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Lotus Pharmaceuticals, Inc. Reports Second Quarter 2009 Financial Results

BEIJING, Aug. 14 /PRNewswire-Asia-FirstCall/ -- Lotus Pharmaceuticals, Inc. (OTC Bulletin Board: LTUS) ("Lotus" or the "Company"), a growing developer and producer of prescription drugs and licensed national seller of pharmaceutical products in the People's Republic China, today reported its financial results for the quarter and six months ended June 30, 2009.

    Second Quarter ("Q2") 2009 Highlights and Developments:

    -- Q2 diluted EPS of $0.10
    -- Q2 net income increased 120% to $4.8 million
    -- Q2 gross margin of 57.9% compared to 50.0% in Q2 of 2008
    -- Participated in the April 2009 61st PHARMCHINA in Zhengzhou, China, one
       of the largest exhibitions in Chinese pharmaceutical industry with a
       history of over 30 years, and entered sales agreements with five new
       distributors which the Company believes may increase the Company's
       market share
    -- Exhibited at the June 26-28 2009 International Conference for
       Bioeconomy/the 44th New Drugs Expo and increased its wholesale
       portfolio with three new drugs
    -- Started and completed building foundation of Inner Mongolia new
       facility, which the Company believes accounts for approximately 5% of
       the total build-out
    -- Awarded with Good Supply Practices Certification
    -- Two investors of preferred shares from the 2008 private placement
       financing opted to convert 172,413 shares of preferred stock to 172,413
       shares of common stock of the Company under Rule 144

Revenues for the second quarter of 2009 decreased 30% to $13.6 million from $19.4 million of the same period of 2008. Wholesale revenues, one of the revenue segments, accounting for 78% of total revenues, decreased 25% due to the Company's 2009 product pricing policy(1). Average unit wholesale selling price decreased 43% in the second quarter of 2009 over the same period of 2008, while 26% increase in wholesale quantities over the second quarter 2008. Retail revenues accounting for 20% of total revenues decreased 24% due to weak consumer demand for non-essential drugs.

Gross margins for the second quarter of 2009 increased to 57.9% as compared to 50.0% in the second quarter of 2008. Dr. Zhongyi Liu, Chairman and CEO of Lotus commented, "We are very pleased with our growth in sales quantities and gross margins of this quarter. Our pricing policy for 2009 has been adjusted accordingly due to the expected inflation contraction on the wholesale level nationally. We have been able to reduce the cost of sales mainly because Active Pharmaceutical Ingredient ("API") and essential medicine prices have dropped since the onset of economic slowdown."

Total operating expenses for the second quarter 2009 were $2.6 million, a 63% decrease from the second quarter of 2008. The decrease resulted from the decrease of selling expenses in relation to our drugs that have established certain market shares, which was due to the profit margins we have given away to our agents who in turn are incentivized to sell our established drugs at competitive prices.

Dr. Liu commented, "We are very pleased to obtain the approval from the Beijing Land Planning Bureau for permitting us to build a new office building on our current production base which was previously industrial-use-only land in Beijing. This means that we can finally bring all of our operational units such as administration, sales, R&D and production into a single office building. This is another important step we made towards improving our operational efficiency."

Net income for the second quarter of 2009 was $4.8 million, or $0.10 per diluted share, compared to $2.2 million, or $0.05 per diluted share, in the second quarter of 2008.

The Company's cash position at the end of the second quarter was $1.8 million, compared to $1.3 million at the end of 2008.

"We actively exhibit at all the important drug expos in China, through which we build strong customer relationships. We continue to fulfill our promise to bring new drugs to the market and to reach out new customers," commented Dr. Zhongyi Liu. "In addition to one new prescription drug, Qingkailing Paotengpian, we are now offering new drugs to our national sales network for the treatment of acute suppurative tonsillitis, acute upper respiratory infection, pneumonia and high fever. We are also selling two new OTC drugs: (i) NINGXIN Yishen Oral Liquid, which improves immune system and sleep, and reduces fatigue, and (ii) Shuanghuanglian Oral Liquid, which is used to treat influenza symptoms. For the three new drugs we offered, we provided promotions with introduction meetings for customers and agents in Beijing, Anhui and Inner Mongolia. Currently, we are selling a total of 15 types of drugs through our wholesale channels nationwide."

Six-Month Results

For the six-month period ended June 30, 2009, total revenues were $25.5 million, a decrease of 18.1% from $31.1 million in the same period last year. Gross profit was $14.5 million, up 6.6% from gross profit of $13.6 million for the six months of 2008. Gross margin was 57.1%, compared to 43.8% for the first six months of 2008. Operating income was $9.5 million, compared to $4.3 million for the first six months of fiscal 2008.

Net income for the period was $8.4 million, an increase of 163% from $3.2 million in the same period last year. Earnings per share (diluted) for the first half of 2009 was $0.17, compared to $0.07 in the first half of 2008.

Improved cash flows from operating activities was $16.3 million, compared to $4.7 million in the first six months of 2008.

