wholesale revenue
|
|
$
|
21,925,726
|
|
|
$
|
19,488,350
|
|
Total revenue
|
|
$
|
86,997,845
|
|
|
$
|
81,098,161
|
|
Contract Balances
Contract liabilities primarily represent
the Company’s obligation to transfer additional goods or services to a customer for which the Company has received consideration,
for example membership points. The consideration received remains a contract liability until goods or services have been provided
to the retail customer.
The following table provides information
about receivables and contract liabilities from contracts with customers:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
Trade receivable(included in accounts receivable, net)
|
|
$
|
11,465,402
|
|
|
$
|
8,692,514
|
|
Contract liabilities (included in accrued expenses)
|
|
|
1,634,032
|
|
|
|
1,689,099
|
|
Restricted cash
The Company’s restricted cash consists
of cash and long-term deposits in a bank as security for its notes payable. The Company has notes payable outstanding with the
bank and is required to keep certain amounts on deposit that are subject to withdrawal restrictions. The notes payable are generally
short term in nature due to their short maturity period of six to nine months; thus, restricted cash is classified as a current
asset.
The following represents a reconciliation
of cash and cash equivalents in the Consolidated Condensed Balance Sheets to total cash, cash equivalents and restricted cash in
the Consolidated Condensed Statements of Cash Flows as of December 31, 2019 and March 31, 2019:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
Cash and cash equivalents
|
|
$
|
11,858,985
|
|
|
$
|
9,322,463
|
|
Restricted cash
|
|
|
12,035,385
|
|
|
|
15,422,739
|
|
Cash, cash equivalents and restricted cash
|
|
$
|
23,894,370
|
|
|
$
|
24,745,202
|
|
Accounts receivable
Accounts receivable represent the following:
(1) amounts due from banks relating to retail sales that are paid or settled by the customers’ debit or credit cards, (2)
amounts due from government social security bureaus and commercial health insurance programs relating to retail sales of drugs,
prescription medicine, and medical services that are paid or settled by the customers’ medical insurance cards, (3) amounts
due from non-bank third party payment instruments such as Alipay and certain e-commerce platforms and (4) amounts due from non-retail
customers for sales of merchandise.
Accounts receivable are recorded at net
realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as necessary. In the Company’s
retail business, accounts receivable mainly consist of reimbursements due from the government insurance bureaus and commercial
health insurance programs and are usually collected within two or three months. The Company directly writes off delinquent account
balances, which it determines to be uncollectible after confirming with the appropriate bureau or program each month. Additionally,
the Company also makes estimated reserves on related outstanding accounts receivable based on historical trends.
In the Company’s online pharmacy
business, accounts receivable primarily consist of amounts due from non-bank third party payment instruments such as Alipay and
certain e-commerce platforms. To purchase pharmaceutical products from an e-commerce platforms such as Tmall, customers are required
to submit payment to certain non-bank third party payment instruments, such as Alipay, which, in turn, reimburse the Company within
seven days to a month. Except for customer returns of sold products, the receivables from these payments instruments are rarely
uncollectible.
In its wholesale business, the Company
uses the aging method to estimate the allowance for anticipated uncollectible receivable balances. Under the aging method, bad
debt percentages are determined by management, based on historical experience and the current economic climate, are applied to
customers’ balances categorized by the number of months the underlying invoices have remained outstanding. At each reporting
period, the allowance balance is adjusted to reflect the amount computed as a result of the aging method. When facts subsequently
become available to indicate that the allowance provided requires an adjustment, a corresponding adjustment is made to the allowance
account as a change in estimate.
Advances to suppliers
Advances to suppliers consist of prepayments
to our vendors, such as pharmaceutical manufacturers and other distributors. Since the acquisition of Jiuxin Medicine, we have
transferred almost all logistics services of our retail drugstores to Jiuxin Medicine. Jiuzhou Pharmacy only directly purchases
certain non-medical products, such as certain nutritional supplements. As a result, almost all advances to suppliers are made by
Jiuxin Medicine.
Advances to suppliers for our drug wholesale
business consist of prepayments to our vendors, such as pharmaceutical manufacturers and other distributors. We typically receive
products from vendors within three to nine months after making prepayments. We continuously monitor delivery from, and payments
to, our vendors while maintaining a provision for estimated credit losses based upon historical experience and any specific supplier
issues, such as discontinuing of inventory supply, that have been identified. If we have difficulty receiving products from a vendor,
we take the following steps: cease purchasing products from such vendor, ask for return of our prepayment promptly, and if necessary,
take legal action. If all of these steps are unsuccessful, management then determines whether the prepayments should be reserved
or written off.
Inventories
Inventories are stated at the lower of
cost or net realizable value. Cost is determined using the first in first out (FIFO) method. The Company carries out physical inventory
counts on a monthly basis at each store and warehouse location. Herbs that the Company cultivates are recorded at their cost, which
includes direct costs such as seed selection, fertilizer, labor costs expended in growing herbs on the leased farmland, and indirect
costs such as amortization of farmland development cost. All costs are accumulated until the time of harvest and then allocated
to harvested herbs costs when the herbs are sold. The Company periodically reviews its inventory and records write-downs to inventories
for shrinkage losses and damaged merchandise that are identified. The Company provides a reserve for estimated inventory obsolescence
or excess quantities on hand equal to the difference, if any, between the cost of the inventory and its estimated realizable value.
Farmland assets
Herbs that the Company cultivates are recorded
at their cost, which includes direct costs such as seed selection, fertilizer, and labor costs that are spent in growing herbs
on the leased farmland, and indirect costs such as amortization of farmland development costs. Since April 2014, amortization of
farmland development costs has been expensed instead of allocated into inventory due to unpredictable future market value of planted
gingko trees.
All related costs described in the above
are accumulated until the time of harvest and then allocated to harvested herbs when they are sold.
Property and equipment
Property and equipment are stated at cost,
net of accumulated depreciation or amortization. Depreciation is calculated on the straight-line method over the estimated useful
lives of the assets, taking into consideration the assets’ estimated residual value. Leasehold improvements are amortized
over the shorter of lease term or remaining lease period of the underlying assets. Following are the estimated useful lives of
the Company’s property and equipment:
|
|
Estimated
Useful Life
|
Leasehold improvements
|
|
3-10 years
|
Motor vehicles
|
|
3-5 years
|
Office equipment & furniture
|
|
3-5 years
|
Buildings
|
|
35 years
|
Maintenance, repairs and minor renewals
are charged to expenses as incurred. Major additions and betterment to property and equipment are capitalized.
Intangible assets
Intangible assets are acquired individually
or as part of a group of assets, and are initially recorded at their fair value. The cost of a group of assets acquired in a transaction
is allocated to the individual assets based on their relative fair values.
The estimated useful lives of the Company’s
intangible assets are as follows:
|
|
Estimated
Useful Life
|
Land use rights
|
|
50 years
|
Software
|
|
3 years
|
The Company evaluates intangible assets
for impairment whenever events or changes in circumstances indicate that the assets might be impaired.
Impairment of long lived assets
The Company evaluates long lived tangible
and intangible assets for impairment, whenever events or changes in circumstances indicate that the carrying value may not be recoverable
from its estimated future cash flows. Recoverability is measured by comparing the assets’ net book value to the related projected
undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic
projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted
cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss. There were
no fixed assets and farmland assets impaired for the nine months ended December 31, 2019.
Notes payable
During the normal course of business, the
Company regularly issues bank acceptance bills as a payment method to settle outstanding accounts payables with various material
suppliers. The Company records such bank acceptance bills as notes payable. Such notes payable are generally short term in nature
due to their short maturity period of six to nine months.
Long-term loans
Long-term loans from non-banking financial
institutions are stated at their cost. The loan term is up to three years. The Company makes installment payments on principal
and interest every month. Interest expense is paid and recorded every month. The principal amount due within a year will be classified
as current portion of long-term loan.
