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Lotus Pharmaceuticals, Inc. Reports First Quarter 2009 Financial Results

BEIJING, May 18 /PRNewswire-Asia-FirstCall/ -- Lotus Pharmaceuticals, Inc. (OTC Bulletin Board: LTUS) ("Lotus" or the "Company") a company that controls and operates pharmaceutical companies in the People's Republic of China ("PRC"), today reported its financial results for the first quarter ended March 31, 2009.

    First Quarter 2009 Highlights and Recent Developments:

    -- Diluted EPS of $0.07
    -- Net income of $3.6 million, up 258% from first quarter 2008
    -- Improved cash flows from operating activities of $7.0 million, up
       $10.6 million from first quarter 2008
    -- Submitted application and received formal notice from the Chinese
       State Food and Drug Administration ("SFDA") that it has started
       pre-clinical evaluation of Gliclazide-Controlled Release Tablets
       (antidiabetic agent)
    -- Participated in the April 2009 61st PHARMCHINA in Zhengzhou, the
       largest exhibition in Chinese pharmaceutical industry with a history
       of over 30 years, and entered sales agreements with 5 new
       distributors which the Company believes may increase the Company's
       market share
    -- Completed integration of Yipubishan-Octreotide Acetate Injection's
       distribution channels
    -- Appointed Ms. Yan Zeng as fulltime CFO and Bagell, Josephs, Levine &
       Company, L.L.C. as new independent auditor

Revenues for the first quarter of 2009 increased 1% to $11.8 million, up from $11.7 million in the first quarter of 2008. Both wholesale revenues (76% of total net revenues for the first quarter of 2009) and retail revenues (18% of total net revenues for the first quarter of 2009) increased 6%, but other revenues (6% of total revenues for the first quarter of 2009) decreased 41% for the first quarter of 2009 as compared to the first quarter of 2008. The increase in wholesale revenues was mainly attributed to strong sales in Valsartan Capsules, Brimonidine Tartrate Eye Drops and Yipubishan-Octreotide Acetate Injection. The Company holds intellectual property rights to these three drugs and the Company believes these drugs have gained an excellent reputation among users for their safety, efficacy and stability. Under the Company's newly adjusted pricing policy for the year of 2009, average unit selling price decreased 38% in the first quarter of 2009 over the same period of 2008, and 67% increase in wholesale volume over the first quarter 2008.

The increase in retail revenues was attributable to the following four factors:

    1) China has carried out pilot health care reforms to separate drugs
       dispensing and medical practice in the past three years, as a result,
       some prescription drugs are no longer only available in hospitals,
       but can be purchased at retail pharmacies;
    2) Liang Fang is headquartered in Beijing where the local government
       allocates pharmacies in a way such that each pharmacy serves a
       residential community of around 20,000 people;
    3) Consumers' purchasing power increases; and
    4) Liang Fang established at the end of last year an OTC division
       responsible for promoting OTC drugs to pharmacies in Beijing, not
       limited to Liang Fang's ten drugs stores.

The decrease in other revenues was mainly due to the decrease in lab testing services, research and development and manufacturing for third parties as many of the Company's repeat customers have built new facilities to make their own drugs. The Company believes other revenues will continue to decline for the rest of the year.

Gross profit in the first quarter increased 68% year over year to $6.6 million from $3.9 million. Gross margin increased to 56% in the first quarter 2009 from 34% of total net revenues in the prior year period. The increase in gross profit was attributable to the decrease in cost of sales as a percentage of revenue. The decrease in cost of sales as a percentage of revenue was primarily the result of improved purchase pricing management and more efficient production cost controls.

"Our products are of medical necessity and long-term control. Our goal is to improve health and quality of life. We are committed to increasing long term shareholders' value with our growth strategy of expanding geographically, building strong brands, bringing new drugs to the market, and reaching out new customers while adding value for our customers through the leverage of economies of scale." commented Dr. Zhongyi Liu, Chairman and CEO of Lotus. "We believe that the implementation of our cost reduction strategy and customer-centered strategy work have helped us to gain market share in sales units and improve managerial efficiency."

Total operating expenses for the first quarter 2009 were $2.4 million, a decrease of $9,974 from the first quarter of 2008. This decrease was principally a result of zero third party research and development expenses occurred, which was offset by the increase of selling expenses, general and administrative expenses.

Net income for the 2009 first quarter was $3.6 million, or $0.07 per diluted share, compared with $1.0 million, or $0.02 per diluted share, in the first quarter of 2008.

The Company's cash position at the end of the first quarter was $1.2 million.

Dr. Liu commented, "The majority of our wholesale customers pay us upfront and our business has no problem in generating cash quickly. Although we have historically funded our capital expenditures from our working capital, we are seeking financing for expansion needs.

