CHINA JO-JO DRUGSTORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,477,212
|
|
|
$
|
16,176,318
|
|
Restricted cash
|
|
|
15,095,116
|
|
|
|
14,806,288
|
|
Financial assets available for sale
|
|
|
157,644
|
|
|
|
157,159
|
|
Notes receivable
|
|
|
28,290
|
|
|
|
57,005
|
|
Trade accounts receivable
|
|
|
8,984,595
|
|
|
|
9,770,656
|
|
Inventories
|
|
|
11,141,411
|
|
|
|
12,247,004
|
|
Other receivables, net
|
|
|
5,599,565
|
|
|
|
5,069,442
|
|
Advances to suppliers
|
|
|
2,237,720
|
|
|
|
1,174,800
|
|
Other current assets
|
|
|
1,835,927
|
|
|
|
1,528,540
|
|
Total current assets
|
|
|
63,557,480
|
|
|
|
60,987,212
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, net
|
|
|
7,095,690
|
|
|
|
7,633,740
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Long-term investment
|
|
|
3,963,758
|
|
|
|
2,544,451
|
|
Farmland assets
|
|
|
752,257
|
|
|
|
742,347
|
|
Long term deposits
|
|
|
1,447,547
|
|
|
|
1,456,384
|
|
Other noncurrent assets
|
|
|
1,049,184
|
|
|
|
1,046,763
|
|
Operating lease right-of-use assets
|
|
|
19,351,247
|
|
|
|
21,711,376
|
|
Intangible assets, net
|
|
|
3,358,407
|
|
|
|
3,393,960
|
|
Total other assets
|
|
|
29,922,400
|
|
|
|
30,895,281
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
100,575,570
|
|
|
$
|
99,516,233
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Short-term bank loan
|
|
|
2,121,720
|
|
|
|
1,410,130
|
|
Accounts payable, trade
|
|
|
16,107,594
|
|
|
|
21,559,494
|
|
Notes payable
|
|
|
26,715,374
|
|
|
|
26,605,971
|
|
Other payables
|
|
|
2,176,992
|
|
|
|
2,522,330
|
|
Other payables - related parties
|
|
|
491,300
|
|
|
|
490,218
|
|
Customer deposits
|
|
|
795,903
|
|
|
|
708,140
|
|
Taxes payable
|
|
|
328,237
|
|
|
|
119,247
|
|
Accrued liabilities
|
|
|
672,469
|
|
|
|
753,612
|
|
Long-term loan payable-current portion
|
|
|
2,300,271
|
|
|
|
2,287,742
|
|
Current portion of operating lease liabilities
|
|
|
466,213
|
|
|
|
981,090
|
|
Total current liabilities
|
|
|
52,176,073
|
|
|
|
57,437,974
|
|
|
|
|
|
|
|
|
|
|
Long-term loan payable
|
|
|
3,551,507
|
|
|
|
4,115,958
|
|
Long-term operating lease liabilities
|
|
|
16,917,159
|
|
|
|
19,049,575
|
|
Employee Deposits
|
|
|
14,145
|
|
|
|
70,507
|
|
Purchase option and warrants liability
|
|
|
68,980
|
|
|
|
64,090
|
|
Total liabilities
|
|
|
72,727,864
|
|
|
|
80,738,104
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Common stock; $0.001 par value; 250,000,000 shares authorized; 37,961,790 and 32,936,786 shares issued and outstanding as of June 30, 2020 and March 31, 2020
|
|
|
37,962
|
|
|
|
32,937
|
|
Preferred stock; $0.001 par value; 10,000,000 shares authorized; nil issued and outstanding as of June 30 and March 31, 2020
|
|
|
-
|
|
|
|
-
|
|
Additional paid-in capital
|
|
|
63,568,876
|
|
|
|
54,209,301
|
|
Statutory reserves
|
|
|
1,309,109
|
|
|
|
1,309,109
|
|
Accumulated deficit
|
|
|
(36,632,346
|
)
|
|
|
(36,400,837
|
)
|
Accumulated other comprehensive income
|
|
|
1,533,993
|
|
|
|
1,440,424
|
|
Total stockholders’ equity
|
|
|
29,817,594
|
|
|
|
20,590,934
|
|
Noncontrolling interests
|
|
|
(1,969,888
|
)
|
|
|
(1,812,805
|
)
|
Total equity
|
|
|
27,847,706
|
|
|
|
18,778,129
|
|
Total liabilities and stockholders’ equity
|
|
$
|
100,575,570
|
|
|
$
|
99,516,233
|
|
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 LOSS
(UNAUDITED)
|
|
For the three months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
REVENUES, NET
|
|
$
|
31,054,312
|
|
|
$
|
25,280,784
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD
|
|
|
23,074,093
|
|
|
|
19,219,346
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
7,980,219
|
|
|
|
6,061,438
|
|
|
|
|
|
|
|
|
|
|
SELLING EXPENSES
|
|
|
6,272,407
|
|
|
|
5,968,551
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
2,120,166
|
|
|
|
2,851,612
|
|
TOTAL OPERATING EXPENSES
|
|
|
8,392,573
|
|
|
|
8,820,163
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(412,354
|
)
|
|
|
(2,758,725
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
INTEREST INCOME
|
|
|
163,588
|
|
|
|
47,873
|
|
INTEREST EXPENSE
|
|
|
(127,387
|
)
|
|
|
-
|
|
OTHER
|
|
|
50,021
|
|
|
|
(62,485
|
)
|
CHANGE IN FAIR VALUE OF PURCHASE OPTION AND WARRANTS LIABILITY
|
|
|
(4,890
|
)
|
|
|
403,555
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(331,022
|
)
|
|
|
(2,369,782
|
)
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
57,570
|
|
|
|
8,388
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(388,592
|
)
|
|
|
(2,378,170
|
)
|
|
|
|
|
|
|
|
|
|
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
|
|
|
(157,083
|
)
|
|
|
(243,219
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO CHINA JO-JO DRUGSTORES, INC.
|
|
|
(231,509
|
)
|
|
|
(2,134,951
|
)
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
|
|
|
93,569
|
|
|
|
(405,238
|
)
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS
|
|
|
(295,023
|
)
|
|
|
(2,783,408
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF SHARES:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
34,428,271
|
|
|
|
32,453,269
|
|
Diluted
|
|
|
34,428,271
|
|
|
|
32,453,269
|
|
|
|
|
|
|
|
|
|
|
LOSS PER SHARES:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.07
|
)
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.07
|
)
|
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
|
|
|
Additional
|
|
|
Retained Earnings
|
|
|
other
|
|
|
Non-
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Paid-in
|
|
|
Statutory
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
controlling
|
|
|
|
|
|
|
shares
|
|
|
Amount
|
|
|
capital
|
|
|
reserves
|
|
|
deficit
|
|
|
income/(loss)
|
|
|
interest
|
|
|
Total
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
34,560
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,560
|
|
Sale of stock and warrants
|
|
|
4,000,008
|
|
|
|
4,000
|
|
|
|
9,269,077
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,273,077
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,134,951
|
)
|
|
|
-
|
|
|
|
(243,219
|
)
|
|
|
(2,378,170
|
)
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(403,620
|
)
|
|
|
|
|
|
|
(403,620
|
)
|
BALANCE, June 30, 2019.
