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Lotus Pharmaceuticals, Inc. Reports Strong 2008 Financial Results

    BEIJING, April 22 /PRNewswire-Asia-FirstCall/ --

    -- Revenues of $73.8 million
    -- Gross Profit of $33.4 million
    -- Net income of $12.8 million or $0.27 per diluted share

Lotus Pharmaceuticals, Inc. (OTC Bulletin Board: LTUS, "Lotus" or the "Company") today reported its strong 2008 results with total net revenues increasing to $73.8 million, up 30% from 2007 total net revenues; gross profit increasing to $33.4 million, up 44% over 2007 gross profit of $23.2 million; net income $12.8 million or $0.27 diluted earnings per share, compared to net income of $11.2 million, or diluted earnings per share of $0.26, in 2007.

"We achieved substantially all of our goals for 2008. We exceeded the 'make good' net income and remain on track to meet the 2009 full-year goal," stated Dr. Zhongyi Liu, Chairman and CEO of Lotus. "We've also focused our expansion into Inner Mongolia with plans of new revenue lines, and as we establish these lines through 2009 till 2011 we are positioning ourselves for ambitious growth starting from 2011 and beyond, while maintaining steady growth from 2009 to 2011.

"Gross profit growth has been strong and we believe has proven our business model's resilience in the current global and local economic climate. We believe our business model can weather market and economic storms as it is supported by the diversification in revenues generated from prescription drugs ranging from self-produced and self-branded to third party manufactured, from retail sales of OTC drugs and from manufacturing and R&D for third party customers; Additionally, we believe we continuously make our operation more efficient and position Lotus to benefit from preferential tax policies offered in Inner Mongolia. Once our plant in Inner Mongolia begins to run at full production capacity, which we believe will be in 2013, we could save at least $15.5 million from significantly reduced taxes, utilities, and labor costs, in comparison to the cost of the same type of operations in Beijing.

"According to Chinese government's recent universal healthcare plan, the government will spend RMB850 billion ($124.3 billion) in the next three years to provide accessible and affordable healthcare to the country's 1.3 billion people. We see this as a wonderful opportunity because demands for drugs and active pharmaceutical ingredients ('APIs') are expected to increase and we believe could continue to increase until 2020. We also anticipate the decrease of drugs' pricings due to the open bidding system and government's restrictions on hikes of drugs prices.

"We entered into 2008 with a strong push to increase collections of our outstanding account receivables ('AR') and reduced outstanding AR amount significantly in 2008. We intend to maintain the AR level of 2008 and to request customers to prepay orders prior to our shipment of drugs. We ended the year with committed footprint in Inner Mongolia, the acquisition of intellectual rights of two drugs, application and the submission of two drugs to the SFDA. We achieved our goals for the year and exceeded our financial objectives."


The 2008 revenue increase was attributed to wholesale revenues which increased by 57%. The increases were primarily due to strong sales in Brimonidine Tartrate Eye Drops and third party manufactured drugs. 100% of the prescription drugs Lotus sold are covered under the National Health Insurance program. The Company has promoted strongly the sale of Brimonidine Tartrate Eye Drops and gained national exclusive rights to five third-party manufactured prescription drugs. Lotus believes that due to the strong market demand for these drugs, together with the Company's sales and marketing efforts, steady growth is expected in 2009 regardless of the softening of the economy. The decrease in retail sales from Lotus' drug stores was primarily attributable to the slowdown in economic growth and to reduced local traffic resulting from restricted city traffic during the 2008 Olympics held in Beijing. Lotus believes retail revenues will increase in 2009 as it increases its efforts to expand its OTC drugs sales channels to include other drugs stores and increase drugs of high profit margin concerning gastrointestinal illness and influenza.

Gross profit increased 44% to $33.4 million in 2008, compared to $23.2 million in 2007. Gross margin was 45% in 2008 compared to 41% in 2007. The increase in gross margin was primarily due to an increase in sales revenues and more efficient management of purchase prices of APIs and drugs manufactured by third parties, and production cost controls.