"We believe that our growth will benefit from the Chinese government's $124.3 billion universal health plan package which we believe will generate increased demand for our products. We also believe we may benefit from the Chinese government's May 13 endorsement of 62.8 billion yuan (or $9.2 billion) by 2010 into stimulating the country's biological technology development in areas including medicine. This is another move that China has made to manage and maintain steady growth amid the global economic downturn," said Dr. Liu.

"We continue to bring meaningful innovated medicine to commercialization, and improve our marketing efforts in ways that we believe will strengthen our portfolio for the long term," said Dr. Liu. "We are pleased to have submitted and received the notification from the SFDA for its start of pre-clinical evaluation of Gliclazide. This indicates our first step taken towards commercializing Gliclazide. Gliclazide is a modified controlled-release antidiabetic drug to treat type 2 diabetes. The market size of diabetes drugs is estimated to be around $1 billion in China(1) and continues to grow as living standards have improved. We believe the market demand for Gliclazide should remain strong until 2020."

Dr. Liu added, "We are pleased with the addition of Ms. Yan Zeng as a fulltime CFO. She brings more than ten years of managerial and financial expertise to the Company. Mr. Adam Wasserman 's resignation as CFO was effective April 30 and he continues to serve as a financial consultant for the Company. I want to thank him for his important contributions during the past two years. We believe that appointment of Bagell, Josephs, Levine as the Company's new independent auditor will help the Company improve its financial reporting."

    (1) Source: CHINA ANTI-DIABETIC DRUG MARKET REPORT prepared by Life
        Science Intelligence

2009 Earnings Guidance

For the fiscal year 2009, Lotus maintains its forecast of net income to range from $16.6 million and $17.9 million, and expects sales to range from $55.4 to $59.7 million. This expectation is based on the assumption that the Company benefits from the tax preferential policy offered in Inner Mongolia, strong profitability due to cost saving initiatives, and continued growth in demand for the Company's prescription and OTC drugs.

About Bagell, Josephs, Levine & Company, L.L.C. ("BJL")

Certified Public Accountants and Business Consultants, a top 100 SEC Audit Firm headquartered in Marlton, New Jersey, BJL assists clients world-wide including publicly-traded companies, privately-held enterprises and high net worth individuals who have chosen BJL for its knowledge, responsiveness and experienced professionals. Recently, BJL expanded its footprint beyond the United States by opening an office in Beijing, China. More information about BJL's approach to business challenges can be found at .

About Lotus Pharmaceuticals, Inc. )

Lotus Pharmaceuticals, Inc. controls and operates Liang Fang Pharmaceutical, Ltd. ("Liang Fang") and En Ze Jia Shi Pharmaceutical, Ltd. ("En Ze Jia Shi"), two pharmaceutical companies located in Beijing, China. Together, Liang Fang and En Ze Jia Shi (collectively referred to as "Lotus East") undertake the development, production, marketing and distribution of pharmaceutical products. The Company believes Lotus East has some of the most advanced pharmaceutical production equipment in China and its manufacturing facilities meet national Good Manufacturing Practices. The Company distributes its own portfolio of drugs and pharmaceutical products produced by other manufacturers in the PRC through an extensive national distribution network. Lotus owns ten pharmacies in Beijing through which it directly sells over 5,000 western drugs, Traditional Chinese Medicines and medical equipment items.

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.

    For further information, please contact:

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

                           CONSOLIDATED BALANCE SHEETS
                                                  March 31,      December 31,
                                                    2009             2008
        Cash                                    $1,228,769        $1,278,808
        Accounts receivable, net of
         allowance for doubtful accounts         1,395,054         6,132,912
        Other receivable                            15,777            15,757
        Other receivable-employee                  730,396                --
        Other receivable-related party                  --         2,027,954
        Inventories, net of reserve for
         obsolete inventory                      3,726,128         3,787,802
        Prepaid expenses and other assets           77,380           121,274
        Deferred debt costs                        364,894           398,067

        Total Current Assets                     7,538,398        13,762,574

    PROPERTY AND EQUIPMENT - Net                 9,591,554         7,554,817

        Deposit on patent license                2,921,585         2,917,919
        Installments on intangible assets       35,301,508        38,175,134
        Intangible assets, net of
         accumulated amortization                8,885,346         1,231,730
        Deferred debt costs                             --            66,344

        Total Assets                           $64,238,391       $63,708,518


        Accounts payable and accrued
         expenses                                 $856,345        $2,170,165
        Taxes Payable                            1,994,388         5,015,908
        Unearned revenue                           794,516           565,629
        Due to related parties                   1,715,742         1,588,689
        Series A convertible redeemable
         preferred stock, $.001 par
         value; 10,000,000 shares
         authorized; 6,206,890 and
         5,747,118 shares issued and
         outstanding at March 31, 2009
         and December 31, 2008,
         respectively, net                       4,341,124                --