|
|
|
32,936,786
|
|
|
|
32,937
|
|
|
|
54,209,301
|
|
|
|
1,309,109
|
|
|
|
(32,722,419
|
)
|
|
|
2,105,344
|
|
|
|
(1,437,258
|
)
|
|
|
23,497,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2020.
|
|
|
32,936,786
|
|
|
|
32,937
|
|
|
|
54,209,301
|
|
|
|
1,309,109
|
|
|
|
(36,400,837
|
)
|
|
|
1,440,424
|
|
|
|
(1,812,805
|
)
|
|
|
18,778,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants
|
|
|
25,000
|
|
|
|
25
|
|
|
|
77,475
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
77,500
|
|
Sale of stock and warrants
|
|
|
5,000,004
|
|
|
|
5,000
|
|
|
|
9,282,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,287,100
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(231,509
|
)
|
|
|
-
|
|
|
|
(157,083
|
)
|
|
|
(388,592
|
)
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
93,569
|
|
|
|
|
|
|
|
93,569
|
|
BALANCE, June 30, 2020.
|
|
|
37,961,790
|
|
|
|
37,962
|
|
|
|
63,568,876
|
|
|
|
1,309,109
|
|
|
|
(36,632,346
|
)
|
|
|
1,533,993
|
|
|
|
(1,969,888
|
)
|
|
|
27,847,706
|
|
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 three months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(388,592
|
)
|
|
$
|
(2,378,170
|
)
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Bad debt direct write-off and provision
|
|
|
18,320
|
|
|
|
758,231
|
|
Depreciation and amortization
|
|
|
760,540
|
|
|
|
499,175
|
|
Stock based compensation
|
|
|
-
|
|
|
|
34,560
|
|
Change in fair value of purchase option derivative liability
|
|
|
4,890
|
|
|
|
(403,555
|
)
|
Accounts receivable, trade
|
|
|
444,672
|
|
|
|
(959,680
|
)
|
Notes receivable
|
|
|
28,824
|
|
|
|
81,326
|
|
Inventories and biological assets
|
|
|
1,140,697
|
|
|
|
2,851,652
|
|
Other receivables
|
|
|
(293,466
|
)
|
|
|
371,054
|
|
Advances to suppliers
|
|
|
(952,166
|
)
|
|
|
242,652
|
|
Other current assets
|
|
|
(583,285
|
)
|
|
|
(450,042
|
)
|
Long term deposit
|
|
|
13,299
|
|
|
|
58,630
|
|
Other noncurrent assets
|
|
|
806
|
|
|
|
(8,631
|
)
|
Accounts payable, trade
|
|
|
(5,505,493
|
)
|
|
|
(8,968,168
|
)
|
Other payables and accrued liabilities
|
|
|
(435,365
|
)
|
|
|
(105,522
|
)
|
Customer deposits
|
|
|
85,379
|
|
|
|
116,398
|
|
Taxes payable
|
|
|
182,583
|
|
|
|
95,326
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(5,478,357
|
)
|
|
|
(8,164,764
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Disposal of financial assets available for sale
|
|
|
-
|
|
|
|
14,658
|
|
Acquisition of equipment
|
|
|
(10,536
|
)
|
|
|
(210,356
|
)
|
Increase in intangible assets
|
|
|
(19,474
|
)
|
|
|
(433,111
|
)
|
Investment in a joint venture
|
|
|
(1,408,155
|
)
|
|
|
-
|
|
Additions to leasehold improvements
|
|
|
(159,272
|
)
|
|
|
(542,734
|
)
|
Net cash used in investing activities
|
|
|
(1,597,437
|
)
|
|
|
(1,171,543
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from short-term bank loan
|
|
|
705,585
|
|
|
|
-
|
|
Repayment of third parties loan
|
|
|
(570,338
|
)
|
|
|
-
|
|
Proceeds from notes payable
|
|
|
14,392,242
|
|
|
|
15,372,260
|
|
Repayment of notes payable
|
|
|
(14,364,978
|
)
|
|
|
(16,167,012
|
)
|
Decrease in Employee Deposits
|
|
|
(56,447
|
)
|
|
|
-
|
|
Exercise of warrants
|
|
|
77,500
|
|
|
|
-
|
|
Proceeds from equity financing
|
|
|
9,287,100
|
|
|
|
9,273,077
|
|
Repayment of other payables-related parties
|
|
|
-
|
|
|
|
(460,000
|
)
|
Net cash provided by financing activities
|
|
|
9,470,664
|
|
|
|
8,018,325
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE ON CASH
|
|
|
194,852
|
|
|
|
(277,067
|
)
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
|
|
|
2,589,722
|
|
|
|
(1,595,049
|
)
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
|
|
|
30,982,606
|
|
|
|
24,745,202
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, end of period
|
|
$
|
33,572,328
|
|
|
$
|
23,150,153
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
127,387
|
|
|
|
-
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
29,176
|
|
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 “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 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”) and Hangzhou Jiutong Medical Technology Co., Ltd (“Jiutong
Medical”), 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.
On January 9, 2020, in order to
continue expanding and strengthening its local drugstore network, the Company acquired a local drugstores chain with ten
stores at a price of $0.14 (RMB 1). The acquired chain agreed to cease their stores’ business and liquidate all of the
stores ‘accounts after Jiuzhou Pharmacy acquired them. In March 2020, the chain was dissolved and its government
insurance reimbursement certificates have been transferred to Jiuzhou Pharmacy.
The Company’s offline retail business
also includes four 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, 2020. 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 Medicine 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 three
months ended June 30, 2020.