Income taxes
The Company follows FASB ASC Topic 740,
“Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized
for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting
amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
The accounting standards clarify the accounting
and disclosure requirements for uncertain tax positions and prescribe a recognition threshold and measurement attribute for recognition
and measurement of a tax position taken or expected to be taken in a tax return. The accounting standards also provide guidance
on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. No significant
penalties, uncertain tax provisions or interest relating to income taxes were incurred during the periods ended December 31, 2019
and 2018.
Value added tax
Sales revenue represents the invoiced value
of goods, net of VAT. All of the Company’s products are sold in the PRC and are subject to a VAT on the gross sales price.
The VAT rates range up to 17%, depending on the type of products sold. The VAT may be offset by VAT paid by the Company on raw
materials and other materials included in the cost of producing or acquiring its finished products. The Company recorded a VAT
payable net of payments in the accompanying financial statements.
Stock based compensation
The Company follows the provisions of FASB
ASC 718, “Compensation — Stock Compensation,” which establishes accounting standards for non-employee and employee
stock-based awards. Under the provisions of FASB ASC 718, the fair value of stock issued is used to measure the fair value of services
received as the Company believes such approach is a more reliable method of measuring the fair value of the services. For non-employee
stock-based awards, fair value is measured based on the value of the Company’s common stock on the date that the commitment
for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the
equity instrument is calculated and then recognized as compensation expense over the requisite performance period. For employee
stock-based awards, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized
as expense with graded vesting on a straight–line basis over the requisite service period for the entire award.
Advertising and promotion costs
Advertising and promotion costs are expensed
as incurred and amounted to $60,781 and $259,064 for the three months ended December 31, 2019 and 2018, respectively, and $217,768
and $657,968 for the nine months ended December 31, 2019 and 2018, respectively. Such costs consist primarily of costs of print
and promotional materials such as flyers to local communities.
Foreign currency translation
The Company uses the United States dollar
(“U.S. dollars” or “USD”) for financial reporting purposes. The Company’s subsidiaries and VIEs maintain
their books and records in their functional currency, the Renminbi (“RMB”), the currency of the PRC.
Generally, for consolidation purposes,
the Company translates the assets and liabilities of its subsidiaries and VIEs into U.S. dollars using the applicable exchange
rates prevailing as of the balance sheet date, and the statements of income and cash flows are translated at average exchange rates
during the reporting period. As a result, amounts related to assets and liabilities reported on the statement of cash flows will
not necessarily agree with changes in the corresponding balances on the balance sheet. Equity accounts are translated at historical
rates. Adjustments resulting from the translation of the financial statements of the subsidiaries and VIEs are recorded as accumulated
other comprehensive income.
The balance sheet amounts, with the exception
of equity, at December 31, 2019 and at March 31, 2019 were translated at 1 RMB to 0.1435 USD and at 1 RMB to 0.1490 USD, respectively.
The average translation rates applied to income and cash flow statement amounts for the nine months ended December 31, 2019 and
2018 were at 1 RMB to 0.1437 USD and at 1 RMB to 0.1494 USD, respectively.
Concentrations and credit risk
Certain financial instruments, which subject
the Company to concentration of credit risk, consist of cash and restricted cash. The Company has cash balances at financial institutions
located in Hong Kong and PRC. Balances at financial institutions in Hong Kong may, from time to time, exceed Hong Kong Deposit
Protection Board’s insured limits. Since March 31, 2015, balances at financial institutions and state-owned banks within
the PRC are covered by insurance up to RMB 500,000 (USD 72,800) per bank. As of December 31, 2019 and March 31, 2019, the Company
had deposits totaling $23,884,133 and $24,730,736 that were covered by such limited insurance, respectively. Any balance over RMB
500,000 (USD 72,800) per bank in PRC will not be covered. To date, the Company has not experienced any losses in such accounts.
For the three months ended December 31,
2019, two largest vendors accounted for 45.1% of the Company’s total purchases and one vendor accounted for 24.4% of the
Company’s total advances to suppliers. For the three months ended December 31, 2018, three largest vendors accounted for
70.3% of the Company’s total purchases and one vendor accounted for 32.6% of the Company’s total advances to suppliers.
For the nine months ended December 31,
2019, two vendors accounted for 48.7% of the Company’s total purchases and two vendors accounted for more than 10% of total
advances to suppliers. For the nine months ended December 31, 2018, two vendors accounted for 46.9% of the Company’s total
purchases and two vendors accounted for more than 10% of total advances to suppliers.
For the three months and nine months ended
December 31, 2019, no customer accounted for more than 10% of the Company’s total sales and more than 10% of total accounts
receivable. For the three months and nine months ended December 31, 2018, no customer accounted for more than 10% of the Company’s
total sales and more than 10% of total accounts receivable.
Leases
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842). Lessees are required to recognize a right-of-use asset and a lease liability for virtually all of their
leases (other than leases that meet the definition of a short-term lease). The liability is equal to the present value of lease
payments. The asset is based on the liability, subject to certain adjustments, such as for initial direct costs. For income statement
purposes, a dual model was retained, requiring leases to be classified as either operating or finance leases. Operating leases
result in straight-line expense (similar to operating leases under the prior accounting standard) while finance leases result in
a front-loaded expense pattern (similar to capital leases under the prior accounting standard). Lessor accounting is similar to
the prior model, but updated to align with certain changes to the lessee model (e.g., certain definitions, such as initial direct
costs, have been updated) and the new revenue standard, ASU 2014-9.
The Company adopted this new accounting
standard on April 1, 2019 on a modified retrospective basis and applied the new standard to all leases through a cumulative-effect
adjustment to beginning retained earnings. As a result, comparative financial information has not been restated and continues to
be reported under the accounting standards in effect for those periods. The Company elected the package of practical expedients
permitted under the transition guidance within the new standard, which includes, among other things, the ability to carry forward
the existing lease classification. On April 1, 2019, the Company recorded an after-tax transition adjustment to increase retained
earnings by approximately $422,354. The new standard had a material impact on the unaudited condensed consolidated balance sheet,
but did not materially impact the Company’s consolidated operating results and had no impact on the Company’s cash
flows. The following is a discussion of the Company’s lease policy under the new lease accounting standard:
The Company determines if an arrangement
contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset
for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future
minimum lease payments. As the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes
its incremental borrowing rate, determined by class of underlying asset, to discount the lease payments. The operating lease right-of-use
assets also include lease payments made before commencement and exclude lease incentives.
The Company leases premises for retail
drugstores, and offices under non-cancellable operating leases. Operating lease payments are expensed over the term of lease using
straight line method. A majority of the Company’s retail drugstore leases have a 3 to 10 year term. Usually within one to
three months prior to the expiration date of a lease, the Company is required to notify the lessor and has a priority to continue
renting the lease property if a lessor intends to lease property. The lease itself does not have restriction or covenants. If both
parties agree to continue, a new lease contract with new lease terms has to been signed by both parties. Usually the rent may increase
year by year based on the lease contract. Sublease is typically not allowed. Any damage, if made by the lessee, to the property
and equipment within the property has to been fixed or reimbursed by the lessee. The Company does not have any leases entered into
but which have not yet commenced. The Company has historically been able to renew a majority of its drugstores leases. The weighted
average remaining lease term is 4.25 years and the weighted average discount rate is 4.19%. Under the terms of the lease agreements,
the Company has no legal or contractual asset retirement obligations at the end of the leases. See Note 12 “Leases”
for additional information.