Operating expenses for 2008 increased 54% to approximately $18.3 million (25% of net revenues) compared to approximately $11.9 million (21% of net revenues) for 2007. This increase resulted from the increase in selling expenses from $6.5 million in 2007 to $14.9 in 2008 million, which was the result of increased product sales in 2008, and management's high commission and bonuses policy to incentivize sales and collections in order to generate sufficient cash to meet near term capital commitments, such as the new manufacturing plant construction project and the acquisition of a Chinese Class I drug patent. However, management has modified its sales and collection incentive policy and reduced the sales commission percentage and collection bonuses for 2009. General and administrative expenses were $ 2.2 million in 2008 as compared to $3.0 million in 2007, a decrease of 27% from 2007, which was a result of our continuous efforts to control corporate spending despite increases in professional fees.

As of December 31, 2008, the Company had cash of $1.3 million. A decrease of working capital from $24.6 million at the end of 2007 to $4.4 million at the end of 2008 was primarily due to the Company's cash outlays for deposits on land use rights for our planned new Inner Mongolia facility and the acquisition of intellectual properties. The significant decline of days sales outstanding in ARs in 2008 showed clients paid sooner, which translated into an overall decrease in cash conversion days. This was due to the Company's determined efforts to make Company's working capital less tied up in ongoing operations.

Cash flow provided by operating activities for 2008 was $37.4 million and was primarily used to fund the expansion into Inner Mongolia for the land use rights and related expenses of $32.6 million, and the purchases of new drugs' patent rights. The Company believes capital for the expansion in Inner Mongolia in 2009 will come from cash flow provided by operating activities, debt and equity financings, and government grants.

Drugs Pipeline

The Company's drug portfolio development strategy mainly targets the treatment of cardio-cerebro vascular diseases, diabetes and asthma. The two injection drugs that Lotus developed and submitted in 2006 and 2007 are likely to get SFDA's approvals this year. They are Sodium Aescinate-Injection for surgery swollenness and Gatifloxacin Lactate-Injection for pneumonia. The below is the adjusted currently anticipated SFDA approval timetable for its five new drugs:

    Drugs Name                           Anticipated Production Year
    Sodium Aescinate-Injection           2009
    Gatifloxacin Lactate-Injection       2009
    Calcium Dibutyryl Adenosine
     Monophosphate-Injection             2010
    Isosorbide Mononitrate-Sustained
     Release Tablets                     2010
    Laveo-Bambutero                      2012

2009 Outlook

Based on information available to management at this time, Lotus currently anticipates its growth in net income in 2009 to increase between 30% and 40% from 2008 to the range from $16.6 million to $17.9 million.

    Highlights of Recent Developments
    -- Management has decided to start the construction of Inner Mongolia
       plant buildings on May 9, 2009 and to attempt to complete it by the end
       of 2009.
    -- In addition to the cost of land use rights and related expenses
       (approximately $32.6 million) which Liang Fang has paid, other
       components of the project are yet to be funded, including construction
       costs of approximately $17.5 million, costs associated with the various
       production lines estimated at approximately $33.6 million and working
       capital of approximately $7.3 million.
    -- The Company entered into an intellectual rights transfer contract with
       Beijing Yipuan Bio-Medical Technology Co., Ltd. in December 2008 to
       acquire the drug Yipubishan, a highly effective and stable octreotide
       acetate injection solution, In the first quarter of 2009, the Company
       has paid up $7.9 million as required in the transfer. The Company
       believes this could contribute $11.0 million to 2009's sale revenues
       with net margin of 75%.
    -- The Company announced two drugs entering into clinical testing of SFDA
       in 2008, Isosorbide Mononitrate sustained release tablet, a highly
       effective drug for the prevention and treatment of angina; and
       Laevo-Bambutero a Class 1 drug to treat asthma.
    -- Lotus obtained the patent, along with exclusive production rights for
       Laevo-Bambutero in China, through the technology transfer agreement
       with Dongguan Kaifa for a cash payment of $7.0 million and a 3% royalty
       on products sales. The Company has already paid $2.9 million to
       Dongguan Kaifa. The Company intends to market Laevo-Bambutero as a
       better alternative to Bambutero for the treatment of asthma, since it
       uses an integrated method of composition and has fewer side effects.
       Lotus plans to launch the drug by 2012, pending on the approval from
       SFDA. Class I drug in China means that it is a breakthrough invention
       in China and there is no similar drug elsewhere outside of China.
       Currently the Company believes 30-50 million patients in China suffer
       from asthma.