The accompanying 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
● Deemed
a wholly foreign owned enterprise (“WFOE”) under PRC law
● Registered
capital of $14.5 million fully paid
|
|
100%
|
|
|
|
|
|
Shouantang Technology
|
|
● Established
in the PRC on July 16, 2010 by Renovation with registered capital of $20 million
● 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
|
|
100%
|
|
|
|
|
|
Qianhong Agriculture
|
|
● Established
in the PRC on August 10, 2010 by Jiuxin Management
● Registered
capital of RMB 10 million fully paid
● Carries
out herb farming business
|
|
100%
|
|
|
|
|
|
Jiuzhou Pharmacy (1)
|
|
● Established
in the PRC on September 9, 2003
● Registered
capital of RMB 5 million fully paid
● Operates
the “Jiuzhou Grand Pharmacy” stores in Hangzhou
|
|
VIE by contractual arrangements (2)
|
|
|
|
|
|
Jiuzhou Clinic (1)
|
|
● Established
in the PRC as a general partnership on October 10, 2003
● Operates
a medical clinic adjacent to one of Jiuzhou Pharmacy’s stores
|
|
VIE by contractual arrangements (2)
|
|
|
|
|
|
Jiuzhou Service (1)
|
|
● Established
in the PRC on November 2, 2005
● Registered
capital of RMB 500,000 fully paid
● Operates
a medical clinic adjacent to one of Jiuzhou Pharmacy’s stores
|
|
VIE by contractual arrangements (2)
|
|
|
|
|
|
Jiuxin Medicine
|
|
● Established in PRC on December
31, 2003
● Acquired
by Jiuzhou Pharmacy in August 2011
● 10%
of shares sold On April 20, 2018
● Registered
capital of RMB 10 million fully paid
● Carries
out pharmaceutical distribution services
|
|
VIE by contractual arrangements as a wholly-owned subsidiary of Jiuzhou Pharmacy (2)
|
|
|
|
|
|
Jiutong Medical
|
|
● Established
in the PRC on December 20, 2011 by Renovation
● Registered capital of $2.6
million fully paid
● Currently has no operation
|
|
100%
|
Entity Name
|
|
Background
|
|
Ownership
|
Shouantang Bio
|
|
● Established
in the PRC in October, 2014 by Shouantang Technology
● 100%
held by Shouantang Technology
● Registered
capital of RMB 1,000,000 fully paid
● Sells
nutritional supplements under its own brand name
|
|
100%
|
|
|
|
|
|
Jiuyi Technology
|
|
● Established
in the PRC on September 10, 2015
● 100%
held by Renovation
● Technical
support to online pharmacy
|
|
100%
|
|
|
|
|
|
Kahamadi Bio
|
|
● Established
in the PRC in May 2016
● 49%
held by Shouantang Bio
● Registered
capital of RMB 10 million
● Develop
brand name for nutritional supplements
|
|
49%
|
|
|
|
|
|
Lin’An Jiuzhou
|
|
● Established
in the PRC in March 31, 2017
● 100%
held by Jiuxin Management
● Registered
capital of RMB 5 million
● Explore
retail pharmacy market in Lin’An City
|
|
100%
|
|
|
|
|
|
Linjia Medical
|
|
● Established
in the PRC in September27, 2017
● 51%
held by Jiuzhou Pharmacy
● Registered
capital of RMB 20 million
● Operates
local clinics
|
|
VIE by contractual arrangements as a controlled subsidiary of Jiuzhou Pharmacy (2)
|
|
|
|
|
|
Ayi Health
|
|
● Established
in the PRC in March 29, 2019
● 51%
held by Jiuzhou Pharmacy
● Registered
capital of RMB 10 million
● Provide
technical Support for medial service
|
|
VIE by contractual arrangements as a controlled subsidiary of Jiuzhou Pharmacy (2)
|
(1)
|
Jiuzhou Pharmacy, Jiuzhou Clinic and Jiuzhou Service had been under the common control of Mr. Lei Liu and Ms. Li Qi, the three shareholders (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 subsidiaries under the control of Jiuzhou Pharmacy, Jiuxin Medicine and Shouantang Bio are consolidated into the financial statements of the Company.
|
Note 2 – LIQUIDITY
The Company’s 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. The Company’s ability to continue as a going concern
depends upon aligning its sources of funding (debt and equity) with its 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 the Company’s competitive advantages and gain more local retail pharmacy market share, from fiscal year
2018, we opened fifty-nine new stores in Hangzhou. As a result, the Company 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, the Company incurred significant expenses
with limited incremental revenue in the period it 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 June 30, 2020, the Company had obtained
forty-seven reimbursement certificates for stores opened in fiscal 2018 and thereafter. Historically in a mature store, more than
half of the total revenue were collected from the individual customers’ government insurance program. The Company is in the
process of actively applying certificates for all of its new stores. In the future, as more and more stores obtain certificates,
the Company expect its 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. On June 3, 2020, the Company closed a registered direct offering of 5,000,004 shares of common
stock at $2.00 per share with gross proceeds of $10,000,008 from its effective shelf registration statement on Form S-3 pursuant
to a Securities Purchase Agreement dated June 1, 2020 (the “2020 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 16. As of June 30, 2020, approximately $0.74 million of the aforementioned bank
credit line was 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. As of June 30, 2020, the full amount has been borrowed from Haihui Commercial. 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 June 3, 2020,
and increased credit line, the Company believes it can support its operations for at least the next 12 months.
Note 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of presentation and consolidation
The accompanying condensed consolidated
financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US
GAAP”). The 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 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
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, restricted cash,
financial assets available for sales, accounts receivable, notes receivables, other receivable, accounts payable, notes payable,
other payable, long-term debt and derivatives. The carrying amounts of cash and cash equivalents, restricted cash, 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 16). The carrying amount of Long-term loan payable approximates fair value based on
borrowing rates of similar bank loan currently available to the Company (Level 2) (See Note 17).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) (See Note 21). The carrying amount of the financial assets available for sale is recorded at fair value and is determined
based on unobservable inputs (Level 3) (See Note 4). The carrying amount of the employee deposits is recorded at fair value and
is determined based on unobservable inputs (Level 3) (See Note 22).
|
|
Active Market
for Identical
Assets
(Level 1)
|
|
|
Observable
Inputs
(Level 2)
|
|
|
Unobservable
Inputs
(Level 3)
|
|
|
Total
Carrying
Value
|
|
Cash, cash equivalents and restricted cash
|
|
$
|
33,572,328
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,572,328
|
|
Financial assets available for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
157,644
|
|
|
|
157,644
|
|
Account receivable
|
|
|
8,984,595
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,984,595
|
|
Notes receivable
|
|
|
28,290
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,290
|
|
Other receivable
|
|
|
5,599,565
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,599,565
|
|
Accounts payable
|
|
|
16,107,594
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,107,594
|
|
Notes payable
|
|
|
-
|
|
|
|
26,715,374
|
|
|
|
-
|
|
|
|
26,715,374
|
|
Other payable
|
|
|
2,176,992
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,176,992
|
|
Long-term loan payable
|
|
|
-
|
|
|
|
5,851,778
|
|
|
|
-
|
|
|
|
5,851,778
|
|
Employee Deposits
|
|
|
-
|
|
|
|
-
|
|
|
|
14,145
|
|
|
|
14,145
|
|
Warrants liability
|
|
|
-
|
|
|
|
68,980
|
|
|
|
-
|
|
|
|
68,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
66,469,364
|
|
|
|
32,636,132
|
|
|
|
171,789
|
|
|
|
99,277,285
|
|
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 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. The Company 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 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.
The Company deduct the membership rewards
directly from the retail revenue, and present such amounts in net sales as opposed to the current reduction of operation expense
classification. Membership rewards, usually membership points, are accumulated by customers based on their historical spending
levels. The Company has determined that there is an additional performance obligation to those customers at the time of the initial
transaction. The customers can then redeem these points against the prices of merchandises they purchase in the future. At the
end of each period, unredeemed membership rewards are reflected as a contract liability.