Impact of New Lease Standard on Balance
Sheet Line Items
As a result of applying the new lease standard
using a modified retrospective method, the following adjustments were made to accounts on the condensed consolidated balance sheet
as of April 1, 2019:
|
|
Impact of Change in Accounting Policy
|
|
|
|
As Reported
|
|
|
|
|
|
Adjusted
|
|
|
|
March 31,
2019
|
|
|
Adjustments
|
|
|
April 1,
2019
|
|
Other current assets
|
|
|
2,063,375
|
|
|
|
(717,414
|
)
|
|
|
1,345,961
|
|
Total current assets
|
|
|
56,202,981
|
|
|
|
(717,414
|
)
|
|
|
55,485,567
|
|
Operating lease right-of-use assets
|
|
|
-
|
|
|
|
15,276,388
|
|
|
|
15,276,388
|
|
Total assets
|
|
|
72,730,636
|
|
|
|
14,558,974
|
|
|
|
87,289,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of operating lease liabilities
|
|
|
-
|
|
|
|
4,718,610
|
|
|
|
4,718,610
|
|
Total current liabilities
|
|
|
55,212,286
|
|
|
|
4,718,610
|
|
|
|
59,930,896
|
|
Long-term operating lease liabilities
|
|
|
-
|
|
|
|
9,418,011
|
|
|
|
9,418,011
|
|
Total liabilities
|
|
|
55,759,469
|
|
|
|
14,136,621
|
|
|
|
69,896,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
(30,587,468
|
)
|
|
|
422,354
|
|
|
|
(30,165,114
|
)
|
Total shareholders’ equity
|
|
|
18,165,206
|
|
|
|
422,354
|
|
|
|
18,587,560
|
|
Total equity
|
|
|
16,971,167
|
|
|
|
422,354
|
|
|
|
17,393,521
|
|
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13,
“Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” providing
financial statement users with more decision-useful information about the expected credit losses on financial instruments and other
commitments to extend credit held by a reporting entity at each reporting date. For public business entities that are U.S. Securities
and Exchange Commission (SEC) filers, the amendments in this Update are effective for fiscal years beginning after December 15,
2019, including interim periods within those fiscal years. All entities may adopt the amendments in this Update earlier as of the
fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating
the impact of the adoption of ASU 2016-13 on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230):Classification of Certain Cash Receipts and Cash Payments,” addressing eight specific
cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this Update are effective
for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period,
any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects
early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective
transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues,
the amendments for those issues would be applied prospectively as of the earliest date practicable. The impact of adoption on our
Condensed Consolidated Financial Statements for any period presented is not material.
In July 2017, the FASB issued ASU No. 2017-11,
“Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815):
I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily
Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with
a Scope Exception”. Part I of this Update addresses the complexity of accounting for certain financial instruments with down
round features. Part II of this Update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity,
because of the existence of extensive pending content in the FASB Accounting Standards Codification®. ASU No. 2017-11 has no
impact on our consolidated financial statements.
In January 2017, the FASB issued ASU No.
2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU
2017-04”), which removes Step 2 from the goodwill impairment test. An entity will apply a one-step quantitative test and
record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to
exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment
of goodwill impairment. Public business entity that is a U.S. Securities and Exchange Commission filer should adopt the amendments
in this ASU for its annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019. Early adoption
is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-4 has no
impact on our consolidated financial statements.
NOTE 4 – TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consisted of
the following:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
Accounts receivable
|
|
$
|
13,856,012
|
|
|
$
|
11,939,364
|
|
Less: allowance for doubtful accounts
|
|
|
(2,390,700
|
)
|
|
|
(3,246,850
|
)
|
Trade accounts receivable, net
|
|
$
|
11,465,402
|
|
|
$
|
8,692,514
|
|
For the three months ended December 31,
2019 and 2018, $47,110 and $36,077 in accounts receivable were directly written off respectively. For the nine months ended December
31, 2019 and 2018, $184,838 and $64,412 in accounts receivable were directly written off, respectively. As of December 31, 2019,
$1,179,741 were pledged as collateral for borrowings from financial institutions. As of March 31, 2019, no trade accounts receivables
were pledged as collateral for borrowings from financial institutions.
Note 5 – OTHER CURRENT ASSETS
Other current assets consisted of the following:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
Rental deposits (1)
|
|
$
|
1,304,177
|
|
|
$
|
1,979,852
|
|
Prepaid and other current assets
|
|
|
201,818
|
|
|
|
83,523
|
|
Total
|
|
$
|
1,505,995
|
|
|
$
|
2,063,375
|
|
(1)
|
The balance as of December 31, 2019 includes short-term refundable rental security deposits only, while the balance as of March 31, 2019 includes security deposits of $1,444,026 and prepaid rental of $535,826.
|
Note 6 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the
following:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
Building
|
|
$
|
5,984,927
|
|
|
$
|
6,436,297
|
|
Leasehold improvements
|
|
|
9,321,200
|
|
|
|
8,944,025
|
|
Farmland development cost
|
|
|
1,716,340
|
|
|
|
1,781,627
|
|
Office equipment and furniture
|
|
|
5,664,322
|
|
|
|
5,470,084
|
|
Motor vehicles
|
|
|
566,993
|
|
|
|
551,927
|
|
Total
|
|
|
23,253,782
|
|
|
|
23,183,960
|
|
Less: Accumulated depreciation
|
|
|
(12,897,207
|
)
|
|
|
(12,111,409
|
)
|
Impairment*
|
|
|
(2,259,147
|
)
|
|
|
(2,345,193
|
)
|
Property and equipment, net
|
|
$
|
8,097,428
|
|
|
$
|
8,727,358
|
|
*
|
The variance of impairment from March 31, 2019 to December 31, 2019 is solely caused by exchange rate variance.
|
Depreciation expenses for property and
equipment totaled $413,411 and $338,946 for the three months ended December 31, 2019 and 2018, respectively. Depreciation expenses
for property and equipment totaled $1,352,400 and $770,919 for the nine months ended December 31, 2019 and 2018, respectively.
There were no fixed assets impaired in the three and nine months ended December 31, 2019 and December 31, 2018.
Note 7 – ADVANCES TO SUPPLIERS
Advances to suppliers consist of deposits,
with or advances to, outside vendors for future inventory purchases. Most of the Company’s suppliers require a certain amount
of money to be deposited with them as a guarantee that the Company will receive its purchase on a timely basis. This amount is
refundable and bears no interest. As of December 31, 2019 and March 31, 2019, advance to suppliers consist of the following:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
Advance to suppliers*
|
|
$
|
2,609,083
|
|
|
$
|
2,477,226
|
|
Less: allowance for unrefundable advances
|
|
|
(1,215,836
|
)
|
|
|
(526,974
|
)
|
Advance to suppliers, net
|
|
$
|
1,393,247
|
|
|
$
|
1,950,252
|
|
For the three and nine months ended December
31, 2019 and 2018, none of the advances to suppliers were written off against previous allowance for non-refundable advances, respectively.
Note 8 – INVENTORY
Inventory consisted of finished goods,
valued at $10,962,677 and $13,955,202 as of December 31, 2019 and March 31, 2019, respectively. The Company constantly monitors
its potential obsolete products and is allowed to return products close to their expiration dates to its suppliers. Any loss on
damaged items is immaterial and will be recognized immediately. As a result, no reserves were made for inventory as of December
31, 2019 and March 31, 2019.
Note 9 – FARMLAND ASSETS
Farmland assets consist of ginkgo trees
planted in 2012 and expected to be harvested and sold in several years. As of December 31, 2019 and March 31, 2019, farmland assets
are valued as follows:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
Farmland assets
|
|
$
|
2,208,497
|
|
|
$
|
2,341,537
|
|
Less: Impairment*
|
|
|
(1,460,715
|
)
|
|
|
(1,516,278
|
)
|
Farmland assets, net
|
|
$
|
747,782
|
|
|
$
|
825,259
|
|
*
|
The variance of impairment is caused by exchange rate variance.
|
Note 10 – LONG TERM REFUNDABLE DEPOSITS, LANDLORDS
As of December 31, 2019 and March 31, 2019,
long term deposits amounted to $1,481,929 and $2,157,275, respectively. Long term deposits are money deposited with, or advanced
to, landlords for the purpose of securing retail store leases that the Company does not anticipate being returned within the next
twelve months. Most of the Company’s landlords require a minimum payment of nine months’ rent, paid upfront, plus additional
deposits.
