UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the quarterly period ended December 31, 2016 |
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the transition period from _______________ to ___________________ |
| Commission File Number: 001-34711 |
| CHINA JO-JO DRUGSTORES, INC. |
| (Exact name of registrant as specified in its charter) |
| Nevada | 98-0557852 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) | |
1st Floor, Yuzheng Plaza, No. 76, Yuhuangshan Road, Hangzhou, Zhejiang Province People’s Republic of China |
310002 | |
| (Address of principal executive offices) | (Zip Code) |
| +86 (571) 88077078 |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every, Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | Accelerated Filer ☐ |
| Non-accelerated filer ☐ (Do not check if a smaller reporting company) | Smaller reporting company ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of February 9, 2017, the registrant had 25,214,678 shares of common stock, par value $0.001 per share, outstanding.
TABLE OF CONTENTS
TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED December 31, 2016
| Page | ||
| PART I | FINANCIAL INFORMATION | |
| Item 1. | Financial Statements | 1 |
| Unaudited Condensed Consolidated Balance Sheets as of December 31, 2016 and March 31, 2016 | 1 | |
| Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months ended December 31, 2016 and 2015 | 2 | |
| Unaudited Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended December 31, 2016 and 2015 | 3 | |
| Notes to Condensed Unaudited Consolidated Financial Statements | 4 | |
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 23 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 33 |
| Item 4. | Controls and Procedures | 33 |
| PART II | OTHER INFORMATION | |
| Item 6. | Exhibits | 33 |
| Signatures | 34 | |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
All statements contained in this Quarterly Report on Form 10-Q (“Form 10-Q”) for the registrant, other than statements of historical facts, that address future activities, events or developments are forward-looking statements, including, but not limited to, statements containing the words “believe,” “anticipate,” “expect” and words of similar import. These statements are based on certain assumptions and analyses made by us in light of our experience and our assessment of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. However, whether actual results will conform to the expectations and predictions of management is subject to a number of risks and uncertainties that may cause actual results to differ materially.
Such risks include, among others, the following: national and local general economic and market conditions: our ability to sustain, manage or forecast our growth; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings.
Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by management will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our business operations.
PART I - FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
CHINA JO-JO DRUGSTORES, INC AND SUBSIDIARIES
condensed CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| December 31, | March 31, | |||||||
| 2016 | 2016 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 4,643,349 | $ | 6,671,873 | ||||
| Financial assets available for sale | - | 465,165 | ||||||
| Restricted cash | 8,980,544 | 13,747,990 | ||||||
| Notes receivable | 42,740 | 15,506 | ||||||
| Trade accounts receivable, net | 9,441,386 | 8,054,597 | ||||||
| Inventories | 10,565,855 | 10,802,691 | ||||||
| Other receivables, net | 1,440,641 | 1,376,468 | ||||||
| Advances to suppliers, net | 3,839,635 | 4,230,665 | ||||||
| Other current assets | 1,483,431 | 1,518,048 | ||||||
| Total current assets | 40,437,581 | 46,883,003 | ||||||
| PROPERTY AND EQUIPMENT, net | 4,607,201 | 5,543,076 | ||||||
| OTHER ASSETS | ||||||||
| Long-term investment | 40,131 | 108,539 | ||||||
| Farmland assets | 1,484,987 | 1,562,205 | ||||||
| Long term deposits | 2,277,120 | 2,452,056 | ||||||
| Other noncurrent assets | 2,727,401 | 2,595,129 | ||||||
| Intangible assets, net | 2,706,919 | 2,928,779 | ||||||
| Total other assets | 9,236,558 | 9,646,708 | ||||||
| Total assets | $ | 54,281,340 | $ | 62,072,787 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Short-term loan payable | $ | 28,799 | $ | 31,011 | ||||
| Accounts payable, trade | 14,402,089 | 16,667,396 | ||||||
| Notes payable | 12,215,720 | 17,595,634 | ||||||
| Other payable | 2,064,231 | 1,917,821 | ||||||
| Other payable - related parties | 922,192 | 2,199,775 | ||||||
| Customer deposits | 2,485,944 | 2,610,151 | ||||||
| Taxes payable | 594,315 | 483,770 | ||||||
| Accrued liabilities | 577,418 | 615,056 | ||||||
| Total current liabilities | 33,290,708 | 42,120,614 | ||||||
| Warrant liability | 510,859 | 636,301 | ||||||
| Total liabilities | 33,801,567 | 42,756,915 | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock; $0.001 par value; 10,000,000 shares authorized; 0 issued and outstanding as of December 31, 2016 and March 31, 2016 | ||||||||
| Common stock; $0.001 par value; 250,000,000 shares authorized; 20,374,678 and 17,735,504 shares issued and outstanding as of December 31, 2016 and March 31, 2016 | 20,375 | 17,736 | ||||||
| Additional paid-in capital | 25,597,019 | 22,088,267 | ||||||
| Statutory reserves | 1,309,109 | 1,309,109 | ||||||
| Accumulated deficit | (7,562,837 | ) | (6,957,053 | ) | ||||
| Accumulated other comprehensive income | 1,116,107 | 2,857,813 | ||||||
| Total stockholders' equity | 20,479,773 | 19,315,872 | ||||||
| Total liabilities and stockholders' equity | $ | 54,281,340 | $ | 62,072,787 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 1 |
CHINA JO-JO DRUGSTORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| REVENUES, NET | $ | 20,610,024 | $ | 24,708,046 | $ | 61,706,774 | $ | 68,596,964 | ||||||||
| COST OF GOODS SOLD | 16,426,153 | 19,860,713 | 48,688,092 | 55,396,941 | ||||||||||||
| GROSS PROFIT | 4,183,871 | 4,847,333 | 13,018,682 | 13,200,023 | ||||||||||||
| SELLING EXPENSES | 3,570,182 | 3,286,637 | 9,276,225 | 9,801,761 | ||||||||||||
| GENERAL AND ADMINISTRATIVE EXPENSES | 1,451,849 | 1,868,448 | 4,752,981 | 3,628,520 | ||||||||||||
| TOTAL OPERATING EXPENSES | 5,022,031 | 5,155,085 | 14,029,206 | 13,430,281 | ||||||||||||
| LOSS FROM OPERATIONS | (838,160 | ) | (307,752 | ) | (1,010,524 | ) | (230,258 | ) | ||||||||
| INTEREST INCOME | 54,003 | 62,337 | 339,460 | 253,074 | ||||||||||||
| INTEREST EXPENSE | (415 | ) | (2,945 | ) | (1,285 | ) | (156,951 | ) | ||||||||
| OTHER INCOME (LOSS), NET | (99,485 | ) | (349,514 | ) | 5,139 | (315,894 | ) | |||||||||
| CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITIES | 67,296 | 15,444 | 125,389 | 173,510 | ||||||||||||
| INCOME BEFORE INCOME TAXES | (816,761 | ) | (582,430 | ) | (541,821 | ) | (276,519 | ) | ||||||||
| PROVISION FOR INCOME TAXES | 18,045 | 35,099 | 63,963 | 79,224 | ||||||||||||
| NET LOSS | (834,806 | ) | (617,529 | ) | (605,784 | ) | (355,743 | ) | ||||||||
| OTHER COMPREHENSIVE LOSS | ||||||||||||||||
| Foreign currency translation adjustments | (1,768,854 | ) | (268,795 | ) | (1,741,706 | ) | (1,043,348 | ) | ||||||||
| COMPREHENSIVE LOSS | $ | (2,603,660 | ) | $ | (886,324 | ) | $ | (2,347,490 | ) | $ | (1,399,091 | ) | ||||
| WEIGHTED AVERAGE NUMBER OF SHARES: | ||||||||||||||||
| Basic | 19,941,439 | 17,180,830 | 19,188,867 | 16,459,195 | ||||||||||||
| Diluted | 19,941,439 | 17,180,830 | 19,188,867 | 16,459,195 | ||||||||||||
| EARNINGS PER SHARES: | ||||||||||||||||
| Basic | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.02 | ) | ||||
| Diluted | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.02 | ) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
CHINA JO-JO DRUGSTORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine months ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | (605,784 | ) | (355,743 | ) | |||
| Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 891,542 | 1,163,994 | ||||||
| Stock-based compensation | 1,907,582 | 520,953 | ||||||
| Bad debt provision | (505,117 | ) | (1,369,786 | ) | ||||
| Change in fair value of warrant derivative liability | (125,441 | ) | (173,510 | ) | ||||
| Change in operating assets: | ||||||||
| Accounts receivable, trade | (1,130,490 | ) | 243,666 | |||||
| Notes receivable | (29,484 | ) | 99,199 | |||||
| Inventories | (555,388 | ) | (413,472 | ) | ||||
| Other receivables | 64,419 | (142,734 | ) | |||||
| Advances to suppliers | (683,980 | ) | (413,238 | ) | ||||
| Other current assets | (76,656 | ) | 678,339 | |||||
| Other noncurrent assets | (330,217 | ) | - | |||||
| Change in operating liabilities: | ||||||||
| Accounts payable, trade | (1,119,770 | ) | (93,695 | ) | ||||
| Other payables and accrued liabilities | 296,298 | 277,298 | ||||||
| Customer deposits | 64,508 | (1,146,504 | ) | |||||
| Taxes payable | 150,910 | 205,734 | ||||||
| Net cash used in operating activities | (1,787,068 | ) | (919,499 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of equipment | (115,463 | ) | (171,314 | ) | ||||
| Decrease in Financial assets available for sale | 449,403 | 1,279,200 | ||||||
| Investment in a joint venture | (74,900 | ) | (111,930 | ) | ||||
| Termination of a joint venture | 69,802 | |||||||
| Additions to leasehold improvements | (200,428 | ) | - | |||||
| Net cash provided by investing activities | 128,414 | 995,956 | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from short-term bank loan | - | 23,115 | ||||||
| Repayment of short-term bank loan | - | (55,095 | ) | |||||
| Change in restricted cash | 3,939,366 | (4,423,287 | ) | |||||
| Repayments of notes payable | (24,600,434 | ) | (15,415,543 | ) | ||||
| Proceeds from notes payable | 20,309,469 | 17,711,172 | ||||||
| Proceeds from other payables-related parties | 375,395 | (179,934 | ) | |||||
| Proceeds from equity financing | - | 2,699,500 | ||||||
| Net cash provided by financing activities | 23,796 | 359,928 | ||||||
| EFFECT OF EXCHANGE RATE ON CASH | (393,666 | ) | (120,694 | ) | ||||
| INCREASE IN CASH | (2,028,524 | ) | 315,691 | |||||
| CASH, beginning of period | 6,671,873 | 4,023,581 | ||||||
| CASH, end of period | $ | 4,643,349 | $ | 4,339,272 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | 1,348 | $ | 151,258 | ||||
| Cash paid for income taxes | $ | 57,688 | $ | 48,424 | ||||
| Non-cash financing activities: | ||||||||
| Issuance of common stocks to exchange for the debt to a shareholder | 1,603,810 | - | ||||||
| Issuance of stock purchase options to an investment bank | - | $ | 147,728 | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
CHINA JO-JO DRUGSTORES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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”), its wholly-owned subsidiaries.
The Company is a direct-to-consumer retailer, both online and offline, 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, a majority of which are operated by Hangzhou Jiuzhou Grand Pharmacy Chain Co., Ltd. (“Jiuzhou Pharmacy”), a company that the Company controls through contractual arrangements.
The Company’s offline retail business also includes four medical clinics operated 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. On December 18, 2013, Jiuzhou Service established, and held 51% of, Hangzhou Shouantang Health Management Co., Ltd. (“Shouantang Health”), a PRC company licensed to sell health care products. Shouantang Health was closed in April 2015. In May 2016, Hangzhou Shouantang Bio-technology Co., Ltd. (“Shouantang Bio”) set up and held 49% of Hangzhou Kahamadi Bio-technology Co., Ltd.(“Kahamadi Bio”), a joint venture specialized in brand name development for nutritional supplements.
The Company’s license to distribute pharmaceuticals onlineis held by Hangzhou Jiuzhou Grand Pharmacy Chain Co., Ltd. (“Jiuzhou Pharmacy”) and its online retail pharmacy business was primarily conducted through Zhejiang Quannuo Internet Technology Co., Ltd. (“Quannuo Technology”), which provided technical, sales and logistic support. In May 2015, the Company established Zhejiang Jianshun Network Technology Co. Ltd(“Jianshun Network”), a joint venture with Shanghai Jianbao Technology Co., Ltd., in order to develop its online pharmaceutical sales for large commercial medical insurance companies.On December 25, 2016, as Shanghai Jianbao Technology ceased its strategic alliance with Jiuzhou Pharmacy, Jianshun Network was dissolved. On September 10, 2015, Renovation set up a new entity named Hangzhou JiuYi Medical Technology Co. Ltd. (“Jiuyi Technology”) to provide additional technical support such as webpage development to theonline pharmacy business. In November 2015, the Company sold all of the equity interests of Quannuo Technology to six individuals for approximately $17,121 (RMB107,074). After the sale, Quannuo Technology’s technical support services were 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.
The Company’s herb farming business is conducted by Hangzhou Qianhong Agriculture Development Co., Ltd. (“Qianhong Agriculture”), a wholly-owned subsidiary of Jiuxin Management, which operates a cultivation project of herbal plants used for traditional Chinese medicine (“TCM”).
| 4 |
The accompanying consolidated financial statements reflect the activities of the Company and each of the following entities:
| Entity Name | Background | Ownership | ||
| Renovation HK | ● 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 $4.5 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
| ||
| Jiuxin Medicine | ● Established in PRC on December 31, 2003 ● Acquired by Jiuzhou Pharmacy in August 2011 ● 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% | ||
| 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 |
Joint Venture 49% owned by Shouantang Bio |
| (1) | Jiuzhou Pharmacy, Jiuzhou Clinic and Jiuzhou Service have been under the common control of the three shareholders of Renovation (the “Owners”) since their respective establishment dates, pursuant to agreements among the Owners to vote their interests in concert as memorialized in a voting agreement. Based on such voting agreement, the Company has determined that common control exists among these three companies. Operationally, 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. |
| 5 |
| (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: consulting services agreement, operating agreement, equity pledge agreement, voting rights agreement and option agreement. As a result of these agreements, which 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 all three companies (as well as subsidiaries of Jiuzhou Pharmacy) as a variable interest entity (“VIE”) under the accounting standards of the Financial Accounting Standards Board (“FASB”). Accordingly, the financial statements of Jiuzhou Pharmacy, Jiuzhou Clinic and Jiuzhou Service, as well as the subsidiary under the control of Jiuzhou Pharmacy, Jiuxin Medicine and Shouantang Bio are consolidated into the financial statements of the Company. |
Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“US GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2016 filed with the SEC on June 28, 2016. Operating results for the three and nine months ended December 31, 2016 may not be necessarily indicative of the results to be expected for the full year.
The condensed consolidated financial statements include the financial statements of the Company, its 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.
Additionally, as Jiuzhou Pharmacy, Jiuzhou Clinic and Jiuzhou Service are under common control, the consolidated financial statements have been prepared as if the transactions had occurred retroactively as to the beginning of the reporting period of these consolidated financial statements.
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 the Voting Rights Proxy 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 vendors or landlords.
| 6 |
Members of the current management team own controlling interests in the Company and are also the Owners of the VIEs in the PRC. The Company only controls the VIEs through contractual arrangements which obligate it to absorb the risk of loss and to receive the residual expected returns. As such, the controlling shareholders of the Company and the VIEs could cancel these agreements or permit them to expire at the end of the agreement terms, as a result of which the Company would not retain control of the VIEs.
Use of estimates
The preparation of unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The significant estimates made in the preparation of the accompanying unaudited condensed consolidated financial statements relate to the assessment of the carrying values of accounts receivable, advances to suppliers and related allowance for doubtful accounts, useful lives of property and equipment, inventory reserve and fair value of its purchase option derivative liability. Because of the use of estimates inherent in the financial reporting process, actual results could materially differ from those estimates.
Fair value measurements
The Company has adopted ASC Topic 820, “Fair Value Measurement and Disclosure,” which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It 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 ASC 820, include cash and cash equivalents, accounts receivable, accounts payable, long-term debt and derivatives. The carrying amounts of cash and cash equivalents, financial assets available for sales, accounts receivable, notes receivables, and accounts payable are a reasonable approximation of fair value due to the short maturities of these instruments (Level 1). The carrying amount of notes payable approximates fair value based on borrowing rates of similar bank loan currently available to the Company (Level 2) (See Note 13). 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). As of December 31 2016, the fair values of our derivative instruments that were carried at fair value (See Note 17).
| Active Market for Identical Assets (Level 1) | Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Total Carrying Value | |||||||||||||
| Cash and cash equivalents | 4,643,349 | - | - | 4,643,349 | ||||||||||||
| Notes payable | - | 12,215,720 | - | 12,215,720 | ||||||||||||
| Warrants liability | - | 510,859 | - | 510,859 | ||||||||||||
| Total | 4,643,349 | 12,726,579 | - | 17,369,928 | ||||||||||||
Revenue recognition
Revenue from sales of prescription medicine at the 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 the drugstores is recognized at the point of sale, which is when a customer pays for and receives the merchandise. Usually the majority of our merchandise, such as prescription and OTC drugs, are not allowed to be returned after the customers leave the counter. Return of other products, such as sundry products, are minimal. Sales of drugs reimbursed by the local government medical insurance agency and receivables from the agency are recognized when a customer pays for the drugs at a store. Based on historical experience, a reserve for potential loss from denial of reimbursement on certain unqualified drugs is made to the receivables from the government agency.
Revenue from medical services is recognized after the service has been rendered to a customer.
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Revenue from online pharmacy sales is recognized when merchandise is shipped to customers. While most deliveries take one day, certain deliveries may take longer depending on a customer’s location. Any loss caused in a shipment will be reimbursed by the Company’s courier company. Our sales policy allows for the return of certain merchandises without reason within seven days after customer’s receipt of the applicable merchandise. A proper sales reserve is made to account for the potential loss from returns from customers. Historically, sales returns seven days after merchandise receipts have been minimal.
Revenue from sales of merchandise to non-retail customers is recognized when the following conditions are met: (1) persuasive evidence of an arrangement exists (sales agreements and customer purchase orders are used to determine the existence of an arrangement); (2) delivery of goods has occurred and risks and benefits of ownership have been transferred, which is when the goods are received by the customer at its designated location in accordance with the sales terms; (3) the sales price is fixed or determinable; and (4) collectability is probable. Historically, sales returns have been minimal.
The Company’s revenue is net of value added tax (“VAT”) collected on behalf of PRC tax authorities in respect to the sales of merchandise. VAT collected from customers, net of VAT paid for purchases, is recorded as a liability in the accompanying consolidated balance sheets until it is paid to the relevant PRC tax authorities.
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.
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 our vendors, such as pharmaceutical manufacturers and other distributors. Since the acquisition of Jiuxin Medicine, we have transferred almost all logistics services of our retail drugstores to Jiuxin Medicine. Jiuzhou Pharmacy only directly purchases certain non-medical products, such as certain nutritional supplements. As a result, almost all advances to suppliers are made by Jiuxin Medicine.
Advances to suppliers for our drug wholesale business consist of prepayments to our vendors, such as pharmaceutical manufacturers and other distributors. We typically receive products from vendors within three to nine months after making prepayments. We continuously monitor delivery from, and payments to, our vendors while maintaining a provision for estimated credit losses based upon historical experience and any specific supplier issues, such as discontinuing of inventory supply, that have been identified. If we are having difficulty receiving products from a vendor, we take the following steps: cease purchasing products from such vendor, ask for return of our prepayment promptly, and if necessary, take legal action. If all of these steps are unsuccessful, management then determines whether or not the prepayments should be reserved or written off.
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Inventories
Inventories are stated at the lower of cost or market value. Cost is determined using the first in first out (FIFO) method. Market value is the lower of replacement cost or net realizable value. 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 right | 50 years | |
| Software | 3 years |
The Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate that the assets might be impaired.
Impairment of long lived assets
The Company evaluates long lived tangible and intangible assets for impairment, whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability is measured by comparing the assets’ net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss. There were no fixed assets and farmland assets impaired for the nine months ended December 31, 2016 (See Notes 6 and 9).
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.
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Income taxes
The Company follows FASB ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company has adopted FASB ASC Topic 740-10-25, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. The Company must 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 are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company performed a self-assessment and the Company’s liability for income taxes includes liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by taxing authorities. Audit periods remain open for review until the statute of limitations has passed, which in the PRC is usually 5 years. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of December 31, 2016 and March 31, 2016, the management of the Company considered that the Company had no additional liabilities for uncertain tax positions affecting its consolidated financial position and results of operations or cash flows, and will continue to evaluate for any uncertain position in the future. There are no estimated interest costs and penalties provided in the Company’s consolidated financial statements for the three months ended December 31, 2015 and 2016, respectively. The Company’s tax positions related to open tax years are subject to examination by the relevant tax authorities and the major one is the China Tax Authority.
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.
The accounting standards clarify the accounting and disclosure requirements for uncertain tax positions and prescribe a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. The accounting standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. No significant penalties, uncertain tax provisions or interest relating to income taxes were incurred during the periods ended December 31, 2016 and 2015.
Stock based compensation
The Company follows the provisions of ASC 718, “Compensation — Stock Compensation,” which establishes accounting standards for non-employee and employee stock-based awards. Under the provisions of 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 $121,140 and $156,911 for three months ended December 31, 2016 and 2015, respectively, and $303,626 and $354,964 for the nine months ended December 31, 2016 and 2015, respectively. Such costs consist primarily of print and promotional materials such as flyers to local communities.
Operating leases
The Company leases premises for retail drugstores, offices and wholesale warehouse under non-cancelable operating leases. Operating lease payments are expensed over the term of lease. A majority of the Company’s retail drugstore leases have a 3 to 8 year term with a renewal option upon the expiration of the lease; the wholesale warehouse lease has a 10-year term with a renewal option upon the expiration of the lease. The Company has historically been able to renew a majority of its drugstores leases. Under the terms of the lease agreements, the Company has no legal or contractual asset retirement obligations at the end of the lease. In addition, land leased from the government is amortized on a straight-line basis over a 30-year term.
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.
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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 December 31, 2016 and March 31, 2016 were translated at 1 RMB to 0.1440 USD and at 1 RMB to 0.1551 USD, respectively. The average translation rates applied to income and cash flow statement amounts for the nine months ended December 31, 2016 and 2015 were at 1 RMB to 0.1498USD and at 1 RMB to 0.1582 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 77,528) per bank. As of December 31, 2016 and March 31, 2016, the Company had deposits totaling $13,623,893 and $20,419,863 that were covered by such limited insurance, respectively. Any balance over RMB 500,000 (USD 71,997) per bank in PRC will not be covered. To date, the Company has not experienced any losses in such accounts.
For the three months ended December 31, 2016, two largest vendor accounted for 46.5% of the Company’s total purchases and one vendor accounted for 10.9% of the Company’s total advances to suppliers. For the three months ended December 31, 2015, one largest vendors accounted for 17.6% of the Company’s total purchases and two vendors accounted for 25.1% of total advances to suppliers.
For the nine months ended December 31, 2016, two largest vendors accounted for 41.0% of the Company’s total purchases and one vendor accounted for 10.9% of the Company’s total advances to suppliers. For the nine months ended December 31, 2015, one largest vendors accounted for 16.7% of the Company’s total purchases and two vendors accounted for 25.1% of total advances to suppliers.
For the three months and nine months ended December 31, 2016 and December 31, 2015, no customer accounted for more than 10% of the Company’s total sales or accounts receivable.
Recent Accounting Pronouncements
Measurement of Credit Losses on Financial Instruments
In June 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the assumptions, models and methods for estimating expected credit losses. This ASU is effective for the Company beginning in the first quarter of 2020 and allows for early adoption beginning in the first quarter of the calendar year of 2019. The Company is currently evaluating the impact the ASU will have on its Consolidated Financial Statements.
Improvements to Employee Share-Based Payment Accounting
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” requiring the recognition of the income tax effects of stock awards in the income statement when the awards are settled and allowing the Company to repurchase more of an employee's shares than allowed under current guidance, without triggering liability accounting. This ASU also addresses simplifications related to statement of cash flows classification and accounting for forfeitures. This ASU is effective for the Company beginning in the first quarter of the fiscal year of 2018 and allows for early adoption. The Company is currently evaluating the impact this ASU will have on its Consolidated Financial Statements.
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” replacing most existing revenue recognition guidance under GAAP and eliminating industry specific guidance. The core principle of the new guidance is that an entity should recognize revenue for the transfer of goods and services equal to an amount it expects to be entitled to receive for those goods and services.
In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” deferring the effective date by one year.
In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Gross versus Net),” clarifying the principal versus agent guidance in the new revenue recognition standard, by revising the indicators to focus on evidence that the company is a principal.
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In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” reducing the complexity when applying the guidance for identifying performance obligations and clarifying how to determine whether revenue related to a performance obligation for an intellectual property license is recognized over time or at a point in time.
In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” clarifying certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition.
These ASUs are effective for the Company beginning in the first quarter of the fiscal year of 2019, allow for early adoption in the first quarter of 2017 and may be applied using either a full retrospective approach or a modified retrospective approach. The Company is currently evaluating the method of adoption and the impact these ASUs will have on its Consolidated Financial Statements.
NOTE 3 – FINANCIAL ASSETS AVAILABLE FOR SALE
As of December 31, 2016 and March 31, 2016, financial assets available for sale amounted to $0 and $465,165 (RMB 3,000,000), respectively. On March 28, 2016, the Company purchased from Bank of Hangzhou a wealth-management product called “Lehui 2016”, which bears an annual interest rate of 4.15% and which came due and was paid back on September 26, 2016. The total principal is $465,165 (RMB 3,000,000) interest received is approximately $9,433. It is a half-year deposit available to the Company at its demand.
NOTE 4 – TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consisted of the following:
| December 31, 2016 | March 31, 2016 | |||||||
| Accounts receivable | $ | 10,291,805 | $ | 10,153,840 | ||||
| Less: allowance for doubtful accounts | (850,419 | ) | (2,099,243 | ) | ||||
| Trade accounts receivable, net | $ | 9,441,386 | $ | 8,054,597 | ||||
For the three months ended December 31, 2016 and 2015, $75,126 and $41,671 in accounts receivable were directly written off respectively. For the nine months ended December 31, 2016 and 2015, $138,508 and $133,544 in accounts receivable were directly written off respectively.
Note 5 – OTHER CURRENT ASSETS
Other current assets consisted of the following:
| December 31, 2016 | March 31, 2016 | |||||||
| Prepaid rental expenses(1) | $ | 1,082,492 | $ | 1,052,196 | ||||
| Prepaid and other current assets | 400,939 | 465,852 | ||||||
| Total | $ | 1,483,431 | $ | 1,518,048 | ||||
| (1) | Represents store and office rental expenses that were usually prepaid and amortized over the prepayment period. |
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Note 6 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
| December 31, 2016 | March 31, 2016 | |||||||
| Building | $ | 1,543,902 | $ | 1,662,510 | ||||
| Leasehold improvements | 11,622,751 | 12,308,190 | ||||||
| Farmland development cost | 1,722,069 | 1,854,364 | ||||||
| Office equipment and furniture | 5,273,441 | 5,560,171 | ||||||
| Motor vehicles | 580,740 | 624,235 | ||||||
| Total | 20,742,903 | 22,009,470 | ||||||
| Less: Accumulated depreciation | (13,974,343 | ) | (14,138,992 | ) | ||||
| Impairment* | (2,161,359 | ) | (2,327,402 | ) | ||||
| Property and equipment, net | $ | 4,607,201 | $ | 5,543,076 | ||||
* The variance of impairment from March 31, 2016 to December 31, 2016 is solely caused by exchange rate variance.
Total depreciation expense for property and equipment was $425,127 and $218,022 for the three months ended December 31, 2016 and 2015, respectively, and $878,106 and $966,040 for the nine months ended December 31, 2016 and 2015, respectively. There were no fixed assets impaired in the three and nine months ended December 31, 2016.
Note 7 – ADVANCES TO SUPPLIERS
Advances to suppliers consist of deposits, with or advances to, outside vendors for future inventory purchases. Most of the Company’s vendors require a certain amount of money to be deposited with them as a guarantee that the Company will receive its purchase on a timely basis. This amount is refundable and bears no interest. As of December 31, 2016 and March 31, 2016, advance to suppliers consist of the following:
| December 31, 2016 | March 31, 2016 | |||||||
| Advance to suppliers | $ | 4,684,312 | $ | 4,336,207 | ||||
| Less: allowance for doubtful accounts | (844,677 | ) | (105,542 | ) | ||||
| Advance to suppliers, net | $ | 3,839,635 | $ | 4,230,665 | ||||
For the three and nine months ended December 31, 2016 and 2015, none of the advances to suppliers were written off against previous allowance for doubtful accounts, respectively.
Note 8 – INVENTORY
Inventory consisted of finished goods, valued at $10,565,855 and $10,802,691 as of December 31, 2016 and March 31, 2016, respectively. As the sales in the first two fiscal quarters were affected by the G20 summit in Hangzhou, the Company planned to implement a sales campaign in the third quarter and prepared more inventory. Because suppliers usually provide a higher discount and rebate rate if more inventory is purchased in bulk, the Company tends to purchase more inventory to maximize its profit margin. The Company constantly monitors its potential obsolete products and is allowed to return products close to their expiration date to its suppliers. Any loss on damaged items is immaterial and will be recognized immediately. As a result, no reserves were made as of December 31, 2016 and March 31, 2016.
Note 9 – FARMLAND ASSETS
Farmland assets are ginkgo trees planted in 2012 and expected to be harvested and sold in several years. As of December 31, 2016 and March 31, 2016, farmland assets consisted of the following:
| December 31, | March 31, | |||||||
| 2016 | 2016 | |||||||
| Farmland assets | $ | 2,213,058 | $ | 2,346,209 | ||||
| Less: Impairment* | (728,071 | ) | (784,004 | ) | ||||
| Farmland assets, net | $ | 1,484,987 | $ | 1,562,205 | ||||
* The estimated fair value is estimated to be lower than its investment value as of December 31, 2016 and March 31, 2016.
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Note 10 – LONG TERM DEPOSITS, LANDLORDS
As of December 31, 2016 and March 31, 2016, long term deposits amounted to $2,277,120 and $2,452,056, respectively. Long term deposits are money deposited with, or advanced to, landlords for securing retail store leases for which the Company does not anticipate applying or being returned within the next twelve months. Most of the Company’s landlords require a minimum of nine months’ rent being paid upfront plus additional deposits.
Note 11 – OTHER NONCURRENT ASSETS
| December 31, | March 31, | |||||||
| 2016 | 2016 | |||||||
| Prepayment for headquarter office(1) | $ | 336,944 | $ | - | ||||
| Prepayment for lease of land use right(2) | 2,390,457 | 2,595,129 | ||||||
| Other noncurrent assets | $ | 2,727,401 | $ | 2,595,129 | ||||
(1) As of December 31, 2016, a total of $584,688 (RMB3,900,000) was prepaid as headquarter office rental for five years from January 1, 2016 to December 31, 2020. As of December 31, 2016, prepaid rental for less than one year was classified as current assets, the remaining balance of $336,944 was classified as noncurrent assets.
(2) The prepayment for lease of land use right is a payment made to a local government in connection with entering into a 30-year operating land lease agreement. The land is currently used to cultivate Ginkgo trees. This prepayment includes a deposit of $1,049,440, which will be refundable on the due date. Based on expected output from planted Gingko trees such as expected fruit production and tree market value, the fair value of the lease prepayment was lower than carrying cost. As a result, the Company recorded impairment on the lease prepayment.
The amortization of the prepayment for the lease of land use right was approximately $15,107 and $16,137 for the three months ended December 31, 2016 and 2015, respectively. The amortization of the prepayment for the lease of land use right was approximately $46,396 and $49,524 for the nine months ended December 31, 2016 and 2015, respectively.