Online pharmacy sales
The online pharmacy segment 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. The Company’s 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.
Disaggregation of Revenue
The following table disaggregates the Company’s
revenue by major source in each segment for the three months ended June 30, 2020 and 2019:
For the three months ended June 30
|
|
2020
|
|
|
2019
|
|
Retail drugstores
|
|
|
|
|
|
|
Prescription drugs
|
|
$
|
7,406,774
|
|
|
$
|
5,695,286
|
|
OTC drugs
|
|
|
6,818,484
|
|
|
|
7,240,228
|
|
Nutritional supplements
|
|
|
1,347,769
|
|
|
|
1,231,133
|
|
TCM
|
|
|
949,012
|
|
|
|
1,104,050
|
|
Sundry products
|
|
|
422,551
|
|
|
|
298,198
|
|
Medical devices
|
|
|
1,865,884
|
|
|
|
1,166,093
|
|
Total retail revenue
|
|
$
|
18,810,474
|
|
|
$
|
16,734,988
|
|
Online pharmacy
|
|
|
|
|
|
|
|
|
Prescription drugs
|
|
$
|
1,869,643
|
|
|
$
|
-
|
|
OTC drugs
|
|
|
1,322,811
|
|
|
|
1,024,602
|
|
Nutritional supplements
|
|
|
221,031
|
|
|
|
107,194
|
|
TCM
|
|
|
23,199
|
|
|
|
13,681
|
|
Sundry products
|
|
|
546,720
|
|
|
|
438,736
|
|
Medical devices
|
|
|
929,430
|
|
|
|
859,392
|
|
Total online revenue
|
|
$
|
4,912,834
|
|
|
$
|
2,443,605
|
|
Drug wholesale
|
|
|
|
|
|
|
|
|
Prescription drugs
|
|
$
|
5,966,148
|
|
|
$
|
4,880,491
|
|
OTC drugs
|
|
|
915,146
|
|
|
|
1,074,261
|
|
Nutritional supplements
|
|
|
59,841
|
|
|
|
21,691
|
|
TCM
|
|
|
28,967
|
|
|
|
98,828
|
|
Sundry products
|
|
|
2,597
|
|
|
|
5,682
|
|
Medical devices
|
|
|
358,305
|
|
|
|
21,238
|
|
Total wholesale revenue
|
|
$
|
7,331,004
|
|
|
$
|
6,102,191
|
|
Total revenue
|
|
$
|
31,054,312
|
|
|
$
|
25,280,784
|
|
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 and membership rewards. 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:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
Trade receivable(included in accounts receivable, net)
|
|
$
|
8,984,595
|
|
|
$
|
9,770,656
|
|
Contract liabilities (included in accrued expenses)
|
|
|
1,112,508
|
|
|
|
1,106,982
|
|
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 June 30, 2020 and March 31, 2020:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
Cash and cash equivalents
|
|
$
|
18,477,212
|
|
|
$
|
16,176,318
|
|
Restricted cash
|
|
|
15,095,116
|
|
|
|
14,806,288
|
|
Cash, cash equivalents and restricted cash
|
|
$
|
33,572,328
|
|
|
$
|
30,982,606
|
|
Accounts receivable
Accounts receivable represents 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 its vendors, such as pharmaceutical manufacturers and other distributors. Since the acquisition of Jiuxin Medicine, the Company
have transferred almost all logistics services of its 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 its drug wholesale
business consist of prepayments to its vendors, such as pharmaceutical manufacturers and other distributors. The Company typically
receive products from vendors within three to nine months after making prepayments. The Company continuously monitor delivery
from, and payments to, its 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.
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 farms are recorded at their cost, which
includes direct costs such as seed selection, fertilizer, labor costs that are spent 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 farms 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
|
License
|
|
Infinite
|
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 three months ended June 30, 2020 and 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.
Income taxes
The Company accounts for income taxes following
the liability method pursuant to FASB ASC 740 “Income Taxes”. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax
rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance
to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all,
of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in income in
the period that includes the enactment date.
The Company also follows FASB ASC 740,
which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded
in the financial statements. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely
than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest
benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance
on recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
As of June 30, 2020 and March 31, 2020, the Company did not have a liability for unrecognized tax benefits. It is the Company’s
policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense,
respectively, as necessary. The Company’s historical tax years will remain open for examination by the local authorities
until the statute of limitations has passed.
Under ASC 740-270, entities calculate the
income tax provision for an interim period by distinguishing between elements recognized in the income tax provision through (1)
applying an estimated annual effective tax rate (ETR) to a measure of year-to-date operating results referred to as “ordinary
income (or loss),” and (2) discretely recognizing specific events (referred to as “discrete items”) as they occur.
Entities should revise the ETR, as necessary, as of the end of each successive interim period during its fiscal year based on changes
to any of these estimates and judgments.
The ETR expected to apply for the full
fiscal year is applied to year-to-date ordinary income (or loss) at the end of each interim period to compute the year-to-date
income tax (or benefit) applicable to ordinary income or loss. Income tax expense (or benefit) related to each discrete item is
individually determined and recognized in the interim period when the discrete item occurs. As a result, the income tax provision
(or benefit) for an interim period might include elements that apply to ordinary income or loss, as well as elements related to
discrete items. Discrete items include significant items that are unusual or that occur infrequently. Determining which items are
unusual or infrequent often requires a significant degree of judgment.
Under ASC 740-270-30-36, entities subject to income taxes
in multiple jurisdictions should apply one overall ETR instead of separate ETRs for each jurisdiction when calculating the interim-period
income tax or benefit related to consolidated ordinary income (or loss) for the year-to-date interim period, except in certain
circumstances. The income tax provision or benefit for each interim period is the difference between the year-to-date amount for
the current period and the year-to-date amount for the prior period.
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 $77,068 and $80,049 for the three months ended June 30, 2020 and 2019, respectively. Such costs consist
primarily 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.
In general, 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 at 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 June 30, 2020 and at March 31, 2020 were translated at 1 RMB to 0.1414 USD and at 1 RMB to 0.1410 USD, respectively.
The average translation rates applied to income and cash flow statement amounts for the three months ended June 30, 2020 and 2019
were at 1 RMB to 0.1411 USD and at 1 RMB to 0.1466 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 June 30, 2020 and March 31, 2020, the Company had
deposits totaling $24,279,528 and $30,974,714 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 June 30, 2020,
two vendors accounted for 35.0% of the Company’s total purchases and two vendors accounted for more than 10% of total advances
to suppliers. For the three months ended June 30, 2019, two vendors accounted for 49.2% of the Company’s total purchases
and two vendors accounted for more than 10% of total advances to suppliers.
For the three months ended June 30, 2020,
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 ended June 30, 2019, no customer accounted for more than 10% of the Company’s total sales or 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 3.2 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 14 “Leases”
for additional information.