Note 11 – OTHER NONCURRENT ASSETS
Other noncurrent assets consisted of the
following:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
Forest land use rights*
|
|
$
|
1,024,851
|
|
|
$
|
1,103,235
|
|
Others
|
|
|
109,792
|
|
|
|
92,962
|
|
Total
|
|
$
|
1,134,643
|
|
|
$
|
1,196,197
|
|
*
|
The prepayment for lease of forest land use rights is a payment made to a local government in connection with entering into an operating land lease agreement. The land is currently used to cultivate Ginkgo trees. The forest rights certificate from the local village extends the life of the lease to January 31, 2060.
|
The amortization of the prepayment for
the lease of forest land use right was approximately $12,652 and $6,812 for the three months ended December 31, 2019 and 2018,
respectively. The amortization of the prepayment for the lease of forest land use right was approximately $37,957 and $20,487 for
the nine months ended December 31, 2019 and 2018, respectively.
The Company’s amortizations of the
prepayment for lease of land use right for the next five years and thereafter are as follows:
For the year ending December 31,
|
|
Amount
|
|
2020
|
|
$
|
26,966
|
|
2021
|
|
|
26,966
|
|
2022
|
|
|
26,966
|
|
2023
|
|
|
26,966
|
|
2024
|
|
|
26,966
|
|
Thereafter
|
|
|
755,191
|
|
Note 12 – Leases
The Company leases most of its retail stores
and corporate offices under operating leases, typically with initial terms of 3 to 10 years. Usually within one to three months
prior to the expiration date of a lease, the Company is required to notify the lessor and has a priority to continue renting the
lease property if a lessor intends to lease property. The lease itself does not have restriction or covenants. If both parties
agree to continue, a new lease contract with new lease terms has to been signed by both parties. Usually the rent may increase
year by year based on the lease contract. Sublease is typically not allowed. Any damage, if made by the lessee, to the property
and equipment within the property has to been fixed or reimbursed by the lessee. The Company does not have any leases entered into
but which have not yet commenced. The net lease cost for the nine months ended December 31, 2019 is $4,029,285. The Company does
not have finance lease according to the definition of ASU 2016-02, Leases (Topic 842). Supplemental cash flow information
related to leases for the nine months ended December 30, 2019 is as follows:
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows paid for operating leases
|
|
$
|
4,846,933
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
|
|
-
|
|
Supplemental balance sheet information related to leases as
of December 31, 2019 is as follows:
Operating leases:
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
15,318,428
|
|
|
|
|
|
|
Current portion of operating lease liabilities
|
|
$
|
409,756
|
|
Long-term operating lease liabilities
|
|
|
12,670,694
|
|
Total operating lease liabilities
|
|
$
|
13,080,450
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
|
|
|
Operating leases
|
|
|
4.00
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
|
|
Operating leases
|
|
|
4.19
|
%
|
The following table summarizes the maturity of lease liabilities
under operating leases as of December 31, 2019:
|
|
Operating
|
|
For the year ending December 31,
|
|
Leases
|
|
2020
|
|
$
|
4,680,826
|
|
2021
|
|
|
3,812,529
|
|
2022
|
|
|
2,782,493
|
|
2023
|
|
|
1,913,469
|
|
2024
|
|
|
1,135,072
|
|
Thereafter
|
|
|
1,536,028
|
|
Total lease payments (2)
|
|
|
15,860,417
|
|
Less: imputed interest
|
|
|
(2,779,967
|
)
|
Total lease liabilities
|
|
$
|
13,080,450
|
|
Note 13 – INTANGIBLE ASSETS
Net intangible assets consisted of the
following at:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
License (1)
|
|
$
|
1,853,749
|
|
|
$
|
1,909,700
|
|
Software(2)
|
|
|
1,097,928
|
|
|
|
676,336
|
|
Land use rights (3)
|
|
|
1,399,484
|
|
|
|
1,452,718
|
|
Total intangible assets
|
|
|
4,351,161
|
|
|
|
4,038,754
|
|
Less: accumulated amortization
|
|
|
(635,532
|
)
|
|
|
(441,431
|
)
|
Intangible assets, net
|
|
$
|
3,715,629
|
|
|
$
|
3,597,323
|
|
Amortization expense of intangibles amounted
to $107,666 and $50,342 for the three months ended December 31, 2019 and 2018, respectively, and $210,555 and $166,349 for the
nine months ended December 31, 2018 and 2017, respectively.
(1)
|
This represents the fair value of the licenses of insurance applicable drugstores acquired from Sanhao Pharmacy, a drugstore chain Jiuzhou Pharmacy acquired in 2014. The licenses allow patients to pay by using insurance cards at stores. The stores are reimbursed from the Human Resource and Social Security Department of Hangzhou City. In September 2017, the Company acquired several new stores for the purpose of the Municipal Social Medical Reimbursement Qualification Certificates. The owners of these acquired drugstores agreed to cease their stores’ business and liquidate all of the stores’ accounts before Jiuzhou Pharmacy acquired them. As a result, Jiuzhou Pharmacy has not obtained any assets or liabilities from the stores, but was able to transfer the certificates to our new stores opened at the same time.
|
|
|
(2)
|
They are the SAP ERP system, the Internet Clinic Diagnosis Terminal system and the Chronic Disease Management system. In 2017, we have installed a leading ERP system, SAP from Germany. SAP is a well-known management system used by many fortune 500 companies. It is being amortized over three years since its installation. As of December 31, 2019, the SAP system has a total value of $280,439 (RMB1,954,091). The internet Clinic Diagnosis System costs approximately $385,867 (RMB 2,688,709). The system is used to strengthen our ability to perform online diagnosis which may increase more customer spending. Chronic Disease costs approximately $16,702 (RMB116,379) and is used to better manage and monitor our members’ health.
|
|
|
(3)
|
In July 2013, the Company purchased the land use rights of a plot of land in Lin’an, Hangzhou, intended for the establishment of an herb processing plant in the future. However, as our farming business in Lin’an has not grown, the Company does not expect completion of the plant in the near future.
|
Note 14 – NOTES PAYABLE
The Company has credit facilities with
Hangzhou United Bank (“HUB”) that provided working capital in the form of the following bank acceptance notes at December
31, 2019 and March 31, 2019:
|
|
|
|
Origination
|
|
Maturity
|
|
December 31,
|
|
|
March 31,
|
|
Beneficiary
|
|
Endorser
|
|
date
|
|
date
|
|
2019
|
|
|
2019
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
11/06/18
|
|
05/06/19
|
|
|
|
|
|
|
500,857
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
12/12/18
|
|
06/12/19
|
|
|
|
|
|
|
2,236,559
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
12/20/18
|
|
06/20/19
|
|
|
|
|
|
|
1,072,606
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
12/29/18
|
|
06/29/19
|
|
|
|
|
|
|
5,504,943
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
02/14/18
|
|
08/14/19
|
|
|
|
|
|
|
2,587,331
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
03/06/18
|
|
09/06/19
|
|
|
|
|
|
|
6,600,727
|
|
Jiuxin Medicine(1)
|
|
HUB
|
|
10/11/18
|
|
04/11/19
|
|
|
|
|
|
|
4,461,531
|
|
Jiuxin Medicine(1)
|
|
HUB
|
|
11/06/18
|
|
05/06/19
|
|
|
|
|
|
|
2,987,119
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
07/05/19
|
|
01/05/20
|
|
|
608,499
|
|
|
|
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
07/17/19
|
|
01/17/20
|
|
|
1,435,140
|
|
|
|
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
08/08/19
|
|
02/08/20
|
|
|
1,877,491
|
|
|
|
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
09/06/19
|
|
03/06/20
|
|
|
2,934,013
|
|
|
|
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
10/09/19
|
|
04/09/20
|
|
|
3,539,950
|
|
|
|
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
11/06/19
|
|
05/06/20
|
|
|
167,501
|
|
|
|
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
12/05/19
|
|
06/05/20
|
|
|
3,161,570
|
|
|
|
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
12/07/19
|
|
03/17/20
|
|
|
294,103
|
|
|
|
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
12/31/19
|
|
06/30/20
|
|
|
2,329,911
|
|
|
|
|
|
Jiuxin Medicine(1)
|
|
HUB
|
|
12/26/19
|
|
06/26/20
|
|
|
1,396,325
|
|
|
|
|
|
Jiuxin Medicine(1)
|
|
HUB
|
|
12/31/19
|
|
06/30/20
|
|
|
4,013,724
|
|
|
|
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
21,758,227
|
|
|
$
|
25,951,673
|
|
(1)
|
As of December 31, 2019, the Company had $21,758,227 (RMB 151,610,485) of notes payable from HUB. The Company is required to hold restricted cash in the amount of $12,037,319 (RMB 83,875,575) with HUB as collateral against these bank notes. Included in the restricted cash is a total of $7,709,089 three-year deposit (RMB 53,716,636) deposited into HUB as a collateral for current and future notes payable from HUB. As of March 31, 2019, the Company had $25,951,673 (RMB 174,203,868) of notes payable from HUB. The Company is required to hold restricted cash in the amount of $15,114,740 (RMB 101,459,590) with HUB as collateral against these bank notes. Included in the restricted cash is a total of $10,446,381 three-year deposit (RMB 70,122,647) deposited into HUB as a collateral for current and future notes payable from HUB.