        Total Current Liabilities                9,702,115         9,340,391

        Due to related parties                     460,150           525,225
        Notes payable - related parties          5,062,803         5,056,451
        Series A convertible redeemable
         preferred stock, $.001 par
         value; 10,000,000 shares
         authorized; 6,206,890 and
         5,747,118 shares issued and
         outstanding at March 31, 2009
         and December 31, 2008,
         respectively, net                              --         3,652,341

        Total Liabilities                       15,225,068        18,574,408

        Common stock ($.001 par value;
         200,000,000 shares authorized;
         43,377,932 and 42,420,239 shares
         issued and outstanding at March
         31, 2009 and December 31, 2008,
         respectively)                              43,378            42,420
        Additional paid-in capital              11,802,423        11,554,381
        Statutory reserves                       4,167,174         3,750,529
        Retained earnings                       28,708,994        25,557,537
        Other comprehensive gain -
         cumulative foreign currency
         translation adjustment                  4,291,354         4,229,243

        Total Shareholders' Equity              49,013,323        45,134,110

        Total Liabilities and
         Shareholders' Equity                  $64,238,391       $63,708,518


                                               For the Three Months Ended
                                                         March 31,
                                                   2009              2008

        Wholesale                               $8,940,405        $8,437,298
        Retail                                   2,137,188         2,016,547
        Other revenues                             746,694         1,255,332

        Total Net Revenues                      11,824,287        11,709,177

    COST OF SALES                                5,186,158         7,768,425

    GROSS PROFIT                                 6,638,129         3,940,752

        Selling expenses                         1,701,799         1,122,337
        Research and development                        --           710,225
        General and administrative                 747,206           626,417

        Total Operating Expenses                 2,449,005         2,458,979

    INCOME FROM OPERATIONS                       4,189,124         1,481,773

        Debt issuance costs                        (99,517)          (62,886)
        Interest income                              1,319               561
        Interest expense                          (448,097)         (423,349)

        Total Other Income (Expense)              (546,295)         (485,674)

    INCOME BEFORE INCOME TAXES                   3,642,829           996,099

    INCOME TAXES                                    74,727                --

    NET INCOME                                  $3,568,102          $996,099

        NET INCOME                               3,568,102           996,099

        Unrealized foreign currency
         translation gain                           62,111         1,454,203

        COMPREHENSIVE INCOME                    $3,630,213        $2,450,302

        Basic                                        $0.08             $0.02
        Diluted                                      $0.07             $0.02

        Basic                                   43,048,060        42,035,958
        Diluted                                 49,254,950        47,783,076


                                                 For the Three Months Ended
                                                          March 31,
                                                   2009              2008

    Net income                                  $3,568,102          $996,099
    Adjustments to reconcile net income
     from operations to net cash provided
     by (used in) operating activities:

    Depreciation and amortization                  362,467           148,884
    Amortization of deferred debt
     issuance costs                                 99,517            62,512
    Amortization of debt discount                       --           208,355
    Amortization of discount on
     convertible redeemable preferred
     stock                                         288,783            84,709
    Amortization of prepaid expense
     attributable to warrants                       14,849                --
    Increase in allowance for doubtful
     accounts                                           --            53,305
    Changes in assets and liabilities:
    Accounts receivable                          4,744,877          (115,927)
    Inventories                                     66,423        (3,161,360)
    Prepaid expenses and other current
     assets                                      1,329,083        (2,012,656)
    Accounts payable and accrued expenses         (666,522)          (98,515)
    Taxes payable                               (3,027,383)           41,792
    Unearned revenue                               228,143           217,749
    Advances from customers                             --           (35,197)

     OPERATING ACTIVITIES                        7,008,339        (3,610,250)

    Installments on intangible assets            2,921,162                --
    Purchase of intangible asset                (7,887,138)               --
    Purchase of property and equipment          (2,153,243)               --

     INVESTING ACTIVITIES                       (7,119,219)               --

    Repayment for 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            59,314           357,382

     ACTIVITIES                                     59,314         2,368,814

    EFFECT OF EXCHANGE RATE ON CASH                  1,527           272,856

    NET (DECREASE) INCREASE IN CASH                (50,039)         (968,580)

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

    CASH - end of period                        $1,228,769        $3,589,377

    Cash paid for:
    Interest                                           $--               $--
    Income taxes                                       $--               $--

    Non-cash investing and financing
    Warrants issued for prepaid financing
     costs and consulting expense                      $--          $505,752
    Common stock issued for prior
     compensation                                 $249,000               $--
    Common stock issued for conversion of
     convertible debt                                  $--          $250,000
    Debt discount for grant of warrants
     and beneficial conversion feature                 $--        $2,033,025
    Preferred stock issued for dividend
     payable                                      $400,000               $--

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

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