Recent Accounting Pronouncements
Accounting pronouncements adopted
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. The FASB has voted to defer the effective date for public companies
that are smaller reporting companies to fiscal years beginning after December 15, 2022. 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 2018, the FASB issued ASU 2018-13
Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds, and modifies
certain disclosure requirements for fair value measurements under ASC 820. This ASU is to be applied on a prospective basis for
certain modified or new disclosure requirements, and all other amendments in the standard are to be applied on a retrospective
basis. The new standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted.
ASU 2018-13 has no impact on its 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. The Company adopted
ASU 2017-04 on January 1, 2020. The adoption of the ASU 2017-04 did not have a material impact on the Company’s consolidated
financial statements.
Accounting pronouncements not yet effective to adopt
In December 2019, the FASB issued ASU No.
2019-12, “Income Taxes” (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12
will simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments
also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.
For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after
December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company does not expect that
the requirements of ASU 2019-12 will have a material impact on its consolidated financial statements.
Note 4 – FINANCIAL ASSETS AVAILABLE FOR SALE
As of June 30, 2020 and March 31, 2020,
financial assets available for sale amounted to $157,644 (RMB 1,114,500) and $157,159 (RMB 1,114,500), respectively.
As of June 30, 2020, the fair value of an investment in a limited partner (LP) in a private equity fund (PE fund), which is intended
to invest in retail pharmaceutical business, is $72,551 (RMB514,500). Additionally, the Company has invested in Inner Mongolia
Songlu Pharmaceutical Co.(“Songlu Pharmaceutical”). As of June 30, 2020, the fair value of the investment is $84,608
(RMB600,000), which accounts for 0.5% shares of Songlu Pharmaceutical.
Note 5 – TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consisted of
the following:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
Accounts receivable
|
|
$
|
11,378,909
|
|
|
$
|
12,034,726
|
|
Less: allowance for doubtful accounts
|
|
|
(2,394,314
|
)
|
|
|
(2,264,070
|
)
|
Trade accounts receivable, net
|
|
$
|
8,984,595
|
|
|
$
|
9,770,656
|
|
For the three months ended June 30, 2020
and 2019, $26,834 and $36,068 in accounts receivable were directly written off, respectively. As of June 30, 2020, $515,771 were
pledged as collateral for borrowings from financial institutions. As of March 31, 2020, $627,055 were pledged as collateral for
borrowings from financial institutions.
Note 6 – OTHER CURRENT ASSETS
Other current assets consisted of the following:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
Rental deposits (1)
|
|
$
|
1,558,965
|
|
|
$
|
1,364,975
|
|
Prepaid and other current assets
|
|
|
276,962
|
|
|
|
163,565
|
|
Total
|
|
$
|
1,835,927
|
|
|
$
|
1,528,540
|
|
|
(1)
|
The
balance as of June 30, 2020 and March 31, 2020 includes short-term refundable rental security deposits.
|
Note
7 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
Building
|
|
$
|
5,898,768
|
|
|
$
|
5,880,627
|
|
Leasehold improvements
|
|
|
9,397,190
|
|
|
|
9,209,136
|
|
Farmland development cost
|
|
|
1,691,632
|
|
|
|
1,686,430
|
|
Office equipment and furniture
|
|
|
5,587,888
|
|
|
|
5,632,955
|
|
Motor vehicles
|
|
|
505,883
|
|
|
|
504,327
|
|
Total
|
|
|
23,081,361
|
|
|
|
22,913,475
|
|
Less: Accumulated depreciation
|
|
|
(13,758,940
|
)
|
|
|
(13,059,852
|
)
|
Impairment*
|
|
|
(2,226,731
|
)
|
|
|
(2,219,883
|
)
|
Property and equipment, net
|
|
$
|
7,095,690
|
|
|
$
|
7,633,740
|
|
|
*
|
The
variance of impairment from March 31, 2020 to June 30, 2020 is solely caused by exchange rate variance.
|
Depreciation
expenses for property and equipment totaled $695,151 and $441,559 for the three months ended June 30, 2020 and 2019, respectively.
There were no fixed assets impaired in the three months ended June 30, 2020 and June 30, 2019.
Note 8
– LONG-TERM INVESTMENT
Long-term
investment consists of the following:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
Kahamadi Bio (1)
|
|
$
|
3,214
|
*
|
|
$
|
6,217
|
*
|
Zhetong Medical (2)
|
|
|
3,960,544
|
|
|
|
2,538,234
|
|
Advance to suppliers, net
|
|
$
|
3,963,758
|
|
|
$
|
2,544,451
|
|
|
(1)
|
It
represents 49% investment in Kahamadi Bio. The investment is recorded using the equity method. Kahamadi Bio suffered loss of $3,015
the three months ended June 30, 2020.
|
|
(2)
|
It
represents 39% investment in Zhejiang Zhetong Medical Co., Ltd. Zhetong Medical was established in March 2020 to target potential
acquisitions or cooperate with local pharmacies. By attracting more funds from local investors, the Company expects to continue
growing its local network in the future.
|
Note
9 – 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 June 30, 2020 and March 31, 2020, advance to suppliers
consist of the following:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
Advance to suppliers
|
|
$
|
3,160,046
|
|
|
$
|
2,198,863
|
|
Less: allowance for unrefundable advances
|
|
|
(922,326
|
)
|
|
|
(1,024,063
|
)
|
Advance to suppliers, net
|
|
$
|
2,237,720
|
|
|
$
|
1,174,800
|
|
For
the three months ended June 30, 2020 and 2019, none of the advances to suppliers were written off against previous allowance for
unrefundable advances, respectively.
Note
10 – INVENTORY
Inventory
consisted of finished goods, valued at $11,141,411 and $12,247,004 as of June 30, 2020 and March 31, 2020, 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 June 30, 2020 and March 31, 2020.
Note
11 – FARMLAND ASSETS
Farmland
assets consist of ginkgo trees planted in 2012 and expected to be harvested and sold in several years. As of June 30, 2020 and
March 31, 2020, farmland assets are valued as follows:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
Farmland assets
|
|
$
|
2,191,944
|
|
|
$
|
2,177,606
|
|
Less: Impairment*
|
|
|
(1,439,687
|
)
|
|
|
(1,435,259
|
)
|
Farmland assets, net
|
|
$
|
752,257
|
|
|
$
|
742,347
|
|
|
*
|
As
of March 31, 2018, the book value of the Ginkgo trees planted in Qianhong Agriculture’s farmland, including their cultivation
cost and land lease amortization expense, was approximately $2,416,839. Based on an independent appraisal report, the value of
the Ginkgo trees was approximately $796,286 as of March 31, 2018. As a result, the Company recorded an agricultural inventory
impairment of $1,620,553 as of March 31, 2018. The difference between the recorded impairment loss and impairment balance in the
above is primarily due to the exchange rate variance over years. There are no leasehold impairment expense in the three months
ended June 30, 2020 and 2019.
|
Note
12 – LONG TERM REFUNDABLE DEPOSITS, LANDLORDS
As
of June 30, 2020 and March 31, 2020, long term deposits amounted to $1,447,547 and $1,456,384, 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 up front, plus additional deposits.