The Company’s amortizations of the prepayment for lease of land use right for the next five years and thereafter are as follows:
| Years ending December 31, | Amount | |||
| 2017 | $ | 61,861 | ||
| 2018 | 61,861 | |||
| 2019 | 61,861 | |||
| 2020 | 61,861 | |||
| 2021 | 61,861 | |||
| Thereafter | 1,149,282 | |||
Note 12 – INTANGIBLE ASSETS
Net intangible assets consisted of the following at:
| December 31, 2016 | March 31, 2016 | |||||||
| License (1) | $ | 1,383,773 | $ | 1,482,492 | ||||
| Land use rights (2) | 1,404,155 | 1,512,027 | ||||||
| Total intangible assets | 2,787,928 | 2,994,519 | ||||||
| Less: accumulated amortization | (81,009 | ) | (65,740 | ) | ||||
| Intangible assets, net | $ | 2,706,919 | $ | 2,928,779 | ||||
Amortization expense of intangibles amounted to $7,542 and $6,720 for the three months ended December 31, 2016 and 2015, respectively, and $21,133 and $22,541for the nine months ended December 31, 2016 and 2015, respectively.
| (1) | This represents the fair value of the licenses of insurance applicable drugstores acquired from Sanhao Pharmacy. The licenses allow patients to pay by using insurance cards at stores and the stores can get reimbursed from the Human Resource and Social Security Department of Hangzhou City. |
| (2) | In July 2013, the Company purchased the land use right of a plot of farmland in Lin’ an, Hangzhou, intended for the establishment of an herb processing plant in the future. However, as our farming business in Lin’an has not grown, the Company does not expect completion of the plant in near future. |
| 14 |
Note 13 – NOTES PAYABLE
The Company has credit facilities with Hangzhou United Bank (“HUB”), Bank of Hangzhou (“BOH”), Industrial and Commercial Bank of China (“ICBC”) and Zhejiang Tailong Commercial Bank (“ZTCB”) that provided working capital in the form of the following bank acceptance notes at December 31, 2016 and March 31, 2016:
| Origination | Maturity | December 31, | March 31, | |||||||||||||||||
| Beneficiary | Endorser | date | date | 2016 | 2016 | |||||||||||||||
| Jiuzhou Pharmacy(1) | HUB | 04/22/15 | 04/21/16 | - | 1,550,550 | |||||||||||||||
| Jiuzhou Pharmacy(1) | HUB | 04/29/15 | 04/28/16 | - | 3,333,683 | |||||||||||||||
| Jiuzhou Pharmacy(1) | HUB | 10/09/15 | 04/09/16 | - | 1,708,706 | |||||||||||||||
| Jiuzhou Pharmacy(1) | HUB | 11/02/15 | 05/02/16 | - | 2,553,756 | |||||||||||||||
| Jiuzhou Pharmacy(2) | BOH | 12/27/15 | 05/27/16 | - | 1,592,415 | |||||||||||||||
| Jiuzhou Pharmacy(1) | HUB | 12/28/15 | 06/28/16 | - | 2,741,372 | |||||||||||||||
| Jiuzhou Pharmacy(2) | BOH | 12/29/15 | 06/29/16 | - | 58,913 | |||||||||||||||
| Jiuzhou Pharmacy(3) | ICBC | 02/03/16 | 08/03/16 | - | 1,307,114 | |||||||||||||||
| Jiuzhou Pharmacy(1) | HUB | 03/07/16 | 09/07/16 | - | 2,749,125 | |||||||||||||||
| Jiuzhou Pharmacy(1) | HUB | 08/05/16 | 02/05/17 | 1404,336 | - | |||||||||||||||
| Jiuzhou Pharmacy(1) | HUB | 08/29/16 | 02/28/17 | 2,501,977 | - | |||||||||||||||
| Jiuzhou Pharmacy(1) | HUB | 10/09/16 | 04/09/17 | 1,742,315 | - | |||||||||||||||
| Jiuzhou Pharmacy(1) | HUB | 10/09/16 | 04/09/17 | 339,036 | - | |||||||||||||||
| Jiuzhou Pharmacy(1) | HUB | 11/08/16 | 05/08/17 | 1,624,770 | - | |||||||||||||||
| Jiuzhou Pharmacy(1) | HUB | 11/11/16 | 05/11/17 | 312,465 | - | |||||||||||||||
| Jiuzhou Pharmacy(1) | HUB | 12/06/16 | 06/05/17 | 1,496,392 | - | |||||||||||||||
| Jiuzhou Pharmacy(1) | HUB | 12/29/16 | 06/29/17 | 1,196,107 | - | |||||||||||||||
| Jiuzhou Pharmacy(1) | HUB | 12/29/16 | 06/29/17 | 1,022,350 | - | |||||||||||||||
| Jiuzhou Pharmacy(1) | ZTCB | 12/27/16 | 06/27/17 | 575,972 | - | |||||||||||||||
| Total | $ | 12,215,720 | $ | 17,595,634 | ||||||||||||||||
| (1) | As of March 31, 2016, the Company had $14,696,105 (RMB94,779,950) of notes payable from HUB. The Company is required to hold restricted cash of $11,278,693 (RMB72,739,950) with HUB as collateral against these bank notes. As of December 31, 2016, the Company had $11,639,748 (RMB 80,835,515.2) of notes payable from HUB. The Company is required to hold restricted cash of $1,704,149 (RMB11,834,947.2) with HUB as collateral against these bank notes. Additionally, a total of $5,962,176 three-year deposit (RMB41,406,011) was deposited into HUB as a collateral for current and future notes payable from HUB. |
| (2) | As of March 31, 2016, the Company had $1,592,415 (RMB10,270,000) of notes payable from BOH. The land use right of the farmland in Lin’An, Hangzhou is pledged as collateral for these bank acceptance notes (see Note 12). The Company is required to hold restricted cash of $480,671 (RMB3,100,000) with BOH as collateral against these bank notes. As of December 31, 2016, the Company had no notes payable from BOH. |
| (3) | As of March 31, 2016, the Company had $1,307,114 (RMB8,430,000) of notes payable from ICBC, with restricted cash of $928,051 (RMB5,985,300) held at the bank. As of December 31, 2016, the Company had no notes payable from ICBC. |
| (4) | As of December 31, 2016, the Company had $575,972 (RMB4,000,000) of notes payable from ZTCB, with restricted cash of $287,986 (RMB2,000,000) held at the bank. |
As of December 31, 2016, the Company had a credit line of approximately $13.77million in the aggregate from HUB, BOH, ICBC and ZTCB. By putting up the restricted cash of $2.97 million deposited in the banks, the total credit line was $16.74 million. As of December 31, 2016, the Company had approximately $12.22 million of bank notes payable and approximately $4.52 million bank credit line was still available for further borrowing. The bank notes are also secured by buildings owned by the Company’s major shareholders, a shop of Jiuzhou Pharmacy, and guaranteed by Jiuxin Medical.
Note 14 – TAXES
Income tax
For the three and nine months ended December 31, 2016 and 2015, the income tax provisions were as follow:
| Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Income tax | $ | 18,045 | $ | 35,099 | $ | 63,963 | $ | 79,224 | ||||||||
| 15 |
The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.
| Entity | Income Tax Jurisdiction | |
| Jo-Jo Drugstores | United States | |
| Renovation | Hong Kong, PRC | |
| All other entities | Mainland, PRC |
The following table reconciles the U.S. statutory tax rates with the Company's effective tax rate for the three and nine months ended December 31, 2016 and 2015:
| For the three months | For the nine months | |||||||||||||||
| Ended December 31, | ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| U.S. Statutory rates | 34 .0 | % | 34 .0 | % | 34.0 | % | 34.0 | % | ||||||||
| Foreign income not recognized in the U.S. | (34.0 | ) | (34.0 | ) | (34.0 | ) | (34.0 | ) | ||||||||
| China income taxes | 25.0 | 25.0 | 25.0 | 25.0 | ||||||||||||
| Change in valuation allowance (1) | (25.0 | ) | (25.0 | ) | (25.0 | ) | (25.0 | ) | ||||||||
| Non-deductible expenses-permanent difference (2) | (2.2 | ) | (5.7 | ) | (11.8 | ) | (22.3 | ) | ||||||||
| Effective tax rate | (2.2 | )% | (5.7 | )% | (11.8 | )% | (22.3 | )% | ||||||||
| (1) | It represents non-taxable expense reversal due to overall decrease in allowance for accounts receivable and advance to suppliers. |
| (2) | The (2.2)% and (5.7)% rate adjustments for the three months ended December 31 2016 and 2015, and the (11.8)% and (22.3)% rate adjustments for the nine months ended December 31, 2016 and 2015 represents expenses primarily included stock option expense, legal, accounting and other expenses incurred by the Company that were not deductible for PRC income tax. |
Jo-Jo Drugstores is incorporated in the U.S. and incurred a net operating loss for income tax purposes for the three and nine months ended December 31, 2016 and 2015. As of December 31, 2016, the estimated net operating loss carry forwards for U.S. income tax purposes amounted to $1,503,000 which may be available to reduce future years’ taxable income. These carry forwards will expire, if not utilized by 2032. Management believes that the realization of the benefits arising from this loss appears to be uncertain due to the Company’s limited operating history and continuing losses for U.S. income tax purposes. Accordingly, the Company has provided a 100% valuation allowance at December 31, 2015. There was no net change in the valuation allowance for the three and nine months ended December 31, 2016 and 2015. Management reviews this valuation allowance periodically and makes adjustments as necessary.
Taxes payable at December 31, 2016 and March 31, 2016 consisted of the following:
| December 31, 2016 | March 31, 2016 | |||||||
| VAT | $ | 541,949 | $ | 422,804 | ||||
| Income tax | 14,809 | 10,880 | ||||||
| Others | 37,557 | 50,086 | ||||||
| Total taxes payable | $ | 594,315 | $ | 483,770 | ||||
The Company has adopted ASC Topic 740-10-05, “Income Taxes.” To date, the adoption of this interpretation has not impacted the Company’s financial position, results of operations, or cash flows. The Company performed a self-assessment and the Company’s liability for income taxes includes liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by taxing authorities. Audit periods remain open for review until the statute of limitations has passed, which in the PRC is usually 5 years. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of December 31 and March 31, 2016, management considered that the Company had no uncertain tax positions affecting its consolidated financial position and results of operations or cash flows, and will continue to evaluate for any uncertain position in future. There are no estimated interest costs and penalties provided in the Company’s consolidated financial statements for the three months and nine months ended December 31, 2016 and 2015, respectively. The Company’s tax positions related to open tax years are subject to examination by the relevant tax authorities and the major one is the China Tax Authority.
Note 15 – 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 $311,202 and $299,424 in employment benefits and pension for the three months ended December 31, 2016 and 2015, respectively, and $781,834 and $767,829 in employment benefits and pension for the nine months ended December 31, 2016 and 2015, respectively.
| 16 |
Note 16 – RELATED PARTY TRANSACTIONS AND ARRANGEMENTS
Amounts payable to related parties are summarized as follows:
| December 31, 2016 | March 31, 2016 | |||||||
| Due to cofounders (1): | $ | - | $ | 576,818 | ||||
| Due to a director and CEO (2): | 922,192 | 1,622,957 | ||||||
| Total | $ | 922,192 | $ | 2,199,775 | ||||
| (1) | As of March 31, 2016, amount due to cofounders represents contributions from the Owners to Jiuxin Management to enable Jiuxin Management to meet its approved PRC registered capital requirements. |
| (2) | 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. On October 11, 2016, the Company issued a total of 949,000 shares of common stock to Lei Liu, at $1.69 per share, the fair market value, or the closing stock price on Nasdaq on October 11, 2016, to offset the debts in the amount of $1,603,810 owed to Mr. Liu. |
As of December 31, 2016 and March 31, 2016, notes payable totaling $5,231,195 and $5,302,881 were secured by the personal properties of certain of the Company’s shareholders, respectively.
The Company leases from Mr. Lei Liu a retail space which expires in September 2017. Rent expense amounted to $3,867 and $4,257 for the three months ended December 31, 2016 and 2015, respectively. Rent expense amounted to $12,959 and $52,767 for the nine months ended December 31, 2016 and 2015, respectively. The amounts were not paid to Mr. Liu as of December 31, 2016.
Note 17 – WARRANTS
On September 26, 2013, as annual compensation for its financial advisory service, the Company issued a warrant to a financial consulting firm to purchase up to 150,000 shares of common stock at $1.20 per share. The warrant is exercisable from September 26, 2013 to September 25, 2016. On September 21, 2016, the warrants were exercised at the stock price of $1.84 in a cashless manner. As a result, 52,174 shares were issued for the full exercise of the warrant.
On September 26, 2013, the issuance date of the warrant, the Company classified the fair value of the warrant as a liability of $33,606. The Company recognized a gain of $0 and $15,444 from the change in fair value of the warrant liability for the three months ended December 31, 2016 and December 31, 2015, The Company recognized a loss of $76,633 and $58,318 from the change in fair value of the warrant liability for the nine months ended December 31, 2016 and December 31, 2015,respectively. As a result, the warrant liability is carried on the consolidated balance sheets at the fair value of $0 and $89,997 as of December 31, 2016 and March 31, 2016, respectively.
In connection with the registered direct offering closed on July 19, 2015, the Company issued to an investor warrant to purchase up to 600,000 shares of common stock at an exercise price of $3.10 per share. The warrant is exercisable commencing on January 19, 2016 and will expire on January 18, 2021. In connection with the offering, the Company also issued warrant to its placement agent of this offering, which can purchase an aggregate of up to 6% of the aggregate number of shares of common stock sold in the offering, i.e. 72,000 shares. Such warrant has the same terms as the warrant issued to investor in the offering.
The fair value of the warrants issued to purchase 672,000 shares as described above was estimated by using the binominal pricing model with the following assumptions:
| Common Stock Warrants | Common Stock Warrants | |||||||
| December 31, 2016 (1) | March 31, 2016 | |||||||
| Stock price | $ | 1.70 | $ | 1.60 | ||||
| Exercise price | $ | 3.10 | $ | 3.10 | ||||
| Annual dividend yield | 0 | % | 0 | % | ||||
| Expected term (years) | 4.05 | 4.80 | ||||||
| Risk-free interest rate | 1.93 | % | 1.21 | % | ||||
| Expected volatility | 95.94 | % | 102.16 | % | ||||
| (1) | As of December 31, 2016, the warrants had not been exercised. |
| 17 |
Upon evaluation, the warrants meet the definition of a derivative under ASC 815 as the Company cannot avoid net cash settlement under certain circumstances. Accordingly, the fair value of the warrants was classified as a liability of $546,304 as of March 31, 2016. For the three and nine months ended December 31, 2016, the Company recognized a gain of $67,297 and $35,444, respectively, for the investor warrants and placement agent warrants, 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 $510,859 for the investor warrants and placement agent warrants, collectively, as of December 31, 2016.
Note 18 – STOCKHOLDER’S EQUITY
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 expense over the requisite service periods in the Company’s consolidated statements of operations. Share-based awards are attributed to expense 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 ASC 718 “Compensation - Stock Compensation.” The assumptions used in calculating the fair value of share-based payment awards represent the Company’s best estimates. The Company’s estimates of the fair values of stock options granted and the resulting amounts of share-based compensation recognized may be impacted by certain variables including stock price volatility, employee stock option exercise behaviors, additional stock option modifications, estimates of forfeitures, and the related income tax impact.
On November 25, 2015, the Company agreed to grant a total of 150,000 shares of restricted common stock to a financial consulting firm for its financial advisory services. The term of the service agreement is one year. The trading value of the Company’s common stock on November 25, 2015 was $1.77. For the three months ended December 31, 2016 and 2015, $40,734 and $26,186 were recorded as consulting expenses, respectively. For the nine months ended December 31, 2016 and 2015, $173,848 and $26,186 were recorded as consulting expenses, respectively.
On November 27, 2015, the Company granted a total of 735,000 shares of restricted common stock to its directors, officers and certain employees under the Company’s 2010 Equity Incentive Plan, as amended (the “Plan”). The stock awards vests in one year. The trading value of the Company’s common stock on November 27, 2015 was $1.76. For the three months ended December 31, 2016 and 2015, $191,382 and $134,676 were recorded as service compensation expenses, respectively. For the nine months ended December 31, 2016 and 2015, $839,954 and $134,676were recorded as service compensation expenses, respectively.
On June 7, 2016, the Company granted a total of 8,000 shares of restricted common stock to Taylor Raffery, an investor relation firm, for its marketing services. The trading value of the Company’s common stock in June 2016 was $1.60. Taylor Raffery’s service ended in June 2016. As a result, for the three and nine months ended December 31, 2016, $12,800 was recorded as a consulting expense.
On June 3, 2016, the Company granted a total of 1,630,000 shares of restricted common stock to its key employees in retail drugstores and online pharmacy under the Company’s 2010 Equity Incentive Plan, as amended. The stock awards vests in three year. The trading value of the Company’s common stock on June 3, 2016 was $1.62. For the three and nine months ended December 31, 2016, $221,859 and $508,828 were recorded as service compensation expense, respectively.
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 in three years 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 December 31, 2016 and 2015, $124,033 and $124,033 was recorded as compensation expense. For the nine months ended December 31, 2016 and 2015, $372,100 and $372,100 was recorded as compensation expense. As of December 31, 2016, there was approximately $0.44 million of total unrecognized compensation costs related to stock option compensation arrangements granted which is expected to be recognized over the remaining weighted-average period of 0.88 years.
| 18 |
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 dividend or otherwise, except in the event of liquidation.
Appropriations to the Reserve Fund are accounted for as a transfer from unrestricted earnings to statutory reserves. During the three and nine months ended December 31, 2016 and 2015, the Company did not make appropriations to the 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 19 – INCOME PER SHARE
The Company reports earnings per share in accordance with the provisions of the FASB’s related accounting standard. This standard requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution, but includes vested restricted stocks and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.
The following is a reconciliation of the basic and diluted earnings per share computation:
| Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net income attributable to controlling interest | $ | (834,806 | ) | $ | (617,529 | ) | $ | (605,784 | ) | $ | (355,743 | ) | ||||
| Weighted average shares used in basic computation | 19,941,439 | 17,180,830 | 19,188,867 | 16,459,195 | ||||||||||||
| Diluted effect of purchase options and warrants | - | - | - | - | ||||||||||||
| Diluted effect of restricted shares | - | - | - | - | ||||||||||||
| Weighted average shares used in diluted computation | 19,941,439 | 17,180,830 | 19,188,867 | 16,459,195 | ||||||||||||
| Income per share – Basic: | ||||||||||||||||
| Net income before noncontrolling interest | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.03 | ) | $ | (0.02 | ) | ||||
| Add: Net loss attributable to noncontrolling interest | $ | - | $ | - | $ | - | $ | - | ||||||||
| Net income attributable to controlling interest | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.03 | ) | $ | (0.02 | ) | ||||
| Loss per share – Diluted: | ||||||||||||||||
| Net income before noncontrolling interest | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.03 | ) | $ | (0.02 | ) | ||||
| Add: Net income attributable to noncontrolling interest | $ | - | $ | - | $ | - | $ | - | ||||||||
| Net income attributable to controlling interest | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.03 | ) | $ | (0.02 | ) | ||||
For the three and nine months ended December 31, 2016, the 967,000 shares underlying employee stocks options and 600,000 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. For the three and nine months ended December 31, 2016, all of the warrants were also excluded from the calculation of diluted earnings per share as the options were anti-dilutive.
Note 20 – 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.
| 19 |
The following table presents summarized information by segment of the continuing operation for the three months ended December 31, 2016:
| Retail drugstores | Online Pharmacy | Drug wholesale | Herb farming | Total | ||||||||||||||||
| Revenue | $ | 14,121,567 | $ | 3,437,371 | $ | 3,051,086 | $ | - | $ | 20,610,024 | ||||||||||
| Cost of goods | 10494,940 | 3,078,509 | 2,852,704 | - | 16,426,153 | |||||||||||||||
| Gross profit | $ | 3,626,627 | $ | 358,862 | $ | 198,382 | $ | - | $ | 4,183,871 | ||||||||||
| Selling expenses | 2,455,591 | 291,598 | 822,993 | - | 3,570,182 | |||||||||||||||
| General and administrative expenses | 1,655,433 | - | (210,757 | )* | 7173 | 1,451,849 | ||||||||||||||
| (Loss) income from operations | $ | (484,397 | ) | $ | 67,264 | $ | (413,854 | ) | $ | (7173 | ) | $ | (838,160 | ) | ||||||
| Depreciation and amortization | $ | 467,852 | $ | - | $ | (43,906 | ) | $ | - | $ | 423,946 | |||||||||
| Total capital expenditures | $ | 157,805 | $ | - | $ | 6,229 | $ | - | $ | 164,034 | ||||||||||
* includes the accounts receivable and advance to suppliers allowance reversal of $331,180.
The following table presents summarized information of the continuing operations by segment for the three months ended December 31, 2015:
| Retail drugstores | Online Pharmacy | Drug wholesale | Herb farming | Total | ||||||||||||||||
| Revenue | $ | 12,928,472 | $ | 8,645,534 | $ | 3,134,040 | $ | - | $ | 24,708,046 | ||||||||||
| Cost of goods | 10,133,873 | 6,805,106 | 2,921,734 | - | 19,860,713 | |||||||||||||||
| Gross profit | $ | 2,794,599 | $ | 1,840,428 | $ | 212,,306 | $ | - | $ | 4,847,333 | ||||||||||
| Selling expenses | 2,830,717 | 327,155 | 128,765 | - | 3,286,637 | |||||||||||||||
| General and administrative expenses | 1,227,158 | 227,676 | 498,001 | * | (84,387 | )* | 1,868,448 | |||||||||||||
| (Loss) income from operations | $ | (1,263,276 | ) | $ | 1,285,597 | $ | (414,460 | ) | $ | 84,387 | $ | (307,752 | ) | |||||||
| Depreciation and amortization | $ | 266,444 | $ | - | $ | 135,498 | $ | 1,787 | $ | 400,155 | ||||||||||
| Total capital expenditures | $ | 60,282 | $ | 4,832 | $ | $ | - | $ | 65,114 | |||||||||||
* includes the accounts receivable and advance to suppliers allowance reversal of $62,935.
The following table presents summarized information of the continuing operation by segment for the nine months ended December 31, 2016:
| Retail drugstores | Online pharmacy | Drug wholesale | Herb farming | Total | ||||||||||||||||
| Revenue | $ | 39,636,796 | $ | 12,292,175 | $ | 9,777,803 | $ | - | $ | 61,706,774 | ||||||||||
| Cost of goods | 28,619,084 | 10,879,187 | 9,189,821 | - | 48,688,092 | |||||||||||||||
| Gross profit | $ | 11,017,712 | $ | 1,412,988 | $ | 587,982 | $ | - | $ | 13,018,682 | ||||||||||
| Selling expenses | 6,857,520 | 1,204,510 | 1,214,195 | - | 9,276,225 | |||||||||||||||
| General and administrative expenses | 4,836,381 | - | (102,281 | ) | 18,881 | 4,752,,981 | ||||||||||||||
| (Loss) income from operations | $ | (676,189 | ) | $ | 208,478 | $ | (523,932 | ) | $ | (18,881 | ) | $ | (1,010,524 | ) | ||||||
| Depreciation and amortization | $ | 880,711 | $ | - | $ | 9,805 | $ | - | $ | 890,516 | ||||||||||
| Total capital expenditures | $ | 207,103 | $ | - | $ | 6,229 | $ | - | $ | 213,332 | ||||||||||
* includes the accounts receivable and advance to suppliers allowance reversal of $544,508.
The following table presents summarized information of the continuing operation by segment for the nine months ended December 31, 2015:
| Retail drugstores | Online pharmacy | Drug wholesale | Herb farming | Total | ||||||||||||||||
| Revenue | $ | 38,202,495 | $ | 21,169,709 | $ | 9,224,760 | $ | - | $ | 68,596,964 | ||||||||||
| Cost of goods | 29,349,756 | 17,486,701 | 8,560,484 | - | 55,396,941 | |||||||||||||||
| Gross profit | $ | 8,852,739 | $ | 3,683,008 | $ | 664,276 | $ | - | $ | 13,200,023 | ||||||||||
| Selling expenses | 8,636,171 | 785,867 | 379,723 | - | 9,801,761 | |||||||||||||||
| General and administrative expenses | 3,518,712 | 673,606 | 30,776 | * | (594,574 | )* | 3,628,520 | |||||||||||||
| (Loss) income from operations | $ | (3,302,144 | ) | $ | 2,223,535 | $ | 253,777 | $ | 594,574 | $ | (230,258 | ) | ||||||||
| Depreciation and amortization | $ | (596,171 | ) | $ | - | $ | 409,107 | $ | 158,716 | $ | 1,163,994 | |||||||||
| Total capital expenditures | $ | 153,485 | $ | 11,501 | $ | 6,328 | $ | $ | 171,314 | |||||||||||
* include the accounts receivable and advance to suppliers allowance reversal of $1,679,630.
| 20 |
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 stores by main products is as follows:
| Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Prescription drugs | $ | 4,469,589 | $ | 5,286,711 | $ | 12,837,817 | $ | 14,722,094 | ||||||||
| Over-the-counter drugs | 7,053,888 | 4,841,875 | 17,117,444 | 15,174,868 | ||||||||||||
| Nutritional supplements | 896,122 | 1,211,700 | 3,073,882 | 3,151,830 | ||||||||||||
| Traditional Chinese medicine | 1,157,673 | 1,056,527 | 3,207,504 | 3,469,524 | ||||||||||||
| Sundry products | 236,152 | 245,419 | 714,509 | 849,129 | ||||||||||||
| Medical devices | 308,143 | 286,240 | 2,685,640 | 835,050 | ||||||||||||
| Total | $ | 14,121,567 | $ | 12,928,472 | $ | 39,636,796 | $ | 38,202,495 | ||||||||
The Company’s net revenue from external customers through online pharmacy by main products is as follows:
| Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Prescription drugs | $ | - | $ | - | $ | - | $ | - | ||||||||
| Over-the-counter drugs | 1,211,013 | 1,912,560 | 4,157,448 | 5,522,887 | ||||||||||||
| Nutritional supplements | 407,815 | 607,556 | 1,852,294 | 1,680,690 | ||||||||||||
| Traditional Chinese medicine | 1,130 | - | 1,130 | - | ||||||||||||
| Sundry products | 438,845 | 3,790,430 | 1,510,349 | 7,604,553 | ||||||||||||
| Medical devices | 1,378,568 | 2,334,988 | 4,770,954 | 6,361,579 | ||||||||||||
| Total | $ | 3,437,371 | $ | 8,645,534 | $ | 12,292,175 | $ | 21,169,709 | ||||||||
The Company’s net revenue from external customers through wholesale by main products is as follows:
| Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Prescription drugs | $ | 1,907,318 | $ | 1,953,731 | $ | 5,753,801 | $ | 5,665,095 | ||||||||
| Over-the-counter drugs | 1,127,918 | 981,250 | 3,967,959 | 3,256,020 | ||||||||||||
| Nutritional supplements | 15,110 | 83,843 | 49,929 | 127,774 | ||||||||||||
| Traditional Chinese medicine | 740 | - | 5,193 | - | ||||||||||||
| Sundry products | - | 110,292 | - | 116,706 | ||||||||||||
| Medical devices | 4,925 | 921 | 59,165 | |||||||||||||
| Total | $ | 3,051,086 | $ | 3,143,041 | $ | 9,777,803 | $ | 9,224,760 | ||||||||
| 21 |
Note 21 – COMMITMENTS AND CONTINGENCIES
Operating lease commitments
The Company recognizes lease expense on a straight line basis over the term of its leases in accordance with the relevant accounting standards. The Company has entered into various tenancy agreements for its store premises and for the land leased from a local government to farm herbs.
The Company’s commitments for minimum rental payments under its leases for the next five years and thereafter are as follows:
| Periods ending December 31, | Retail drugstores | Online pharmacy | Drug wholesale | Herb farming | Total Amount | |||||||||||||||
| 2017 | $ | 2,788,415 | $ | 36,851 | $ | 73,702 | $ | - | $ | 2,898,968 | ||||||||||
| 2018 | 2,366,946 | 36,851 | 73,702 | - | 2,477,499 | |||||||||||||||
| 2019 | 1,775,923 | 36,851 | 73,702 | - | 1,886,476 | |||||||||||||||
| 2020 | 871,320 | 36,851 | 73,702 | - | 981,873 | |||||||||||||||
| 2021 | 314,344 | 3,071 | 6,142 | - | 323,557 | |||||||||||||||
| Thereafter | 446,719 | - | - | - | 446,719 | |||||||||||||||
Total rent expense amounted to $747,744 and $918,619 for the three months ended December 31, 2016 and 2015, respectively, and $2,225,186 and $3,346,163 for the nine months ended December 31, 2016 and 2015, respectively.
Note 22 – SUBSEQUENT EVENTS
On January 4, 2017, the Company entered into a Securities Purchase Agreement with one institutional investor (the “Investor”) pursuant to which the Company agreed to sell to the Investor, and the Investor agreed to purchase from the Company, through a private placement, an aggregate of 4,840,000 shares of the common stock, par value $0.001 per share, of the Company, at a purchase price of $2.20 per share, for aggregate gross proceeds to the Company of $10,648,000 (the “Private Placement”). The Private Placement was closed on January 21, 2017.
On January 18, 2017, Jiuzhou Pharmacy entered into a joint venture agreement (the “JV”) with the Investor’s designated entity, CareRetail (HK) Holdings Limited (“CareRetail HK”) pursuant to which CareRetail HK shall have 51% equity interests of the JV and Jiuzhou Pharmacy shall have the remaining 49% equity interests. The total registered capital of the JV is $1,600,000, to be contributed by both parties based on their ownership percentages in the JV by December 31, 2019. The JV is in the business of management and consulting in the industry of non-medical care management and consulting, wholesale and retail of certain categories of medical devices and others subject to the scope to be set forth in its business license.
| 22 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following management’s discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this item. In addition to historical information, the following discussion contains certain forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as "may," "will," "could," "expect," "anticipate," "intend," "believe," "estimate," "plan," "predict," and similar terms or terminology, or the negative of such terms or other comparable terminology. Although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bound of our knowledge of our business, our actual results could differ materially from those discussed in these statements. Factors that could contribute to such differences include, but are not limited to, those discussed in the "Risk Factors" section of our annual report on Form 10-K for the year ended March 31, 2016 and filed with the SEC on June 28, 2015. We undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future.
Our financial statements are prepared in U.S. Dollars and in accordance with accounting principles generally accepted in the United States. See "Exchange Rates" below for information concerning the exchanges rates at which Renminbi ("RMB") were translated into U.S. Dollars (“USD” or “$”) at various pertinent dates and for pertinent periods.
Overview
We currently operate in four business segments in China: (1) retail drugstores, (2) online pharmacy, (3) wholesale of products similar to those that we carry in our pharmacies, and (4) farming and selling herbs used for traditional Chinese medicine (“TCM”).
Our drugstores offer customers a wide variety of pharmaceutical products, including prescription and over-the-counter (“OTC”) drugs, nutritional supplements, TCM, personal and family care products, and medical devices, as well as convenience products, including consumable, seasonal, and promotional items. Additionally, we have licensed doctors of both western medicine and TCM on site for consultation, examination and treatment of common ailments at scheduled hours. We currently have 65 pharmacies in Hangzhou under the store brand of “Jiuzhou Grand Pharmacy.” During the nine months ended December 31, 2016, we have opened six new pharmacies.
Since May 2010, we have also been selling certain OTC drugs, medical devices, nutritional supplements and other sundry products online. Our online pharmacy sells through several third-party platforms such as Alibaba’s Tmall, JD.com and Amazon.com, and the Company’s own platform all over China. In fiscal year 2017, in order to keep top rankings in certain third-party platforms such as Tmall, we have spent reasonable resources in markting our products through these third-party platforms. Our sales through our own platform are primarily generated by customers who use their private commercial medical insurances package.
We operate a wholesale business through Jiuxin Medicine distributing third-party pharmaceutical products (similar to those carried by our pharmacies) primarily to trading companies throughout China. We also farm certain herbs used in TCM but have not incurred sales in the three and nine months ended December 31, 2016.