About Lotus Pharmaceuticals, Inc. ( )

Lotus Pharmaceuticals, Inc. controls and operates Liang Fang Pharmaceutical, Ltd. ("Liang Fang") and Enze Jiashi Pharmaceutical, Ltd. ("Enze"), two pharmaceutical companies located in Beijing, China. Together, Liang Fang and Enze ("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. Such statements involve known and unknown risks, uncertainties and other factors that 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 filed 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.
     Mr. Adam Wasserman, CFO
     Tel:   +1-877-801-0344

                           CONSOLIDATED BALANCE SHEETS
                                                       December 31,
                                                  2008              2007
        Cash                                    $1,278,808        $4,557,957
        Accounts receivable, net of
         allowance for doubtful accounts         6,132,912        20,430,827
        Other receivable                            15,757                --
        Other receivable-related party           2,027,954                --
        Inventories, net of reserve for
         obsolete inventory                      3,787,802         3,410,739
        Prepaid expenses and other assets          121,274         1,009,382
        Deferred debt costs                        398,067            29,340

        Total Current Assets                    13,762,574        29,438,245

    PROPERTY AND EQUIPMENT - Net                 7,554,817         6,169,966

        Deposit on patent license                2,917,919                --
        Installments on intangible assets       38,175,134                --
        Intangible assets, net of
         accumulated amortization                1,231,730         1,291,322
        Deferred debt costs                         66,344                --

        Total Assets                           $63,708,518       $36,899,533


        Convertible debt, net of debt
         discount                                      $--        $2,561,645
        Accounts payable and accrued
         expenses                                2,170,165           764,491
        Taxes Payable                            5,015,908           572,200
        Advances from customers                         --            34,531
        Unearned revenue                           565,629           530,063
        Due to related parties                   1,588,689           323,178

        Total Current Liabilities                9,340,391         4,786,108

        Due to related parties                     525,225           738,300
        Notes payable - related parties          5,056,451         4,738,508
        Series A convertible redeemable
         preferred stock, $.001 par
         value; 10,000,000 shares
         authorized; 5,747,118 and -0-
         shares issued and outstanding at
         December 31, 2008 and 2007,
         respectively, net                       3,652,341                --

        Total Liabilities                       18,574,408        10,262,916

        Common stock ($.001 par value;
         200,000,000 shares authorized;
         42,420,239 and 41,794,200 shares
         issued and outstanding at
         December 31, 2008 and 2007,
         respectively)                              42,420            41,794
        Additional paid-in capital              11,554,381         8,095,848
        Statutory reserves                       3,750,529         2,161,505
        Retained earnings                       25,557,537        14,355,913
        Other comprehensive gain -
         cumulative foreign currency
         translation adjustment                  4,229,243         1,981,557

        Total Shareholders' Equity              45,134,110        26,636,617

        Total Liabilities and
         Shareholders' Equity                  $63,708,518       $36,899,533


                                                 For the Year Ended
                                                     December 31,
                                                  2008              2007

        Wholesale                              $65,264,281       $41,651,106
        Retail                                   2,837,257         3,471,960
        Other revenues                           5,701,491        11,750,049

        Total Net Revenues                      73,803,029        56,873,115

    COST OF SALES                               40,440,088        33,678,963

    GROSS PROFIT                                33,362,941        23,194,152

        Selling expenses                        14,902,646         6,460,206
        Research and development                 1,200,194         2,411,651
        General and administrative               2,190,157         3,014,002