Note
13 – OTHER NONCURRENT ASSETS
Other
noncurrent assets consisted of the following:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
Forest land use rights*
|
|
$
|
985,156
|
|
|
$
|
994,558
|
|
Others
|
|
|
64,028
|
|
|
|
52,205
|
|
Total
|
|
$
|
1,049,184
|
|
|
$
|
1,046,763
|
|
|
*
|
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 $12,441 and $6,885 for the three months
ended June 30, 2020 and 2019, 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 June 30,
|
|
Amount
|
|
2021
|
|
$
|
26,515
|
|
2022
|
|
|
26,515
|
|
2023
|
|
|
26,515
|
|
2024
|
|
|
26,515
|
|
2025
|
|
|
26,515
|
|
Thereafter
|
|
|
852,581
|
|
Note
14 – 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 three months ended June 30,
2020 is $1,671,118. 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 three months ended June 30, 2020 is as follows:
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows paid for operating leases
|
|
$
|
1,671,118
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
|
|
-
|
|
Supplemental
balance sheet information related to leases as of June 30, 2020 is as follows:
Operating leases:
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
19,351,247
|
|
|
|
|
|
|
Current portion of operating lease liabilities
|
|
$
|
466,213
|
|
Long-term operating lease liabilities
|
|
|
16,917,159
|
|
Total operating lease liabilities
|
|
$
|
17,383,372
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
|
|
|
Operating leases
|
|
|
3.2
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
|
|
Operating leases
|
|
|
4.19
|
%
|
The
following table summarizes the maturity of lease liabilities under operating leases as of June 30, 2020:
|
|
Operating
|
|
For the year ending June 30,
|
|
Leases
|
|
2021
|
|
$
|
485,355
|
|
2022
|
|
|
6,345,189
|
|
2023
|
|
|
4,510,762
|
|
2024
|
|
|
3,277,971
|
|
2025
|
|
|
1,995,568
|
|
Thereafter
|
|
|
2,575,035
|
|
Total lease payments
|
|
|
19,189,880
|
|
Less: imputed interest
|
|
|
(1,806,508
|
)
|
Total lease liabilities
|
|
$
|
17,383,372
|
|
Note
15 – INTANGIBLE ASSETS
Net
intangible assets consisted of the following at:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
License (1)
|
|
$
|
2,246,880
|
|
|
$
|
2,220,512
|
|
Software(2)
|
|
|
1,086,366
|
|
|
|
1,083,024
|
|
Land use rights (3)
|
|
|
1,379,337
|
|
|
|
1,375,095
|
|
Total intangible assets
|
|
|
4,712,583
|
|
|
|
4,678,631
|
|
Less: accumulated amortization
|
|
|
(735,234
|
)
|
|
|
(667,633
|
)
|
Less: impairment(4)
|
|
|
(618,942
|
)
|
|
|
(617,038
|
)
|
Intangible assets, net
|
|
$
|
3,358,407
|
|
|
$
|
3,393,960
|
|
Amortization
expense of intangibles amounted to $65,389 and $58,466 for the three months ended June 30, 2020 and 2019, respectively.
(1)
|
This
represents the fair value of the licenses of insurance applicable drugstores acquired from a variety of drugstores such as
Sanhao Pharmacy and several local stores. 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 2014, the Company acquired Sanhao
Pharmacy, a drugstore chain. In September 2017, the Company acquired several new stores for the purpose of the Municipal Social
Medical Reimbursement Qualification Certificates. On January 9, 2020, the Company acquired a local drugstore chain. The acquired
drugstores ceased their stores’ business and liquidate all of the stores’ accounts after Jiuzhou Pharmacy acquired
them. In March 2020, the drugstore chain has dissolved and its certificates were transferred to new stores opened at the same
time.
|
|
|
(2)
|
These
balances primarily include 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. In 2020, we have installed an internet
Clinic Diagnosis System used to strengthen our ability to perform online diagnosis which may increase more customer spending
and a Chronic Disease Management System used to better manage and monitor our members’ health. As of June 30, 2020,
the SAP system has a net value of $135,698 (RMB 959,352), the internet Clinic Diagnosis System has a net value of approximately
$380,313 (RMB 2,688,709), the Chronic Disease Management System has a net value of approximately $16,462 (RMB 116,379) .
|
|
|
(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 the Company’s farming business in Lin’an has not grown,
the Company does not expect completion of the plant in the near future.
|
|
|
(4)
|
In
the year ended March 31, 2020, the company evaluated the licenses of insurance applicable drugstores acquired in the past
based on the discounted positive cash value. Due to the stricter government insurance policy in fiscal year 2021, the value
of these licenses has declined. As a result, the company recorded an impairment. There are no impairment expense in the three
months ended June 30, 2020 and 2019.
|
Note
16 – 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 June 30, 2020 and March 31, 2020:
|
|
|
|
Origination
|
|
Maturity
|
|
June 30,
|
|
|
March 31,
|
|
Beneficiary
|
|
Endorser
|
|
date
|
|
date
|
|
2020
|
|
|
2020
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
10/09/19
|
|
04/09/20
|
|
|
-
|
|
|
|
3,478,259
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
11/06/19
|
|
05/06/20
|
|
|
-
|
|
|
|
164,582
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
12/05/19
|
|
06/05/20
|
|
|
-
|
|
|
|
3,106,474
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
12/31/19
|
|
06/30/20
|
|
|
-
|
|
|
|
2,289,308
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
01/06/20
|
|
07/06/20
|
|
|
129,856
|
|
|
|
129,457
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
02/19/20
|
|
08/19/20
|
|
|
5,120,844
|
|
|
|
5,105,096
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
03/10/20
|
|
09/10/20
|
|
|
5,341,297
|
|
|
|
5,324,871
|
|
Jiuxin Medicine(1)
|
|
HUB
|
|
12/26/19
|
|
06/26/20
|
|
|
-
|
|
|
|
1,371,992
|
|
Jiuxin Medicine(1)
|
|
HUB
|
|
12/31/19
|
|
06/30/20
|
|
|
|
|
|
|
3,943,776
|
|
Jiuxin Medicine(1)
|
|
HUB
|
|
03/31/20
|
|
09/30/20
|
|
|
1,697,376
|
|
|
|
1,692,156
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
04/10/20
|
|
10/10/20
|
|
|
2,969,129
|
|
|
|
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
04/29/20
|
|
10/29/20
|
|
|
546,874
|
|
|
|
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
05/09/20
|
|
11/09/20
|
|
|
3,803,552
|
|
|
|
-
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
06/24/20
|
|
12/24/20
|
|
|
1,405,995
|
|
|
|
-
|
|
Jiuzhou Pharmacy(1)
|
|
HUB
|
|
06/30/20
|
|
12/30/20
|
|
|
891,122
|
|
|
|
-
|
|
Jiuxin Medicine(1)
|
|
HUB
|
|
06/30/20
|
|
12/30/20
|
|
|
4,809,329
|
|
|
|
-
|
|
Total
|
|
|
|
|
|
|
|
$
|
26,715,374
|
|
|
$
|
26,605,971
|
|
|
(1)
|
As
of June 30, 2020, the Company had $26,715,374 (RMB 188,870,639) of notes payable from HUB. The Company is required to hold restricted
cash in the amount of $14,913,825 (RMB 105,684,113) with HUB as collateral against these bank notes. Included in the restricted
cash is a total of $8,770,422 three-year deposit (RMB 62,150,000) deposited into HUB as a collateral for current and future notes
payable from HUB. As of March 31, 2020, the Company had $26,605,971 (RMB 188,677,437) of notes payable from HUB. The
Company is required to hold restricted cash in the amount of $14,596,179 (RMB 103,509,456) with HUB as collateral against these
bank notes. Included in the restricted cash is a total of $8,763,958 three-year deposit (RMB 62,150,000) deposited into HUB as
a collateral for current and future notes payable from HUB.
