Revenues for the third quarter of 2010 were $10.51 million overall, a 2.75% decrease from $10.81 million for the same quarter in the prior year.
Revenues from the retail segment were $3.77 million, an increase of 0.24% over$3.58 million in the same quarter last year. The Company realized an additional$425,770 in revenue from 21 new retail drugstores that were opened from July 1, 2009 to September 30, 2010. However, revenues for four existing stores were disrupted by city road construction, which reduced customer traffic to these stores, resulting in an estimated $329,473 in revenue loss. Management anticipates that customer traffic and revenue for these stores will normalize once road construction work is completed. In addition, $105,225 in revenue was deferred from the current quarter and recognized as "accrued revenue" due to a recent change in policy by the Jilin Social Security Administration and Changchun Social Security Administration affecting reimbursement of all drug retailers. Under the new policy, only 90% of monthly reimbursement revenue for drugs covered by the national health program is paid immediately, with 10% deferred until compliance with health plan rules is confirmed in a periodic review. Management expects to be in full compliance and that the deferred revenue will be collected. Furthermore this adjustment is expected to be a one-time event, and revenue in each future quarter from products covered under the national health plan will be subject to this 10% deferral rule.
Revenues from the wholesale segment were $6.75 million, a slight decrease of 4.34% from $7.06 million in the same quarter of the prior year. This decrease in net revenue was due to a planned reduction in sales to certain distributors with low gross profit margins, as the Company made a shift in 2010 toward higher-margin wholesale customers such as medical institutions and other retailers. However, even though gross revenue decreased, overall wholesale margins increased significantly, as reflected in gross profit. In the three month period ended September 30, 2010, the Company added 238 new medical institutions and 978 new retailers as wholesale customers.