As described in the above, on January 21, 2017, we closed the Private Placement with an institutional investor for gross proceeds of $10,648,000. In connection with the Private Placement, Jiuzhou Pharmacy entered into a joint venture agreement (the “JV”) with CareRetail HK pursuant to which CareRetail HK shall have 51% equity interests of the JV and Jiuzhou Pharmacy shall have the remaining 49% equity interests. The total registered capital of the JV is $1,600,000, to be contributed by both parties based on their ownership percentages in the JV by December 31, 2019. The new JV will engage in business of pharmaceutical retail and wholesale, as well as pharmaceutical business management.
Critical Accounting Policies and Estimates
In preparing our unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, we are required to make judgments, estimates and assumptions that affect: (i) the reported amounts of our assets and liabilities; (ii) the disclosure of our contingent assets and liabilities at the end of each reporting period; and (iii) the reported amounts of revenue and expenses during each reporting period. We continually evaluate these estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and reasonable assumptions, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ materially from those estimates.
We believe that any reasonable deviation from those judgments and estimates would not have a material impact on our financial condition or results of operations. To the extent that the estimates used differ from actual results, however, adjustments to the statement of operations and corresponding balance sheet accounts would be necessary. These adjustments would be made in future financial statements.
When reading our financial statements, you should consider: (i) our critical accounting policies; (ii) the judgment and other uncertainties affecting the application of such policies; and (iii) the sensitivity of reported results to changes in conditions and assumptions. The critical accounting policies and related judgments and estimates used to prepare our financial statements are identified in Note 3 to our unaudited consolidated financial statements accompanying in this report. We have not made any material changes in the methodology used in our accounting policies that are inconsistent with those discussed in our annual report on Form 10-K for the year ended March 31, 2016.
| 23 |
Results of Operations
Comparison of three months ended December 31, 2016 and 2015
The following table summarizes our results of operations for the three months ended December 31, 2016 and 2015:
| Three months ended December 31, | ||||||||||||||||
| 2016 | 2015 | |||||||||||||||
| Amount | Percentage of total revenue | Amount | Percentage of total revenue | |||||||||||||
| Revenue | $ | 20,610,024 | 100.0 | % | $ | 24,708,046 | 100.0 | % | ||||||||
| Gross profit | $ | 4,183,871 | 20.3 | % | $ | 4,847,333 | 19.6 | % | ||||||||
| Selling expenses | $ | 3,570,182 | 17.3 | % | $ | 3,286,637 | 13.3 | % | ||||||||
| General and administrative expenses | $ | 1,451,849 | 7.0 | % | $ | 1,868,448 | 7.7 | % | ||||||||
| Loss from operations | $ | (838,160 | ) | (4.1 | )% | $ | (307,752 | ) | (1.2 | )% | ||||||
| Interest income | $ | 54,003 | 0.3 | % | $ | 115,740 | 0.5 | % | ||||||||
| Interest expenses | $ | (415 | ) | 0.0 | % | $ | 5,925 | 0.0 | % | |||||||
| Other income, net | $ | (99,485 | ) | (0.5 | )% | $ | (290,122 | ) | (1.2 | )% | ||||||
| Change in fair value of purchase option derivative liability | $ | 67,296 | 0.3 | % | $ | (15,444 | ) | (0.1 | )% | |||||||
| Income tax expense (benefit) | $ | 18,045 | (0.1 | )% | $ | 35,099 | 0.1 | % | ||||||||
| Net income | $ | (834,806 | ) | (4.1 | )% | $ | (617,529 | ) | (2.5 | )% | ||||||
Revenue
Primarily due to the decline in our online pharmacy business, revenue decreased by $4,098,022 or 16.6% for the three months ended December 31, 2016, as compared to the three months ended December 31, 2015, partially offset by the increase in our retail drugstore business. The following table breaks down the revenue for our four business segments for the three months ended December 31, 2016 and 2015:
Quarterly Revenue by Segment
The following table breaks down the revenue for our four business segments for the three months ended December 31, 2016 and 2015:
| Three months ended December 31, | ||||||||||||||||||||||||
| 2016 | 2015 | |||||||||||||||||||||||
| Amount | % of total revenue | Amount | % of total revenue | Variance by amount | % of change | |||||||||||||||||||
| Revenue from retail drugstores | $ | 14,121,567 | 68.5 | % | $ | 12,928,472 | 52.3 | % | $ | 1,193,095 | 9.2 | % | ||||||||||||
| Revenue from online sales | 3,437,371 | 16.7 | % | 8,645,534 | 35.0 | % | (5,208,163 | ) | (60.2 | )% | ||||||||||||||
| Revenue from wholesale business | 3,051,086 | 14.8 | % | 3,134,040 | 12.7 | % | (82,954 | ) | (2.6 | )% | ||||||||||||||
| Revenue from farming business | - | - | % | - | - | % | - | - | % | |||||||||||||||
| Total revenue | $ | 20,610,024 | 100.0 | % | $ | 24,708,046 | 100.0 | % | $ | (4,098,022 | ) | (16.6 | )% | |||||||||||
| 24 |
Retail drugstores sales, which accounted for approximately 68.5% of total revenue for the three months ended December 31, 2016, increased by $1,193,095, or 9.2% compared to the three months ended December 31, 2015, to $14,121,567. Same-store sales increased by approximately $728,822, or 6.0%, while new stores contributed approximately $572,876 in revenue in the three months ended December 31, 2016. Excluding the RMB depreciation effect, the same store sales increased by approximately 12.9% period over period. The G20 summit held in Hangzhou in September 2016 impeded our sales in the first two quarters of fiscal 2017, as the local government has significantly tightened its security requirements and prevented people from entering Hangzhou City before and during the G20 summit. In order to catch up with the sales plan in 2016, after the G20 summit, we have made a series of marketing activities to promote sales. For instance, close to the Chinese Spring Festival, people tend to purchase more nutritional supplements such as ginseng, bird’s-nest and colla coril asini. We have negotiated with major manufacturers and vendors of nutritional supplements in advance and ordered a large quantity at favorable prices. As a result, we are able to implement various marketing campaigns to promote sales. Additionally, since the beginning of 2016, we have expended considerable efforts in establishing and improving our chronic disease management program, which has gradually attracted quite a few loyal customers who continuously refill their prescriptions and purchase supplemental products at our stores. Our store count increased to 65 as of December 31, 2016, compared to 59 stores as of December 31, 2015.
Our online pharmacy sales decreased by approximately $5,208,163, or 60.2% for the three months ended December 31, 2016, as compared to the three months ended December 31, 2015. The decrease was mainly caused by the decline in business referred from Yikatong and decline in our sales via various e-commerce platforms, as further explained below, during this quarter. We carry our business either through certain e-commerce platforms such as Tmall and JD.com or via our own official online pharmacy website. Such arrangements with third-party platforms have exposed our online presence to a wider consumer base. In order to increase the popularity of our products, we have made considerable efforts to identify popular products that can drive sales, while keeping close watch on cost. However, due to the China Food and Drug Administration (“CFDA”) suspension of OTC drug sales on e-commerce platforms such as Alibaba in the second quarter, our sales via these e-commerce platforms have been curtailed. As a result, our sales via these e-commerce platforms decreased by 29.8% period over period. To minimize the effect of OTC drug sales suspension, we are using these platforms as a showcase for our OTC products. Customers interested in listed OTC products can order such products directly from us and pay us upon delivery. We are also adding more non-medical health products such as nutritional supplements into our sales menu to counteract the decline in sales of OTC drugs.
Due to the decline in business referred to us from “Yikatong”, the popular pharmacy and health insurance benefit card, the sales on our own official website for the three months ended December 31, 2016 decreased by $3.9 million or 91.8% as compared to the three months ended December 31, 2015. Yikatong is run by a Pharmacy Benefit Management (“PBM”) provider in China. In fiscal 2016, we created a strategic alliance with the PBM provider. However, in order to maximize its profit, the PBM provider chose to create its own online pharmacy to sell products referred from Yikatong. In order to grow its own online pharmacy, the PMB provider actively directed Yikatong customers to purchase products on its online pharmacy. As a result, the sales on our own official website declined dramatically. In order to offset the negative effect, we had been actively working with a similar vendor, who may refer to us a big customer pool in the near future. If we are able to retain the new vendor, our own website sales will continue to grow in the future.
Wholesale revenue decreased by $82,954 or 2.6%, primarily due to the exchange rates variance. Excluding exchange variance, the wholesale revenue increased by 4.3%.At present, the majority of drug sales still occur at hospitals in China. Local hospitals usually have stronger ties with their existing suppliers and we have not been able to make significant progress in becoming a major supplier to local hospitals. Until we can establish a new customer base and are granted a status to serve as provincial or national exclusive sale agent for certain popular drugs, we do not expect our wholesale business to increase significantly in the immediate future.
In the three months ended December 31, 2016 and 2015, we have not harvested and generated revenue from our farming business. We planted ginkgo and maidenhair trees during the year ended March 31, 2013. A ginkgo tree may have a growth period of up to twenty years before it is mature enough for harvest. Usually, the longer it grows the more valuable it becomes. We plan to continue cultivating the trees in order to maximize their market value in the future. During the three months ended December 31, 2016, we have been evaluating feasibility of planting other herbs with short period of growth. We anticipate that we will continue to grow ginkgo trees and start cultivating other herbs in the future.
| 25 |
Gross Profit
Gross profit decreased by $663,462 or 13.7% period over period primarily as a result of a decrease in gross profit provided by online sale, which decreased significantly in the three months ended December 31, 2016. At the same time, gross margin increased from 19.6% to 20.3% due to higher retail profit margins. The average gross margins for each of our four business segments are as follows:
| Three months ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Average gross margin for retail drugstores | 25.7 | % | 21.6 | % | ||||
| Average gross margin for online sales | 10.4 | % | 21.3 | % | ||||
| Average gross margin for wholesale business | 6.5 | % | 6.8 | % | ||||
| Average gross margin for farming business | N/A | N/A | ||||||
Retail gross margin increased primarily because of more vendor rebates attributable to our focused marketing efforts in promoting brand-name products with large pharmaceutical suppliers, continuous efforts to renegotiate prices with our suppliers periodically, and selection of certain higher profit margin products. Instead of labeling our own products, we focused on promoting brand name products. We believe selling brand name products will increase our store popularity and customer loyalty. For instance, we negotiated with the largest brand name provider of colla coril asini, which we have been actively marketing in the quarter ended December 31, 2016, and have obtained a large vendor rebate from this vendor. Additionally, we have been searching for ways to improve our profit margin. From time to time, we compared existing products among our suppliers to negotiate lower cost.
Gross margin of online pharmacy sales decreased primarily because of the decline in our sales via our own official website, as well as due to our promotion of certain products sold at low profit margin. We conduct our business either through certain e-commerce platforms such as Tmall and JD.com or via our own official online pharmacy website, www.dada360.com. The sales on our own official website usually have higher profit margins because customers referred by Yikatong and commercial insurance companies are premium customers who can afford premium products with higher profit margins. As described in the above, Yikatong has continuously cut its customer referrals to our online pharmacy. As a result, our overall online sales profit margin declined in this quarter.
Wholesale gross margin decreased primarily as a result of different products we carried and sold to certain pharmaceutical vendors. Although we tried marketing our products to major local hospitals and other pharmacies, we had not been able to make significant progress. Until we are able to obtain status as provincial or national exclusive sale agent for certain popular drugs or have sales access to large local hospitals, we may have to keep low profit margins in order to drive sales.
| 26 |
Selling and Marketing Expenses
Sales and marketing expenses increased by $283,545 or 8.6% period over period, primarily relating to new local wholesale clients such as other local drugstores, and addition of certain selling and marketing supporting staff salary in our wholesale business. On the other hand, due to the decreases in online sales, the selling expenses such as third-party platform commissions and processing fees on the online pharmacy have declined. Primarily due to the decrease in overall sales, such expenses as a percentage of our revenue, increased to 17.3%, from 13.3% for the same period a year ago. We expect future sales and marketing expenses to not deviate significantly from the current level.
General and Administrative Expenses
General and administrative expenses decreased by $416,599 or 22.3% period over period. Such expenses as a percentage of revenue decreased to 7.0% from 7.6% for the same period a year ago. The decrease in absolute dollars reflects accounts receivable and advances to vendors allowance reversal of $331,180 in the three months ended December 31, 2016, as compared to allowance addition of $190,472 in the three months ended December 31, 2015. The difference was caused by the fact that we were able to collect certain remaining aged accounts receivable and advances to suppliers accounts in the three months ended December 31, 2016. Excluding such an effect, general and administrative expenses slightly increased by $105,053.
Loss from Operations
As a result of the above, we had loss from operations of $838,160, as compared to loss from operations of $307,752 a year ago. Our operating margin for the three months ended December 31, 2016 and 2015 was (4.1)% and (1.2)%, respectively.
Income Taxes
Our income tax expense decreased by $17,054 period over period due to decrease in retail sales profit.
Net Loss
As a result of the foregoing, net loss increased by $217,277 period over period.
Comparison of nine months ended December 31, 2016 and 2015
The following table summarizes our results of operations for the nine months ended December 31, 2016 and 2015:
| Nine months ended December 31, | ||||||||||||||||
| 2016 | 2015 | |||||||||||||||
| Amount | Percentage of total revenue | Amount | Percentage of total revenue | |||||||||||||
| Revenue | $ | 61,706,774 | 100.0 | % | 68,596,964 | 100.0 | % | |||||||||
| Gross profit | $ | 13,018,682 | 21.1 | % | 13,200,023 | 19.2 | % | |||||||||
| Selling expenses | $ | 9,276,225 | 15.0 | % | 9,801,761 | 14.3 | % | |||||||||
| General and administrative expenses | $ | 4,752,981 | 7.7 | % | 3,628,520 | 5.3 | % | |||||||||
| Loss from operations | $ | (1,010,524 | ) | (1.6 | )% | (230,258 | ) | (0.3 | )% | |||||||
| Interest Income | 339,460 | 0.6 | % | 190,737 | 0.4 | % | ||||||||||
| Interest Expenses | (1,285 | ) | 0.0 | % | (154,006 | ) | (0.4 | )% | ||||||||
| Other Income (expense), net | $ | 5,139 | 0.0 | % | (219,771 | ) | (0.3 | )% | ||||||||
| Change in fair value of purchase option derivative liability | $ | 125,389 | 0.2 | % | 173,510 | 0.3 | % | |||||||||
| Income tax expense | $ | 63,963 | 0.1 | % | 79,224 | 0.1 | % | |||||||||
| Net loss | $ | (605,784 | ) | 1.0 | % | (355,743 | ) | (0.5 | )% | |||||||
| 27 |
Revenue
Primarily due to the decline in our online pharmacy business, our revenue decreased by $6,890,190 or 10.0% for the nine months ended December 31, 2016, as compared to the nine months ended December 31, 2015, partially offset by the increase in our retail drugstore and wholesale business. The following table breaks down the revenue for our four business segments for the nine months ended December 31, 2016 and 2015.
Quarterly Revenue by Segment
The following table breaks down the revenue for our four business segments for the nine months ended December 31, 2016 and 2015:
| Nine months ended December 31, | ||||||||||||||||||||||||
| 2016 | 2015 | |||||||||||||||||||||||
| Amount | % of total revenue | Amount | % of total revenue | Variance by amount | % of change | |||||||||||||||||||
| Revenue from retail drugstores | $ | 39,636,796 | 64.2 | % | $ | 38,202,495 | 55.7 | % | $ | 1,434,301 | 3.8 | % | ||||||||||||
| Revenue from online sales | 12,292,175 | 20.0 | % | 21,169,709 | 30.9 | % | (8,877,534 | ) | (41.9 | )% | ||||||||||||||
| Revenue from wholesale business | 9,777,803 | 15.8 | % | 9,224,760 | 13.4 | % | 553,043 | 6.0 | % | |||||||||||||||
| Revenue from farming business | - | - | % | - | - | % | - | - | % | |||||||||||||||
| Total revenue | $ | 61,706,774 | 100.0 | % | $ | 68,596,964 | 100.0 | % | $ | (6,890,190 | ) | (10.0 | )% | |||||||||||
Retail drugstores sales, which accounted for approximately 64.2% of total revenue for the nine months ended December 31, 2016, increased by $1,434,301 or 3.8% compared to the nine months ended December 31, 2015, to $39,636,796. Same-store sales decreased by approximately $814,518, or 2.2%, while new stores contributed approximately $705,941 in revenue in the nine months ended December 31, 2016. Excluding the RMB depreciation effect, the same store sales increased by approximately 4.4% period over period. Due to the G20 summit held in Hangzhou in September 2016, the local government significantly tightened its security requirements in the quarter ended December 31, 2016 and more and more migrants from other areas of China, such as businessman and laborers, chose to leave the region temporarily. As these migrants represent a large portion of the population of Hangzhou, our sales to this group of people were diminished. In order to catch up with the sales plan in 2016, after the G20 summit, we have conducted a series of marketing activities to promote sales. For instance, close to the Chinese Spring Festival, people tend to purchase more nutritional supplements such as ginseng, bird’s-nest and colla coril asini. We have negotiated with major manufacturers and vendors of the nutritional supplements in advance and ordered a large quantity at favorable prices. As a result, we are able to implement various marketing campaigns to promote sales. Additionally, since the beginning of 2016, we have expended considerable efforts to establish and improve our chronic disease management program, which has gradually attracted quite a few loyal customers who continuously refill their prescriptions and purchase supplemental products at our stores. Our store count increased to 65 as of December 31, 2016, compared to 59 stores as of December 31, 2015.
Our online pharmacy sales decreased by approximately $8,877,534, or 41.9% for the nine months ended December 31, 2016, as compared to the nine months ended December 31, 2015. The decrease was primarily caused by the decline in business referred from Yikatong and decline in our sales via e-commerce platforms, as further explained below. We conduct our business either through certain e-commerce platforms such as Tmall and JD.com or via our own official online pharmacy website. Such arrangements with third-party platforms have exposed our online presence to a wider consumer base. In order to increase the popularity of our products, we have made considerable efforts to identify popular products that can drive sales, while keeping close watch on cost. However, due to the CFDA suspension of OTC drugs sales on e-commerce platforms such as Alibaba in the second quarter, our sales via these e-commerce platforms have been curtailed. As a result, our sales via these e-commerce platforms decreased by 14.0% period over period. To minimize the effect of OTC drug sales suspension, we are using these platforms as a showcase for our OTC products. Customers interested in list OTC products can order such products directly from us and pay us upon delivery. We are also adding more non-medical health products such as nutritional supplements into our sales menu to counteract the decline in sale of OTC drug category.
Due to the decline in business referred to us from “Yikatong”, the popular pharmacy and health insurance benefit card, the sales on our own official website for the nine months ended December 31, 2016 decreased by $7.1 million or 81.4% as compared to the nine months ended December 31, 2015. Yikatong is run by a Pharmacy Benefit Management (“PBM”) provider in China. In fiscal 2016, we created a strategic alliance with the PBM provider. However, in order to maximize its profit, the PBM provider chose to create its own online pharmacy to sell products referred from Yikatong. In order to grow its own online pharmacy, the PMB provider actively directed Yikatong customers to purchase products on its online pharmacy. As a result, the sales on our own official website declined dramatically. In order to offset the negative effect, we had been actively working with a similar vendor, who may refer to us a big customer pool in the near future. If we are able to retain the new vendor, our own website sale will continue to grow in the future.
Wholesale revenue increased by $553,043 or 6.0%, primarily due to marketing efforts of certain new salespersons. However, at present, the majority of drug sales still occur at hospitals in China. Local hospitals usually have stronger ties with their existing suppliers and we have not been able to make significant progress in becoming a major supplier to local hospitals. Until we can establish a new customer base and are granted a status to serve as provincial or national exclusive sale agent for certain popular drugs, we do not expect our wholesale business to increase significantly in the immediate future.
In the nine months ended December 31, 2016 and 2015, we have not harvested and generated revenue from our farming business. We planted ginkgo and maidenhair trees during the year ended March 31, 2013. A ginkgo tree may have a growth period of up to twenty years before it is mature enough for harvest. Usually, the longer it grows the more valuable it becomes. We plan to continue cultivating the trees in order to maximize their market value in the future. During the nine months ended December 31, 2016, we have been evaluating feasibility of planting other herbs with short period of growth. We anticipate that we will continue to grow ginkgo trees and start cultivating other herbs in the future.
| 28 |
Gross Profit
Gross profit decreased by $181,341 or 1.4% period over period primarily as a result of a decrease in gross profit provided by online sale which decreased significantly in the nine months ended December 31, 2016. At the same time, gross margin increased from 19.2% to 21.1% due to higher retail profit margins. The average gross margins for each of our four business segments are as follows:
| Nine months ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Average gross margin for retail drugstores | 27.8 | % | 23.2 | % | ||||
| Average gross margin for online sales | 11.5 | % | 17.4 | % | ||||
| Average gross margin for wholesale business | 6.0 | % | 7.2 | % | ||||
| Average gross margin for farming business | N/A | N/A | ||||||
Retail gross margins increased primarily because of more vendor rebates attributable to our focused marketing efforts in promoting brand-name products with large pharmaceutical suppliers, continuous efforts to renegotiate prices with our suppliers periodically, and our selection of certain higher profit margin products. Instead of promoting our own products, we focused on promoting brand name products. We believe selling brand name products will increase our store popularity and customer loyalty. For instance, we negotiated with the largest brand name provider of colla coril asini, which we have been actively marketing in the quarter ended December 31, 2016 and have obtained a large vendor rebate from this vendor. Additionally, we have been searching for ways to improve our profit margin. From time to time, we compared existing products among our suppliers to negotiate lower costs. Because local hospitals are required to sell certain drugs included in the CFDA list at a set cost, these drugs are sold at extremely low profit margins from our stores. We actively search for and sell alternative drugs with better treatment effects and higher profit margins.
Gross margin of online pharmacy sales decreased primarily because of the decline in our sales via our own official website, as well as due to our promotion of certain products sold at low profit margin. We carry our business either through certain e-commerce platforms, such as Tmall and JD.com, or via our own official online pharmacy website, www.dada360.com. The sales on our own official website usually have higher profit margins because customers referred by Yikatong and commercial insurance companies are premium customers who can afford premium products with higher profit margins. As described in the above, Yikatong has continuously cut its customer referrals to our online pharmacy. As a result, our overall online sales profit margin declined in this quarter.
Wholesale gross margin decreased primarily as a result of different products we carried and sold to certain pharmaceutical vendors. Although we tried marketing our products to major local hospitals and other pharmacies, we had not been able to make significant progress. Until we are able to obtain status as provincial or national exclusive sale agent for certain popular drugs or have sales access to large local hospitals, we may have to keep low profit margins in order to drive sales.
| 29 |
Selling and Marketing Expenses
Sales and marketing expenses decreased by $525,536 or 5.4% period over period, primarily attributable to rental savings and a decrease in third-party platform commissions and processing fees. As online shopping becomes very popular in China, the value of physical commercial shop sites has declined. We were able to renegotiate with certain landlords to cut our rental expenses when leases come to renewal. Due to the decrease in online sale, the selling expenses such as the third-party platform commissions and processing fees on our online pharmacy have declined. On the other hand, we incurred additional marketing and logistic expense s for new local wholesale clients such as other local drugstores, and added certain sale and marketing supporting staff. However, due to the decrease in overall sales, such expenses as a percentage of our revenue increased to 15.0%, from 14.3% for the same period a year ago. We expect future sales and marketing expenses to not deviate significantly from the current level.
General and Administrative Expenses
General and administrative expenses increased by $1,124,461 or 31.0% period over period, primarily due to the increase in stock-based compensation of $1,206,561, which is related to certain employee stock incentive plans and consulting agreements as disclosed in Note 18. Such expenses as a percentage of revenue increased to 7.7% from 5.3% for the same period a year ago. Excluding such an effect, general and administrative expense slightly decreased by $82,100.
Income (Loss) from Operations
As a result of the above, we had loss from operations of $1,010,524, as compared to loss from operations of $230,258 a year ago. Our operating margin for the nine months ended December 31, 2016 and 2015 was (1.6)% and (0.3)%, respectively.
Income Taxes
Our income tax expense decreased by $15,261 period over period due to overall decrease in operation income in retail profit.
Net Loss
As a result of the foregoing, net loss increased by $250,041 period over period.
Accounts receivable
Accounts receivable, which are unsecured, are stated at the amount we expect to collect. We continuously monitor collections and payments from our customers (our distributors) and maintain a provision for estimated credit losses. To prepare for potential loss in such accounts, we made corresponding reserves.
Our accounts receivable aging was as follows for the periods described below:
| From d ate of invoice to customer | Retail drugstores | Online Pharmacy | Drug wholesale | Herb farming | Total amount | |||||||||||||||
| 1- 3 months | $ | 6,868,825 | $ | 537,692 | $ | 1,278,656 | $ | - | $ | 8,685,173 | ||||||||||
| 4- 6 months | 32,326 | 31,603 | 761,870 | - | 825,799 | |||||||||||||||
| 7- 12 months | 1,676 | 24,199 | 47,222 | - | 73,097 | |||||||||||||||
| Over one year | 4,989 | 2,700 | 698,897 | 1,152 | 707,738 | |||||||||||||||
| Allowance for doubtful accounts | (62,025 | ) | (19,331 | ) | (767,913 | ) | (1,152 | ) | (850,421 | ) | ||||||||||
| Total accounts receivable | $ | 6,845,791 | $ | 576,863 | $ | 2,018,732 | $ | - | $ | 9,441,386 | ||||||||||
Accounts receivable from our retail business mainly consist of reimbursements from government health insurance bureaus and commercial health insurance programs. In the three and nine months ended December 31, 2016, we wrote off an approximately $75,126 and $138,508 collectible from provincial and Hangzhou City government insurance, as such amount has been determined by the health insurance bureaus to be unqualified for reimbursement.
| 30 |
Accounts receivable from our online pharmacy business mainly consist of collectibles from third-party platforms such as Tmall and JD.com where we sell products. Usually the third-party platforms will collect from customers ordering on their platforms and then reimburse us in times ranging from several days to a month after orders are placed.
Accounts receivable from our drug wholesale business and herb farming business consist of receivables from our customers such as pharmaceutical distributors. Our drug wholesale business transitioned away from focusing on sales volume beginning in the second half of fiscal 2013, and it tightened its customer credit policy and strengthened monitoring of uncollected receivables. Furthermore, the new management team expended significant efforts in clearing outstanding balances with certain customers and suppliers. In the nine months ended December 31, 2016, we were able to continually collect certain aged accounts. As a result, we reversed approximately $1,248,825 in allowance.
Subsequent to December 31, 2016 and through October 31, 2016, we collected approximately $2.6 million in receivables relating to our drugstore business, approximately $1.4 million in receivables relating to our online pharmacy business, approximately $0.2 million relating to our wholesale business, and $0 relating to our herb farming business.
Advances to suppliers
Advances to suppliers are mainly prepayments to secure certain products or services and favorable pricing. The aging of our advances to suppliers is as follows for the periods described below:
| From date of cash prepayment to suppliers | Retail drugstores | Online Pharmacy | Drug wholesale | Herb farming | Total amount | |||||||||||||||
| 1- 3 months | $ | 198,917 | $ | - | $ | 2,200,846 | $ | - | $ | 2,399,763 | ||||||||||
| 4- 6 months | 115,287 | - | 1,176,818 | - | 1,292,105 | |||||||||||||||
| 7- 12 months | 810 | - | 429,953 | - | 430,763 | |||||||||||||||
| Over one year | 167,754 | - | 393,927 | - | 561,681 | |||||||||||||||
| Allowance for doubtful accounts | (197,920 | ) | - | (646,757 | ) | - | (844,677 | ) | ||||||||||||
| Total advances to suppliers | $ | 284,848 | $ | - | $ | 3,554,787 | $ | - | $ | 3,839,635 | ||||||||||
Since the acquisition of Jiuxin Medicine, we have gradually transferred almost all logistics services of our retail drugstores to Jiuxin Medicine. Jiuzhou Pharmacy only makes purchase on certain non-medical products such as sundry. As a result, our retail chain had little advances to suppliers as of December 31, 2016.
Advances to suppliers for our drug wholesale business consist of prepayments to our vendors such as pharmaceutical manufacturers and other distributors. We typically receive products from vendors within three to nine months after making prepayments. We continuously monitor delivery from and payments to our vendors while maintaining a provision for estimated credit losses based upon historical experience and any specific supplier issues such as discontinuing of inventory supply that have been identified. If we are having difficulty receiving products from a vendor, we take the following steps: cease purchasing products from the vendor, ask for return of our prepayment promptly, and if necessary, take legal actions. If all of these steps are unsuccessful, management then determines whether or not the prepayments should be reserved or written off. To facilitate its initial expansion, Jiuxin Medicine made significant prepayments to certain vendors. Lack of timely supplier account reconciliation caused by several sales staff rotations delayed the monitoring of such accounts. To accommodate potential loss in advances to suppliers, we made reserve for amounts considered to be uncollectible. As previously discussed, Jiuxin Medicine transitioned away from focusing on sales volume beginning in the second half of fiscal 2013, and since then we have tightened our customer credit policy and strengthened monitoring of uncollected receivables. We do not expect a significant increase in bad debts going forward.
Liquidity and Capital Resources
Our cash flows for the periods indicated are as follows:
| Nine months ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Net cash used in operating activities | $ | (1,787,068 | ) | $ | (919,499 | ) | ||
| Net cash provided by investing activities | $ | 128,414 | $ | 910,169 | ||||
| Net cash provided by financing activities | $ | 23,796 | $ | 359,928 | ||||
| 31 |
For the nine months ended December 31, 2016, cash used in operating activities amounted to $1,787,068, as compared to $919,499 a year ago. The change is primarily attributable to a decrease in cash provided by accounts receivable of $1,374,156, a decrease in cash provided by change of Accounts payable of $1,026,075 offset by an increase in cash provided by the change of Stock compensation of $ 1,686,629.
For the nine months ended December 31, 2016, net cash provided by investing activities amounted to $128,414, as compared to $910,169 used in investing activities a year ago. The change is attributable to the pay back of financial assets available for sale in the nine months ended December 31, 2015.
For the nine months ended December 31, 2016, net cash provided by financing activities amounted to $23,796, as compared to $359,928 a year ago.
As of December 31, 2016, we had cash of approximately $4,643,349. Our total current assets as of December 31, 2016, were $40,437,581and total current liabilities were $33,290,708, which resulted in a working capital of $7,146,873.
On July 23, 2015, we completed a registered direct placement with a single healthcare-focused institutional investor for the purchase of an aggregate of $3 million of its common stock at a price of $2.50 per share and net proceeds of approximately $2.7 million after deducting commissions and all other expenses. As of December 31, 2016, we had approximately $4.52 million in our credit line available for further borrowing. We believe that the foregoing sources will collectively provide sufficient liquidity for us to meet our liquidity and capital obligations for the next twelve months. However, if we are to acquire additional businesses or further expand our operations, we may need additional capital.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
When we open store locations, we typically enter into lease agreements that are generally between three to ten years. Our commitments for minimum rental payments under our leases for the next five years and thereafter are as follows:
| Periods ending December 31, | Retail drugstores | Online pharmacy | Drug wholesale | Herb farming | Total Amount | |||||||||||||||
| 2017 | $ | 2,788,415 | $ | 36,851 | $ | 73,702 | $ | - | $ | 2,898,968 | ||||||||||
| 2018 | 2,366,946 | 36,851 | 73,702 | - | 2,477,499 | |||||||||||||||
| 2019 | 1,775,923 | 36,851 | 73,702 | - | 1,886,476 | |||||||||||||||
| 2020 | 871,320 | 36,851 | 73,702 | - | 981,873 | |||||||||||||||
| 2021 | 314,344 | 3,071 | 6,142 | - | 323,557 | |||||||||||||||
| Thereafter | 446,719 | - | - | - | 446,719 | |||||||||||||||
| 32 |
Off-balance Sheet Arrangements
We do not have any outstanding financial guarantees or commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Exchange Rates
Our subsidiaries and affiliated companies in the PRC maintain their books and records in RMB, the lawful currency of the PRC. In general, for consolidation purposes, we translate their assets and liabilities into USD using the applicable exchange rates prevailing at the balance sheet date, and the statement of income is translated at average exchange rates during the reporting period. Adjustments resulting from the translation of their financial statements are recorded as accumulated other comprehensive income.