2009 Outlook

"We are very pleased with our bottom line growth and gross margin for the first six months of 2009. We believe we will have consistent growth for the rest of the year mainly because the majority of drugs we sell to our national network are covered under the National Health Insurance Policy, and our continuous efforts to improve operational efficiency," said Mr. Liu. "While we are making progress in expanding our production capacity in Inner Mongolia, we believe we are on track to achieve the earnings guidance we provided previously."

    (1) The 2008 net revenues referenced above have been adjusted for
        correction. While the total net revenues remain unchanged in
        comparison with the previously reported numbers, the allocation of
        three revenue segments is revised as follows:

                  For the Three Months Ended    For the Six Months Ended
                            June 30,                  June 30,
                              2008                      2008
       Wholesale           $14,235,345                $22,672,643
       Retail                3,644,530                  5,661,077
       Other revenues        1,505,737                 2,761,069

    Total Net Revenues     $19,385,612                $31,094,789

About Lotus Pharmaceuticals, Inc. ( )

Lotus Pharmaceuticals, Inc. is a growing developer and producer of prescription drugs and a licensed national seller of pharmaceutical items in the People's Republic of China. Lotus operates Liang Fang Pharmaceutical, Ltd. and En Ze Jia Shi Pharmaceutical, Ltd. Lotus's current drug development pipeline is focused on the treatment of cerebro-cardiovascular disease, asthma, and diabetes. More than 8,000 products are sold by Liang Fang directly and indirectly through its national sales channels to hospitals, clinics and drugs stores in 30 provinces.

Safe Harbor Statement

This press release contains "forward-looking statements" within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance or achievements, and may contain the words "estimate," "project," "intent," "forecast," "anticipate," "plan," "planning," "expect," "believe," "will likely," "should," "could," "would," "may," or words or expressions of similar meaning. Such statements are not guarantees of future performance and could cause the actual results of the Company to differ materially from the results expressed or implied by such statements, including, but not limited to, changes from anticipated levels of sales, future national or regional economic and competitive and regulatory conditions, changes in relationships with customers, access to capital, increased costs, difficulties in developing and marketing new products, marketing existing products, customer acceptance of existing and new products, the time to get new drugs approved by the SFDA and other factors. Additional information regarding risks can be found in the Company's Annual Report on Form 10K and its older filings with the SEC. Accordingly, although the Company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. The Company has no obligation to update the forward-looking information contained in this press release.

                           CONSOLIDATED BALANCE SHEETS

                                             June 30, 2009  December 31,2008
    Cash                                        $1,830,366        $1,278,808
    Accounts receivable, net of allowance
     for doubtful accounts                       2,133,871         6,132,912
    Other receivable                                16,120            15,757
    Other receivable-related party                      --         2,027,954
    Inventories, net of reserve for
     obsolete inventory                          2,775,382         3,787,802
     Prepaid expenses and other assets              45,429           121,274
    Deferred debt costs                            265,378           398,067

    Total Current Assets                         7,066,546        13,762,574

    PROPERTY AND EQUIPMENT - Net                14,770,393         7,554,817

    Deposit on patent right                      2,921,926         2,917,919
    Installments on intangible assets           38,958,041        38,175,134
    Intangible assets, net of accumulated
     amortization                                8,650,147         1,231,730
    Deferred debt costs                                 --            66,344

    Total Assets                               $72,367,053       $63,708,518


    Accounts payable and accrued expenses         $224,050          $895,283
    Other payables                               1,400,382         1,274,882
    Taxes payable                                4,159,405         5,015,908
    Unearned revenue                               711,250           565,629
    Due to related parties                       1,841,015         1,588,689
    Series A convertible redeemable
     preferred stock, $.001 par value;
     10,000,000 shares authorized;
     6,034,477 and 5,747,118 shares
     issued and outstanding at June 30,
     2009 and December 31, 2008,
     respectively, net                           4,503,010                --

    Total Current Liabilities                   12,839,112         9,340,391

    Due to related parties                         394,460           525,225
    Notes payable - related parties              5,063,395         5,056,451
    Series A convertible redeemable
     preferred stock, $.001 par value;
     10,000,000 shares authorized;
     6,034,477 and 5,747,118 shares
     issued and outstanding at June 30,
     2009 and December 31, 2008,
     respectively, net                                  --         3,652,341

    Total Liabilities                           18,296,967        18,574,408

    Common stock ($.001 par value;
     200,000,000 shares authorized;
     43,952,889 and 42,420,239 shares
     issued and outstanding at June 30,
     2009 and December 31, 2008,
     respectively)                                  43,953            42,420

    Additional paid-in capital                  12,070,182        11,554,381
    Statutory reserves                           4,703,821         3,750,529
    Retained earnings                           32,957,880        25,557,537
    Accumulated other comprehensive
     income                                      4,294,250         4,229,243

    Total stockholders' Equity                  54,070,086        45,134,110

    Total Liabilities and Stockholders'
     Equity                                    $72,367,053       $63,708,518


                         For the Three Months Ended  For the Six Months Ended
                                    June 30,                  June 30,
                               2009         2008         2009         2008