|
As of December 31, 2019, the Company had
a credit line of approximately $12.77 million in the aggregate from HUB, and BOH. By putting up three-year deposit of $7.71million
and the restricted cash of $4.33 million deposited in the banks, the total credit line was $24.81 million. As of December 31, 2019,
the Company had approximately $21.76 million of bank notes payable and approximately $3.05 million bank credit line was still available
for further borrowing. The bank notes are secured by three shops of Jiuzhou Pharmacy and guaranteed by the Company’s major
shareholders.
Note 15 – Loan Payable
On August 2, 2019 and December 11, 2019,
the Company borrowed $717,570 and $6,458,130 from Haihui Commercial , respectively. After deducting processing fee and deposits
which are refundable at the end of loan period, the Company received $617,084 and $5,876,885 respectively. The Company is required
to pledge accounts receivable of three drugstores to Haihui Commercial. As of December 31, 2019, the remaining loan balance is
$7,076,038. The Company is scheduled to make monthly repayments, among which $2,302,924 is due within a year. The Company has an
option to pay off the debts earlier than the repayment schedule upon approval from Haihui Commercial.
Note 16 – TAXES
Income tax
The Company accounts for income taxes under
the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis,
operating losses and tax credit carryforwards. Deferred tax assets and liabilities are calculated using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Valuation
allowances are provided against deferred income tax assets for amounts which are not considered “more likely than not”
to be realized.
The Company is subject to income taxes
on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.
Entity
|
|
Income Tax Jurisdiction
|
Jo-Jo Drugstores
|
|
United States
|
Renovation
|
|
Hong Kong, PRC
|
All other entities
|
|
Mainland, PRC
|
For the three and nine months ended December
31, 2019 and 2018, the components of income tax expense consist of the following:
|
|
For the three months ended
|
|
|
For the nine months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
2,184
|
|
|
|
47,958
|
|
|
|
16,274
|
|
|
|
104,712
|
|
|
|
|
2,184
|
|
|
|
47,958
|
|
|
|
16,274
|
|
|
|
104,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Provision for income taxes
|
|
|
2,184
|
|
|
|
47,958
|
|
|
|
16,274
|
|
|
|
104,712
|
|
The following table reconciles the U.S.
statutory tax rates with the Company’s effective tax rate for the three and nine months ended December 31, 2019 and 2018:
|
|
For the three months ended
|
|
|
For the nine months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
U.S. Statutory rates
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
Foreign income not recognized in the U.S.
|
|
|
(21.0
|
)
|
|
|
(21.0
|
)
|
|
|
(21.0
|
)
|
|
|
(21.0
|
)
|
China income taxes
|
|
|
25.0
|
|
|
|
25.0
|
|
|
|
25.0
|
|
|
|
25.0
|
|
Change in valuation allowance (1)
|
|
|
(25.0
|
)
|
|
|
(25.0
|
)
|
|
|
(25.0
|
)
|
|
|
(25.0
|
)
|
Non-deductible expenses-permanent difference (2)
|
|
|
0.5
|
|
|
|
(2.2
|
)
|
|
|
(0.5
|
)
|
|
|
(2.4
|
)
|
Effective tax rate
|
|
|
0.5
|
%
|
|
|
(2.2
|
)%
|
|
|
(0.5
|
)%
|
|
|
(2.4
|
)%
|
(1)
|
Represents a non-taxable expense reversal due to overall decrease in allowance for accounts receivable and advances to suppliers.
|
(2)
|
The 0.5% and (2.2)% rate adjustments for the three months ended December 31, 2019 and 2018 and the (0.5)% and (2.4)% rate adjustments for the nine months ended December 31, 2019 and 2018 represent expenses that primarily include stock option expenses and legal, accounting and other expenses incurred by the Company that are not deductible for PRC income tax.
|
The components of the Company’s net
deferred tax assets are as follows:
|
|
As of
December 31,
2019
|
|
|
As of
March 31,
2019
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
943,258
|
|
|
|
986,665
|
|
Long-lived assets impairment
|
|
|
564,787
|
|
|
|
586,298
|
|
Depreciation and Amortization
|
|
|
-
|
|
|
|
-
|
|
Accrued expense
|
|
|
1,628,865
|
|
|
|
1,569,683
|
|
Net operating loss carry forward
|
|
|
1,589,447
|
|
|
|
1,164,735
|
|
Foreign Tax Credit Carryover
|
|
|
195,000
|
|
|
|
195,000
|
|
Total deferred tax assets (liabilities):
|
|
|
4,921,357
|
|
|
|
4,502,381
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(4,921,357
|
)
|
|
|
(4,502,381
|
)
|
Net deferred tax assets (liabilities)
|
|
|
-
|
|
|
|
-
|
|
The Company regularly assesses the reliability
of its deferred tax assets and establishes a valuation allowance if it is more-likely-than-not that some portion of the deferred
tax assets will not be realized. We weigh all available positive and negative evidence, including earnings history and results
of recent operations, scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies.
Assumptions used to forecast future taxable income often require significant judgment. More weight is given to objectively verifiable
evidence. In the event we determine that we would not be able to realize all or part of our net deferred tax assets in the future,
a valuation allowance will be established against deferred tax assets in the period in which we make such determination. The need
to establish a valuation allowance against deferred tax assets may cause greater volatility in our effective tax rate.
As of December 31, 2019 and March 31, 2019,
the estimated net operating loss carry forwards for U.S. income tax purposes amounted to $816,908, which may be available to reduce
future years’ taxable income. These carry forwards will expire if not utilized by 2032. In addition, the Company carries
a foreign tax credit of $195,000. As of December 31, 2019 and March 31, 2019, the estimated net operating loss carry forwards for
Hong Kong income tax purposes amounted to $2,125,465 and $1,960,933, which may be available to reduce future years’ taxable
income. As of December 31, 2019 and March 31, 2019, the estimated net operating loss carry forwards for China income tax purposes
amounted to $4,268,778 and $2,678,523, which may be available to reduce future years’ taxable income. These carry forwards
will expire if not utilized in the next five years.
On December 22, 2017, the U.S. federal
government enacted the 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”). The 2017 Tax Act includes a number of changes
in existing tax law impacting businesses, including the transition tax, a one-time deemed repatriation of cumulative undistributed
foreign earnings and a permanent reduction in the U.S. federal statutory rate from 35% to 21%, effective on January 1, 2018. ASC
740 requires companies to recognize the effect of tax law changes in the period of enactment, accordingly, the effects must be
recognized on companies’ calendar year-end financial statements, even though the effective date for most provisions is January
1, 2018. As a result, we re-measured our net U.S. deferred tax assets at the 21% future tax rate. As of December 31, 2017, for
estimating our foreign undistributed earnings according to the 2017 Tax Act, we estimated an aggregate deficit in “accumulated
earnings and profits,” which is how foreign undistributed earnings are determined for the one-time transition tax and for
U.S. income tax purposes. As a result, the one-time transition tax did not have a significant impact on the Company’s fiscal
2018 tax provision and there was no undistributed accumulated earnings and profits as of December 31, 2019.