The exchange rates used to translate amounts in RMB into USD for the purposes of preparing the unaudited condensed consolidated financial statements or otherwise disclosed in this report were as follows:
| December 31, 2016 |
March 31, 2016 |
December 31, 2015 |
||||||||||
| Balance sheet items, except for the registered and paid-up capital, as of end of period/year | USD1: RMB 0.1440 | USD1: RMB 0.1551 | USD1: RMB 0.1541 | |||||||||
| Amounts included in the statement of Operations and statement of cash flows for the period/year ended | USD1: RMB 0.1498 | USD1: RMB 0.1582 | USD1: RMB 0.1599 |
Inflation
We believe that inflation has not had a material effect on our operations to date.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not applicable.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
As of December 31, 2016, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon such evaluation, our chief executive officer and chief financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were ineffective at the reasonable assurance level. Such conclusion is based on the presence of the following material weaknesses in internal control over financial reporting as following:
| ● | the significance of the audit adjustments’ impact on the overall financial statements; and | |
| ● | how adequately we complied with U.S. GAAP on transactions. |
Accounting and Finance Personnel Weaknesses - As noted in Item 9A of our annual reports on Form 10-K for the preceding three fiscal years, management concluded that in light of the inexperience of our accounting staff with respect to the requirements of U.S. GAAP-based reporting and SEC rules and regulations, we did not maintain effective controls and did not implement adequate and proper supervisory review to ensure that significant internal control deficiencies can be detected or prevented.
Management anticipates that our disclosure controls and procedures will remain ineffective until such material weakness is remediated.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
| ITEM 6. | EXHIBITS. |
The exhibits required by this item are set forth in the Exhibit Index attached hereto.
| 33 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CHINA JO-JO DRUGSTORES, INC. | ||
| (Registrant) | ||
| Date: February 10, 2017 | By: | /s/ Lei Liu |
|
Lei Liu Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: February 10, 2017 | By: | /s/ Ming Zhao |
| Ming Zhao | ||
|
Chief Financial Officer (Principal Financial Officer and | ||
| 34 |
EXHIBIT INDEX
| Exhibit Number |
Description | |
|
10.1 |
English translation of the Joint Venture Agreement by and between Hangzhou Jiuzhou Grand Pharmacy Chain Co., Ltd. and CareRetail (HK) Holdings Limited | |
| 31.1 | Section 302 Certification by the Corporation’s Chief Executive Officer | |
| 31.2 | Section 302 Certification by the Corporation’s Chief Financial Officer | |
| 32.1 | Section 906 Certification by the Corporation’s Chief Executive Officer and Chief Financial Officer | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
35
Exhibit 10.1
CareRetail (HK) Holdings Limited
和
杭州九洲大药房有限公司
关于
浙江玖松医药管理有限公司
之
合资经营合同
2017年1月
Joint Venture Contract
On Zhejiang Jiusong Pharmaceutical Management Co., Ltd.
Made By and Between
CareRetail (HK) Holdings Limited
And
Hangzhou Jiuzhou Grand Pharmacy Co., Ltd.
Jan. 2017
目录
Contents
| 条款 | 页码 | |
| Article | Page | |
| 第一条 定义 Definition | 2 | |
| 第二条 合同双方 Both parties to the contract | 4 | |
| 第三条 公司 Company | 4 | |
| 第四条 经营范围 Scope of business | 5 | |
| 第五条 投资总额和注册资本Total investment and registered capital | 6 | |
| 第六条 每一方的责任 responsibility of each party | 9 | |
| 第七条 董事会和监事 board of directors and supervisor | 11 | |
| 第八条 经营管理组织 operating and management ORGANIZATION | 18 | |
| 第九条 劳动管理 LABOUR management | 22 | |
| 第十条 公司的优惠地位 Preferential Status of the Company | 23 | |
| 第十一条 税务、财务、审计和利润分配 Taxation, finance, auditing and profit distribution | 23 | |
| 第十二条 陈述和保证 Representation and warranties | 27 | |
| 第十三条 保险 Insurance | 29 | |
| 第十四条 不竞争 Non-competition | 29 | |
| 第十五条 保密 Confidentiality | 30 | |
| 第十六条 期限和保持有效 Term and Maintenance of effectiveness | 31 | |
| 第十七条 违约及违约赔偿 breach of contract and liquidated damages | 31 | |
| 第十八条 终止和解散 termination and dissolution | 32 | |
| 第十九条 清算 liquidation | 32 | |
| 第二十条 不可抗力 force majeure | 33 | |
| 第二十一条 适用法律 applicable law | 35 | |
| 第二十二条 争议的解决 settlement to disputes | 35 | |
| 第二十三条 语言 language | 37 | |
| 第二十四条 效力、修订及其他 effect, amendment and others | 37 |
合资经营合同
Joint Venture Contract
本合资经营合同(下称“本合同”)由以下双方于2017年1月
18 日在中国杭州签署：
This
Joint Venture Contract (hereinafter referred to as “this Contract”) is signed in Hangzhou, China on
January 18, 2017 by and between:
甲方：CareRetail (HK) Holdings Limited，一家于中国香港注册的有限责任公司，其法定地址为Unit
1001,10/F. Infinitus Plaza 199 Des Voeux Road Central Hong Kong（下称“甲方”或“外方股东”）；
Party A: CareRetail (HK) Holdings Limited, a limited liability company registered in Hong Kong, China with its legal address at
Unit 1001,10/F. Infinitus Plaza 199 Des Voeux Road Central Hong Kong (hereinafter referred to as “Party A” or
“foreign shareholder”);
乙方：杭州九洲大药房
有限公司，一家于中国境内注册的有限责任公司，其法定地址为杭州市（下称“乙方”或“中方股东”）。
Party B: Hangzhou Jiuzhou Grand Pharmacy Co., Ltd., a limited liability company registered within the territory of China
with its legal address at Hangzhou City (hereinafter referred to as “Party B” or “Chinese shareholder").
（甲方和乙方单称“一方”，合称“各方”。）
(Party A and Party B are called “party” individually and “parties” collectively.)
根据《中华人民共和国中外合资经营企业法》、《中华人民共和国中外合资经营企业法实施条例》、《中华人民共和国公司法》及中华人民共和国适用的法律和法规，双方本着平等互利的原则，经友好协商后，就在中国杭州市设立公司并使之成为一家中外合资的有限责任公司达成了一致，并特此签订本合同。
In accordance with the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures, Regulation
on the Implementation of the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures, Company
Law of the People’s Republic of China and other applicable laws and regulations of the People’s Republic of China,
both parties reach a consensus on the establishment of the Company in Hangzhou City, China, which will be
a Chinese-Foreign joint venture limited liability company in the principles of equality and mutual benefit through friendly negotiation
and this Contract is hereby concluded.
| 1 |
| 第一条 | 定义 Definition |
| 1.1 | 除非上下文另有规定，本合同中使用的下列词语应具有以下含义： The following terms used in this Contract shall have the following meaning unless the context provides otherwise: |
| B | ||
| 不可抗力事件 Force Majeure Event |
在第20.1款中定义。 As defined in Article 20.1. | |
| D | ||
| 董事会 Board of Directors |
指公司的董事会。 Refer to the Board of Directors of the Company. | |
| G | ||
| 双方或各股东 Both parties or each shareholder |
指在第二条中定义的、本合同的甲方和乙方；“一方”或“一股东”单指其中的任何一方。 Refer to Party A and Party B to this Contract as defined in Article Two; “party” or “shareholder” refers to either party therein individually. | |
| 工商局 Administration for Industry and Commerce |
指杭州市工商行政管理局及其分支机构。 Refer to Hangzhou Administration for Industry & Commerce and its branches. | |
| 公司 Company |
指将根据本合同运营的有限责任公司，即浙江玖松医药管理有限公司（暂定名，以工商登记为准）。 Refer to the limited liability company operated according to this Contract, i.e. Zhejiang Jiusong Pharmaceutical Management Co., Ltd. (tentatively, subject to the industrial and commercial registration). | |
| 《公司法》 Company Law |
指《中华人民共和国公司法》。 Refer to Company Law of the People’s Republic of China. |
| 2 |
| 关联方 Affiliated party |
就任何一方而言，指直接或间接控制该方的、或被该方直接或间接控制的、或与该方共同受其直接或间接地控制的、任何人士、公司、合伙组织、信托组织或其他实体；为此定义之目的，“控制”一词在本定义中指直接或间接拥有该实体至少百分之五十(50%)的表决权。 In terms of either party, refer to any person, company, partnership, trust or other equity which, directly or indirectly, controls such party, is controlled by such party or is under common control with such party; for the purpose of this definition, “control” in this definition means owning fifty percent (50%) at least of voting power in such equity. | |
| H | ||
| 合同或本合同 Contract or this Contract |
指本合资经营合同。 Refer to this Joint Venture Contract. | |
| R | ||
| 人民币 RMB |
指中国的法定货币人民币。 Refer to the legal currency of China, i.e. Renminbi. | |
| Z | ||
| 章程 Articles of Association |
指在本合同签署日期所签署的公司章程。 Refer to the Articles of Association of the Company signed on the date when this Contract is concluded. | |
| 中国 China |
指中华人民共和国，仅为本合同之目的，不包括香港特别行政区、澳门特别行政区和台湾。 Only for the purpose of this Contract, refer to the People’s Republic of China, excluding Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan. |
| 1.2 | 如“双方”的表述在上下文允许且除非另有相反规定的情况下，应包括其各自的承继者、受让人和被允许承让人以及从其处取得权利的任何人士。 The expression of “both parties” shall include their respective inheritor, assignee and allowed transferee and any person acquiring rights from them if context allows and unless otherwise stipulated on the contrary in the context. |
| 3 |
| 第二条 | 合同双方 Both parties to the contract |
| 2.1 | 甲方 Party A |
本合同的甲方为：OPU
(HK) Holdings Limited，一家于中国香港注册的有限责任公司，其法定地址为Unit
1001,10/F. Infinitus Plaza 199 Des Voeux Road Central Hong Kong；
Party A to this Contract is: OPU (HK) Holdings Limited, which is a limited liability company registered in
Hong Kong, China with its legal address at Unit 1001, 10/F. Infinitus Plaza 199 Des Voeux Road Central Hong Kong;
| 2.2 | 乙方 Party B |
本合同的乙方为：杭州LKP有限公司，一家于中国注册的有限责任公司，其法定地址为杭州市
Party B to this Contract is: Hangzhou LKP Co., Ltd., which is a limited liability company registered in China with
its legal address at Hangzhou City
| 第三条 | 公司 Company |
| 3.1 | 成立公司 Establishment of the Company |
双方同意，作为中外合资企业的公司应在其从工商局获发其中外合资经营企业营业执照之日为根据本合同条款的成立。
Both parties agree that the Company which is a Chinese-Foreign joint venture shall be established according to the
articles of this Contract on the date when it obtains the Business License of Chinese-Foreign Joint Venture issued by Administration
for Industry and Commerce.
公司的名称为“浙江玖松医药管理有限公司”（暂定名，以工商登记为准）。
The name of the Company is “Zhejiang Jiusong Pharmaceutical Management Co., Ltd.” (tentatively, subject to the
industrial and commercial registration).
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公司的法定地址为“杭州经济技术开发区上沙路226-201号”（暂定地址，以工商登记为准）。
The legal address of the Company is “226-201 Shangsha Road, Hangzhou Economic-Technological Development Area”
(tentatively, subject to the industrial and commercial registration).
| 3.2 | 有限责任公司 Limited Liability Company |
公司是按中国法律成立的有限责任公司。每一方以其所认缴的出资额为限对公司承担有限责任，公司以其全部财产对公司的债务承担责任。
The Company is a limited liability company established according to the laws of China. Each party shall assume
limited liability for the Company to the limit of its respective contribution amount and the Company will assume
responsibility for the debts of the Company based on all its assets.
| 3.3 | 遵守中国法律 Obedience by Laws of China |
公司的一切活动应遵守中国公布的有关法律法规，并有权享受其保护。
All the activities of the Company shall abide by the relevant laws and regulations published by China and have the
right to enjoy their protection.
| 第四条 | 经营范围 Scope of business |
| 4.1 | 公司的经营范围应为：企业管理咨询，非医疗健康管理咨询（需行医许可证的项目除外）。批发、零售：第Ⅰ类、第Ⅱ类医疗器械，日用百货，初级食用农产品，卫生消毒用品；实业投资，投资咨询，投资管理。（具体以工商登记为准） The scope of business of the Company shall be: Enterprise management consultation, non-medical-treatment health management consultation (excluding items requiring practice license). Wholesale and sales: Medical equipment of Category I and Category II, articles of daily use, primary edible agricultural products and hygiene and disinfection supplies; industrial investment, investment consultation and investment management. (With particulars subject to the industrial and commercial registration) |
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| 4.2 | 双方同意公司的业务应以对公司最有利的方式，且应根据届时所适用的业务及运营计划运作。 Both parties agree that the business of the Company shall be operated in a manner most beneficial to the Company according to the applicable business and operating plan at that time. |
| 第五条 | 投资总额和注册资本 Total investment and registered capital |
| 5.1 | 投资总额 Total Investment |
公司的投资总额为贰佰万（2,000,000）美元。投资总额与公司注册资本的差额由公司通过银行或其他借款人提供的贷款或其他借款方式解决。
The total investment of the Company is USD two million ($2,000,000) whose balance with the registered capital of the Company
will be solved by the Company through the loan provided by the bank or other lenders or in other borrowing modes.
| 5.2 | 注册资本和出资比例 Registered Capital and Contribution Proportion |
公司的注册资本为壹佰陆拾万（1,600,000）美元。其中：
The registered capital of the Company is USD one million six hundred thousand ($1,600,000), in which:
| (a) | 甲方的出资为捌拾壹万陆仟（816,000）美元，占公司注册资本的51%； Party A contributes USD eight hundred and sixteen thousand ($816,000), accounting for 51% of the registered capital of the Company; |
| (b) | 乙方的出资为相当于柒拾捌万肆仟（784,000）美元的等值人民币，占公司注册资本的49%。 Party B contributes the equivalent in RMB of USD seven hundred and eighty-four thousand ($784,000), accounting for 49% of the registered capital of the Company; |
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甲方和乙方应根据公司经营发展的需要进行出资，在任何情况下，甲方和乙方应在2019年12月31日前完成出资。
Party A and Party B shall contribute according to the operating and development demand of the Company and
Party A and Party B shall complete contribution before Dec. 31, 2019 in any case.
公司股东以人民币出资的，实际出资金额按付款当日中国人民银行公布的美元与人民币汇率的银行中间价折换。
Where the shareholder of the Company contributes in RMB, the actual contribution amount shall be converted according the
central parity rate of bank between USD and RMB published by the People’s Bank of China at the current date of payment.
公司应向每一方出具一份经董事长签名的出资证明书，用以确认该方在公司中所作之出资以及所持有之股权比例。
The Company shall issue a contribution certificate signed by the Board Chairman to each party to confirm the contribution
made by such party in the Company and the shareholding proportion held by it.
| 5.3 | 注册资本的增加或减少 Increase or Decrease of Registered Capital |
| 5.3.1 | 受限于本合同的约定，经董事会根据下文第7.3款之规定通过决议，公司可以增加或减少其注册资本。 Restricted by the agreement in this Contract, the Company may increase or decrease its registered capital through resolution by the Board of Directors according to the stipulation in Article 7.3 as below. |
| 5.4 | 股权转让 Stock Equity Transfer |
| 5.4.1 | 除非经公司其他股东事先书面同意，任一方股东（下称“拟转让方”）不得将其持有的公司股权转让或抵押给任何第三方。 Unless agreed by the other shareholders of the Company in writing beforehand, either shareholder (hereinafter referred to as “Quasi Transferor”) shall not transfer or mortgage the stock equity of the Company held by it to any third party. |
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| 5.4.2 | 受制于本第5.4款的其他约定，当拟转让方意图转让、出售或以其他方式处置其在公司中的全部或部分股权（下称“转让”），其应首先以书面方式通知其他股东：(i)
其作出转让的意图，(ii) 其意图转让的权益，(iii)
转让的条款和条件，及
(iv) 拟受让方的身份（合称“转让通知”）。其他股东有权在收到该等转让通知后三十（30）日内根据其自行选择决定：(i)以和拟受让方同等的条件优先购买该等股权；或(ii)以和拟受让方为购买股权而提出的同等条件按持股比例优先出售持有的股权。 Restricted by other agreements in this Article 5.4, when Quasi Transferor intends to transfer, sell or otherwise dispose all or part of its stock equity in the Company (hereinafter referred to as “transfer”), it shall notify the other shareholders in writing in advance of: (i) its intention to transfer, (ii) the rights and interests which it intends to transfer, (iii) terms and conditions of transfer, and (iv) the identity of the Quasi Transferee (called “Transfer Notice” collectively). The other shareholders have the right to decide at its own option within thirty (30) days after receipt of such Transfer Notice: (i) to purchase such stock equity in priority under the condition equal to that of the Quasi Transferee; or (ii) to sell the held stock equity in priority according to the shareholding proportion with the equal condition raised by the Quasi Transferee for purchase of stock equity. |
如果拟转让方未能在收到转让通知后三十（30）日内作出以上决定或其明确通知拟转让方其无意行使上述权利，则拟转让方可基于该等转让通知所述的条款和条件将有关股权转让给拟受让方，并应在签署关于该等转让的协议后的十五（15）日内向其他股东提供该等协议的一份经公司盖章的复印件。
If the Planned Transferor fails to make the above decision or it clearly notifies the Quasi Transferor that it has
no intention to exercise the aforesaid rights within thirty (30) days after receipt of the Transfer Notice, the Quasi
Transferor may transfer the relevant stock equity to the Quasi Transferee based on the terms and conditions mentioned in such
Transfer Notice and provide one photocopy of such agreement sealed by the Company to other shareholders within fifteen
(15) days after the agreement on such transfer has been signed.
尽管有前述规定，双方同意，外方股东可将其在公司注册资本中拥有的全部或部分权益出售或转让给其关联方，而不受第5.4.1款和第5.4.2款的限制。
Notwithstanding the foregoing, both parties agree that the foreign shareholder may sell or transfer all or part of
its rights and interests owned by it in the registered capital of the Company to its affiliated party without restriction
of Article 5.4.1 and Article 5.4.2.
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| 5.4.3 | 本合同第5.4款未约定的关于股权转让的其他事项，双方应遵守《公司法》的有关规定并根据《公司法》享有关于股权转让的其他权利。 As regards the other matters on stock equity transfer not agreed in Article 5.4 of this Contract, both parties shall observe the relevant stipulations of the Company Law and enjoy the other rights on stock equity transfer according to the Company Law. |
| 第六条 | 每一方的责任 responsibility of each party |
| 6.1 | 外方股东的责任 Responsibility of the Foreign Shareholder |
除在本合同规定的其他责任以外，外方股东应负责以下事项：
Except for the other responsibilities stipulated in this Contract, the foreign shareholder shall be responsible for
the following:
| (a) | 按照本合同的规定向公司缴付出资款； Pay the contribution amount to the Company according to the stipulations of this Contract; | |
| (b) | 及时推荐其将根据本合同委派担任为本合同规定的董事会成员及担任管理职务的人选； Recommend the person who will be appointed by it to assume the member of the Board of Directors as stipulated in this Contract and assume the management position according to this Contract timely; | |
| (c) | 及时向公司提供办理有关公司登记的相关文件；及 Provide the relevant documents in respect of Company registration to the Company timely; and | |
| (d) | 严格履行其在本合同、章程和其他双方间达成的书面协议中规定的义务。 Perform its obligations stipulated in this Contract, Articles of Association and other written agreements made by and between both parties. |
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| 6.2 | 中方股东的责任 Responsibility of the Chinese Shareholder |
除在本合同中规定的其他责任以外，中方股东应负责以下事项：
Except for the other responsibilities stipulated in this Contract, the Chinese shareholder shall be responsible for the following:
| (a) | 按照本合同的规定向公司缴付出资款； Pay the contribution amount to the Company according to the stipulations of this Contract; |
| (b) | 为公司设立及后续变更事项（如有）而向商务部门申请备案，在工商局办理公司的登记及后续变更事项（如有）以及获得公司的营业执照； Apply for filing to the commercial department for the establishment and follow-up alterations (if any) of the Company, handle registration and follow-up alterations (if any) of the Company at Administration for Industry and Commerce and obtain the Business License of the Company; |
| (c) | 及时推荐其将根据本合同委派担任为本合同规定的董事会成员及担任管理职务的人选； Recommend the person who will be appointed by it to assume the member of the Board of Directors as stipulated in this Contract and assume the management position according to this Contract timely; |
| (d) | 向适当的中国税务、外汇管理和其他机构进行公司的登记（如需）； Conduct registration of the Company to appropriate institutions for taxation, foreign exchange management and others of China (if necessary); |
| (e) | 严格履行其在本合同、章程和其他双方间达成的书面协议中规定的义务； Perform its obligations stipulated in this Contract, Articles of Association and other written agreements made by and between both parties strictly. |
| (f) | 协助公司招聘合格的各类专业人员和其他所需人员； Assist the Company to recruit various kinds of professionals and other required personnel; |
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| (g) | 协助公司租赁办公用房、购置办公用具、交通工具、通讯设施等；及 Assist the Company to lease office occupancy, and purchase office supplies, vehicles, communication facilities and so on; and | |
| (h) | 利用业务渠道资源，协助公司承接经营范围内的各种业务。 Take advantage of business channel resource to assist the Company to undertake various kinds of businesses within the scope of business. |
| 第七条 | 董事会和监事 |
| board of directors and supervisor |
| 7.1 | 董事会的权力 Power of the Board of Directors |
董事会应为公司的最高权力机关。董事会应于公司注册登记并经工商局签发其营业执照之日成立。
The Board of Directors shall be the organization of supreme power of the Company, which shall be established on the date when the Company is registered at and issued with Business License by the Administration for Industry and Commerce.
| 7.2 | 董事会的组成 Composition of the Board of Directors |
| 7.2.1 | 董事会应由三（3）名董事组成（包括董事长一（1）名），其中外方股东委派二（2）名，中方股东委派一（1）名。当外方股东和中方股东持有的股权比例发生变化时，董事会的组成应作相应调整以反映该等变化。 The Board of Directors shall consist of three (3) directors (including one (1) Board Chairman), including two (2) appointed by the foreign shareholder and one (1) appointed by the Chinese shareholder. When the stock equity proportion held by the foreign shareholder and Chinese shareholder is changed, the composition of the Board of Directors shall be adjusted accordingly to reflect such change. |
每一位董事（包括董事长）的任期均应为三（3）年，且经原委派方重新委派，可以连任。
Each director (including Board Chairman) enjoys tenure of three (3) years, who can continue the post by re-appointment of the original appointing party.
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| 7.2.2 | 董事长应由外方股东委派的董事担任。 The Board Chairman shall be assumed by the director appointed by the foreign shareholder. |
| 7.2.3 | 一方可随时通过向公司发出书面通知并向其他方抄送该通知的副本，撤换其有权委派的任何董事。如因董事退休、撤换、辞职、生病、丧失行为能力或死亡致使董事会席位出现空缺，该董事的原委派方可委派继任者完成该董事的任期。 Either party may dismiss and replace any director whom it has the right to appoint by issuing a written notice to the Company and copy the counterpart of such notice to the other parties. In the event of any vacancy of the seat in the Board of Directors because the director retires, is dismissed and replaced, resigns, is ill, loses the capacity for act or is dead, the original appointing party of such director may appoint a successor to complete the tenure of such director. |
| 7.2.4 | 公司董事应当遵守法律、行政法规和公司章程，对公司负有忠实义务和勤勉义务。 The directors of the Company shall observe the laws, administrative rules and the Articles of Association of the Company and have the obligation to be honest and diligent to the Company. |
| 7.3 | 董事会的决议 Resolution of the Board of Directors |
| 7.3.1 | 董事会应决定与公司有关的一切重大事宜。以下事项须经出席董事会会议的董事一致通过，方可作出决议： The Board of Directors shall make decisions on all the important issues in respect of the Company. A resolution may be made for the following matters only through unanimous approval of the directors attending the Board Meeting: |
| (a) | 公司章程的修改； Modification of the Articles of Association of the Company; | |
| (b) | 公司的终止、解散； Termination and dissolution of the Company; |
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| (c) | 公司注册资本的增加或减少； Increase or decrease of the registered capital of the Company; | |
| (d) | 公司的合并、分立； Merger and division of the Company; | |
| (e) | 决定任免或聘用公司总经理和财务负责人，并决定公司总经理、财务负责人的工资、待遇、福利及奖惩办法； Decide to appoint, dismiss or recruit the General Manager and financial principal of the Company, and decide their salary, treatment, welfare and methods of reward and punishment; | |
| (f) | 审议批准公司总经理提出的年度财务预算方案、决算方案； Deliberate and approve the yearly financial budget scheme and final settlement scheme put forward by the General Manager of the Company; | |
| (g) | 审议批准公司总经理提出的利润分配方案和弥补亏损方案； Deliberate and approve the profit distribution scheme and loss make-up scheme put forward by the General Manger of the Company; | |
| (h) | 对发行公司债券作出决议； Make a resolution on issuance of Company’s bonds; | |
| (i) | 决定公司的经营方针和投资计划，及决定公司在人民币伍拾万（500,000）元以上的对外投资； Make a decision on the operating policy and investment plan of the Company and make a decision on the external investment more than RMB Five hundred thousand (￥500,000) of the Company; | |
| (j) | 决定公司每一个财政年度中在已批准的预算之外的任何单笔超过人民币贰佰万（2,000,000）元的开支或累计超过人民币壹仟万（10,000,000）元的开支； Make a decision on any sum of expenditure more than RMB Two million (￥2,000,000) singly or more than RMB Ten million (￥10,000,000) accumulatively in excess of the approved budget in each fiscal year of the Company; | |
| (k) | 决定公司单笔金额在人民币贰佰万（2,000,000）元以上或每一个财政年度中累计金额在人民币壹仟万（10,000,000）元以上的借款及融资； Make a decision on any borrowing and financing more than RMB Two million (￥2,000,000) singly or more than RMB Ten million (￥10,000,000) accumulatively in each fiscal year of the Company; |
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| (l) | 审议批准公司将其财产或权益对外抵押、质押、提供其他担保或转让； Deliberate and approve the external mortgage, pledge, provision of other guarantee or transfer of its property or rights and interests by the Company; | |
| (m) | 审议批准公司的关联交易；及 Deliberate and approve the related transaction of the Company; and | |
| (n) | 决定延长公司的经营期限。 Make a decision to prolong the operating period of the Company. |
| 7.3.2 | 除上述第7.3.1款约定的事项需经出席董事会会议的董事一致通过外，公司董事会其他决议事项须经出席董事会会议的二分之一以上董事通过方可作出决议： Except for the matters agreed in above Article 7.3.1 which need unanimous approval of directors attending the Board Meeting, a resolution may be made only with over half of directors attending the Board Meeting in respect of other resolutions of the Board of Directors: |
| (a) | 批准聘请独立的会计师对公司进行财务审计； Approve the employment of an independent accountant to conduct financial auditing to the Company; | |
| (b) | 批准公司具体的管理政策； Approve the specific management policy of the Company; | |
| (c) | 批准公司具体的经营政策和有关经营的规章制度； Approve the specific operating policy and rules and regulations on operation of the Company; | |
| (d) | 决定各项基金的提取比例；及 Make a decision on withdrawn proportion of each fund; and | |
| (e) | 其他法律规定、本合同约定或公司董事会认为需要由董事会决议的事项。 Other matters necessary for resolution of the Board of Directors as stipulated by laws, agreed in this Contract or deemed by the Board of Directors of the Company. |
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| 7.4 | 董事长 Board Chairman |
董事长是公司的法定代表人。董事长应负责召集和主持董事会会议。董事长因故不能履行其职责时，应由董事长委托的另一名董事代行此等职责。
The Board Chairman is the legal representative of the Company, who shall be responsible to convene and preside over the
Board Meeting. When the Board Chairman cannot fulfil its duty for some reason, another director entrusted by the Board Chairman
shall exercise such duty on behalf.
| 7.5 | 董事会会议 Board Meeting |
| 7.5.1 | 董事会至少应每季度召开一次董事会会议，董事会会议有三分之二以上董事出席方为有效；但是，若经两次正式书面通知，且该等通知可以证明已经有效送达，但出席董事会的董事（包括其授权委托的代表）仍不足三分之二的，董事会可以召开会议并作出决议，在该等情况下，通过决议的最低票数依据《公司法》规定。董事会会议原则上在公司所在地举行，且经董事会一致决定亦可在中国境内外其他地方举行。通过电话会议或其他类似通讯方式参会应等同于在该等会议上亲自参会。 The Board of Directors shall convene the Board Meeting once a quarter at least which shall be valid only with over two thirds of directors to attend; however, if, through two formal written notices which can be certified to have been served validly, the directors attending the Board Meeting (including the representative authorized and entrusted by it) are still less than two thirds, the Board of Directors may convene a meeting and make resolutions, and the minimum votes to resolution under such condition shall be in accordance with the Company Law. In principle, the Board Meeting shall be held where the Company is located and it also may be held in other place in or out of the territory of China through unanimous determination of the Board of Directors. Attendance to the meeting by telephone or in other similar communication mode is equal to attendance to such meeting in person. |
| 7.5.2 | 如果任何董事不能出席董事会会议，其可出具书面委托书授权其他人代表其出席该次会议。该名代表应代表该董事表决。 If any director cannot attend the Board Meeting, it may issue a written Power of Attorney to authorize others to attend such meeting on behalf and such representative shall decide by vote on behalf of such director. |
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| 7.5.3 | 经三分之一以上董事或监事提前五（5）日书面提议并列明讨论事宜，董事长应在中国境内的一个便利的地点召开董事会临时会议。 If above one third of directors or supervisors propose and clearly list the matters to be discussed in writing five (5) days in advance, the Board Chairman shall convene an extraordinary Board Meeting at a convenient place within the territory of China. |
| 7.5.4 | 董事会可采用通过书面决议的方式代替董事会会议，前提是该项决议发送给全体董事并经所有董事会成员签署赞成方可被视为该决议获得通过。 The Board of Directors may adopt written resolution to substitute Board Meeting under the premise that such resolution has been sent to all the directors and signed by all the members of the Board of Directors for approval, and the resolution shall be deemed as approved. |
| 7.5.5 | 董事会决议和纪要应当以中文书写，经与会董事或董事委托的代表签署后由公司归档保存并抄送双方。 The resolution of the Board of Directors and minutes shall be made in Chinese, which shall be filed and kept by the Company and copied to both parties after signatures of the attending directors or representatives entrusted by directors. |
| 7.5.6 | 召开任何董事会会议应由董事长提前十（10）日向各董事发出书面通知，通知应包括会议召开的时间和地点及准备讨论的议案。 For convening of any Board Meeting, the Board Chairman shall send a written notice to each director ten (10) days in advance, including the time and place to convene the meeting and the proposal to be discussed. |
| 7.6 | 监事 Supervisor |
| 7.6.1 | 公司不设监事会，设监事一（1）名，负责公司的全面的监督工作，由外方股东委派。监事任期为三（3）年，且可以连任。 The Company does not set up the Board of Supervisors, but only has one (1) supervisor who is responsible for the overall supervision of the Company and appointed by the foreign shareholder. The supervisor enjoys tenure for three (3) years, who can continue its post. |
公司监事应当遵守法律、行政法规和公司章程，对公司负有忠实义务和勤勉义务。
The supervisor of the Company shall observe the laws, administrative rules and the Articles of Association of the Company
and have the obligation to be honest and diligent to the Company.