        Total Operating Expenses                18,292,997        11,885,859

    INCOME FROM OPERATIONS                      15,069,944        11,308,293

        Forgiveness of business and
         value-added taxes                              --         2,160,795
        Debt issuance costs                       (361,436)         (205,379)
        Registration rights penalty                   (650)         (110,000)
        Interest income                             12,626           102,154
        Interest expense                        (1,929,836)       (2,038,735)

        Total Other Income (Expense)            (2,279,296)          (91,165)

    INCOME BEFORE INCOME TAXES                  12,790,648        11,217,128

    INCOME TAXES                                        --                --

    NET INCOME                                 $12,790,648       $11,217,128

        NET INCOME                              12,790,648        11,217,128

        Unrealized foreign currency
         translation gain                        2,247,686         1,480,352

        COMPREHENSIVE INCOME                   $15,038,334       $12,697,480

        Basic                                        $0.30             $0.27
        Diluted                                      $0.27             $0.26

        Basic                                   42,307,762        41,417,434
        Diluted                                 48,054,880        43,861,106


                                                   For the Year Ended
                                                       December 31,
                                                  2008              2007

    Net income                                 $12,790,648       $11,217,128
    Adjustments to reconcile net income
     from operations to net cash provided
     by (used in) operating activities:

    Depreciation and amortization                  634,347           564,607
    Amortization of deferred debt
     issuance costs                                361,062           205,379
    Interest expense                             1,170,959         1,458,484
    Amortization of prepaid expense
     attributable to warrants                      163,338                --
    Stock based compensation                       318,551           284,200
    Warrant repricing                               74,593                --
    (Decrease) increase in allowance for
     doubtful accounts                            (575,781)       (2,385,354)
    Forgiveness of income and value-added
     taxes                                              --        (2,160,795)
    Changes in assets and liabilities:
    Accounts receivable                         16,001,384        (9,764,076)
    Inventories                                   (145,910)          (58,942)
    Prepaid expenses and other current
     assets                                        939,654          (714,013)
    Accounts payable and accrued expenses        1,360,568            27,266
    Taxes payable                                4,336,947           608,526
    Unearned revenue                                    --            71,402
    Advances from customers                        (36,276)         (204,267)

     OPERATING ACTIVITIES                       37,394,084          (850,455)

    Deposit on patent right                     (2,872,635)               --
    Installment on intangible assets           (37,582,678)               --
    Purchase of intangible asset                    (7,756)               --
    Purchase of property and equipment          (1,438,419)         (381,772)

     INVESTING ACTIVITIES                      (41,901,488)         (381,772)

    Net proceeds (payments) from
     convertible debt                           (2,520,000)        2,950,000
    Proceeds from sale of convertible
     redeemable preferred stocks                  5,000,000                --
    Payment of debt issuance costs                (468,568)         (231,526)
    Proceeds from related party advances           965,986         1,061,009
    Repayments of related party advances        (1,996,481)         (816,732)
    Repayments of notes payable - related
     parties                                            --           509,351

     ACTIVITIES                                    980,937         3,472,102

    EFFECT OF EXCHANGE RATE ON CASH                247,318           228,926

    NET (DECREASE) INCREASE IN CASH             (3,279,149)        2,468,801

    CASH - beginning of year                     4,557,957         2,089,156

    CASH - end of year                          $1,278,808        $4,557,957

    Cash paid for:
    Interest                                      $103,250          $477,001
    Income taxes                                       $--               $--

    Non-cash investing and financing
    Warrants issued for prepaid financing
     costs                                        $327,565               $--
    Warrants issued for consulting                $178,187               $--
    Common stock issued for compensation          $318,551               $--
    Common stock issued for conversion of
     convertible debt                             $250,000          $230,000
    Debt discount for grant of warrants
     and beneficial conversion feature          $2,310,263        $1,616,839
    Due from related party offset against
     note payable-related parties                      $--          $813,650

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

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