        Wholesale          $10,673,718  $14,235,345  $19,614,123  $22,672,643
        Retail               2,759,419    3,644,530    4,896,607    5,661,077
        Other revenues         198,592    1,505,737      945,286    2,761,069

        Total Net Revenues  13,631,729   19,385,612   25,456,016   31,094,789

    COST OF SALES            5,743,166    9,696,718   10,929,324   17,465,143

    GROSS PROFIT             7,888,563    9,688,894   14,526,692   13,629,646

        Selling expenses     1,801,235    5,875,549    3,503,034    6,997,886
        Research and
         development                --      471,243           --    1,181,468
        General and
         administrative        769,103      542,043    1,516,309    1,168,460

        Total Operating
         Expenses            2,570,338    6,888,835    5,019,343    9,347,814

    INCOME FROM OPERATIONS   5,318,225    2,800,059    9,507,349    4,281,832

        Debt issuance
         costs                 (99,516)     (99,517)    (199,033)    (162,403)
        Interest income         44,793        2,027       46,112        2,588
        Interest expense      (470,551)    (522,660)    (918,648)    (946,009)

        Total Other Income
         (Expense)            (525,274)    (620,150)  (1,071,569)  (1,105,824)

     TAXES                   4,792,951    2,179,909    8,435,780    3,176,008

    INCOME TAXES                 7,418           --       82,145           --

    NET INCOME              $4,785,533   $2,179,909   $8,353,635   $3,176,008

        NET INCOME           4,785,533    2,179,909    8,353,635    3,176,008

        Unrealized foreign
         translation gain        2,896    1,587,538       65,007    3,041,741

         INCOME             $4,788,429   $3,767,447   $8,418,642   $6,217,749

        Basic                    $0.11        $0.05        $0.19        $0.08
        Diluted                  $0.10        $0.05        $0.17        $0.07

        Basic               43,527,669   42,352,139   43,289,189   42,194,048
        Diluted             49,562,146   48,099,257   49,183,956   47,941,166


                                                   For the Six Months Ended
                                                          June 30,
                                                    2009               2008

    Net income                                   $8,353,635        $3,176,008
    Adjustments to reconcile net income
     from operations to net cash provided
     by operating activities:

    Depreciation and amortization                   725,308           307,713
    Amortization of deferred debt
     issuance costs                                 199,033           162,029
    Amortization of debt discount                        --           208,355
    Amortization of discount on
     convertible redeemable preferred
     stock                                          600,669           338,838
    Amortization of prepaid expense
     attributable to warrants                        14,849                --
    Stock-based compensation                        109,334           270,245
    Warrants revaluation                                 --            74,593
    Decrease in allowance for doubtful
     accounts and sales returns                          --           (14,101)
    Recognition of unearned revenue                (396,450)               --
    Changes in assets and liabilities:
    Accounts receivable                           4,008,383           946,083
    Inventories                                   1,017,856        (3,358,488)
    Prepaid expenses and other current
     assets                                       2,101,008           986,132
    Accounts payable and accrued expenses           (22,506)          224,627
    Other current payables                         (169,743)               --
    Taxes payable                                  (863,589)        1,381,155
    Unearned revenue                                541,327            39,086
    Due to related parties                          118,685                --

     ACTIVITIES                                  16,337,799         4,742,275

    Deposit on patent right                              --        (2,827,814)
    Payment on intangible assets                 (8,621,660)       (5,862,059)
    Purchase of property and equipment           (7,166,057)         (217,982)

     ACTIVITIES                                 (15,787,717)       (8,907,855)

    Repayment of convertible debt                        --        (2,520,000)
    Proceeds from sale of convertible
     redeemable preferred stocks                         --         5,000,000
    Payment of debt issuance costs                       --          (468,568)
    Proceeds from related party advances                 --           774,571

     ACTIVITIES                                          --         2,786,003

    EFFECT OF EXCHANGE RATE ON CASH                   1,476           223,064

    NET (DECREASE) INCREASE IN CASH                 551,558        (1,156,513)

    CASH - beginning of period                    1,278,808         4,557,957

    CASH - end of period                         $1,830,366        $3,401,444

    Cash paid for:
    Interest                                            $--           $56,557
    Income taxes                                        $--               $--

    Non-cash investing and financing
    Warrants issued for prepaid financing
     costs and consulting expense                       $--          $505,752
    Common stock issued for prior
     services                                      $249,000          $318,551
    Common stock issued for future
     services                                        $9,000               $--
    Common stock issued for conversion of
     convertible redeemable preferred
     stock                                         $150,000          $250,000
    Debt discount for grant of warrants
     and beneficial conversion feature                  $--        $2,033,025
    Increase in payable for construction-
     in-progress                                   $293,520               $--
    Preferred stock issued for dividend
     payable                                       $400,000               $--

    For further information, please contact:

    Lotus Pharmaceuticals, Inc.
     Yan ZENG, CFO
     Tel:   +86-10-6389-9868

SOURCE Lotus Pharmaceuticals, Inc.
Copyright©2009 PR Newswire.
All rights reserved

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