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| 7.6.2 | 监事具有下列职权： The supervisor has the following function and power: |
| (a) | 检查公司财务； To check up the finance of the Company; |
| (b) | 对董事、高级管理人员执行公司职务的行为进行监督，对违反法律、行政法规、公司章程或者董事会决议的董事、高级管理人员提出罢免的建议； To supervise the behaviour of the directors and senior management personnel to execute the duty of the Company and to propose to dismiss the directors and senior management personnel who violate laws, administrative rules, Articles of Association of the Company or resolutions of the Board of Directors; |
| (c) | 当董事、高级管理人员的行为损害公司的利益时，要求董事、高级管理人员予以纠正； To require the directors and senior management personnel to correct when their behaviour damages the benefit of the Company; |
| (d) | 依照《公司法》规定，对董事、高级管理人员提起诉讼； To file a lawsuit to the directors and senior management personnel according to Company Law; |
| (e) | 列席董事会会议，并对董事会决议事项提出质询或者建议； To sit in on the Board Meeting and put forth inquiry or advice to the matters resolved by the Board of Directors; |
| (f) | 发现公司经营情况异常，可以进行调查；必要时，可以聘请会计师事务所等协助其工作，费用由公司承担； To investigate if it is found the operating condition of the Company abnormal; when necessary, to employ an accounting firm and others to assist its work at the cost of the Company; |
| (g) | 对聘任或更换公司的审计师提出建议；及 To put forth advice on the employment or replacement of auditor of the Company; and |
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| (h) | 公司章程规定的其他职权。 Other function and power stipulated by the Articles of Association of the Company. |
| 第八条 | 经营管理组织 operating and management ORGANIZATION |
| 8.1 | 管理制度 Management System |
| 8.1.1 | 公司应采用由总经理负责公司日常管理和经营的管理制度。总经理应由中方股东提名，并由董事会聘任与解聘，每次任期三（3）年。 The Company adopts the management system that the General Manager is responsible for the daily management and operation of the Company. The General Manager shall be nominated by the Chinese shareholder and employed and dismissed by the Board of Directors, each of whose tenure is three (3) years. |
财务负责人应由外方股东提名，并由董事会聘任与解聘，每次任期三（3）年。总经理及财务负责人之外的其他管理层人员，应由总经理提名，并基于董事会授权由总经理聘任与解聘，任期为三（3）年或其认为合适的年限。
The financial principal shall be nominated by the foreign shareholder and employed and dismissed by the Board of Directors,
each of whose tenure is three (3) years. The other personnel at management level except for the General Manager and financial principal
shall be nominated by the General Manager and employed and dismissed by the General Manager based on the authorization of the Board
of Directors with tenure of three (3) years or period it deems appropriate.
| 8.1.2 | 总经理、财务负责人以及其他管理层人员可连聘连任。总经理、财务负责人以及其他管理层人员应尽其最大努力为公司服务。公司总经理、财务负责人以及其他管理层人员应当遵守法律、行政法规和公司章程，对公司负有忠实义务和勤勉义务。 The General Manager, financial principal and the other personnel at management level may continue the post by re-employment, who shall try their best to serve the Company. The General Manager, financial principal and the other personnel at management level of the Company shall observe the laws, administrative rules and the Articles of Association of the Company and have the obligation to be honest and diligent to the Company. |
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| 8.1.3 | 总经理和财务负责人应直接向董事会汇报。其他管理层人员应向总经理汇报。 The General Manager and financial principal shall report to the Board of Directors directly and the other personnel at management level shall report to the General Manager. |
| 8.2 | 总经理的责任 Responsibility of the General Manager |
总经理应执行董事会的各项决议，并根据这些决议，组织并指导公司的经营和销售以及公司的日常经营和管理工作。总经理有权行使董事会或（如适用）各股东所授权的其他责任、权力和职责。总经理的具体权力和权限在本合同第8.6款中规定。
The General Manager shall execute all the resolutions of the Board of Directors and organize and guide the operation and
sales of the Company as well as the daily operation and management of the Company according to these resolutions. The General
Manager has the right to exercise other responsibility, power and duty authorized by the Board of Directors or (if applicable)
each shareholder. The specific power and authority of the General Manager will be provided in Article 8.6 of this Contract.
| 8.3 | 年度计划、业务计划、运营计划以及季报与月报 Yearly Plan, Business Plan, Operating Plan, Quarterly Report and Monthly Report |
总经理应在财务负责人的协助下，应于每年的十一月编制并向董事会呈交下一年度的拟议年度计划、业务计划和运营计划。
The General Manager shall formulate and submit the proposed yearly plan, business plan and operating plan for the following year
to the Board of Directors in November of each year under the assistance of the financial principal.
除了上述计划以外，总经理应在财务负责人的协助下，编制并向董事会与各股东呈交本合同第11.4款中规定的报告。
Except for the above plans, the General Manager shall formulate and submit the reports stipulated in Article 11.4 of this Contract
to the Board of Directors and each shareholder under the assistance of the financial principal.
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| 8.4 | 不得同时兼任其他职位 No Assumption to Other Position Concurrently |
| 8.4.1 | 未经董事会书面同意，总经理、财务负责人和其他管理层人员不得同时在另一个与公司相竞争的经济组织中任职。 Without the written consent of the Board of Directors, the General Manager, financial principal and the other personnel at management level shall not assume a post in another economic organization competitive with the Company concurrently. |
| 8.4.2 | 公司的总经理、财务负责人和公司的任何其他管理层人员，不得同时从事任何可能会直接或间接与公司相竞争的任何业务或以其他方式同时受雇于任何其他企业。 The General Manager, financial principal and any other personnel at management level of the Company shall not engage in any business which may be competitive with the Company directly or indirectly or be employed by any other enterprise in other ways. |
| 8.5 | 失职 Dereliction of Duty |
若总经理、财务负责人或其他管理层人员有腐败或严重违约或失职行为的，董事会有权随时解聘。
If the General Manager, financial principal or the other personnel at management level is corruptive or breaches the contract seriously
or is derelict, the Board of Directors has the right to dismiss it at any time.
| 8.6 | 总经理的职责和权限 Responsibility and Authority of the General Manager |
在董事会规定的授权范围内，总经理应有以下职责和权限：
The General Manger shall have the following responsibility and authority within the scope of authorization stipulated by the Board
of Directors:
| (a) | 实施本合同和章程，以及董事会或（如适用）各股东通过的各项决议； To implement this Contract and Articles of Association as well as all the resolutions approved by the Board of Directors or (if applicable) each shareholder; |
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| (b) | 组织管理公司的日常经营活动，并向董事会与各股东提交本合同规定的报告； To organize and manage the daily operating activity of the Company and submit reports stipulated in this Contract to the Board of Directors or each shareholder; |
| (c) | 拟订公司年度财务预算方案、决算方案； To work out yearly financial budget scheme and final settlement scheme of the Company; |
| (d) | 拟订公司利润分配方案和弥补亏损方案； To work out the profit distribution scheme and loss make-up scheme of the Company; |
| (e) | 拟订公司具体的管理制度； To work out specific management system of the Company; |
| (f) | 拟订公司具体的经营政策和有关经营的规章制度； To work out specific operating policy and rules and regulations on operation of the Company; |
| (g) | 聘请、解聘除应由董事会任免人员之外的其他管理人员； To employ or dismiss the other management personnel except for those appointed or dismissed by the Board of Directors; |
| (h) | 受制于本合同及章程中的限制，负责公司的对外关系并代表公司与第三方签订商业文件和其他公司文件；及 Subject to the restriction of this Contract and Articles of Association, to take charge of the external relationship of the Company and sign commercial documents and other corporate documents with a third party on behalf of the Company; and |
| (i) | 办理董事会授权范围内的其他事宜。 To handle other matters within the scope authorized by the Board of Directors. |
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| 第九条 | 劳动管理 LABOUR management |
| 9.1 | 劳动管理 Labour Management |
公司职工的招收、招聘、辞退、工资、劳动保险、生活福利和奖惩等事宜应按照《中华人民共和国劳动法》、《中华人民共和国劳动合同法》及其他相关法律、法规的规定，由总经理制定方案，由公司同员工订立劳动合同加以规定。董事会有权审阅、修改或否决总经理制定的方案。
As regards enrolment, recruitment, dismissal, salary, labour insurance, life welfare, reward and punishment and other matters of
the employees of the Company shall be stipulated by a scheme formulated by the General Manager and labour contract concluded
by and between the Company and the employees according to the Labour Law of the People’s Republic of China,
Labour Contract Law of the People’s Republic of China and other relevant laws and regulations. The Board of Directors
has the right to review, modify or vote down the scheme formulated by the General Manager.
| 9.2 | 员工招聘 Recruitment of Employees |
公司所需职工，应当主要通过公开招聘，经考核后择优录用，凡正式录用的职工均须签订劳动合同。
The employees required by the Company shall be recruited in an open manner mainly on a selective basis through assessment.
All the employees employed formally shall sign the labour contract.
| 9.3 | 工会 Labour Union |
公司的职工有权依照中国法律规定建立基层工会组织，开展工会活动。公司积极支持工会的工作，并按法律规定为工会组织提供活动经费。
The employees of the Company have the right to establish a grass-roots labour union organization according to the laws of
China to carry out activities of labour union. The Company shall support the work of labour union actively and provide working
expenditure for the labour union organization according to laws.
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| 第十条 | 公司的优惠地位 Preferential Status of the Company |
公司和双方应尽其最大努力在需要及可能时，确保为公司获得中国法律和法规规定可以获得的最优惠待遇（如有）。
The Company and both parties shall try their best to ensure that the Company can obtain the most preferential
treatment (if any) stipulated by laws and regulations of China when required and possible.
| 第十一条 | 税务、财务、审计和利润分配 Taxation, finance, auditing and profit distribution |
| 11.1 | 税务 Taxation |
公司应根据中国有关法律和法规纳税。双方应努力为公司、双方及其所有的人员获取根据中国法规和中国已经或将来缔结的有关条约或国际协议现在或将来可以享受的一切有关的免税、减税及优惠待遇。
The Company shall pay taxes according to the relevant laws and regulations of China. Both parties shall endeavour
to obtain all the relevant tax exemption, tax reduction and preferential treatments which may be enjoyed now or in the future according
to the regulations of China and relevant treaties or international agreements which have been or will be concluded by China
for the Company, both parties and all of their personnel.
公司应按《中华人民共和国个人所得税法》或中国其他适用的法律和法规预提并向有关主管机关缴纳个人所得税。
The Company shall withhold and pay the individual income tax to the relevant competent authorities according to Individual
Income Tax Law of the People’s Republic of China or other applicable laws and regulations of China.
| 11.2 | 会计制度 Accounting System |
| 11.2.1 | 公司应根据中国财政部制定的《企业会计制度》和其他有关的财务制度编制完整、准确和适用的令双方均感满意的财务及会计账册及记录。 The Company shall formulate complete, correct and applicable financial and accounting books and records satisfactory to both parties according to the Accounting System for Business Enterprises and other relevant financial systems established by the Ministry of Finance of China. |
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| 11.2.2 | 公司的财务会计应采用人民币作为记账本位币。凡是用不同于记账本位币的币种计算的现金、银行存款、外币贷款以及债权、债务、收支等应以实际收付币种记账。由于汇率差异而引起的汇兑损益应按中国财政部和其他相关中国政府部门颁布的外币交易的会计处理方法处理。 For the financial accounting of the Company, RMB shall be adopted as the bookkeeping base currency. For the cash, bank deposit, foreign currency loan and creditor’s rights, debts, income and expenditure and others calculated in a currency type different from the bookkeeping base currency, the accounts shall be kept in the actual currency type for receipt and payment. The exchange gain and loss resulted from exchange rate difference shall be settled according to the accounting arrangement method for foreign currency transaction promulgated by the Ministry of Finance of China and other relevant governmental departments of China. |
| 11.2.3 | 公司的会计制度和程序以及纳税申报均应由公司的管理层按照中国适用的法律和法规编制。 The accounting system and procedures as well as the tax payment and declaration of the Company shall be formulated according to the applicable laws and regulations of China by the management level of the Company. |
| 11.2.4 | 公司的财务年度应自每一个公历年度的1月1日至12月31日。公司的第一个财务年度应自公司的营业执照颁布之日至该同一公历年度的12月31日。公司的最后一个财务年度应自公司终止所在之公历年度的1月1日至前述终止发生之日。一切重要的财务和会计记录和报表均应经财务负责人和（如适用）董事会的签署和批准。 The fiscal year of the Company shall be from Jan. 1 to Dec. 31 of each Gregorian calendar year. The first fiscal year of the Company shall be from the issuance date of Business License of the Company to Dec. 31 of such Gregorian calendar year. The last fiscal year of the Company shall be from Jan. 1 of Gregorian calendar year when the Company is terminated to the occurrence date of preceding termination. All the important financial and accounting records and statements shall be signed and approved by the financial principal and (if applicable) the Board of Directors. |
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| 11.3 | 银行账户 Bank Account |
公司应向在中国被授权接受人民币和/或外汇存款的该等银行分别开立并保有人民币账户和外汇账户。如认为有必要，公司还可根据其经营需要并根据有关规定，向中国境外的金融机构开立外汇账户。
The Company shall open and maintain RMB accounts and foreign exchange accounts respectively at the banks authorized to accept
RMB and/or foreign exchange deposit in China. If it is deemed necessary, the Company may also open foreign exchange
accounts at the financial institution out of the territory of China according to its operating need pursuant to relevant
regulations.
| 11.4 | 审计、提交报告和检查 Audit, Report Submission and Examination |
| 11.4.1 | 董事会应选择聘请一家在中国注册的会计师事务所担任审计师并审核及验证公司的财务会计。聘用该等会计师事务所应由董事会根据以上第7.3款规定任命。审计师的审核结果应报告董事会、总经理以及各股东。公司应在财务年度结束后的九十（90）日内，将已审计的年度账目，连同独立审计师的审计报告，呈交双方及每名董事。 The Board of Directors shall select to employ an accounting firm registered in China to assume the auditor so as to audit and verify the financial accounting of the Company. Such accounting firm shall be employed through appointment of the Board of Directors according to above Article 7.3. The audit result made by the auditor shall be reported to the Board of Directors, General Manager and each shareholder. The Company shall submit the audited yearly accounts along with the audit report made by the independent auditor to both parties and each director within ninety (90) days after the end of fiscal year. |
| 11.4.2 | 根据任一方的要求，公司应向该方交付（与公司及其会计并表主体相关的）下列文件： According to the request of either party, the Company shall deliver the following documents (related to the Company and the subject of its consolidated accounting statements) to such party: |
| (a) | 每月结束后10日内，按中国会计准则准备的财务报表； Financial statements prepared according to the China Accounting Standards within 10 days after the end of each month; |
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| (b) | 每年结束后45日内，按中国会计准则审计的财务报表； Financial statements audited according to the China Accounting Standards within 45 days after the end of each year; |
| (c) | 至少于新财政年度开始30日之前，经其董事会批准的年度预算计划； Yearly budget plan approved by its Board of Directors 30 days prior to the beginning of new fiscal year at least; |
| (d) | 需要的其他信息。 Other required information. |
| 11.5 | 认缴三项基金 Subscription of Three Funds |
公司应根据法律要求，从其税后利润中提取储备基金、企业发展基金和职工奖励福利基金。在公司拥有税后利润的年度后的第一届董事会会议上，董事会应讨论且决定每项基金所提取的比例。董事会在决策时应考虑公司的业务情况。
The Company shall withdraw reserve fund, enterprise development fund and employee reward welfare fund from the after-tax
profits according the legal requirement. The Board of Directors shall discuss and decide the withdrawn proportion of each
fund in the first Board Meeting after the year when the Company owns after-tax profits. The Board of Directors
shall take the business condition of the Company into consideration when making a decision.
| 11.6 | 利润分配和红利政策 Profit Distribution and Bonus Policy |
任何税后利润的分配方案应由总经理向董事会提出，并由董事会根据以上第7.3款审议决定。分配方案应由董事会通过决议批准。公司的税后利润应根据双方在公司中的股权比例向双方进行分配。
The distribution scheme for any after-tax profits shall be put forward by the General Manager to the Board of Directors
and deliberated and decided by the Board of Directors according to above Article 7.3. The distribution scheme shall be
approved through resolution of the Board of Directors. The after-tax profits of the Company shall be distributed
to both parties according to their shareholding proportion in the Company.
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| 第十二条 | 陈述和保证 Representation and warranties |
| 12.1 | 外方股东的陈述和保证 Representation and Warranties of the Foreign Shareholder |
外方股东在此分别陈述和保证如下：
The foreign shareholder makes the following representation and warranties respectively:
| (a) | 其是一家根据其注册地法律正式组建并有效存续的公司或营利性组织； It is a validly existing company or for-profit organization incorporated duly according to its local laws; |
| (b) | 其拥有全面的法律权利、权力和权限签署本合同以及本合同中所述的其作为签约一方的所有合同和文件，并遵守和履行其在本合同及该等其他合同和文件项下的义务； It owns full legal right, power and authority to sign this Contract and all the contracts and documents to which it acts as one party mentioned in this Contract, and to observe and fulfil its obligations under this Contract and other such contracts and documents; |
| (c) | 其已获得一切同意、批准、授权且已采取其他所需措施，用以有效签署本合同及本合同所提及的、其作为签约一方的所有合同和文件，以及用以遵守和履行其在本合同及该等合同和文件项下的义务；及 It has obtained all consents, approvals and authorizations and has adopted other required measures to sign this Contract and all contracts and documents to which it acts as one party mentioned in this Contract effectively and to observe and fulfil its obligations under this Contract and such contracts and documents; |
| (d) | 在中国及其注册地无针对其而提起的悬而未决或具有潜在威胁的、经合理预计将会造成重大债务、罚款、惩罚或其他义务且会对其履行本合同的能力产生负面影响的任何民事、刑事或行政判决、行为、诉讼、要求、权利主张、听证会、违法通知、调查或程序。 There are not any civil, criminal or administrative judgment, action, lawsuit, request, claims, hearing, notice of violation, investigation or procedure filed to it in China and its registered location, which are pending or potentially threatening, will cause major debts, fine, punishment or other obligations and will create negative impact on its capacity to fulfil this Contract through reasonable estimate. |
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| 12.2 | 中方股东的陈述和保证 Representation and Warranties of the Chinese Shareholder |
中方股东在此分别陈述和保证如下：
The Chinese shareholder makes the following representation and warranties respectively:
| (a) | 其是一家根据中国法律正式组建并有效存续的公司； It is a validly existing company incorporated duly according to the laws of China; |
| (b) | 其拥有全面的法律能力、权利、权力和权限，用以签署本合同和本合同中所提及的、其作为签约一方的所有合同与文件，以及用以遵守和履行其在本合同及该等其他合同和文件项下的义务； It owns full legal capacity, right, power and authority to sign this Contract and all the contracts and documents to which it acts as one party mentioned in this Contract and to observe and fulfil its obligations under this Contract and such other contracts and documents; |
| (c) | 其已获得一切同意且已采取其他所需措施，用以有效签署本合同及本合同中所提及的、其作为签约一方的所有合同和文件，以及用以遵守和履行其在本合同以及该等合同和文件项下的义务；及 It has obtained all consents and has adopted other required measures to sign this Contract and all contracts and documents to which it acts as one party mentioned in this Contract effectively and to observe and fulfil its obligations under this Contract and such contracts and documents; and |
| (d) | 在中国无针对其而提起的悬而未决或具有潜在威胁的、经合理预计将会造成重大债务、罚款、惩罚或其他义务且会对其履行本合同的能力产生负面影响的任何民事、刑事或行政判决、行为、诉讼、要求、权利主张、听证会、违法通知、调查或程序。 There are not any civil, criminal or administrative judgment, action, lawsuit, request, claims, hearing, notice of violation, investigation or procedure filed to it in China, which are pending or potentially threatening, will cause major debts, fine, punishment or other obligations and will create negative impact on its capacity to fulfil this Contract through reasonable estimate. |
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| 第十三条 | 保险 Insurance |
| 13.1 | 公司的各项保险可向任何有权在中国提供此类保险的保险公司购买。投保险别、保险价值、保险期限等须基于公司的实际情况由董事会决定。 All the insurances of the Company may be purchased from the insurance company which has the right to provide such kind of insurance in China. The insurance coverage, value, term and others shall be determined by the Board of Directors according to the actual condition of the Company. |
| 第十四条 | 不竞争 Non-competition |
| 14.1 | 除非经外方股东事先书面同意，自本合同签订日起至中方股东不再作为公司股东之日后的二（2）年期限届满之日止的这段期间内的任何时间，中方股东不得且应促使其每一关联方不得，直接或间接地： Except as agreed by the foreign shareholder in writing beforehand, the Chinese shareholder shall not facilitate each of its affiliated parties at any time during the period from the date when this Contract is signed to expiration of two (2) years after the Chinese shareholder ceases to act as the shareholder of the Company, directly or indirectly: |
| (a) | 招引或试图诱使任何是或已是公司的顾客、供应商、代理商、贸易商、分销商或客户或已习惯同公司交易的任何人士、合伙商或公司离开公司；或 To induce or try to induce those which are or have been the customers, suppliers, agents, traders, distributors or clients of the Company or any person, partner or company which has got used of transactions with the Company to leave the Company; or |
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| (b) | 招引或试图诱使任何截至本合同签订之日受聘于公司且从事技术或管理工作的任何人士离开公司，或向该等人士提供雇佣机会或雇佣该等人士，或向该等人士提供或与其签署任何服务合同。 To induce or try to induce any person who is employed by the Company and engages in technology or management up to the date when this Contract is signed to leave the Company, or to provide employment opportunity to or employ such person, or to provide any service contract to or sign the former with such person. |
| 第十五条 | 保密 Confidentiality |
| 15.1 | 除一方向其关联方以及其所聘请的专业机构或顾问所作的披露，或一方根据法律、或证券交易所、政府机关或其他有管辖权的管理或监督机构的规定所作的公告或披露之外，每一方应对有关公司、其业务或经营有关的、或属于任何其他一方的，或任何其他一方在谈判时为了本合同的磋商、成立、经营公司之目的而披露给该方的任何专有的、机密的或保密性的数据和资料、以及本合同本身（下称“保密资料”）保守秘密，且不得将其披露给任何第三方或第三人。 Except for the disclosure made by one party to its affiliated party and the professional institution or consultants employed by it, or the announcement or disclosure made by one party according to the stipulations of laws, or stock exchange, governmental authorities or other management or regulatory institutions with jurisdiction right, either party shall keep secret any exclusive, secret or confidential data and materials which are related to the Company, its business or operation, or belong to any other party, or are disclosed by any other party for the purposes of consultation of this Contract, establishment and operation of the Company upon negotiation, and this Contract itself (hereinafter referred to as “confidential materials”), and shall not disclose to any third party or third person. |
| 15.2 | 任何一方不得为其本身目的或为除执行公司业务以外的任何其他目的使用任何其他一方的任何保密资料。 Either party shall not use any confidential materials of any other party for its own purpose or any other purpose except for execution of the business of the Company. |
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| 第十六条 | 期限和保持有效 Term and Maintenance of effectiveness |
| 16.1 | 公司的经营期限自工商局签发公司营业执照之日起，为期二十（20）年。在公司的经营期限或任何延长期届满前，双方可以依法延长公司的经营期限。 The operating period of the Company is twenty (20) years from the date when the Administration for Industry and Commerce issues the Business License to the Company. Both parties may prolong the operating period of the Company by law before the expiration of operating period or any prolonged period of the Company. |
| 16.2 | 本合同第十五条、第十七条、第二十一条及第二十二条应在本合同终止后保持有效。 Article Fifteen, Article Seventeen, Article Twenty-one and Article Twenty-two of this Contract shall remain effective after this Contract is terminated. |
| 第十七条 | 违约及违约赔偿 breach of contract and liquidated damages |
| 17.1 | 违约 Brach of Contract |
若一方未履行其在本合同项下的任何实质性义务或若该方在本合同项下的任何陈述或保证严重失实或不准确，则该方（下称“违约方”）已违反本合同。在这种情况下，任一履约方（下称“履约方”）可书面通知违约方，指出其已违反本合同且应在合理期限内（不应超过自该通知之日起六十（60）日）纠正该违约。
If either party does not fulfil any of its substantial obligations under this Contract or such party makes any seriously
false or incorrect representation or warranty under this Contract, such party (hereinafter referred to as “defaulting
party”) has violated this Contract. Under such condition, either observant party (hereinafter referred to “observant
party”) may notify the defaulting party in writing to figure out that it has violated this Contract and it shall
correct such breach of contract within a reasonable term (which shall not exceed sixty (60) days after such notification date).
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| 17.2 | 违约时的责任
Responsibility upon Breach of Contract |
若出现违反本合同的情况，违约方应对履约方由于该违约方违反合同而引致的损失负责。
If this Contract is violated, the defaulting party shall be responsible for the losses caused to the observant
party due to its breach of contract.
| 第十八条 | 终止和解散 termination and dissolution |
| 19.1 | 在发生以下任何事件的情况下，公司可被解散，且本合同可被终止： The Company may be dissolved and this Contract may be terminated if one of the following events happens: |
| (a) | 公司因第二十条规定的不可抗力事件而无法继续经营； Where the Company cannot be operated continuously due to a force majeure event stipulated in Article Twenty; |
| (b) | 双方一致书面同意提前解散公司；或 Where both parties unanimously agree to dissolve the Company in advance in writing; or |
| (c) | 本合同其他部分约定或双方另有其他约定或中国法律规定的终止事件发生。 The termination event agreed in other part in this Contract or agreed otherwise by both parties or stipulated by laws of China happens. |
| 第十九条 | 清算 liquidation |
| 19.1 | 清算委员会的委任 Appointment of the Liquidation Committee |
| 19.1.1 | 在公司的经营期限届满或公司按第十八条之规定解散时，公司董事会应任命一个清算委员会（下称“清算委员会”）。清算委员会成员人数应与董事会成员人数相同，双方任命清算委员会成员的权利分配应与第7.2款规定的提名董事的权利分配相对应。 When the operating period of the Company expires or the Company is dissolved according to the stipulations in Article Eighteen, the Board of Directors of the Company shall appoint a Liquidation Committee (hereinafter referred to as “Liquidation Committee”), the number of whose members shall be equal to that of the Board of Directors, and both parties have the right to appoint members of Liquidation Committee in proportion to the right to nominate directors stipulated in Article 7.2 correspondingly. |
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| 19.2 | 清算委员会的运作原则 Operating Principles of the Liquidation Committee |
| 19.2.1 | 在制订及执行清算方案时，清算委员会应尽力为公司资产争取最高价。应优先考虑以公开拍卖的形式将公司资产售给国内及国外的买家，力求以合理的市场价格出售。 When the liquidation scheme is formulated and executed, the Liquidation Committee shall try to strive for the highest price for the assets of the Company, and it shall give priority to selling the assets of the Company to the seller at home and abroad in the form of public auction to strive to sell at a reasonable market price. |
| 19.2.2 | 若公司发生任何清算、解散、歇业或终止情形，公司清偿债务后的剩余财产按照双方的出资比例进行分配。 If any liquidation, dissolution, out of business or termination happens to the Company, the remaining property after the Company pays off debts shall be distributed according to the contribution proportion of both parties. |
| 第二十条 | 不可抗力 force majeure |
| 20.1 | 概述 Overview |
若任何一方因不可抗力事件（如下定义）而受阻履行其在本合同项下的义务，受阻一方应尽快书面通知其他方并在事件后的十五（15）日内，提供有关该等事件的详尽资料以及证明该事件的文件（包括官方主管部门的文件，如果适用的话），说明其不能履行或延迟履行本合同全部或部分条款的原因。
If either party is prevented from fulfilling
its obligations under this Contract due to a force majeure event (as defined below), the prevented party
shall notify the other parties in writing as soon as possible and provide the detailed materials of such event and documents evidencing
such event (including documents of official competent department, if applicable) to explain why it cannot fulfil or will postpone
fulfilling part or full of the articles of this Contract within fifteen (15) days after the event.
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“不可抗力事件”是指在签订本合同时任何一方均无法预知，且无法避免并克服其发生和后果的任何事件。不可抗力事件应包括但不限于地震、台风、洪水或其他自然灾害、火灾、爆炸、禁运、罢工、暴乱、战争、法律变更、行政命令或流行病等。
“Force majeure event” refers to any event whose occurrence and consequence are unpredicted, inevitable and
unsurmountable by either party when this Contract is signed, which shall include but not limited to earthquake,
typhoon, flood or other natural disasters, fire, explosion, embargo, strike, riot, war, change of laws, administrate order or
epidemic disease, etc.
| 20.2 | 免除责任和通知 Exemption from Responsibility and Notice |
如发生不可抗力事件，任何一方均无需对其他方因其无法履约或延迟履约而蒙受的任何损害、成本增加或损失负责，且该未能履约或延迟履约不应被视为违反本合同。声称发生不可抗力事件的一方应采取适当手段尽量减少或消除不可抗力事件的影响，并尽可能在最短的时间内尝试恢复被不可抗力事件影响的履约。
If a force majeure event happens, either party does not need to hold responsible for any damage, cost increase or
loss suffered by the other party due to failure to fulfil or postponement of fulfilling, and such failure of fulfilment or postponement
of fulfilment shall not be deemed as violation against this Contract. The one party claiming that a force majeure
event happens shall adopt appropriate means to try to decrease or eliminate the influence from the force majeure event and
shall try to recover fulfilment influenced by the force majeure event in the shortest time as much as possible.