|
As
of June 30, 2020, the Company had a credit line of approximately $12.55 million in the aggregate from HUB. By putting up
a three-year deposit of $8.77 million and the additional short-term deposits of $6.14 million deposited in the banks, the total
credit line was $27.46 million. As of June 30, 2020, the Company had approximately $26.72 million of bank notes payable and approximately
$0.74 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 17 – LOAN PAYABLE
On
August 2, 2019 and December 11, 2019, the Company borrowed $717,810 and $6,460,290 from Haihui Commercial, respectively. After
deducting processing fee and deposits which are refundable at the end of loan period, the Company received $617,317 and $5,878,864
respectively. The Company is required to pledge accounts receivable of three drugstores to Haihui Commercial. As of June 30, 2020,
the remaining loan balance is $5,851,778. The Company is scheduled to make monthly repayments, among which $2,300,271 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
18 – TAXES
Income
tax
Income tax expense includes a provision
for federal, state and foreign taxes based on the annual estimated effective tax rate applicable to the Company and its subsidiaries,
adjusted for items which are considered discrete to the period.
The effective tax rates on income
before income taxes for the three months ended June 30, 2020 was (17.4)%. The (17.4) % rate adjustments for the three months ended
June 30, 2020 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 effective tax rate is based on forecasted annual results and these
amounts may fluctuate significantly through the rest of the year as a result of the unpredictable impact of COVID-19 on its operating
activities.
The effective tax rate on income before
income taxes for the three months ended June 30, 2019 was (0.4)%. The (0.4)% rate adjustments for the three months ended June 30,
2019 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 Company has recorded $0 unrecognized benefit as of June
30, 2020. On the information currently available, the Company does not anticipate a significant increase or decrease to its unrecognized
benefit within the next 12 months.
Note
19 – POSTRETIREMENT BENEFITS
Regulations
in the PRC require the Company to contribute to a defined contribution 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 $204,538 and $341,024 in employment benefits and pension for the three months ended June 30, 2020 and 2019,
respectively.
Note
20 – RELATED PARTY TRANSACTIONS AND ARRANGEMENTS
Amounts
payable to related parties are summarized as follows:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
Due to a director and CEO (1) :
|
|
|
491,300
|
|
|
|
490,218
|
|
|
(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.
|
The
Company leases from Mr. Lei Liu a retail space; the lease expires in September 2020. Rent expenses totaled $6,532 and $6,785 for
the three months ended June 30, 2020 and 2019, respectively. The amounts owed under the lease for the three months ended June
30, 2020 and 2019 were not paid to Mr. Liu as of June 30, 2020.
On
April 28, 2018, 10% of Jiuxin Medicine was sold to Hangzhou Kangzhou Biotech Co. Ltd. for a total proceeds of approximately $75,643
(RMB507,760). Mr. Lei Liu owns 51% of Hangzhou Kangzhou Biotech Co. Ltd.
Note
21 – 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 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. 72,000 shares. Such warrant has the same terms as the warrant issued to investor in the offering.
On
June 1, 2020, the investor exercised 25,000 warrants at the price of $3.10 per share in cash. As of June 30, 2020, 647,000 warrants
had not been exercised. The fair value of the warrants issued to purchase 647,000 and 672,000 shares as of June 30, 2020 and March
31, 2020, as described above was estimated by using the binominal pricing model with the following assumptions:
|
|
Common Stock
Warrants
|
|
|
Common Stock
Warrants
|
|
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
|
|
|
|
|
|
|
Stock price
|
|
$
|
1.44
|
|
|
$
|
1.77
|
|
Exercise price
|
|
$
|
3.10
|
|
|
$
|
3.10
|
|
Annual dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
Expected term (years)
|
|
|
0.56
|
|
|
|
0.81
|
|
Risk-free interest rate
|
|
|
0.18
|
%
|
|
|
0.71
|
%
|
Expected volatility
|
|
|
98.86
|
%
|
|
|
62.08
|
%
|
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 $64,090 as of March
31, 2020. For the three months ended June 30, 2020 and June 30, 2019, the Company recognized a loss of $4,890 and a gain of $403,555
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 $68,980 for the investor warrant and placement
agent warrant, collectively, as of June 30, 2020.
Note
22 – EMPLOYEE DEPOSITS
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 $14,145 (RMB100,000) and $70,507 (RMB500,000) as financial liability as of
June 30, 2020 and March 31, 2020.
Note
23 – STOCKHOLDER’S EQUITY
Common
stock
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 our effective shelf registration statement.
On
June 1, 2020, an investor exercised 25,000 warrants at the price of $3.10 per share in cash. The Company issued 25,000 shares
of common stocks.
On
June 3, 2020, the Company closed a registered direct offering of 5,000,004 shares of common stock at $2.00 per share with gross
proceeds of $10,000,008 from its effective shelf registration statement.
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.
Concurrent
with the registered direct offering of common stock that closed on June 3, 2020, the Company issued to several investors in a
private placement warrants to purchase up to 3,750,003 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 6.5% of the aggregate
number of shares of common stock sold in the offering, i.e. 300,000 shares at an exercise price of $2.57 per share. The warrant
becomes exercisable on December 2, 2020 and will expire on June 2, 2025.
Upon
evaluation, both the warrants issued in April 2019 and June 2020 meet the definition of an equity transaction under FASBASC 815.
Accordingly, the fair value of the warrants is 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.
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 the stock option is $2.50. The option vests on November 18,
2017, provided that the grantees are still employed by the Company on such a date. The options will be exercisable for five years
from the vesting date, or November 18, 2017 until November 17, 2022. For the three months ended June 30, 2020 and 2019, none was
recorded as compensation expense. As of June 30, 2020, all compensation costs related to stock option compensation arrangements
granted have been recognized.