The Company recorded net unrecognized tax
benefits of $0 as of December 31, 2019. It is our policy to classify accrued interest and penalties related to unrecognized tax
benefits in the provision for income taxes.
Audit periods remain open for review until
the statute of limitations has passed, which in the PRC is usually 5 years as the Company’s most significant tax jurisdiction.
The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment
to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations
for any given quarterly or annual period based, in part, upon the results of operations for the given period.
Note 17 – EMPLOYEE SOCIAL BENEFITS
Regulations in the PRC require the Company
to contribute to a defined medical, employment injury, unemployment, birth, and retirement plan for all permanent employees. The
contribution for each employee is based on a percentage of the employee’s current compensation as required by the local government.
The Company contributed $364,477 and $338,083 in employment benefits and pension for the three months ended December 31, 2019 and
2018, respectively. The Company contributed $1,045,798 and $1,039,163 in employment benefits and pension for the nine months ended
December 31, 2019 and 2018, respectively.
Note 18 – RELATED PARTY TRANSACTIONS
AND ARRANGEMENTS
Amounts payable to related parties are
summarized as follows:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
Due to a director and CEO (1) :
|
|
|
375,068
|
|
|
|
795,179
|
|
Total
|
|
$
|
375,068
|
|
|
$
|
795,179
|
|
(1)
|
Due to foreign exchange restrictions, the Company’s director and CEO, Mr. Lei Liu personally lent U.S. dollars to the Company to facilitate its payments of expenses in the United States. In the nine months ended December 31, 2019, the Company paid certain borrowings back to CEO.
|
The Company leases from Mr. Lei Liu a retail
space; the lease expires in September 2020. Rent expenses totaled $6,572 and $16,136 for the three months ended December 31, 2019
and 2018, respectively. Rent expenses totaled $19,956 and $25,100 for the nine months ended December 31, 2019 and 2018, respectively.
The amounts owed under the lease for the nine months ended December 31, 2019 and 2018 were not paid to Mr. Liu as of December 31,
2019.
On April 28, 2018, 10% of Jiuxin Medicine
was sold to Hangzhou Kangzhou Biotech Co. Ltd. for total proceeds of approximately $75,643 (RMB507,760). Mr. Lei Liu owns 51% of
Hangzhou Kangzhou Biotech Co. Ltd.
Note 19 – WARRANTS
In connection with the registered direct
offering closed on July 19, 2015, the Company issued to an investor a warrant to purchase up to 600,000 shares of common stock
at an exercise price of $3.10 per share. The warrant became exercisable on January 19, 2016 and will expire on January 18, 2021.
In connection with the offering, the Company also issued a warrant to the placement agent of this offering, pursuant to which the
agent may purchase up to 6% of the aggregate number of shares of common stock sold in the offering, i.e. 72,000 shares. Such warrant
has the same terms as the warrant issued to investor in the offering.
The fair value of the warrants issued to
purchase 672,000 shares as described above was estimated by using the binominal pricing model with the following assumptions:
|
|
Common Stock
Warrants
|
|
|
Common Stock
Warrants
|
|
|
|
December 31,
2019 (1)
|
|
|
March 31,
2019
|
|
|
|
|
|
|
|
|
Stock price
|
|
$
|
1.82
|
|
|
$
|
2.62
|
|
Exercise price
|
|
$
|
3.10
|
|
|
$
|
3.10
|
|
Annual dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected term (years)
|
|
|
1.05
|
|
|
|
1.80
|
|
Risk-free interest rate
|
|
|
1.59
|
%
|
|
|
2.27
|
%
|
Expected volatility
|
|
|
66.64
|
%
|
|
|
67.69
|
%
|
(1)
|
As of December 31, 2019, the warrants had not been exercised.
|
Upon evaluation, the warrants meet the
definition of a derivative under FASB ASC 815, as the Company cannot avoid a net cash settlement under certain circumstances. Accordingly,
the fair value of the warrants was classified as a liability of $496,217 as of March 31, 2017. For the three months ended December
31, 2019 and December 31, 2018, the Company recognized a loss of $65,172 and a loss of $85,115 for the investor warrant and placement
agent warrant, from the change in fair value of the warrant liability. For the nine months ended December 31, 2019 and December
31, 2018, the Company recognized a gain of $345,248 and a loss of $173,955 for the investor warrant and placement agent warrant,
from the change in fair value of the warrant liability. As a result, the warrant liability is carried on the consolidated balance
sheets at the fair value of $54,828 and $465,248 for the investor warrant and placement agent warrant, collectively, as of December
31, 2019 and March 31, 2019.
Note 20 – FINANCIAL LIABILITY
To encourage operating team, which consists
of doctors and nurses, to devote their efforts to run clinics, Linjia Medical allows them to put deposits in the clinic where doctors
and nurses work, and take shares in any profit of the clinic. The principal amounts of these deposits are refundable in the event
the doctors and nurses leave the clinic. In order to properly reflect Linjia Medical’s liabilities, the Company reclassified
the deposit of $71,757 (RMB500,000) as financial liability as of December 31, 2019.
Note 21 – STOCKHOLDER’S
EQUITY
Common stock
On April 15, 2019, we closed a registered
direct offering of 4,000,008 shares of common stock at $2.50 per share with gross proceeds of $10,000,020 from our effective shelf
registration statement. In a concurrent private placement we issued to the investors unregistered warrants to purchase up to an
aggregate of 3,000,006 shares of common stock at an exercise price of $3.00 per share. The placement agent receives warrants to
purchase up to 240,000 shares of the common stock with an exercise price of $3.125 per share.
Stock warrants
Concurrent with the registered direct offering
of common stock that closed on April 15, 2019, the Company issued to several investors in a private placement warrants to purchase
up to 3,000,006 shares of common stock. In connection with the offering, the Company also issued a warrant to its placement agent
of this offering, pursuant to which the agent may purchase up to 6% of the aggregate number of shares of common stock sold in the
offering, i.e. 240,000 shares at an exercise price of $3.125 per share. The warrant became exercisable on October 11, 2019 and
will expire on April 11, 2024.
Upon evaluation, the warrants issued in
April 2019 does not meet the definition of an equity under FASB ASC 815. Accordingly, the fair value of the warrants recorded as
a part of additional paid-in capital.
Stock-based compensation
The Company accounts for share-based payment
awards granted to employees and directors by recording compensation expense based on estimated fair values. The Company estimates
the fair value of share-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected
to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statements of operations.
Share-based awards are attributed to expenses using the straight-line method over the vesting period. The Company determines the
value of each option award that contains a market condition using a Monte Carlo Simulation valuation model, while all other option
awards are valued using the Black-Scholes valuation model as permitted under FASB ASC 718 “Compensation - Stock Compensation.”
The assumptions used in calculating the fair value of share-based payment awards represent the Company’s best estimates.
The Company’s estimates of the fair values of stock options granted and the resulting amounts of share-based compensation
recognized may be impacted by certain variables including stock price volatility, employee stock option exercise behaviors, additional
stock option modifications, estimates of forfeitures, and the related income tax impact.
On March 30, 2018, the Company granted
a total of 3,947,100 shares of restricted common stock to its key employees in its retail drugstores and online pharmacy under
the Company’s 2010 Equity Incentive Plan, as amended (the “Plan”). The stock awards vested on the grant date.