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| 20.3 | 不可抗力事件延续 Duration of Force Majeure Event |
如不可抗力事件或不可抗力事件的结果阻碍任何一方履行其在本合同项下的全部或部分义务，自该不可抗力事件发生之日起为期达一百二十（120）日或以上，则双方应根据不可抗力事件的影响，通过协商和股东一致投票，讨论决定是否终止本合同，免除受影响一方履行其在本合同项下的全部或部分义务，或延迟履行该等义务。
If a force majeure event or its consequence prevents either party from fulfilling part or all of its obligations
under this Contract, both parties shall discuss to determine whether to terminate this Contract through negotiation
and unanimous voting of shareholders according to the influence of the force majeure event, exempt the affected party from
fulfilling all or part of its obligations under this Contract, or postpone fulfilling such obligation, provided that the
force majeure event lasts for one hundred and twenty (120) days or above since its occurrence
| 第二十一条 | 适用法律 applicable law |
本合同应受中国法律管辖，并按照中国法律解释。
This Contract is governed and interpreted by laws of China.
| 第二十二条 | 争议的解决 settlement to disputes |
| 22.1 | 因本合同产生的或与本合同相关的任何争议、纠纷或权利主张（下称“争议”），包括与本合同的存续、有效性或终止有关的任何问题，应由双方通过友好磋商加以解决。如果在自一方通知任何其他方发生任何争议之日起的六十（60）个营业日内，未达成任何解决方案，则该争议应根据下文第22.2款提交仲裁。 Any controversy, dispute or claim arising from or related to this Contract (hereinafter referred to as “dispute”), including any issue related to the existence, validity or termination of this Contract, shall be solved by both parties through friendly negotiation. If no solution is reached within sixty (60) business days since one party notifies the other party of the occurrence of any dispute, such dispute shall be submitted for arbitration according Article 22.2 below. |
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| 22.2 | 如果任何争议根据上文第22.1款被提交仲裁，应根据本第22.2款规定寻求解决该争议： If any dispute is submitted for arbitration according to preceding Article 22.1, such dispute shall be solved according to this Article 22.2: |
| (a) | 双方应将该争议提交上海国际经济贸易仲裁委员会（下称“仲裁委”）根据其届时有效的规则和规定仲裁解决。 Both parties shall file such dispute to Shanghai International Economic and Trade Arbitration Commission (hereinafter referred to as “Arbitration Commission”) for arbitration in accordance with its rules and regulations in force at that time. |
| (b) | 仲裁庭应由三（3）名仲裁员组成。外方股东应指定一（1）名仲裁员，中方股东应共同指定一（1）名仲裁员。上述两名仲裁员应在发出或收到仲裁申请书后三十（30）日内选定。首席仲裁员应由前述被指定的两名仲裁员指定。如果外方股东（作为一方）或中方股东（作为另一方）未能在仲裁开始日后的三十（30）日内指定其各自应指定的仲裁员，则应由仲裁委主任作出指定。 The arbitral tribunal consists of three (3) arbitrators, in which the foreign shareholder shall appoint one (1) arbitrator and the Chinese shareholder shall appoint one (1) arbitrator jointly. The above two arbitrators shall be selected within thirty (30) days after issuance or receipt of the application for arbitration. The chief arbitrator shall be appointed by the aforesaid two appointed arbitrators. If the foreign shareholder (as one party) or the Chinese shareholder (as the other party) fails to appoint the arbitrator which shall be appointed by it respectively within thirty (30) days after the beginning of the arbitration, the Director of the Arbitration Commission shall appoint one. |
| (c) | 仲裁裁决应是终局的，对仲裁程序的双方当事人均具有约束力。双方应执行和履行仲裁裁决。双方明确确认，任何根据本合同规定的程序所作出的仲裁裁决应被视为以上海为仲裁地作出。 The arbitration award shall be final and binding upon both parties concerned to the arbitration procedures. Both parties shall execute and fulfil the arbitration award. Both parties clearly confirm that any arbitration award made according to the procedures stipulated in this Contract shall be deemed to have been made in Shanghai as its seat of arbitration. |
| 22.3 | 当发生任何争议并且任何争议处于仲裁期间，除争议事项以外，双方应继续行使其各自剩余的权利，并履行其在本合同项下剩余的义务。 When any dispute happens and it is pending during the arbitration period, both parties shall continue exercising their respective remaining rights and fulfilling their remaining obligations under this Contract except for the disputed matter. |
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| 第二十三条 | 语言 language |
本合同以中文书写和签署。如需要，双方也可以签署英文版本，若中文与英文版本不一致的，以中文版本为准。
This Contract is written and signed in Chinese. If needed, both parties may also sign an English version. Where
the Chinese version is inconsistent with the English version, the Chinese version shall prevail.
| 第二十四条 | 效力、修订及其他 effect, amendment and others |
| 24.1 | 标题 Headline |
条款的标题仅为方便参考而设，且不具有法律效力。
The headlines of articles are for reference only, which do not have legal force.
| 24.2 | 生效和备案 Effectiveness and Filing |
| 24.2.1 | 本合同自经双方签署后生效。 This Contract shall take effect after signatures of both parties. |
| 24.2.2 | 本合同应提交工商局及其他政府部门（如需）登记备案。 This Contract shall be submitted to the Administration for Industry and Commerce and other administrative departments (if required) for registration and filing. |
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| 24.3 | 修订 Revision |
对本合同的任何修订应仅在本合同双方签署书面协议后生效。
Any revision made to this Contract shall take effect after both parties to this Contract sign a written agreement.
| 24.4 | 弃权 Waiver |
任何一方未行使或延迟行使本合同项下的任何权利或补救并不构成其放弃这些或任何其他的权利或补救。任何一方一次行使或部分行使本合同项下任何权利或其他补救不应影响其再次行使该项权利或补救或任何其他权利和补救。
That either party does not exercise or postpones exercising any right or remedy under this Contract does not constitute
its waiver to these or any other right or remedy. That either party exercises any right or other remedies under this
Contract once or partially shall not influence it to exercise such right or remedy or any other right and remedy again.
| 24.5 | 可分性 Severability |
如果本合同的任何条款或其任何部分被依法认为是不合法、无效或不可执行，其他条款将不受影响。
If any article or any part of this Contract is deemed illegal, invalid or unenforceable, the other articles will be free
from influence.
| 24.6 | 通知 Notice |
| 24.6.1 | 双方之间的一切通知均应以中文写成，经专人送达、电子邮件或快递递送至以下地址： All the notices between both parties shall be written in Chinese to send to the following addresses by personal service, e-mail or express delivery: |
| (a) | 外方股东 Foreign shareholder |
| 地址： | Suite 1608, One Exchange Square, 8 Connaught Place, Central, Hong Kong |
| Address: | Suite 1608, One Exchange Square, 8 Connaught Place, Central, Hong Kong |
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| 联系方式： | 传真： | |
| Contact Way: | Fax: | |
| 电邮： | ||
| E-mail: | ||
| 抄送： | ||
| Copy to: | ||
收件人：
Addressee:
| (b) | 中方股东 Chinese shareholder |
| 地址： | 杭州市 |
| Address: | Hangzhou City |
| 联系方式： |
传真： | |
| Contact Way: | Fax: | |
| 电邮： | ||
| E-mail: | ||
| 收件人： | ||
| Addressee: |
| 24.6.2 | 通知在下列时间应被视为已送达： The notice shall be deemed to have been served: |
| (a) | 如果以专人递送，则在交付时； Upon delivery if it is sent by personal delivery; |
| (b) | 如果以电子邮件发送，则在传送时；及 Upon transmission if it is sent by e-mail; and |
| (c) | 如果以快递递送，则在发送日后的第四（4）个营业日。 At the fourth (4) business day after being sent if it is sent by express delivery. |
| 24.6.3 | 每一方可在任何时候按照本第24.6款的规定通过向其他方发出其更改其接收通知的地址的书面通知而更改其接收地址。 Either party may change its address for reception through sending a written notice to the other party to notify for the change of its address to receive the notice according to the stipulations in this Article 24.6 at any time. |
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| 24.7 | 文本 Text |
本合同正本一式五（5）份。每一方及公司应分别保存一（1）份，其他用于办理工商登记或其他政府部门（如需）的备案事项。
This Contract is made in five (5) originals with each party and the Company holding one (1) original respectively,
and the others are used to handle industrial and commercial registration or filing matters to the other governmental departments
(if required).
| 24.8 | 其他 Others |
在涉及数字时，本合同所称的“以上”包括本数。
When it comes to number, the “above” mentioned in this Contract includes the number itself.
（以下无正文）
(No Main Body Below)
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（本页无正文，为合资经营合同之签字页）
(This page is intentionally left blank, which is the signature page for Joint Venture Contract)
兹此，双方或其授权代表已分别于文首所列日期签署本合同，以昭信守。
In Witness Whereof both parties or their authorized representatives have signed this Contract respectively on the
date first above written.
CareRetail (HK) Holdings Limited |
|
| 授权代表： Authorized Representative: |
|
| 签字：___________ Signature: ___________ |
合资经营合同-签署页
（本页无正文，为合资经营合同之签字页）
兹此，双方或其授权代表已分别于文首所列日期签署本合同，以昭信守。
杭州九洲大药房
有限公司（章） |
法定代表人： |
| 签字：___________ Signature: ___________ |
合资经营合同-签署页
Exhibit 31.1
CERTIFICATION
I, Lei Liu, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of China Jo-Jo Drugstores, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: February 10, 2017 | By: | /s/ Lei Liu |
| Lei Liu | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Ming Zhao, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of China Jo-Jo Drugstores, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: February 10, 2017 | By: | /s/ Ming Zhao |
| Ming Zhao | ||
|
Chief Financial Officer (Principal Financial Officer and |
Exhibit 32.1
CERTIFICATION
In connection with the periodic report of China Jo-Jo Drugstores, Inc. (the “Company”) on Form 10-Q for the quarter ending December 31, 2016, as filed with the Securities and Exchange Commission (the “Report”), I, Lei Liu, Chief Executive Officer (Principal Executive Officer) of the Company, and Ming Zhao, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) of the Company. hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. |
| Date: February 10, 2017 | By: | /s/ Lei Liu |
| Lei Liu | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
| Date: February 10, 2017 | By: | /s/ Ming Zhao |
| Ming Zhao | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) |
Document and Entity Information - shares |
9 Months Ended | |
|---|---|---|
Dec. 31, 2016 |
Feb. 09, 2017 |
|
| Document and Entity Information [Abstract] | ||
| Entity Registrant Name | CHINA JO-JO DRUGSTORES, INC. | |
| Entity Central Index Key | 0001413263 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --03-31 | |
| Document Type | 10-Q | |
| Document Period End Date | Dec. 31, 2016 | |
| Document Fiscal Year Focus | 2017 | |
| Document Fiscal Period Focus | Q3 | |
| Entity Filer Category | Smaller Reporting Company | |
| Entity Common Stock, Shares Outstanding | 25,214,678 |
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares |
Dec. 31, 2016 |
Mar. 31, 2016 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 250,000,000 | 250,000,000 |
| Common stock, shares issued | 20,374,678 | 17,735,504 |
| Common stock, shares outstanding | 20,374,678 | 17,735,504 |
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Income Statement [Abstract] | ||||
| REVENUES, NET | $ 20,610,024 | $ 24,708,046 | $ 61,706,774 | $ 68,596,964 |
| COST OF GOODS SOLD | 16,426,153 | 19,860,713 | 48,688,092 | 55,396,941 |
| GROSS PROFIT | 4,183,871 | 4,847,333 | 13,018,682 | 13,200,023 |
| SELLING EXPENSES | 3,570,182 | 3,286,637 | 9,276,225 | 9,801,761 |
| GENERAL AND ADMINISTRATIVE EXPENSES | 1,451,849 | 1,868,448 | 4,752,981 | 3,628,520 |
| TOTAL OPERATING EXPENSES | 5,022,031 | 5,155,085 | 14,029,206 | 13,430,281 |
| LOSS FROM OPERATIONS | (838,160) | (307,752) | (1,010,524) | (230,258) |
| INTEREST INCOME | 54,003 | 62,337 | 339,460 | 253,074 |
| INTEREST EXPENSE | (415) | (2,945) | (1,285) | (156,951) |
| OTHER INCOME (LOSS), NET | (99,485) | (349,514) | 5,139 | (315,894) |
| CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITIES | 67,296 | 15,444 | 125,389 | 173,510 |
| INCOME BEFORE INCOME TAXES | (816,761) | (582,430) | (541,821) | (276,519) |
| PROVISION FOR INCOME TAXES | 18,045 | 35,099 | 63,963 | 79,224 |
| NET LOSS | (834,806) | (617,529) | (605,784) | (355,743) |
| OTHER COMPREHENSIVE LOSS | ||||
| Foreign currency translation adjustments | (1,768,854) | (268,795) | (1,741,706) | (1,043,348) |
| COMPREHENSIVE LOSS | $ (2,603,660) | $ (886,324) | $ (2,347,490) | $ (1,399,091) |
| WEIGHTED AVERAGE NUMBER OF SHARES: | ||||
| Basic | 19,941,439 | 17,180,830 | 19,188,867 | 16,459,195 |
| Diluted | 19,941,439 | 17,180,830 | 19,188,867 | 16,459,195 |
| EARNINGS PER SHARES: | ||||
| Basic | $ (0.04) | $ (0.04) | $ (0.02) | $ (0.02) |
| Diluted | $ (0.04) | $ (0.04) | $ (0.02) | $ (0.02) |
Description of Business and Organization |
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| Description of Business and Organization [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DESCRIPTION OF BUSINESS AND ORGANIZATION | 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”), its wholly-owned subsidiaries.
The Company is a direct-to-consumer retailer, both online and offline, 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, a majority of which are operated by Hangzhou Jiuzhou Grand Pharmacy Chain Co., Ltd. (“Jiuzhou Pharmacy”), a company that the Company controls through contractual arrangements.
The Company’s offline retail business also includes four medical clinics operated 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. On December 18, 2013, Jiuzhou Service established, and held 51% of, Hangzhou Shouantang Health Management Co., Ltd. (“Shouantang Health”), a PRC company licensed to sell health care products. Shouantang Health was closed in April 2015. In May 2016, Hangzhou Shouantang Bio-technology Co., Ltd. (“Shouantang Bio”) set up and held 49% of Hangzhou Kahamadi Bio-technology Co., Ltd.(“Kahamadi Bio”), a joint venture specialized in brand name development for nutritional supplements.
The Company’s license to distribute pharmaceuticals onlineis held by Hangzhou Jiuzhou Grand Pharmacy Chain Co., Ltd. (“Jiuzhou Pharmacy”) and its online retail pharmacy business was primarily conducted through Zhejiang Quannuo Internet Technology Co., Ltd. (“Quannuo Technology”), which provided technical, sales and logistic support. In May 2015, the Company established Zhejiang Jianshun Network Technology Co. Ltd(“Jianshun Network”), a joint venture with Shanghai Jianbao Technology Co., Ltd., in order to develop its online pharmaceutical sales for large commercial medical insurance companies.On December 25, 2016, as Shanghai Jianbao Technology ceased its strategic alliance with Jiuzhou Pharmacy, Jianshun Network was dissolved. On September 10, 2015, Renovation set up a new entity named Hangzhou JiuYi Medical Technology Co. Ltd. (“Jiuyi Technology”) to provide additional technical support such as webpage development to theonline pharmacy business. In November 2015, the Company sold all of the equity interests of Quannuo Technology to six individuals for approximately $17,121 (RMB107,074). After the sale, Quannuo Technology’s technical support services were 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.
The Company’s herb farming business is conducted by Hangzhou Qianhong Agriculture Development Co., Ltd. (“Qianhong Agriculture”), a wholly-owned subsidiary of Jiuxin Management, which operates a cultivation project of herbal plants used for traditional Chinese medicine (“TCM”).
The accompanying consolidated financial statements reflect the activities of the Company and each of the following entities:
|
Summary of Significant Accounting Policies |
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| Summary of Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“US GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2016 filed with the SEC on June 28, 2016. Operating results for the three and nine months ended December 31, 2016 may not be necessarily indicative of the results to be expected for the full year.
The condensed consolidated financial statements include the financial statements of the Company, its 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.
Additionally, as Jiuzhou Pharmacy, Jiuzhou Clinic and Jiuzhou Service are under common control, the consolidated financial statements have been prepared as if the transactions had occurred retroactively as to the beginning of the reporting period of these consolidated financial statements.
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 the Voting Rights Proxy 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 vendors or landlords.
Members of the current management team own controlling interests in the Company and are also the Owners of the VIEs in the PRC. The Company only controls the VIEs through contractual arrangements which obligate it to absorb the risk of loss and to receive the residual expected returns. As such, the controlling shareholders of the Company and the VIEs could cancel these agreements or permit them to expire at the end of the agreement terms, as a result of which the Company would not retain control of the VIEs.
Use of estimates
The preparation of unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The significant estimates made in the preparation of the accompanying unaudited condensed consolidated financial statements relate to the assessment of the carrying values of accounts receivable, advances to suppliers and related allowance for doubtful accounts, useful lives of property and equipment, inventory reserve and fair value of its purchase option derivative liability. Because of the use of estimates inherent in the financial reporting process, actual results could materially differ from those estimates.
Fair value measurements
The Company has adopted ASC Topic 820, “Fair Value Measurement and Disclosure,” which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It 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 ASC 820, include cash and cash equivalents, accounts receivable, accounts payable, long-term debt and derivatives. The carrying amounts of cash and cash equivalents, financial assets available for sales, accounts receivable, notes receivables, and accounts payable are a reasonable approximation of fair value due to the short maturities of these instruments (Level 1). The carrying amount of notes payable approximates fair value based on borrowing rates of similar bank loan currently available to the Company (Level 2) (See Note 13). 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). As of December 31 2016, the fair values of our derivative instruments that were carried at fair value (See Note 17).
Revenue recognition
Revenue from sales of prescription medicine at the 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 the drugstores is recognized at the point of sale, which is when a customer pays for and receives the merchandise. Usually the majority of our merchandise, such as prescription and OTC drugs, are not allowed to be returned after the customers leave the counter. Return of other products, such as sundry products, are minimal. Sales of drugs reimbursed by the local government medical insurance agency and receivables from the agency are recognized when a customer pays for the drugs at a store. Based on historical experience, a reserve for potential loss from denial of reimbursement on certain unqualified drugs is made to the receivables from the government agency.
Revenue from medical services is recognized after the service has been rendered to a customer.
Revenue from online pharmacy sales is recognized when merchandise is shipped to customers. While most deliveries take one day, certain deliveries may take longer depending on a customer’s location. Any loss caused in a shipment will be reimbursed by the Company’s courier company. Our sales policy allows for the return of certain merchandises without reason within seven days after customer’s receipt of the applicable merchandise. A proper sales reserve is made to account for the potential loss from returns from customers. Historically, sales returns seven days after merchandise receipts have been minimal.
Revenue from sales of merchandise to non-retail customers is recognized when the following conditions are met: (1) persuasive evidence of an arrangement exists (sales agreements and customer purchase orders are used to determine the existence of an arrangement); (2) delivery of goods has occurred and risks and benefits of ownership have been transferred, which is when the goods are received by the customer at its designated location in accordance with the sales terms; (3) the sales price is fixed or determinable; and (4) collectability is probable. Historically, sales returns have been minimal.
The Company’s revenue is net of value added tax (“VAT”) collected on behalf of PRC tax authorities in respect to the sales of merchandise. VAT collected from customers, net of VAT paid for purchases, is recorded as a liability in the accompanying consolidated balance sheets until it is paid to the relevant PRC tax authorities.
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.
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 our vendors, such as pharmaceutical manufacturers and other distributors. Since the acquisition of Jiuxin Medicine, we have transferred almost all logistics services of our retail drugstores to Jiuxin Medicine. Jiuzhou Pharmacy only directly purchases certain non-medical products, such as certain nutritional supplements. As a result, almost all advances to suppliers are made by Jiuxin Medicine.
Advances to suppliers for our drug wholesale business consist of prepayments to our vendors, such as pharmaceutical manufacturers and other distributors. We typically receive products from vendors within three to nine months after making prepayments. We continuously monitor delivery from, and payments to, our vendors while maintaining a provision for estimated credit losses based upon historical experience and any specific supplier issues, such as discontinuing of inventory supply, that have been identified. If we are having difficulty receiving products from a vendor, we take the following steps: cease purchasing products from such vendor, ask for return of our prepayment promptly, and if necessary, take legal action. If all of these steps are unsuccessful, management then determines whether or not the prepayments should be reserved or written off.
Inventories
Inventories are stated at the lower of cost or market value. Cost is determined using the first in first out (FIFO) method. Market value is the lower of replacement cost or net realizable value. 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:
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:
The Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate that the assets might be impaired.
Impairment of long lived assets
The Company evaluates long lived tangible and intangible assets for impairment, whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability is measured by comparing the assets’ net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss. There were no fixed assets and farmland assets impaired for the nine months ended December 31, 2016 (See Notes 6 and 9).
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 follows FASB ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company has adopted FASB ASC Topic 740-10-25, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. The Company must 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 are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company performed a self-assessment and the Company’s liability for income taxes includes liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by taxing authorities. Audit periods remain open for review until the statute of limitations has passed, which in the PRC is usually 5 years. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of December 31, 2016 and March 31, 2016, the management of the Company considered that the Company had no additional liabilities for uncertain tax positions affecting its consolidated financial position and results of operations or cash flows, and will continue to evaluate for any uncertain position in the future. There are no estimated interest costs and penalties provided in the Company’s consolidated financial statements for the three months ended December 31, 2015 and 2016, respectively. The Company’s tax positions related to open tax years are subject to examination by the relevant tax authorities and the major one is the China Tax Authority.
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.
The accounting standards clarify the accounting and disclosure requirements for uncertain tax positions and prescribe a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. The accounting standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. No significant penalties, uncertain tax provisions or interest relating to income taxes were incurred during the periods ended December 31, 2016 and 2015.
Stock based compensation
The Company follows the provisions of ASC 718, “Compensation — Stock Compensation,” which establishes accounting standards for non-employee and employee stock-based awards. Under the provisions of 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 $121,140 and $156,911 for three months ended December 31, 2016 and 2015, respectively, and $303,626 and $354,964 for the nine months ended December 31, 2016 and 2015, respectively. Such costs consist primarily of print and promotional materials such as flyers to local communities.
Operating leases
The Company leases premises for retail drugstores, offices and wholesale warehouse under non-cancelable operating leases. Operating lease payments are expensed over the term of lease. A majority of the Company’s retail drugstore leases have a 3 to 8 year term with a renewal option upon the expiration of the lease; the wholesale warehouse lease has a 10-year term with a renewal option upon the expiration of the lease. The Company has historically been able to renew a majority of its drugstores leases. Under the terms of the lease agreements, the Company has no legal or contractual asset retirement obligations at the end of the lease. In addition, land leased from the government is amortized on a straight-line basis over a 30-year term.
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 December 31, 2016 and March 31, 2016 were translated at 1 RMB to 0.1440 USD and at 1 RMB to 0.1551 USD, respectively. The average translation rates applied to income and cash flow statement amounts for the nine months ended December 31, 2016 and 2015 were at 1 RMB to 0.1498USD and at 1 RMB to 0.1582 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 77,528) per bank. As of December 31, 2016 and March 31, 2016, the Company had deposits totaling $13,623,893 and $20,419,863 that were covered by such limited insurance, respectively. Any balance over RMB 500,000 (USD 71,997) per bank in PRC will not be covered. To date, the Company has not experienced any losses in such accounts.
For the three months ended December 31, 2016, two largest vendor accounted for 46.5% of the Company’s total purchases and one vendor accounted for 10.9% of the Company’s total advances to suppliers. For the three months ended December 31, 2015, one largest vendors accounted for 17.6% of the Company’s total purchases and two vendors accounted for 25.1% of total advances to suppliers.
For the nine months ended December 31, 2016, two largest vendors accounted for 41.0% of the Company’s total purchases and one vendor accounted for 10.9% of the Company’s total advances to suppliers. For the nine months ended December 31, 2015, one largest vendors accounted for 16.7% of the Company’s total purchases and two vendors accounted for 25.1% of total advances to suppliers.
For the three months and nine months ended December 31, 2016 and December 31, 2015, no customer accounted for more than 10% of the Company’s total sales or accounts receivable.
Recent Accounting Pronouncements
Measurement of Credit Losses on Financial Instruments
In June 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the assumptions, models and methods for estimating expected credit losses. This ASU is effective for the Company beginning in the first quarter of 2020 and allows for early adoption beginning in the first quarter of the calendar year of 2019. The Company is currently evaluating the impact the ASU will have on its Consolidated Financial Statements.
Improvements to Employee Share-Based Payment Accounting
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” requiring the recognition of the income tax effects of stock awards in the income statement when the awards are settled and allowing the Company to repurchase more of an employee's shares than allowed under current guidance, without triggering liability accounting. This ASU also addresses simplifications related to statement of cash flows classification and accounting for forfeitures. This ASU is effective for the Company beginning in the first quarter of the fiscal year of 2018 and allows for early adoption. The Company is currently evaluating the impact this ASU will have on its Consolidated Financial Statements.
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” replacing most existing revenue recognition guidance under GAAP and eliminating industry specific guidance. The core principle of the new guidance is that an entity should recognize revenue for the transfer of goods and services equal to an amount it expects to be entitled to receive for those goods and services.
In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” deferring the effective date by one year.
In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Gross versus Net),” clarifying the principal versus agent guidance in the new revenue recognition standard, by revising the indicators to focus on evidence that the company is a principal.
In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” reducing the complexity when applying the guidance for identifying performance obligations and clarifying how to determine whether revenue related to a performance obligation for an intellectual property license is recognized over time or at a point in time.
In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” clarifying certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition.
These ASUs are effective for the Company beginning in the first quarter of the fiscal year of 2019, allow for early adoption in the first quarter of 2017 and may be applied using either a full retrospective approach or a modified retrospective approach. The Company is currently evaluating the method of adoption and the impact these ASUs will have on its Consolidated Financial Statements. |
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Financial Assets Available for Sale |
9 Months Ended |
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Dec. 31, 2016 | |
| Financial Assets Available For Sale Disclosure [Abstract] | |
| FINANCIAL ASSETS AVAILABLE FOR SALE | NOTE 3 – FINANCIAL ASSETS AVAILABLE FOR SALE
As of December 31, 2016 and March 31, 2016, financial assets available for sale amounted to $0 and $465,165 (RMB 3,000,000), respectively. On March 28, 2016, the Company purchased from Bank of Hangzhou a wealth-management product called “Lehui 2016”, which bears an annual interest rate of 4.15% and which came due and was paid back on September 26, 2016. The total principal is $465,165 (RMB 3,000,000) interest received is approximately $9,433. It is a half-year deposit available to the Company at its demand. |
Trade Accounts Receivable |
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| Trade Accounts Receivable [Abstract] | |||||||||||||||||||||||||||||||||||||
| TRADE ACCOUNTS RECEIVABLE | NOTE 4 – TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consisted of the following:
For the three months ended December 31, 2016 and 2015, $75,126 and $41,671 in accounts receivable were directly written off respectively. For the nine months ended December 31, 2016 and 2015, $138,508 and $133,544 in accounts receivable were directly written off respectively. |
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Other Current Assets |
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| Other Current Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||
| OTHER CURRENT ASSETS | Note 5 – OTHER CURRENT ASSETS
Other current assets consisted of the following:
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Property and Equipment |
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| Property and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT | Note 6 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
* The variance of impairment from March 31, 2016 to December 31, 2016 is solely caused by exchange rate variance.
Total depreciation expense for property and equipment was $425,127 and $218,022 for the three months ended December 31, 2016 and 2015, respectively, and $878,106 and $966,040 for the nine months ended December 31, 2016 and 2015, respectively. There were no fixed assets impaired in the three and nine months ended December 31, 2016. |
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Advances to Suppliers |
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| Advances to Suppliers [Abstract] | |||||||||||||||||||||||||||||||||||||
| ADVANCES TO SUPPLIERS | Note 7 – ADVANCES TO SUPPLIERS
Advances to suppliers consist of deposits, with or advances to, outside vendors for future inventory purchases. Most of the Company’s vendors require a certain amount of money to be deposited with them as a guarantee that the Company will receive its purchase on a timely basis. This amount is refundable and bears no interest. As of December 31, 2016 and March 31, 2016, advance to suppliers consist of the following:
For the three and nine months ended December 31, 2016 and 2015, none of the advances to suppliers were written off against previous allowance for doubtful accounts, respectively. |
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Inventory |
9 Months Ended |
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Dec. 31, 2016 | |
| Inventory [Abstract] | |
| INVENTORY | Note 8 – INVENTORY
Inventory consisted of finished goods, valued at $10,565,855 and $10,802,691 as of December 31, 2016 and March 31, 2016, respectively. As the sales in the first two fiscal quarters were affected by the G20 summit in Hangzhou, the Company planned to implement a sales campaign in the third quarter and prepared more inventory. Because suppliers usually provide a higher discount and rebate rate if more inventory is purchased in bulk, the Company tends to purchase more inventory to maximize its profit margin. The Company constantly monitors its potential obsolete products and is allowed to return products close to their expiration date to its suppliers. Any loss on damaged items is immaterial and will be recognized immediately. As a result, no reserves were made as of December 31, 2016 and March 31, 2016. |
Farmland Assets |
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| Farmland Assets [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| FARMLAND ASSETS | Note 9 – FARMLAND ASSETS
Farmland assets are ginkgo trees planted in 2012 and expected to be harvested and sold in several years. As of December 31, 2016 and March 31, 2016, farmland assets consisted of the following:
* The estimated fair value is estimated to be lower than its investment value as of December 31, 2016 and March 31, 2016. |
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Long Term Deposits, Landlords |
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Dec. 31, 2016 | |
| Long Term Deposits Landlords [Abstract] | |
| LONG TERM DEPOSITS LANDLORDS | Note 10 – LONG TERM DEPOSITS, LANDLORDS
As of December 31, 2016 and March 31, 2016, long term deposits amounted to $2,277,120 and $2,452,056, respectively. Long term deposits are money deposited with, or advanced to, landlords for securing retail store leases for which the Company does not anticipate applying or being returned within the next twelve months. Most of the Company’s landlords require a minimum of nine months’ rent being paid upfront plus additional deposits. |
Other Noncurrent Assets |
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| OTHER NONCURRENT ASSETS | Note 11 – OTHER NONCURRENT ASSETS
(1) As of December 31, 2016, a total of $584,688 (RMB3,900,000) was prepaid as headquarter office rental for five years from January 1, 2016 to December 31, 2020. As of December 31, 2016, prepaid rental for less than one year was classified as current assets, the remaining balance of $336,944 was classified as noncurrent assets.
(2) The prepayment for lease of land use right is a payment made to a local government in connection with entering into a 30-year operating land lease agreement. The land is currently used to cultivate Ginkgo trees. This prepayment includes a deposit of $1,049,440, which will be refundable on the due date. Based on expected output from planted Gingko trees such as expected fruit production and tree market value, the fair value of the lease prepayment was lower than carrying cost. As a result, the Company recorded impairment on the lease prepayment.
The amortization of the prepayment for the lease of land use right was approximately $15,107 and $16,137 for the three months ended December 31, 2016 and 2015, respectively. The amortization of the prepayment for the lease of land use right was approximately $46,396 and $49,524 for the nine months ended December 31, 2016 and 2015, respectively.
The Company’s amortizations of the prepayment for lease of land use right for the next five years and thereafter are as follows:
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Intangible Assets |
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| Intangible Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INTANGIBLE ASSETS | Note 12 – INTANGIBLE ASSETS
Net intangible assets consisted of the following at:
Amortization expense of intangibles amounted to $7,542 and $6,720 for the three months ended December 31, 2016 and 2015, respectively, and $21,133 and $22,541for the nine months ended December 31, 2016 and 2015, respectively.
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Notes Payable |
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| NOTES PAYABLE | Note 13 – NOTES PAYABLE
The Company has credit facilities with Hangzhou United Bank (“HUB”), Bank of Hangzhou (“BOH”), Industrial and Commercial Bank of China (“ICBC”) and Zhejiang Tailong Commercial Bank (“ZTCB”) that provided working capital in the form of the following bank acceptance notes at December 31, 2016 and March 31, 2016:
As of December 31, 2016, the Company had a credit line of approximately $13.77million in the aggregate from HUB, BOH, ICBC and ZTCB. By putting up the restricted cash of $2.97 million deposited in the banks, the total credit line was $16.74 million. As of December 31, 2016, the Company had approximately $12.22 million of bank notes payable and approximately $4.52 million bank credit line was still available for further borrowing. The bank notes are also secured by buildings owned by the Company’s major shareholders, a shop of Jiuzhou Pharmacy, and guaranteed by Jiuxin Medical. |
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Taxes |
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| Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TAXES | Note 14 – TAXES
Income tax
For the three and nine months ended December 31, 2016 and 2015, the income tax provisions were as follow:
The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.
The following table reconciles the U.S. statutory tax rates with the Company's effective tax rate for the three and nine months ended December 31, 2016 and 2015:
Jo-Jo Drugstores is incorporated in the U.S. and incurred a net operating loss for income tax purposes for the three and nine months ended December 31, 2016 and 2015. As of December 31, 2016, the estimated net operating loss carry forwards for U.S. income tax purposes amounted to $1,503,000 which may be available to reduce future years’ taxable income. These carry forwards will expire, if not utilized by 2032. Management believes that the realization of the benefits arising from this loss appears to be uncertain due to the Company’s limited operating history and continuing losses for U.S. income tax purposes. Accordingly, the Company has provided a 100% valuation allowance at December 31, 2015. There was no net change in the valuation allowance for the three and nine months ended December 31, 2016 and 2015. Management reviews this valuation allowance periodically and makes adjustments as necessary.
Taxes payable at December 31, 2016 and March 31, 2016 consisted of the following:
The Company has adopted ASC Topic 740-10-05, “Income Taxes.” To date, the adoption of this interpretation has not impacted the Company’s financial position, results of operations, or cash flows. The Company performed a self-assessment and the Company’s liability for income taxes includes liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by taxing authorities. Audit periods remain open for review until the statute of limitations has passed, which in the PRC is usually 5 years. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of December 31 and March 31, 2016, management considered that the Company had no uncertain tax positions affecting its consolidated financial position and results of operations or cash flows, and will continue to evaluate for any uncertain position in future. There are no estimated interest costs and penalties provided in the Company’s consolidated financial statements for the three months and nine months ended December 31, 2016 and 2015, respectively. The Company’s tax positions related to open tax years are subject to examination by the relevant tax authorities and the major one is the China Tax Authority. |
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Postretirement Benefits |
9 Months Ended |
|---|---|
Dec. 31, 2016 | |
| Postretirement Benefits [Abstract] | |
| POSTRETIREMENT BENEFITS | Note 15 – 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 $311,202 and $299,424 in employment benefits and pension for the three months ended December 31, 2016 and 2015, respectively, and $781,834 and $767,829 in employment benefits and pension for the nine months ended December 31, 2016 and 2015, respectively. |
Related Party Transactions and Arrangements |
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions and Arrangements [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| RELATED PARTY TRANSACTIONS AND ARRANGEMENTS | Note 16 – RELATED PARTY TRANSACTIONS AND ARRANGEMENTS
Amounts payable to related parties are summarized as follows:
As of December 31, 2016 and March 31, 2016, notes payable totaling $5,231,195 and $5,302,881 were secured by the personal properties of certain of the Company’s shareholders, respectively.