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 their 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 months
ended June 30, 2020 and 2019, 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
24 – 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 (loss) earnings per share computation:
|
|
The three months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss attributable to controlling interest
|
|
$
|
(231,509
|
)
|
|
$
|
(2,134,951
|
)
|
Weighted average shares used in basic computation
|
|
|
34,428,271
|
|
|
|
32,453,269
|
|
Diluted effect of stock options and warrants
|
|
|
-
|
|
|
|
-
|
|
Weighted average shares used in diluted computation
|
|
|
34,428,271
|
|
|
|
32,453,269
|
|
Loss per share – Basic:
|
|
|
-
|
|
|
|
-
|
|
Net loss attributable to controlling interest
|
|
$
|
(0.01
|
)
|
|
$
|
(0.07
|
)
|
Loss per share – Diluted:
|
|
|
|
|
|
|
|
|
Net loss attributable to controlling interest
|
|
$
|
(0.01
|
)
|
|
$
|
(0.07
|
)
|
For
the three months ended June 30, 2020, 967,000 shares underlying employee stock options and 575,000 shares underlying outstanding
purchase options to an investor, and 72,000 shares underlying outstanding purchase option to an investment placement agent were
excluded from the calculation of diluted loss per share as the options were anti-dilutive.
Note
25 – 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 over-the-counter (“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 they 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 June 30, 2020.
|
|
Retail drugstores
|
|
|
Online Pharmacy
|
|
|
Drug wholesale
|
|
|
Herb
farming
|
|
|
Total
|
|
Revenue
|
|
$
|
18,810,474
|
|
|
$
|
4,912,834
|
|
|
|
7,331,004
|
|
|
|
-
|
|
|
|
31,054,312
|
|
Cost of goods
|
|
|
12,402,182
|
|
|
|
4,228,411
|
|
|
|
6,443,500
|
|
|
|
-
|
|
|
|
23,074,093
|
|
Gross profit
|
|
$
|
6,408,292
|
|
|
$
|
684,423
|
|
|
|
887,504
|
|
|
|
-
|
|
|
|
7,980,219
|
|
Selling expenses
|
|
|
4,977,047
|
|
|
|
704,876
|
|
|
|
590,484
|
|
|
|
-
|
|
|
|
6,272,407
|
|
General and administrative expenses
|
|
|
1,128,083
|
|
|
|
59,011
|
|
|
|
933,072
|
|
|
|
-
|
|
|
|
2,120,166
|
|
Loss from operations
|
|
$
|
303,162
|
|
|
$
|
(79,464
|
)
|
|
|
(636,052
|
)
|
|
|
-
|
|
|
|
(412,354
|
)
|
Depreciation and amortization
|
|
$
|
750,498
|
|
|
$
|
-
|
|
|
|
10,042
|
|
|
|
-
|
|
|
|
760,540
|
|
Total capital expenditures
|
|
$
|
169,807
|
|
|
$
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
169,807
|
|
The
following table presents summarized information by segment of the continuing operations for the three months ended June 30, 2019.
|
|
Retail drugstores
|
|
|
Online Pharmacy
|
|
|
Drug wholesale
|
|
|
Herb
farming
|
|
|
Total
|
|
Revenue
|
|
$
|
16,734,988
|
|
|
$
|
2,443,605
|
|
|
|
6,102,191
|
|
|
|
-
|
|
|
|
25,280,784
|
|
Cost of goods
|
|
|
11,682,721
|
|
|
|
2,096,850
|
|
|
|
5,439,775
|
|
|
|
-
|
|
|
|
19,219,346
|
|
Gross profit
|
|
$
|
5,052,267
|
|
|
$
|
346,755
|
|
|
|
662,416
|
|
|
|
-
|
|
|
|
6,061,438
|
|
Selling expenses
|
|
|
4,835,666
|
|
|
|
473,380
|
|
|
|
659,505
|
|
|
|
-
|
|
|
|
5,968,551
|
|
General and administrative expenses
|
|
|
1,733,704
|
|
|
|
55,123
|
|
|
|
1,062,785
|
|
|
|
-
|
|
|
|
2,851,612
|
|
Loss from operations
|
|
$
|
(1,517,103
|
)
|
|
$
|
(181,748
|
)
|
|
|
(1,059,874
|
)
|
|
|
-
|
|
|
|
(2,758,725
|
)
|
Depreciation and amortization
|
|
$
|
504,463
|
|
|
$
|
-
|
|
|
|
8,486
|
|
|
|
-
|
|
|
|
512,949
|
|
Total capital expenditures
|
|
$
|
753,173
|
|
|
$
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
753,173
|
|
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 months
ended June 30, 2020 and 2019 were as follows:
|
|
For the three months ended
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Prescription drugs
|
|
$
|
7,406,774
|
|
|
$
|
5,695,286
|
|
OTC drugs
|
|
|
6,818,484
|
|
|
|
7,240,228
|
|
Nutritional supplements
|
|
|
1,347,769
|
|
|
|
1,231,133
|
|
TCM
|
|
|
949,012
|
|
|
|
1,104,050
|
|
Sundry products
|
|
|
422,551
|
|
|
|
298,198
|
|
Medical devices
|
|
|
1,865,884
|
|
|
|
1,166,093
|
|
Total
|
|
$
|
18,810,474
|
|
|
$
|
16,734,988
|
|
The
Company’s net revenue from external customers through online pharmacy by main product category is as follows:
|
|
For the three months ended
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Prescription drugs
|
|
$
|
1,869,643
|
|
|
$
|
-
|
|
OTC drugs
|
|
|
1,322,811
|
|
|
|
1,024,602
|
|
Nutritional supplements
|
|
|
221,031
|
|
|
|
107,194
|
|
TCM
|
|
|
23,199
|
|
|
|
13,681
|
|
Sundry products
|
|
|
546,720
|
|
|
|
438,736
|
|
Medical devices
|
|
|
929,430
|
|
|
|
859,392
|
|
Total
|
|
$
|
4,912,834
|
|
|
$
|
2,443,605
|
|
The
Company’s net revenue from external customers through wholesale by main product category is as follows:
|
|
For the three months ended
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Prescription drugs
|
|
$
|
5,966,148
|
|
|
$
|
4,880,491
|
|
OTC drugs
|
|
|
915,146
|
|
|
|
1,074,261
|
|
Nutritional supplements
|
|
|
59,841
|
|
|
|
21,691
|
|
TCM
|
|
|
28,967
|
|
|
|
98,828
|
|
Sundry products
|
|
|
2,597
|
|
|
|
5,682
|
|
Medical devices
|
|
|
358,305
|
|
|
|
21,238
|
|
Total
|
|
$
|
7,331,004
|
|
|
$
|
6,102,191
|
|
Note
26 – Subsequent Events
Management
of the Company has evaluated subsequent events through the date of the report, and there was no material subsequent event requiring
adjustments to the financial statements or disclosure.