On June 28, 2018, the compensation committee of the Company canceled 225,000 shares granted to the CEO in order to conform aggregate
issuances to the 675,000 share limitation set forth in the Plan. The Tax Cuts and Jobs Act of 2017 removed the 162(m) qualified
performance based compensation exemption to the $1 million cap on deductions for compensation to covered executives. Section 1.3.2
was in the Plan to permit grants under the Plan to fit within that exemption. As that exemption no longer applies for grants made
in 2018 or thereafter, the Plan has been amended to remove the provisions intended to comply with that exemption, including the
one in Section 1.3.2 of the Plan. All $5,328,585 of such expense has been recorded as a service compensation expense in the year
ended March 31, 2018.
Stock option
On November 18, 2014, the Company granted
a total of 967,000 shares of stock options under the Plan to a group of a total of 46 grantees including directors, officers and
employees. The exercise price of such stock options is $2.50. The options vested on November 18, 2017, provided that the grantees
are still employed by the Company on that date. The options will be exercisable for five years from the vesting date, or from November
18, 2017 through November 17, 2022. As of November 18, 2017, the vesting date, all compensation costs related to stock option compensation
arrangements granted have been recognized. For the nine months ended December 31, 2019 and 2018, no compensation costs related
to stock option compensation arrangements were recorded as compensation expense.
Statutory reserves
Statutory reserves represent restricted
retained earnings. Based on their legal formation, the Company is required to set aside 10% of its net income as reported in its
statutory accounts on an annual basis to the Statutory Surplus Reserve Fund (the “Reserve Fund”). Once the total amount
set aside in the Reserve Fund reaches 50% of the entity’s registered capital, further appropriations become discretionary.
The Reserve Fund can be used to increase the entity’s registered capital upon approval by relevant government authorities
or eliminate its future losses under PRC GAAP upon a resolution by its board of directors. The Reserve Fund is not distributable
to shareholders, as cash dividends or otherwise, except in the event of liquidation.
Appropriations to the Reserve Fund are
accounted for as a transfer from unrestricted earnings to statutory reserves. During the three and nine months ended December 31,
2019 and 2018, the Company did not make appropriations to statutory reserves.
There are no legal requirements in the
PRC to fund the Reserve Fund by transfer of cash to any restricted accounts, and the Company does not do so.
Note 22 – Earnings
(LOSS) PER SHARE
The Company reports earnings per share
in accordance with the provisions of the FASB’s related accounting standard. This standard requires presentation of basic
and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share.
Basic earnings per share excludes dilution, but includes vested restricted stocks and is computed by dividing income available
to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into
account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted
into common stock.
The following is a reconciliation of the
basic and diluted earnings (loss) per share computation:
|
|
Three months ended
December 31,
|
|
|
Nine months ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Net income (loss) attributable to controlling interest
|
|
$
|
531,782
|
|
|
$
|
(1,678,231
|
)
|
|
$
|
(2,828,132
|
)
|
|
$
|
(3,911,501
|
)
|
Weighted average shares used in basic computation
|
|
|
32,936,786
|
|
|
|
28,936,778
|
|
|
|
32,776,786
|
|
|
|
28,936,778
|
|
Diluted effect of purchase options and warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average shares used in diluted computation
|
|
|
32,936,786
|
|
|
|
28,936,778
|
|
|
|
32,776,786
|
|
|
|
28,936,778
|
|
Income per share – Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to controlling interest
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.14
|
)
|
Loss per share – Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to controlling interest
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.14
|
)
|
For the three and nine months ended December
31, 2019, 967,000 shares underlying employee stock options and 600,000 shares underlying outstanding purchase warrant to an investor,
72,000 shares underlying outstanding purchase warrant to an investment placement agent and a total of 3,240,006 warrants issued
in S-3 financing in April 2019 were excluded from the calculation of diluted loss per share as the warrants were anti-dilutive.
Note 23 – SEGMENTS
The Company operates within four main reportable
segments: retail drugstores, online pharmacy, drug wholesale and herb farming. The retail drugstores segment sells prescription
and OTC medicines, TCM, dietary supplements, medical devices, and sundry items to retail customers. The online pharmacy sells OTC
drugs, dietary supplements, medical devices and sundry items to customers through several third-party platforms such as Alibaba’s
Tmall, JD.com and Amazon.com, and the Company’s own platform all over China. The drug wholesale segment includes supplying
the Company’s own retail drugstores with prescription and OTC medicines, TCM, dietary supplement, medical devices and sundry
items (which sales have been eliminated as intercompany transactions), and also selling them to other drug vendors and hospitals.
The Company’s herb farming segment cultivates selected herbs for sales to other drug vendors. The Company is also involved
in online sales and clinic services that do not meet the quantitative thresholds for reportable segments and are included in the
retail drugstores segment. The segments’ accounting policies are the same as those described in the summary of significant
accounting policies. The Company evaluates performance based on profit or loss from operations before interest and income taxes
not including nonrecurring gains and losses.
The Company’s reportable business
segments are strategic business units that offer different products and services. Each segment is managed separately because the
business segments require different operations and markets to distinct classes of customers.
The following table presents summarized
information by segment of the continuing operations for the three months ended December 31, 2019.
|
|
Retail
drugstores
|
|
|
Online
Pharmacy
|
|
|
Drug
wholesale
|
|
|
Herb
farming
|
|
|
Total
|
|
Revenue
|
|
$
|
21,575,965
|
|
|
$
|
3,965,023
|
|
|
|
7,822,294
|
|
|
|
-
|
|
|
|
33,363,282
|
|
Cost of goods
|
|
|
15,388,580
|
|
|
|
3,639,995
|
|
|
|
7,051,335
|
|
|
|
-
|
|
|
|
26,079,910
|
|
Gross profit
|
|
$
|
6,187,385
|
|
|
$
|
325,028
|
|
|
|
770,959
|
|
|
|
-
|
|
|
|
7,283,372
|
|
Selling expenses
|
|
|
4,836,140
|
|
|
|
507,393
|
|
|
|
332,867
|
|
|
|
-
|
|
|
|
5,676,400
|
|
General and administrative expenses
|
|
|
1,403,350
|
|
|
|
61,193
|
|
|
|
(410,483
|
)
|
|
|
-
|
|
|
|
1,054,060
|
*
|
Income (Loss) from operations
|
|
$
|
(52,105
|
)
|
|
$
|
(243,558
|
)
|
|
|
848,575
|
|
|
|
-
|
|
|
|
552,912
|
|
Depreciation and amortization
|
|
$
|
459,184
|
|
|
$
|
-
|
|
|
|
36,402
|
|
|
|
-
|
|
|
|
495,586
|
|
Total capital expenditures
|
|
$
|
277,480
|
|
|
$
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
277,480
|
|
* The Company negotiated
with certain customers and collected certain aged accounts receivable after making its collection efforts and reversed the allowance
made on these accounts.
The following table presents summarized
information by segment of the continuing operations for the three months ended December 31, 2018.