The Company leases from Mr. Lei Liu a retail space which expires in September 2017. Rent expense amounted to $3,867 and $4,257 for the three months ended December 31, 2016 and 2015, respectively. Rent expense amounted to $12,959 and $52,767 for the nine months ended December 31, 2016 and 2015, respectively. The amounts were not paid to Mr. Liu as of December 31, 2016. |
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Warrants |
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| Warrants [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| WARRANTS | Note 17 – WARRANTS
On September 26, 2013, as annual compensation for its financial advisory service, the Company issued a warrant to a financial consulting firm to purchase up to 150,000 shares of common stock at $1.20 per share. The warrant is exercisable from September 26, 2013 to September 25, 2016. On September 21, 2016, the warrants were exercised at the stock price of $1.84 in a cashless manner. As a result, 52,174 shares were issued for the full exercise of the warrant.
On September 26, 2013, the issuance date of the warrant, the Company classified the fair value of the warrant as a liability of $33,606. The Company recognized a gain of $0 and $15,444 from the change in fair value of the warrant liability for the three months ended December 31, 2016 and December 31, 2015, The Company recognized a loss of $76,633 and $58,318 from the change in fair value of the warrant liability for the nine months ended December 31, 2016 and December 31, 2015,respectively. As a result, the warrant liability is carried on the consolidated balance sheets at the fair value of $0 and $89,997 as of December 31, 2016 and March 31, 2016, respectively.
In connection with the registered direct offering closed on July 19, 2015, the Company issued to an investor warrant to purchase up to 600,000 shares of common stock at an exercise price of $3.10 per share. The warrant is exercisable commencing on January 19, 2016 and will expire on January 18, 2021. In connection with the offering, the Company also issued warrant to its placement agent of this offering, which can purchase an aggregate of up to 6% of the aggregate number of shares of common stock sold in the offering, i.e. 72,000 shares. Such warrant has the same terms as the warrant issued to investor in the offering.
The fair value of the warrants issued to purchase 672,000 shares as described above was estimated by using the binominal pricing model with the following assumptions:
Upon evaluation, the warrants meet the definition of a derivative under ASC 815 as the Company cannot avoid net cash settlement under certain circumstances. Accordingly, the fair value of the warrants was classified as a liability of $546,304 as of March 31, 2016. For the three and nine months ended December 31, 2016, the Company recognized a gain of $67,297 and $35,444, respectively, for the investor warrants and placement agent warrants, 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 $510,859 for the investor warrants and placement agent warrants, collectively, as of December 31, 2016. |
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Stockholder's Equity |
9 Months Ended |
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Dec. 31, 2016 | |
| Stockholder's Equity [Abstract] | |
| STOCKHOLDER'S EQUITY | Note 18 – STOCKHOLDER’S EQUITY
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 expense over the requisite service periods in the Company’s consolidated statements of operations. Share-based awards are attributed to expense 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 ASC 718 “Compensation - Stock Compensation.” The assumptions used in calculating the fair value of share-based payment awards represent the Company’s best estimates. The Company’s estimates of the fair values of stock options granted and the resulting amounts of share-based compensation recognized may be impacted by certain variables including stock price volatility, employee stock option exercise behaviors, additional stock option modifications, estimates of forfeitures, and the related income tax impact.
On November 25, 2015, the Company agreed to grant a total of 150,000 shares of restricted common stock to a financial consulting firm for its financial advisory services. The term of the service agreement is one year. The trading value of the Company’s common stock on November 25, 2015 was $1.77. For the three months ended December 31, 2016 and 2015, $40,734 and $26,186 were recorded as consulting expenses, respectively. For the nine months ended December 31, 2016 and 2015, $173,848 and $26,186 were recorded as consulting expenses, respectively.
On November 27, 2015, the Company granted a total of 735,000 shares of restricted common stock to its directors, officers and certain employees under the Company’s 2010 Equity Incentive Plan, as amended (the “Plan”). The stock awards vests in one year. The trading value of the Company’s common stock on November 27, 2015 was $1.76. For the three months ended December 31, 2016 and 2015, $191,382 and $134,676 were recorded as service compensation expenses, respectively. For the nine months ended December 31, 2016 and 2015, $839,954 and $134,676were recorded as service compensation expenses, respectively.
On June 7, 2016, the Company granted a total of 8,000 shares of restricted common stock to Taylor Raffery, an investor relation firm, for its marketing services. The trading value of the Company’s common stock in June 2016 was $1.60. Taylor Raffery’s service ended in June 2016. As a result, for the three and nine months ended December 31, 2016, $12,800 was recorded as a consulting expense.
On June 3, 2016, the Company granted a total of 1,630,000 shares of restricted common stock to its key employees in retail drugstores and online pharmacy under the Company’s 2010 Equity Incentive Plan, as amended. The stock awards vests in three year. The trading value of the Company’s common stock on June 3, 2016 was $1.62. For the three and nine months ended December 31, 2016, $221,859 and $508,828 were recorded as service compensation expense, respectively.
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 in three years 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 December 31, 2016 and 2015, $124,033 and $124,033 was recorded as compensation expense. For the nine months ended December 31, 2016 and 2015, $372,100 and $372,100 was recorded as compensation expense. As of December 31, 2016, there was approximately $0.44 million of total unrecognized compensation costs related to stock option compensation arrangements granted which is expected to be recognized over the remaining weighted-average period of 0.88 years.
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 dividend or otherwise, except in the event of liquidation.
Appropriations to the Reserve Fund are accounted for as a transfer from unrestricted earnings to statutory reserves. During the three and nine months ended December 31, 2016 and 2015, the Company did not make appropriations to the 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. |
Income Per Share |
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| Income Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INCOME PER SHARE | Note 19 – INCOME PER SHARE
The Company reports earnings per share in accordance with the provisions of the FASB’s related accounting standard. This standard requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution, but includes vested restricted stocks and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.
The following is a reconciliation of the basic and diluted earnings per share computation:
For the three and nine months ended December 31, 2016, the 967,000 shares underlying employee stocks options and 600,000 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. For the three and nine months ended December 31, 2016, all of the warrants were also excluded from the calculation of diluted earnings per share as the options were anti-dilutive. |
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Segments |
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| Segments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENTS | Note 20 – 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 operation for the three months ended December 31, 2016:
* includes the accounts receivable and advance to suppliers allowance reversal of $331,180.
The following table presents summarized information of the continuing operations by segment for the three months ended December 31, 2015:
* includes the accounts receivable and advance to suppliers allowance reversal of $62,935.
The following table presents summarized information of the continuing operation by segment for the nine months ended December 31, 2016:
* includes the accounts receivable and advance to suppliers allowance reversal of $544,508.
The following table presents summarized information of the continuing operation by segment for the nine months ended December 31, 2015:
* include the accounts receivable and advance to suppliers allowance reversal of $1,679,630.
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 stores by main products is as follows:
The Company’s net revenue from external customers through online pharmacy by main products is as follows:
The Company’s net revenue from external customers through wholesale by main products is as follows:
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Commitments and Contingencies |
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| Commitments and Contingencies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COMMITMENTS AND CONTINGENCIES | Note 21 – COMMITMENTS AND CONTINGENCIES
Operating lease commitments
The Company recognizes lease expense on a straight line basis over the term of its leases in accordance with the relevant accounting standards. The Company has entered into various tenancy agreements for its store premises and for the land leased from a local government to farm herbs.
The Company’s commitments for minimum rental payments under its leases for the next five years and thereafter are as follows:
Total rent expense amounted to $747,744 and $918,619 for the three months ended December 31, 2016 and 2015, respectively, and $2,225,186 and $3,346,163 for the nine months ended December 31, 2016 and 2015, respectively. |
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Subsequent Events |
9 Months Ended |
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Dec. 31, 2016 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | Note 22 – SUBSEQUENT EVENTS
On January 4, 2017, the Company entered into a Securities Purchase Agreement with one institutional investor (the “Investor”) pursuant to which the Company agreed to sell to the Investor, and the Investor agreed to purchase from the Company, through a private placement, an aggregate of 4,840,000 shares of the common stock, par value $0.001 per share, of the Company, at a purchase price of $2.20 per share, for aggregate gross proceeds to the Company of $10,648,000 (the “Private Placement”). The Private Placement was closed on January 21, 2017.
On January 18, 2017, Jiuzhou Pharmacy entered into a joint venture agreement (the “JV”) with the Investor’s designated entity, CareRetail (HK) Holdings Limited (“CareRetail HK”) pursuant to which CareRetail HK shall have 51% equity interests of the JV and Jiuzhou Pharmacy shall have the remaining 49% equity interests. The total registered capital of the JV is $1,600,000, to be contributed by both parties based on their ownership percentages in the JV by December 31, 2019. The JV is in the business of management and consulting in the industry of non-medical care management and consulting, wholesale and retail of certain categories of medical devices and others subject to the scope to be set forth in its business license. |
Summary of Significant Accounting Policies (Policies) |
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| Summary of Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of presentation and consolidation | Basis of presentation and consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“US GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2016 filed with the SEC on June 28, 2016. Operating results for the three and nine months ended December 31, 2016 may not be necessarily indicative of the results to be expected for the full year.
The condensed consolidated financial statements include the financial statements of the Company, its subsidiaries and VIEs. All significant inter-company transactions and balances between the Company, its subsidiaries and VIEs are eliminated upon consolidation. |
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| Consolidation of variable interest entities | 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.
Additionally, as Jiuzhou Pharmacy, Jiuzhou Clinic and Jiuzhou Service are under common control, the consolidated financial statements have been prepared as if the transactions had occurred retroactively as to the beginning of the reporting period of these consolidated financial statements.
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 the Voting Rights Proxy 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. |
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| Risks and Uncertainties | 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 vendors or landlords.
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. |
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| Use of estimates | Use of estimates
The preparation of unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The significant estimates made in the preparation of the accompanying unaudited condensed consolidated financial statements relate to the assessment of the carrying values of accounts receivable, advances to suppliers and related allowance for doubtful accounts, useful lives of property and equipment, inventory reserve and fair value of its purchase option derivative liability. Because of the use of estimates inherent in the financial reporting process, actual results could materially differ from those estimates. |
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| Fair value measurements | Fair value measurements
The Company has adopted ASC Topic 820, “Fair Value Measurement and Disclosure,” which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It 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 ASC 820, include cash and cash equivalents, accounts receivable, accounts payable, long-term debt and derivatives. The carrying amounts of cash and cash equivalents, financial assets available for sales, accounts receivable, notes receivables, and accounts payable are a reasonable approximation of fair value due to the short maturities of these instruments (Level 1). The carrying amount of notes payable approximates fair value based on borrowing rates of similar bank loan currently available to the Company (Level 2) (See Note 13). 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). As of December 31 2016, the fair values of our derivative instruments that were carried at fair value (See Note 17).
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| Revenue recognition | Revenue recognition
Revenue from sales of prescription medicine at the 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 the drugstores is recognized at the point of sale, which is when a customer pays for and receives the merchandise. Usually the majority of our merchandise, such as prescription and OTC drugs, are not allowed to be returned after the customers leave the counter. Return of other products, such as sundry products, are minimal. Sales of drugs reimbursed by the local government medical insurance agency and receivables from the agency are recognized when a customer pays for the drugs at a store. Based on historical experience, a reserve for potential loss from denial of reimbursement on certain unqualified drugs is made to the receivables from the government agency.
Revenue from medical services is recognized after the service has been rendered to a customer.
Revenue from online pharmacy sales is recognized when merchandise is shipped to customers. While most deliveries take one day, certain deliveries may take longer depending on a customer’s location. Any loss caused in a shipment will be reimbursed by the Company’s courier company. Our sales policy allows for the return of certain merchandises without reason within seven days after customer’s receipt of the applicable merchandise. A proper sales reserve is made to account for the potential loss from returns from customers. Historically, sales returns seven days after merchandise receipts have been minimal.
Revenue from sales of merchandise to non-retail customers is recognized when the following conditions are met: (1) persuasive evidence of an arrangement exists (sales agreements and customer purchase orders are used to determine the existence of an arrangement); (2) delivery of goods has occurred and risks and benefits of ownership have been transferred, which is when the goods are received by the customer at its designated location in accordance with the sales terms; (3) the sales price is fixed or determinable; and (4) collectability is probable. Historically, sales returns have been minimal.
The Company’s revenue is net of value added tax (“VAT”) collected on behalf of PRC tax authorities in respect to the sales of merchandise. VAT collected from customers, net of VAT paid for purchases, is recorded as a liability in the accompanying consolidated balance sheets until it is paid to the relevant PRC tax authorities. |
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| Restricted cash | 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. |
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| Accounts receivable | 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. |
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| Advances to suppliers | Advances to suppliers
Advances to suppliers consist of prepayments to our vendors, such as pharmaceutical manufacturers and other distributors. Since the acquisition of Jiuxin Medicine, we have transferred almost all logistics services of our retail drugstores to Jiuxin Medicine. Jiuzhou Pharmacy only directly purchases certain non-medical products, such as certain nutritional supplements. As a result, almost all advances to suppliers are made by Jiuxin Medicine.
Advances to suppliers for our drug wholesale business consist of prepayments to our vendors, such as pharmaceutical manufacturers and other distributors. We typically receive products from vendors within three to nine months after making prepayments. We continuously monitor delivery from, and payments to, our vendors while maintaining a provision for estimated credit losses based upon historical experience and any specific supplier issues, such as discontinuing of inventory supply, that have been identified. If we are having difficulty receiving products from a vendor, we take the following steps: cease purchasing products from such vendor, ask for return of our prepayment promptly, and if necessary, take legal action. If all of these steps are unsuccessful, management then determines whether or not the prepayments should be reserved or written off. |
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| Inventories | Inventories
Inventories are stated at the lower of cost or market value. Cost is determined using the first in first out (FIFO) method. Market value is the lower of replacement cost or net realizable value. 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. |
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| Farmland assets | 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. |
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| Property and equipment | 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:
Maintenance, repairs and minor renewals are charged to expenses as incurred. Major additions and betterment to property and equipment are capitalized. |
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| Intangible assets | 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:
The Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate that the assets might be impaired. |
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| Impairment of long lived assets | Impairment of long lived assets
The Company evaluates long lived tangible and intangible assets for impairment, whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability is measured by comparing the assets’ net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss. There were no fixed assets and farmland assets impaired for the nine months ended December 31, 2016 (See Notes 6 and 9). |
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| Notes payable | 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. |
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| Income taxes | Income taxes
The Company follows FASB ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company has adopted FASB ASC Topic 740-10-25, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. The Company must 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 are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company performed a self-assessment and the Company’s liability for income taxes includes liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by taxing authorities. Audit periods remain open for review until the statute of limitations has passed, which in the PRC is usually 5 years. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of December 31, 2016 and March 31, 2016, the management of the Company considered that the Company had no additional liabilities for uncertain tax positions affecting its consolidated financial position and results of operations or cash flows, and will continue to evaluate for any uncertain position in the future. There are no estimated interest costs and penalties provided in the Company’s consolidated financial statements for the three months ended December 31, 2015 and 2016, respectively. The Company’s tax positions related to open tax years are subject to examination by the relevant tax authorities and the major one is the China Tax Authority. |
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| Value added tax | 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.
The accounting standards clarify the accounting and disclosure requirements for uncertain tax positions and prescribe a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. The accounting standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. No significant penalties, uncertain tax provisions or interest relating to income taxes were incurred during the periods ended December 31, 2016 and 2015. |
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| Stock based compensation | Stock based compensation
The Company follows the provisions of ASC 718, “Compensation — Stock Compensation,” which establishes accounting standards for non-employee and employee stock-based awards. Under the provisions of 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. |
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| Advertising and promotion costs | Advertising and promotion costs
Advertising and promotion costs are expensed as incurred and amounted to $121,140 and $156,911 for three months ended December 31, 2016 and 2015, respectively, and $303,626 and $354,964 for the nine months ended December 31, 2016 and 2015, respectively. Such costs consist primarily of print and promotional materials such as flyers to local communities. |
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| Operating leases | Operating leases
The Company leases premises for retail drugstores, offices and wholesale warehouse under non-cancelable operating leases. Operating lease payments are expensed over the term of lease. A majority of the Company’s retail drugstore leases have a 3 to 8 year term with a renewal option upon the expiration of the lease; the wholesale warehouse lease has a 10-year term with a renewal option upon the expiration of the lease. The Company has historically been able to renew a majority of its drugstores leases. Under the terms of the lease agreements, the Company has no legal or contractual asset retirement obligations at the end of the lease. In addition, land leased from the government is amortized on a straight-line basis over a 30-year term. |
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| Foreign currency translation | 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 December 31, 2016 and March 31, 2016 were translated at 1 RMB to 0.1440 USD and at 1 RMB to 0.1551 USD, respectively. The average translation rates applied to income and cash flow statement amounts for the nine months ended December 31, 2016 and 2015 were at 1 RMB to 0.1498USD and at 1 RMB to 0.1582 USD, respectively. |
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| Concentrations and credit risk | 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 77,528) per bank. As of December 31, 2016 and March 31, 2016, the Company had deposits totaling $13,623,893 and $20,419,863 that were covered by such limited insurance, respectively. Any balance over RMB 500,000 (USD 71,997) per bank in PRC will not be covered. To date, the Company has not experienced any losses in such accounts.
For the three months ended December 31, 2016, two largest vendor accounted for 46.5% of the Company’s total purchases and one vendor accounted for 10.9% of the Company’s total advances to suppliers. For the three months ended December 31, 2015, one largest vendors accounted for 17.6% of the Company’s total purchases and two vendors accounted for 25.1% of total advances to suppliers.
For the nine months ended December 31, 2016, two largest vendors accounted for 41.0% of the Company’s total purchases and one vendor accounted for 10.9% of the Company’s total advances to suppliers. For the nine months ended December 31, 2015, one largest vendors accounted for 16.7% of the Company’s total purchases and two vendors accounted for 25.1% of total advances to suppliers.
For the three months and nine months ended December 31, 2016 and December 31, 2015, no customer accounted for more than 10% of the Company’s total sales or accounts receivable. |
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements
Measurement of Credit Losses on Financial Instruments
In June 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the assumptions, models and methods for estimating expected credit losses. This ASU is effective for the Company beginning in the first quarter of 2020 and allows for early adoption beginning in the first quarter of the calendar year of 2019. The Company is currently evaluating the impact the ASU will have on its Consolidated Financial Statements.
Improvements to Employee Share-Based Payment Accounting
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” requiring the recognition of the income tax effects of stock awards in the income statement when the awards are settled and allowing the Company to repurchase more of an employee's shares than allowed under current guidance, without triggering liability accounting. This ASU also addresses simplifications related to statement of cash flows classification and accounting for forfeitures. This ASU is effective for the Company beginning in the first quarter of the fiscal year of 2018 and allows for early adoption. The Company is currently evaluating the impact this ASU will have on its Consolidated Financial Statements.
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” replacing most existing revenue recognition guidance under GAAP and eliminating industry specific guidance. The core principle of the new guidance is that an entity should recognize revenue for the transfer of goods and services equal to an amount it expects to be entitled to receive for those goods and services.
In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” deferring the effective date by one year.
In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Gross versus Net),” clarifying the principal versus agent guidance in the new revenue recognition standard, by revising the indicators to focus on evidence that the company is a principal.
In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” reducing the complexity when applying the guidance for identifying performance obligations and clarifying how to determine whether revenue related to a performance obligation for an intellectual property license is recognized over time or at a point in time.
In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” clarifying certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition.
These ASUs are effective for the Company beginning in the first quarter of the fiscal year of 2019, allow for early adoption in the first quarter of 2017 and may be applied using either a full retrospective approach or a modified retrospective approach. The Company is currently evaluating the method of adoption and the impact these ASUs will have on its Consolidated Financial Statements. |
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Description of Business and Organization (Tables) |
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Description of Business and Organization [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of consolidated financial statements activities |
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Summary of Significant Accounting Policies (Tables) |
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of fair value of derivative instruments |
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| Schedule of estimated useful lives of property and equipment |
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| Schedule of estimated useful lives of intangible assets |
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Trade Accounts Receivable (Tables) |
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||
| Trade Accounts Receivable [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of trade accounts receivable |
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Other Current Assets (Tables) |
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||
| Other Current Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||
| Schedule of other current assets |
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Property and Equipment (Tables) |
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property and equipment |
* The variance of impairment from March 31, 2016 to December 31, 2016 is solely caused by exchange rate variance. |
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Advances to Suppliers (Tables) |
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||
| Advances to Suppliers [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of advance to suppliers |
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Farmland Assets (Tables) |
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||
| Farmland Assets [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of farmland assets |
* The estimated fair value is estimated to be lower than its investment value as of December 31, 2016 and March 31, 2016. |
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Other Noncurrent Assets (Tables) |
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other Noncurrent Assets [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of other noncurrent assets |
(1) As of December 31, 2016, a total of $584,688 (RMB3,900,000) was prepaid as headquarter office rental for five years from January 1, 2016 to December 31, 2020. As of December 31, 2016, prepaid rental for less than one year was classified as current assets, the remaining balance of $336,944 was classified as noncurrent assets.
(2) The prepayment for lease of land use right is a payment made to a local government in connection with entering into a 30-year operating land lease agreement. The land is currently used to cultivate Ginkgo trees. This prepayment includes a deposit of $1,049,440, which will be refundable on the due date. Based on expected output from planted Gingko trees such as expected fruit production and tree market value, the fair value of the lease prepayment was lower than carrying cost. As a result, the Company recorded impairment on the lease prepayment. |
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| Schedule of amortizations of the prepayment for lease of land use right |
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Intangible Assets (Tables) |
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of net intangible assets |
Amortization expense of intangibles amounted to $7,542 and $6,720 for the three months ended December 31, 2016 and 2015, respectively, and $21,133 and $22,541for the nine months ended December 31, 2016 and 2015, respectively.
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Notes Payable (Tables) |
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| Notes Payable [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of credit facilities with bank |
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Taxes (Tables) |
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of income tax provision |
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| Schedule of income arising in or derived from tax jurisdiction which each entity domiciled |
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| Schedule of reconciliation of the U.S. statutory tax rates with company's effective tax rate |
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| Schedule of taxes payable |
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Related Party Transactions and Arrangements (Tables) |
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions and Arrangements [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| Schedule of amounts payable to related parties |
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Warrants (Tables) |
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of estimated fair value of warrants |
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Income Per Share (Tables) |
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| Income Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of reconciliation of basic and diluted earnings per share computation |
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Segments (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of information by segment | The following table presents summarized information by segment of the continuing operation for the three months ended December 31, 2016:
* includes the accounts receivable and advance to suppliers allowance reversal of $331,180.
The following table presents summarized information of the continuing operations by segment for the three months ended December 31, 2015:
* includes the accounts receivable and advance to suppliers allowance reversal of $62,935.
The following table presents summarized information of the continuing operation by segment for the nine months ended December 31, 2016:
* includes the accounts receivable and advance to suppliers allowance reversal of $544,508.
The following table presents summarized information of the continuing operation by segment for the nine months ended December 31, 2015:
* include the accounts receivable and advance to suppliers allowance reversal of $1,679,630. |
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| Schedule of net revenue from external customers by main products |
The Company’s net revenue from external customers through online pharmacy by main products is as follows:
The Company’s net revenue from external customers through wholesale by main products is as follows:
|
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Commitments and Contingencies (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of company's commitments for minimum rental payments |
|
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Description of Business and Organization (Details) |
9 Months Ended | |||||
|---|---|---|---|---|---|---|
Dec. 31, 2016 | ||||||
| Schedule of consolidated financial statements activities | ||||||
| Entity ownership percentage | 100.00% | |||||
| Renovation HK [Member] | ||||||
| Schedule of consolidated financial statements activities | ||||||
| Ownership background description | Incorporated in Hong Kong SAR on September 2, 2008 | |||||
| Entity ownership percentage | 100.00% | |||||
| Jiuxin Management [Member] | ||||||
| Schedule of consolidated financial statements activities | ||||||
| Ownership background description | Established in the PRC on October 14, 2008 Deemed a wholly foreign owned enterprise ("WFOE") under PRC law Registered capital of $4.5 million fully paid | |||||
| Entity ownership percentage | 100.00% | |||||
| Shouantang Technology [Member] | ||||||
| Schedule of consolidated financial statements activities | ||||||
| Ownership background description | 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 | |||||
| Entity ownership percentage | 100.00% | |||||
| Qianhong Agriculture [Member] | ||||||
| Schedule of consolidated financial statements activities | ||||||
| Ownership background description | Established in the PRC on August 10, 2010 by Jiuxin Management Registered capital of RMB 10 million fully paid Carries out herb farming business | |||||
| Entity ownership percentage | 100.00% | |||||
| Jiuzhou Pharmacy [Member] | ||||||
| Schedule of consolidated financial statements activities | ||||||
| Ownership background description | Established in the PRC on September 9, 2003 Registered capital of RMB 5 million fully paid Operates the "Jiuzhou Grand Pharmacy" stores in Hangzhou | [1] | ||||
| Entity ownership description | VIE by contractual arrangements | [1],[2] | ||||
| Jiuzhou Clinic [Member] | ||||||
| Schedule of consolidated financial statements activities | ||||||
| Ownership background description | Established in the PRC as a general partnership on October 10, 2003 Operates a medical clinic adjacent to one of Jiuzhou Pharmacy's stores | [1] | ||||
| Entity ownership description | VIE by contractual arrangements | [1],[2] | ||||
| Jiuzhou Service [Member] | ||||||
| Schedule of consolidated financial statements activities | ||||||
| Ownership background description | 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 | [1] | ||||
| Entity ownership description | VIE by contractual arrangements | [1],[2] | ||||
| Jiuxin Medicine [Member] | ||||||
| Schedule of consolidated financial statements activities | ||||||
| Ownership background description | Established in PRC on December 31, 2003 Acquired by Jiuzhou Pharmacy in August 2011 Registered capital of RMB 10 million fully paid Carries out pharmaceutical distribution services | |||||
| Entity ownership description | VIE by contractual arrangements as a wholly-owned subsidiary of Jiuzhou Pharmacy | [2] | ||||
| Jiutong Medical [Member] | ||||||
| Schedule of consolidated financial statements activities | ||||||
| Ownership background description | Established in the PRC on December 20, 2011 by Renovation Registered capital of $2.6 million fully paid Currently has no operation | |||||
| Entity ownership percentage | 100.00% | |||||
| Shouantang Bio [Member] | ||||||
| Schedule of consolidated financial statements activities | ||||||
| Ownership background description | Established in the PRC in October 2014 by Shouantang Technology 100% held by Shouantang Technology Registered capital of RMB 1,000,000 fully paid Sells nutritional supplements under its own brand name
|
|||||
| Entity ownership percentage | 100.00% | |||||
| Jiuyi Technology [Member] | ||||||
| Schedule of consolidated financial statements activities | ||||||
| Ownership background description | Established in the PRC on September 10, 2015 100% held by Renovation Technical support to online pharmacy | |||||
| Entity ownership description | 100 | |||||
| Kahamadi Bio [Member] | ||||||
| Schedule of consolidated financial statements activities | ||||||
| Ownership background description | Established in the PRC in May 2016 49% held by Shouantang Bio Registered capital of RMB 10 million Develop brand name for nutritional supplements | |||||
| Entity ownership description | Joint Venture 49% owned by Shouantang Bio | |||||
| ||||||
Summary of Significant Accounting Policies (Details) |
Dec. 31, 2016
USD ($)
|
|---|---|
| Summary of fair value of derivative instruments | |
| Cash and cash equivalents | $ 4,643,349 |
| Notes payable | 12,215,720 |
| Warrants liability | 510,859 |
| Total | 17,369,928 |
| Active Market for Identical Assets (Level 1) [Member] | |
| Summary of fair value of derivative instruments | |
| Cash and cash equivalents | 4,643,349 |
| Notes payable | |
| Warrants liability | |
| Total | 4,643,349 |
| Observable Inputs (Level 2) [Member] | |
| Summary of fair value of derivative instruments | |
| Cash and cash equivalents | |
| Notes payable | 12,215,720 |
| Warrants liability | 510,859 |
| Total | 12,726,579 |
| Unobservable Inputs (Level 3) [Member] | |
| Summary of fair value of derivative instruments | |
| Cash and cash equivalents | |
| Notes payable | |
| Warrants liability | |
| Total |
Summary of Significant Accounting Policies (Details 2) |
9 Months Ended |
|---|---|
Dec. 31, 2016 | |
| Land use right [Member] | |
| Schedule of estimated useful lives of intangible assets | |
| Estimated useful life of intangible assets | 50 years |
| Software [Member] | |
| Schedule of estimated useful lives of intangible assets | |
| Estimated useful life of intangible assets | 3 years |
Summary of Significant Accounting Policies (Details Textual) |
3 Months Ended | 9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
|
Dec. 31, 2016
USD ($)
Venders
Vendor
|
Dec. 31, 2015
USD ($)
Venders
Vendor
|
Dec. 31, 2016
USD ($)
Vendor
|
Dec. 31, 2015
USD ($)
Vendor
|
Dec. 31, 2016
CNY (¥)
|
Mar. 31, 2016
USD ($)
|
Mar. 31, 2015
USD ($)
|
Mar. 31, 2015
CNY (¥)
|
|
| Summary of Significant Accounting Policies (Textual) | ||||||||
| Benchmark percentage of the voting ownership interest for control and common control | 50.00% | |||||||
| Ownership percentage | 100.00% | |||||||
| Value added tax, percentage | 17.00% | |||||||
| Income tax description | The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company performed a self-assessment and the Company's liability for income taxes includes liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by taxing authorities. Audit periods remain open for review until the statute of limitations has passed, which in the PRC is usually 5 years. | |||||||
| Advertising and promotion costs | $ 121,140 | $ 156,911 | $ 303,626 | $ 354,964 | ||||
| Term of agreement for operating leases | 30 years | |||||||
| Foreign currency translation description | The balance sheet amounts, with the exception of equity, at December 31, 2016 and March 31, 2016 were translated at 1 RMB to 0.1440 USD and at 1 RMB to 0.1551 USD, respectively. The average translation rates applied to income and cash flow statement amounts for the nine months ended December 31, 2016 and 2015 were at 1 RMB to 0.1498USD and at 1 RMB to 0.1582 USD, respectively. | |||||||
| Insurance covered by own bank | $ 77,528 | ¥ 500,000 | ||||||
| Deposits | 13,623,893 | $ 13,623,893 | $ 20,419,863 | |||||
| Deposits not covered by insurance | $ 71,997 | $ 71,997 | ¥ 500,000 | |||||
| Total Purchases [Member] | ||||||||
| Summary of Significant Accounting Policies (Textual) | ||||||||
| Concentration risk, percentage | 46.50% | 17.60% | 41.00% | 16.70% | ||||
| Number of vendors | 2 | 1 | 2 | 1 | ||||
| Total advances to suppliers [Member] | ||||||||
| Summary of Significant Accounting Policies (Textual) | ||||||||
| Concentration risk, percentage | 10.90% | 25.10% | 10.90% | 25.10% | ||||
| Number of vendors | Vendor | 1 | 2 | 1 | 2 | ||||
| Total sales or accounts receivable [Member] | ||||||||
| Summary of Significant Accounting Policies (Textual) | ||||||||
| Concentration risk, percentage | 10.00% | 10.00% | 10.00% | 10.00% | ||||
| Retail drugstore leases | Minimum [Member] | ||||||||
| Summary of Significant Accounting Policies (Textual) | ||||||||
| Term of agreement for operating leases | 3 years | |||||||
| Retail drugstore leases | Maximum [Member] | ||||||||
| Summary of Significant Accounting Policies (Textual) | ||||||||
| Term of agreement for operating leases | 8 years | |||||||
| Wholesale warehouse lease [Member] | ||||||||
| Summary of Significant Accounting Policies (Textual) | ||||||||
| Term of agreement for operating leases | 10 years | |||||||
Financial Assets Available for Sale (Details) |
Mar. 28, 2016 |
Dec. 31, 2016
USD ($)
|
Mar. 31, 2016
USD ($)
|
Mar. 31, 2016
CNY (¥)
|
|---|---|---|---|---|
| Financial assets available for sale (Textual) | ||||
| Financial assets available for sale | $ 0 | $ 465,165 | ¥ 3,000,000 | |
| Interest receivable | $ 9,433 | |||
| Lehui 2016 [Member] | Bank of Hangzhou [Member] | ||||
| Financial assets available for sale (Textual) | ||||
| Interest rate | 4.15% | |||
| Due date | Sep. 26, 2016 |
Trade Accounts Receivable (Details) - USD ($) |
Dec. 31, 2016 |
Mar. 31, 2016 |
|---|---|---|
| Trade Accounts Receivable [Abstract] | ||
| Accounts receivable | $ 10,291,805 | $ 10,153,840 |
| Less: allowance for doubtful accounts | (850,419) | (2,099,243) |
| Trade accounts receivable, net | $ 9,441,386 | $ 8,054,597 |
Trade Accounts Receivable (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Trade Accounts Receivable (Textual) | ||||
| Accounts receivable written off | $ 75,126 | $ 41,671 | $ 138,508 | $ 133,544 |
Other Current Assets (Details) - USD ($) |
Dec. 31, 2016 |
Mar. 31, 2016 |
||
|---|---|---|---|---|
| Other Current Assets [Abstract] | ||||
| Prepaid rental expenses | [1] | $ 1,082,492 | $ 1,052,196 | |
| Prepaid and other current assets | 400,939 | 465,852 | ||
| Total | $ 1,483,431 | $ 1,518,048 | ||
| ||||
Property and Equipment (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Property and Equipment (Textual) | ||||
| Total depreciation expense for property and equipment | $ 425,127 | $ 218,022 | $ 878,106 | $ 966,040 |
Advances to Suppliers (Details) - USD ($) |
Dec. 31, 2016 |
Mar. 31, 2016 |
|---|---|---|
| Advances to Suppliers [Abstract] | ||
| Advance to suppliers | $ 4,684,312 | $ 4,336,207 |
| Less: allowance for doubtful accounts | (844,677) | (105,542) |
| Advance to suppliers, net | $ 3,839,635 | $ 4,230,665 |
Inventory (Details) - USD ($) |
Dec. 31, 2016 |
Mar. 31, 2016 |
|---|---|---|
| Inventory (Textual) | ||
| Finished goods | $ 10,565,855 | $ 10,802,691 |
Farmland Assets (Details) - USD ($) |
Dec. 31, 2016 |
Mar. 31, 2016 |
||
|---|---|---|---|---|
| Farmland Assets [Abstract] | ||||
| Farmland assets | $ 2,213,058 | $ 2,346,209 | ||
| Less: Impairment | [1] | (728,071) | (784,004) | |
| Farmland assets, net | $ 1,484,987 | $ 1,562,205 | ||
| ||||
Long Term Deposits, Landlords (Details) - USD ($) |
Dec. 31, 2016 |
Mar. 31, 2016 |
|---|---|---|
| Long Term Deposits, Landlords (Textual) | ||
| Long term deposits | $ 2,277,120 | $ 2,452,056 |
Other Noncurrent Assets (Details) - USD ($) |
Dec. 31, 2016 |
Mar. 31, 2016 |
|||||
|---|---|---|---|---|---|---|---|
| Other Noncurrent Assets [Abstract] | |||||||
| Prepayment for headquarter office | [1] | $ 336,944 | |||||
| Prepayment for lease of land use right | [2] | 2,390,457 | 2,595,129 | ||||
| Other noncurrent assets | $ 2,727,401 | $ 2,595,129 | |||||
| |||||||
Other Noncurrent Assets (Details 1) |
Dec. 31, 2016
USD ($)
|
|---|---|
| Years ending September 30, | |
| 2017 | $ 61,861 |
| 2018 | 61,861 |
| 2019 | 61,861 |
| 2020 | 61,861 |
| 2021 | 61,861 |
| Thereafter | $ 1,149,282 |
Other Noncurrent Assets (Details Textual) |
3 Months Ended | 9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
|
Dec. 31, 2016
USD ($)
|
Dec. 31, 2015
USD ($)
|
Dec. 31, 2016
USD ($)
|
Dec. 31, 2016
CNY (¥)
|
Dec. 31, 2015
USD ($)
|
Mar. 31, 2016
USD ($)
|
|||
| Other Noncurrent Assets (Textual) | ||||||||
| Term of agreement for operating land lease | 30 years | 30 years | ||||||
| Deposit included in prepayment | $ 1,049,440 | $ 1,049,440 | ||||||
| Amortization of prepayment for lease of land use right | 15,107 | $ 16,137 | 46,396 | $ 49,524 | ||||
| Prepaid rent | $ 584,688 | ¥ 3,900,000 | ||||||
| Description of prepaid rental | In December 31, 2016, a total of $584,688 (RMB3,900,000) was prepaid as headquarter office rental for five years from January 1, 2016 to December 31, 2020. | In December 31, 2016, a total of $584,688 (RMB3,900,000) was prepaid as headquarter office rental for five years from January 1, 2016 to December 31, 2020. | ||||||
| Prepayment for headquarter office | [1] | $ 336,944 | $ 336,944 | |||||
| ||||||||
Intangible Assets (Details) - USD ($) |
Dec. 31, 2016 |
Mar. 31, 2016 |
|||||
|---|---|---|---|---|---|---|---|
| Acquired Finite-Lived Intangible Assets [Line Items] | |||||||
| Total intangible assets | $ 2,787,928 | $ 2,994,519 | |||||
| Less: accumulated amortization | (81,009) | (65,740) | |||||
| Intangible assets, net | 2,706,919 | 2,928,779 | |||||
| License [Member] | |||||||
| Acquired Finite-Lived Intangible Assets [Line Items] | |||||||
| Total intangible assets | [1] | 1,383,773 | 1,482,492 | ||||
| Land use rights [Member] | |||||||
| Acquired Finite-Lived Intangible Assets [Line Items] | |||||||
| Total intangible assets | [2] | $ 1,404,155 | $ 1,512,027 | ||||
| |||||||
Intangible Assets (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Intangible Assets (Textual) | ||||
| Amortization expense of intangibles | $ 7,542 | $ 6,720 | $ 21,133 | $ 22,541 |
Notes Payable (Details) - USD ($) |
9 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 |
Mar. 31, 2016 |
||||||||
| Short-term Debt [Line Items] | |||||||||
| Notes payable | $ 12,215,720 | $ 17,595,634 | |||||||
| Jiuzhou Pharmacy [Member] | HUB [Member] | 04/22/15 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [1] | Apr. 21, 2016 | |||||||
| Notes payable | [1] | 1,550,550 | |||||||
| Jiuzhou Pharmacy [Member] | HUB [Member] | 04/29/15 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [1] | Apr. 28, 2016 | |||||||
| Notes payable | [1] | 3,333,683 | |||||||
| Jiuzhou Pharmacy [Member] | HUB [Member] | 10/09/15 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [1] | Apr. 09, 2016 | |||||||
| Notes payable | [1] | 1,708,706 | |||||||
| Jiuzhou Pharmacy [Member] | HUB [Member] | 11/02/15 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [1] | May 02, 2016 | |||||||
| Notes payable | [1] | 2,553,756 | |||||||
| Jiuzhou Pharmacy [Member] | HUB [Member] | 12/28/15 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [1] | Jun. 28, 2016 | |||||||
| Notes payable | [1] | 2,741,372 | |||||||
| Jiuzhou Pharmacy [Member] | HUB [Member] | 03/07/16 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [1] | Sep. 07, 2016 | |||||||
| Notes payable | [1] | 2,749,125 | |||||||
| Jiuzhou Pharmacy [Member] | HUB [Member] | 08/05/16 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [1] | Feb. 05, 2017 | |||||||
| Notes payable | [1] | $ 1,404,336 | |||||||
| Jiuzhou Pharmacy [Member] | HUB [Member] | 08/29/16 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [1] | Feb. 28, 2017 | |||||||
| Notes payable | [1] | $ 2,501,977 | |||||||
| Jiuzhou Pharmacy [Member] | HUB [Member] | 10/09/16 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [1] | Apr. 09, 2017 | |||||||
| Notes payable | [1] | $ 1,742,315 | |||||||
| Jiuzhou Pharmacy [Member] | HUB [Member] | 11/08/16 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [1] | May 08, 2017 | |||||||
| Notes payable | [1] | $ 1,624,770 | |||||||
| Jiuzhou Pharmacy [Member] | HUB [Member] | 11/11/16 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [1] | May 11, 2017 | |||||||
| Notes payable | [1] | $ 312,465 | |||||||
| Jiuzhou Pharmacy [Member] | HUB [Member] | 12/06/16 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [1] | Jun. 05, 2017 | |||||||
| Notes payable | [1] | $ 1,496,392 | |||||||
| Jiuzhou Pharmacy [Member] | HUB [Member] | 12/29/16 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [1] | Jun. 29, 2017 | |||||||
| Notes payable | [1] | $ 1,196,107 | |||||||
| Jiuzhou Pharmacy [Member] | HUB One [Member] | 10/09/16 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [1] | Apr. 09, 2017 | |||||||
| Notes payable | [1] | $ 339,036 | |||||||
| Jiuzhou Pharmacy [Member] | HUB One [Member] | 12/29/16 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [1] | Jun. 29, 2017 | |||||||
| Notes payable | [1] | $ 1,022,350 | |||||||
| Jiuzhou Pharmacy [Member] | BOH [Member] | 12/27/15 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [2] | May 27, 2016 | |||||||
| Notes payable | [2] | 1,592,415 | |||||||
| Jiuzhou Pharmacy [Member] | BOH [Member] | 12/29/15 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [2] | Jul. 29, 2016 | |||||||
| Notes payable | [2] | 58,913 | |||||||
| Jiuzhou Pharmacy [Member] | ICBC [Member] | 02/03/16 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [3] | Aug. 03, 2016 | |||||||
| Notes payable | [3] | 1,307,114 | |||||||
| Jiuzhou Pharmacy [Member] | ZTCB [Member] | 12/27/16 [Member] | |||||||||
| Short-term Debt [Line Items] | |||||||||
| Maturity date | [1] | Jun. 27, 2017 | |||||||
| Notes payable | [1] | $ 575,972 | |||||||
| |||||||||
Notes Payable (Details Textual) |
Dec. 31, 2016
USD ($)
|
Dec. 31, 2016
CNY (¥)
|
Mar. 31, 2016
USD ($)
|
Mar. 31, 2016
CNY (¥)
|
|---|---|---|---|---|
| Debt Instrument [Line Items] | ||||
| Notes payable | $ 12,220,000 | |||
| Restricted cash | 2,970,000 | |||
| Aggregate line of credit amount | 13,770,000 | |||
| Line of credit total | 16,740,000 | |||
| Bank credit line facilities available for borrowing | 4,520,000 | |||
| Notes Payable [Member] | ICBC [Member] | ||||
| Debt Instrument [Line Items] | ||||
| Notes payable | $ 1,307,114 | ¥ 8,430,000 | ||
| Restricted cash | 928,051 | 5,985,300 | ||
| Notes Payable [Member] | HUB [Member] | ||||
| Debt Instrument [Line Items] | ||||
| Notes payable | 11,639,748 | ¥ 80,835,515.2 | 14,696,105 | 94,779,950 |
| Restricted cash | 1,704,149 | 11,834,947.2 | 11,278,693 | 72,739,950 |
| Notes Payable [Member] | HUB One [Member] | ||||
| Debt Instrument [Line Items] | ||||
| Notes payable | 5,962,176,000 | 41,406,011 | ||
| Notes Payable [Member] | BOH [Member] | ||||
| Debt Instrument [Line Items] | ||||
| Notes payable | 1,592,415 | 10,270,000 | ||
| Restricted cash | $ 480,671 | ¥ 3,100,000 | ||
| Notes Payable [Member] | ZTCB [Member] | ||||
| Debt Instrument [Line Items] | ||||
| Notes payable | 575,972 | 4,000,000 | ||
| Restricted cash | $ 287,986 | ¥ 2,000,000 |
Taxes (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Taxes [Abstract] | ||||
| Income tax | $ 18,045 | $ 35,099 | $ 63,963 | $ 79,224 |
Taxes (Details 1) |
9 Months Ended |
|---|---|
Dec. 31, 2016 | |
| Jo-Jo Drugstores [Member] | |
| Income Taxes [Line Items] | |
| Income Tax Jurisdiction | United States |
| Renovation [Member] | |
| Income Taxes [Line Items] | |
| Income Tax Jurisdiction | Hong Kong, PRC |
| All other entities [Member] | |
| Income Taxes [Line Items] | |
| Income Tax Jurisdiction | Mainland, PRC |
Taxes (Details 2) |
3 Months Ended | 9 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
||||||
| Taxes [Abstract] | |||||||||
| U.S. Statutory rates | 34.00% | 34.00% | 34.00% | 34.00% | |||||
| Foreign income not recognized in the U.S. | (34.00%) | (34.00%) | (34.00%) | (34.00%) | |||||
| China income taxes | 25.00% | 25.00% | 25.00% | 25.00% | |||||
| Change in valuation allowance (1) | [1] | (25.00%) | (25.00%) | (25.00%) | (25.00%) | ||||
| Non-deductible expenses-permanent difference (2) | [2] | (2.20%) | (5.70%) | (11.80%) | (22.30%) | ||||
| Effective tax rate | (2.20%) | (5.70%) | (11.80%) | (22.30%) | |||||
| |||||||||
Taxes (Details 3) - USD ($) |
Dec. 31, 2016 |
Mar. 31, 2016 |
|---|---|---|
| Taxes [Abstract] | ||
| VAT | $ 541,949 | $ 422,804 |
| Income tax | 14,809 | 10,880 |
| Others | 37,557 | 50,086 |
| Total taxes payable | $ 594,315 | $ 483,770 |
Taxes (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Taxes (Textual) | ||||
| Estimated net operating loss carryforwards for U.S. income tax purposes | $ 1,503,000 | $ 1,503,000 | ||
| Expiration date | Mar. 31, 2032 | |||
| Valuation allowance, percentage | 100.00% | |||
| Effective income tax rate reconciliation, equity in earnings (losses), percent | 2.20% | 5.70% | 11.80% | 22.30% |
Postretirement Benefits (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Postretirement Benefits [Abstract] | ||||
| Employment benefits and pension contribution | $ 311,202 | $ 299,424 | $ 781,834 | $ 767,829 |
Related Party Transactions and Arrangements (Details) - USD ($) |
Dec. 31, 2016 |
Mar. 31, 2016 |
|||||
|---|---|---|---|---|---|---|---|
| Related Party Transaction [Line Items] | |||||||
| Amounts payable to related parties, Total | $ 922,192 | $ 2,199,775 | |||||
| Due to cofounders [Member] | |||||||
| Related Party Transaction [Line Items] | |||||||
| Amounts payable to related parties, Total | [1] | 576,818 | |||||
| Due to a director and CEO [Member] | |||||||
| Related Party Transaction [Line Items] | |||||||
| Amounts payable to related parties, Total | [2] | $ 922,192 | $ 1,622,957 | ||||
| |||||||
Related Party Transactions and Arrangements (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
Oct. 11, 2016 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Mar. 31, 2016 |
|
| Related Party Transactions and Arrangements (Textual) | ||||||
| Notes payable, related parties | $ 5,231,195 | $ 5,231,195 | $ 5,302,881 | |||
| Mr. Lei Liu [Member] | ||||||
| Related Party Transactions and Arrangements (Textual) | ||||||
| Lease expiration date | Sep. 30, 2017 | |||||
| Rent expense | $ 3,867 | $ 4,257 | $ 12,959 | $ 52,767 | ||
| Common stock shares issued | 949,000 | |||||
| Common stock price per share | $ 1.69 | |||||
| Debt amount | $ 1,603,810 | |||||
Warrants (Details) - Common Stock Warrants [Member] - $ / shares |
9 Months Ended | 12 Months Ended | |||
|---|---|---|---|---|---|
Dec. 31, 2016 |
[1] | Mar. 31, 2016 |
|||
| Class of Warrant or Right [Line Items] | |||||
| Stock price | $ 1.70 | $ 1.6 | |||
| Exercise price | $ 3.10 | $ 3.1 | |||
| Annual dividend yield | 0.00% | 0.00% | |||
| Expected term (years) | 4 years 18 days | 4 years 9 months 18 days | |||
| Risk-free interest rate | 1.93% | 1.21% | |||
| Expected volatility | 95.94% | 102.16% | |||
| |||||
Warrants (Details Textual) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
|---|---|---|---|---|---|---|---|---|
Sep. 21, 2016 |
Jul. 19, 2015 |
Sep. 26, 2013 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Mar. 31, 2016 |
|
| Warrants (Textual) | ||||||||
| Fair value estimation method | Binominal pricing model | |||||||
| Fair value of warrant liability | $ 546,304 | |||||||
| Purchase of warrants investors | 672,000 | |||||||
| Recognized gain on fair value of warrant liability investor | $ 67,297 | $ 67,297 | ||||||
| Recognized gain loss on fair value of warrant liability placement agent | 35,444 | 35,444 | ||||||
| Fair value of warrant liability investor placement agent | 510,859 | |||||||
| Warrants [Member] | ||||||||
| Warrants (Textual) | ||||||||
| Stock purchase price per share (in dollars per share) | $ 3.10 | |||||||
| Fair value of warrant liability | $ 33,606 | 0 | $ 89,997 | |||||
| Recognized gain on fair value of warrant liability | $ 0 | $ 15,444 | ||||||
| Recognized loss on fair value of warrant liability | $ 76,633 | $ 58,318 | ||||||
| Maturity date | Jan. 18, 2021 | |||||||
| Purchase of warrants investors | 600,000 | |||||||
| Issuance of warrants to placement agent | 72,000 | |||||||
| Percentage of stock sold in offering | 6.00% | |||||||
| Warrants [Member] | Consulting firm [Member] | ||||||||
| Warrants (Textual) | ||||||||
| Stock purchase price per share (in dollars per share) | $ 1.84 | $ 1.20 | ||||||
| Number of shares of common stock | 52,174 | 150,000 | ||||||
| Warrants exercisable date | Sep. 25, 2016 | |||||||
Stockholder's Equity (Details) |
3 Months Ended | 9 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
|
Jun. 07, 2016
$ / shares
shares
|
Jun. 03, 2016
$ / shares
shares
|
Nov. 27, 2015
$ / shares
shares
|
Nov. 25, 2015
$ / shares
shares
|
Nov. 18, 2014
Grantees
$ / shares
shares
|
Dec. 31, 2016
USD ($)
|
Dec. 31, 2015
USD ($)
|
Dec. 31, 2016
USD ($)
|
Dec. 31, 2015
USD ($)
|
|
| Stockholders' Equity (Textual) | |||||||||
| Reserve fund percentage | 50.00% | ||||||||
| Statutory accounts percentage | 10.00% | ||||||||
| Stock option [Member] | |||||||||
| Stockholders' Equity (Textual) | |||||||||
| Number of granted shares | shares | 967,000 | ||||||||
| Share based compensation expense | $ 124,033 | $ 124,033 | $ 372,100 | $ 372,100 | |||||
| Number of directors, officers and employees in a group | Grantees | 46 | ||||||||
| Exercise price of stock option | $ / shares | $ 2.50 | ||||||||
| Vesting period of options | 3 years | ||||||||
| Period for options exercisable from the vesting date | 5 years | 10 months 17 days | |||||||
| Maturity date | Nov. 17, 2022 | ||||||||
| Unrecognized compensation costs | 440,000 | $ 440,000 | |||||||
| Stock-based compensation to a financial consulting firm [Member] | |||||||||
| Stockholders' Equity (Textual) | |||||||||
| Number of granted shares | shares | 150,000 | ||||||||
| Trading value of common stock | $ / shares | $ 1.77 | ||||||||
| Term of service agreement | 1 year | ||||||||
| Consulting expense | 40,734 | 26,186 | 173,848 | 26,186 | |||||
| Stock-based compensation to its directors, officers and certain employees [Member] | |||||||||
| Stockholders' Equity (Textual) | |||||||||
| Number of granted shares | shares | 735,000 | ||||||||
| Trading value of common stock | $ / shares | $ 1.76 | ||||||||
| Share based compensation expense | 191,382 | $ 134,676 | 839,954 | $ 134,676 | |||||
| Vesting period of options | 1 year | ||||||||
| Stock-based compensation to Taylor Raffery [Member] | |||||||||
| Stockholders' Equity (Textual) | |||||||||
| Number of granted shares | shares | 8,000 | ||||||||
| Trading value of common stock | $ / shares | $ 1.60 | ||||||||
| Consulting expense | 12,800 | 12,800 | |||||||
| Stock-based compensation to employees in retail drugstores and online pharmacy [Member] | |||||||||
| Stockholders' Equity (Textual) | |||||||||
| Number of granted shares | shares | 1,630,000 | ||||||||
| Trading value of common stock | $ / shares | $ 1.62 | ||||||||
| Share based compensation expense | $ 221,859 | $ 508,828 | |||||||
| Vesting period of options | 3 years | ||||||||
Income Per Share (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Income Per Share [Abstract] | ||||
| Net income attributable to controlling interest | $ (834,806) | $ (617,529) | $ (605,784) | $ (355,743) |
| Weighted average shares used in basic computation | 19,941,439 | 17,180,830 | 19,188,867 | 16,459,195 |
| Diluted effect of purchase options and warrants | ||||
| Diluted effect of restricted shares | ||||
| Weighted average shares used in diluted computation | 19,941,439 | 17,180,830 | 19,188,867 | 16,459,195 |
| Income per share - Basic: | ||||
| Net income before noncontrolling interest | $ (0.04) | $ (0.04) | $ (0.03) | $ (0.02) |
| Add: Net loss attributable to noncontrolling interest | ||||
| Net income attributable to controlling interest | (0.04) | (0.04) | (0.02) | (0.02) |
| Loss per share - Diluted: | ||||
| Net income before noncontrolling interest | (0.04) | (0.04) | (0.03) | (0.02) |
| Add: Net income attributable to noncontrolling interest | ||||
| Net income attributable to controlling interest | $ (0.04) | $ (0.04) | $ (0.02) | $ (0.02) |
Income Per Share (Details Textual) - Stock option [Member] - shares |
3 Months Ended | 9 Months Ended |
|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2016 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Antidilutive securities excluded from calculation of diluted earnings per share | 967,000 | 967,000 |
| Investment Placement Agent [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Antidilutive securities excluded from calculation of diluted earnings per share | 72,000 | 72,000 |
| Investor [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Antidilutive securities excluded from calculation of diluted earnings per share | 600,000 | 600,000 |
Segments (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
||||||||||
| Segment Reporting Information [Line Items] | |||||||||||||
| Revenue | $ 20,610,024 | $ 24,708,046 | $ 61,706,774 | $ 68,596,964 | |||||||||
| Cost of goods | 16,426,153 | 19,860,713 | 48,688,092 | 55,396,941 | |||||||||
| Gross profit | 4,183,871 | 4,847,333 | 13,018,682 | 13,200,023 | |||||||||
| Selling expenses | 3,570,182 | 3,286,637 | 9,276,225 | 9,801,761 | |||||||||
| General and administrative expenses | 1,451,849 | 1,868,448 | 4,752,981 | 3,628,520 | |||||||||
| (Loss)income from operations | (838,160) | (307,752) | (1,010,524) | (230,258) | |||||||||
| Depreciation and amortization | 423,946 | 400,155 | 891,542 | 1,163,994 | |||||||||
| Total capital expenditures | 164,034 | 65,114 | 115,463 | 171,314 | |||||||||
| Retail drugstores [Member] | |||||||||||||
| Segment Reporting Information [Line Items] | |||||||||||||
| Revenue | 14,121,567 | 12,928,472 | 39,636,796 | 38,202,495 | |||||||||
| Cost of goods | 10,494,940 | 10,133,873 | 28,619,084 | 29,349,756 | |||||||||
| Gross profit | 3,626,627 | 2,794,599 | 11,017,712 | 8,852,739 | |||||||||
| Selling expenses | 2,455,591 | 2,830,717 | 6,857,520 | 8,636,171 | |||||||||
| General and administrative expenses | 1,655,433 | 1,227,158 | 4,836,381 | 3,518,712 | |||||||||
| (Loss)income from operations | (484,397) | (1,263,276) | (676,189) | (3,302,144) | |||||||||
| Depreciation and amortization | 467,852 | 266,444 | 880,711 | (596,171) | |||||||||
| Total capital expenditures | 157,805 | 60,282 | 207,103 | 153,485 | |||||||||
| Online pharmacy [Member] | |||||||||||||
| Segment Reporting Information [Line Items] | |||||||||||||
| Revenue | 3,437,371 | 8,645,534 | 12,292,175 | 21,169,709 | |||||||||
| Cost of goods | 3,078,509 | 6,805,106 | 10,879,187 | 17,486,701 | |||||||||
| Gross profit | 358,862 | 1,840,428 | 1,412,988 | 3,683,008 | |||||||||
| Selling expenses | 291,598 | 327,155 | 1,204,510 | 785,867 | |||||||||
| General and administrative expenses | 227,676 | 673,606 | |||||||||||
| (Loss)income from operations | 67,264 | 1,285,597 | 208,478 | 2,223,535 | |||||||||
| Depreciation and amortization | |||||||||||||
| Total capital expenditures | 4,832 | 11,501 | |||||||||||
| Drug Wholesale [Member] | |||||||||||||
| Segment Reporting Information [Line Items] | |||||||||||||
| Revenue | 3,051,086 | 3,134,040 | 9,777,803 | 9,224,760 | |||||||||
| Cost of goods | 2,852,704 | 2,921,734 | 9,189,821 | 8,560,484 | |||||||||
| Gross profit | 198,382 | 212,306 | 587,982 | 664,276 | |||||||||
| Selling expenses | 822,993 | 128,765 | 1,214,195 | 379,723 | |||||||||
| General and administrative expenses | (210,757) | [1] | 498,001 | [2] | (102,281) | 30,776 | [3] | ||||||
| (Loss)income from operations | (413,854) | (414,460) | (523,932) | 253,777 | |||||||||
| Depreciation and amortization | (43,906) | 135,498 | 9,805 | 409,107 | |||||||||
| Total capital expenditures | 6,229 | 6,229 | 6,328 | ||||||||||
| Herb farming [Member] | |||||||||||||
| Segment Reporting Information [Line Items] | |||||||||||||
| Revenue | |||||||||||||
| Cost of goods | |||||||||||||
| Gross profit | |||||||||||||
| Selling expenses | |||||||||||||
| General and administrative expenses | 7,173 | (84,387) | [2] | 18,881 | (594,574) | [3] | |||||||
| (Loss)income from operations | (7,173) | 84,387 | (18,881) | 594,574 | |||||||||
| Depreciation and amortization | 1,787 | 158,716 | |||||||||||
| Total capital expenditures | |||||||||||||
| |||||||||||||
Segments (Details 1) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Retail drugstores [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | $ 14,121,567 | $ 12,928,472 | $ 39,636,796 | $ 38,202,495 |
| Retail drugstores [Member] | Prescription drugs [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 4,469,589 | 5,286,711 | 12,837,817 | 14,722,094 |
| Retail drugstores [Member] | Over-the-counter drugs [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 7,053,888 | 4,841,875 | 17,117,444 | 15,174,868 |
| Retail drugstores [Member] | Nutritional supplements [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 896,122 | 1,211,700 | 3,073,882 | 3,151,830 |
| Retail drugstores [Member] | Traditional Chinese medicine [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 1,157,673 | 1,056,527 | 3,207,504 | 3,469,524 |
| Retail drugstores [Member] | Sundry products [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 236,152 | 245,419 | 714,509 | 849,129 |
| Retail drugstores [Member] | Medical devices [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 308,143 | 286,240 | 2,685,640 | 835,050 |
| Online pharmacy [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 3,437,371 | 8,645,534 | 12,292,175 | 21,169,709 |
| Online pharmacy [Member] | Prescription drugs [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | ||||
| Online pharmacy [Member] | Over-the-counter drugs [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 1,211,013 | 1,912,560 | 4,157,448 | 5,522,887 |
| Online pharmacy [Member] | Nutritional supplements [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 407,815 | 607,556 | 1,852,294 | 1,680,690 |
| Online pharmacy [Member] | Traditional Chinese medicine [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 1,130 | 1,130 | ||
| Online pharmacy [Member] | Sundry products [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 438,845 | 3,790,430 | 1,510,349 | 7,604,553 |
| Online pharmacy [Member] | Medical devices [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 1,378,568 | 2,334,988 | 4,770,954 | 6,361,579 |
| Drug Wholesale [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 3,051,086 | 3,143,041 | 9,777,803 | 9,224,760 |
| Drug Wholesale [Member] | Prescription drugs [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 1,907,318 | 1,953,731 | 5,753,801 | 5,665,095 |
| Drug Wholesale [Member] | Over-the-counter drugs [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 1,127,918 | 981,250 | 3,967,959 | 3,256,020 |
| Drug Wholesale [Member] | Nutritional supplements [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 15,110 | 83,843 | 49,929 | 127,774 |
| Drug Wholesale [Member] | Traditional Chinese medicine [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 740 | 5,193 | ||
| Drug Wholesale [Member] | Sundry products [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | 110,292 | 116,706 | ||
| Drug Wholesale [Member] | Medical devices [Member] | ||||
| Revenue from External Customer [Line Items] | ||||
| Net revenue from external customers | $ 4,925 | $ 921 | $ 59,165 | |
Segments (Details Textual) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
|
Dec. 31, 2016
USD ($)
|
Dec. 31, 2015
USD ($)
|
Dec. 31, 2016
USD ($)
Segment
|
Dec. 31, 2015
USD ($)
|
|
| Revenue From External Customer [Line Items] | ||||
| Number of operating segments | Segment | 4 | |||
| Operating Segments [Member] | ||||
| Revenue From External Customer [Line Items] | ||||
| Accounts receivable and advance to supplier allowance reversal | $ | $ 331,180 | $ 62,935 | $ 544,508 | $ 1,679,630 |
Commitments and Contingencies (Details) |
Dec. 31, 2016
USD ($)
|
|---|---|
| Commitments and Contingencies [Line Items] | |
| 2017 | $ 2,898,968 |
| 2018 | 2,477,499 |
| 2019 | 1,886,476 |
| 2020 | 981,873 |
| 2021 | 323,557 |
| Thereafter | 446,719 |
| Retail drugstores [Member] | |
| Commitments and Contingencies [Line Items] | |
| 2017 | 2,788,415 |
| 2018 | 2,366,946 |
| 2019 | 1,775,923 |
| 2020 | 871,320 |
| 2021 | 314,344 |
| Thereafter | 446,719 |
| Online pharmacy [Member] | |
| Commitments and Contingencies [Line Items] | |
| 2017 | 36,851 |
| 2018 | 36,851 |
| 2019 | 36,851 |
| 2020 | 36,851 |
| 2021 | 3,071 |
| Thereafter | |
| Drug wholesale [Member] | |
| Commitments and Contingencies [Line Items] | |
| 2017 | 73,702 |
| 2018 | 73,702 |
| 2019 | 73,702 |
| 2020 | 73,702 |
| 2021 | 6,142 |
| Thereafter | |
| Herb farming [Member] | |
| Commitments and Contingencies [Line Items] | |
| 2017 | |
| 2018 | |
| 2019 | |
| 2020 | |
| 2021 | |
| Thereafter |
Commitments and Contingencies (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Commitments and Contingencies (Textual) | ||||
| Total rent expense | $ 747,744 | $ 918,619 | $ 2,225,186 | $ 3,346,163 |
Subsequent Events (Details) - USD ($) |
1 Months Ended | |||
|---|---|---|---|---|
Jan. 04, 2017 |
Jan. 18, 2017 |
Dec. 31, 2016 |
Mar. 31, 2016 |
|
| Subsequent Event [Line Items] | ||||
| Common stock, par value | $ 0.001 | $ 0.001 | ||
| Subsequent event [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Joint venture amount | $ 1,600,000 | |||
| Subsequent event [Member] | Private Placement [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Common stock shares issued | 4,840,000 | |||
| Common stock, par value | $ 0.001 | |||
| Common stock price per share | $ 2.20 | |||
| Gross proceeds from private placement | $ 10,648,000 | |||
| Subsequent event [Member] | CareRetail (HK) Holdings Limited [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Equity investment ownership percentage | 51.00% | |||
| Subsequent event [Member] | Jiuzhou Pharmacy [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Equity investment ownership percentage | 49.00% |