|
|
Retail
drugstores
|
|
|
Online
Pharmacy
|
|
|
Drug
wholesale
|
|
|
Herb
farming
|
|
|
Total
|
|
Revenue
|
|
$
|
20,867,250
|
|
|
$
|
2,493,205
|
|
|
|
7,556,094
|
|
|
|
-
|
|
|
|
30,916,549
|
|
Cost of goods
|
|
|
14,903,761
|
|
|
|
2,232,994
|
|
|
|
6,644,008
|
|
|
|
-
|
|
|
|
23,780,763
|
|
Gross profit
|
|
$
|
5,963,489
|
|
|
$
|
260,211
|
|
|
|
912,086
|
|
|
|
-
|
|
|
|
7,135,786
|
|
Selling expenses
|
|
|
4,819,081
|
|
|
|
438,235
|
|
|
|
1,431,261
|
|
|
|
-
|
|
|
|
6,688,577
|
|
General and administrative expenses
|
|
|
1,443,634
|
|
|
|
47,703
|
|
|
|
1,081,525
|
|
|
|
-
|
|
|
|
2,572,862
|
|
Income(Loss) from operations
|
|
$
|
(299,226
|
)
|
|
$
|
(225,727
|
)
|
|
|
(1,600,700
|
)
|
|
|
-
|
|
|
|
(2,125,653
|
)
|
Depreciation and amortization
|
|
$
|
449,893
|
|
|
$
|
-
|
|
|
|
433
|
|
|
|
-
|
|
|
|
450,326
|
|
Total capital expenditures
|
|
$
|
6,415,414
|
|
|
$
|
-
|
|
|
|
314
|
|
|
|
-
|
|
|
|
6,415,728
|
|
The following table presents summarized
information of the continuing operation by segment for the nine months ended December 31, 2019:
|
|
Retail
drugstores
|
|
|
Online
pharmacy
|
|
|
Drug
wholesale
|
|
|
Herb
farming
|
|
|
Total
|
|
Revenue
|
|
$
|
56,312,226
|
|
|
$
|
8,759,892
|
|
|
|
21,925,727
|
|
|
|
-
|
|
|
|
86,997,845
|
|
Cost of goods
|
|
|
39,542,348
|
|
|
|
7,769,309
|
|
|
|
19,648,014
|
|
|
|
-
|
|
|
|
66,959,671
|
|
Gross profit
|
|
$
|
16,769,878
|
|
|
$
|
990,583
|
|
|
|
2,277,713
|
|
|
|
-
|
|
|
|
20,038,174
|
|
Selling expenses
|
|
|
15,067,432
|
|
|
|
1,442,927
|
|
|
|
1,620,440
|
|
|
|
-
|
|
|
|
18,130,799
|
|
General and administrative expenses
|
|
|
4,396,589
|
|
|
|
176,792
|
|
|
|
1,156,226
|
|
|
|
-
|
|
|
|
5,729,607
|
*
|
Income (Loss) from operations
|
|
$
|
(2,694,143
|
)
|
|
$
|
(629,136
|
)
|
|
|
(498,953
|
)
|
|
|
-
|
|
|
|
(3,822,232
|
)
|
Depreciation and amortization
|
|
$
|
1,495,216
|
|
|
$
|
-
|
|
|
|
67,740
|
|
|
|
-
|
|
|
|
1,562,956
|
|
Total capital expenditures
|
|
$
|
1,267,614
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,267,614
|
|
The following table presents summarized
information of the continuing operation by segment for the nine months ended December 31, 2018:
|
|
Retail
drugstores
|
|
|
Online
pharmacy
|
|
|
Drug
wholesale
|
|
|
Herb
farming
|
|
|
Total
|
|
Revenue
|
|
$
|
54,971,889
|
|
|
$
|
6,637,922
|
|
|
|
19,488,350
|
|
|
|
-
|
|
|
|
81,098,161
|
|
Cost of goods
|
|
|
39,344,927
|
|
|
|
5,883,301
|
|
|
|
17,320,243
|
|
|
|
-
|
|
|
|
62,548,471
|
|
Gross profit
|
|
$
|
15,626,962
|
|
|
$
|
754,621
|
|
|
|
2,168,107
|
|
|
|
-
|
|
|
|
18,549,690
|
|
Selling expenses
|
|
|
12,453,077
|
|
|
|
1,316,945
|
|
|
|
2,769,056
|
|
|
|
-
|
|
|
|
16539,078
|
|
General and administrative expenses
|
|
|
4,644,077
|
|
|
|
292,544
|
|
|
|
1,406,081
|
|
|
|
-
|
|
|
|
6,342,874
|
*
|
Income (Loss) from operations
|
|
$
|
(1,470,364
|
)
|
|
$
|
(854,868
|
)
|
|
|
(2,007,030
|
)
|
|
|
-
|
|
|
|
(4,332,262
|
)
|
Depreciation and amortization
|
|
$
|
980,845
|
|
|
$
|
-
|
|
|
|
7,446
|
|
|
|
-
|
|
|
|
988,291
|
|
Total capital expenditures
|
|
$
|
6,789,129
|
|
|
$
|
-
|
|
|
|
1,437
|
|
|
|
-
|
|
|
|
6,790,566
|
|
The Company does not have long-lived assets
located outside the PRC. In accordance with the enterprise-wide disclosure requirements of FASB’s accounting standard, the
Company’s net revenue from external customers through its retail drugstores by main product category for the three and nine
months ended December 31, 2019 and 2018 were as follows:
|
|
Three months ended
December 31,
|
|
|
Nine months ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Prescription drugs
|
|
$
|
7,496,469
|
|
|
$
|
6,756,073
|
|
|
$
|
19,214,689
|
|
|
$
|
17,835,700
|
|
OTC drugs
|
|
|
10,260,883
|
|
|
|
9,393,148
|
|
|
|
24,964,312
|
|
|
|
24,018,263
|
|
Nutritional supplements
|
|
|
1,602,407
|
|
|
|
1,869,351
|
|
|
|
4,510,514
|
|
|
|
4,750,013
|
|
TCM
|
|
|
1,416,126
|
|
|
|
1,342,768
|
|
|
|
4,474,676
|
|
|
|
4,615,033
|
|
Sundry products
|
|
|
188,484
|
|
|
|
248,729
|
|
|
|
777,432
|
|
|
|
799,554
|
|
Medical devices
|
|
|
611,597
|
|
|
|
1,257,180
|
|
|
|
2,370,604
|
|
|
|
2,953,326
|
|
Total
|
|
$
|
21,575,966
|
|
|
$
|
20,867,249
|
|
|
$
|
56,312,227
|
|
|
$
|
54,971,889
|
|
The Company’s net revenue from external
customers through online pharmacy by main product category is as follows:
|
|
Three months ended
December 31,
|
|
|
Nine months ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Prescription drugs
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
OTC drugs
|
|
|
1,981,871
|
|
|
|
837,126
|
|
|
|
4,133,128
|
|
|
|
2,412,057
|
|
Nutritional supplements
|
|
|
245,249
|
|
|
|
220,776
|
|
|
|
488,956
|
|
|
|
575,862
|
|
TCM
|
|
|
42,331
|
|
|
|
28,785
|
|
|
|
77,981
|
|
|
|
54,417
|
|
Sundry products
|
|
|
729,179
|
|
|
|
573,993
|
|
|
|
1,542,372
|
|
|
|
2,128,282
|
|
Medical devices
|
|
|
966,393
|
|
|
|
832,526
|
|
|
|
2,517,455
|
|
|
|
1,467,304
|
|
Total
|
|
$
|
3,965,023
|
|
|
$
|
2,493,206
|
|
|
$
|
8,759,892
|
|
|
$
|
6,637,922
|
|
The Company’s net revenue from external
customers through wholesale by main product category is as follows:
|
|
Three months ended
December 31,
|
|
|
Nine months ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Prescription drugs
|
|
$
|
6,358,031
|
|
|
$
|
3,933,441
|
|
|
$
|
18,054,557
|
|
|
$
|
11,708,683
|
|
OTC drugs
|
|
|
1,310,927
|
|
|
|
3,341,676
|
|
|
|
3,433,730
|
|
|
|
7,246,356
|
|
Nutritional supplements
|
|
|
47,736
|
|
|
|
167,069
|
|
|
|
104,475
|
|
|
|
240,666
|
|
TCM
|
|
|
67,507
|
|
|
|
77,216
|
|
|
|
247,465
|
|
|
|
156,525
|
|
Sundry products
|
|
|
19,789
|
|
|
|
5,949
|
|
|
|
30,809
|
|
|
|
21,479
|
|
Medical devices
|
|
|
18,303
|
|
|
|
30,743
|
|
|
|
54,690
|
|
|
|
114,641
|
|
Total
|
|
$
|
7,822,293
|
|
|
$
|
7,556,094
|
|
|
$
|
21,925,726
|
|
|
$
|
19,488,350
|
|
Note 24 – Subsequent
Events
In January 2020, in order to continue expanding
and strengthening its local drugstore network, the Company acquired a local drugstore chain with ten stores.