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Lotus Pharmaceuticals, Inc. Reports Third-Quarter 2009 Results
Date:11/16/2009

BEIJING, Nov. 16 /PRNewswire-Asia-FirstCall/ -- Lotus Pharmaceuticals, Inc. (OTC Bulletin Board: LTUS) ("Lotus" or the "Company") a growing developer and producer of prescriptions drugs and licensed national seller of pharmaceutical products in the People's Republic of China, today reported third-quarter 2009 net earnings were $5.4 million, or $0.11 per diluted share, compared with $3.2 million, or $0.07 per diluted share, in 2008. Net revenues were $14.5 million during the third quarter of 2009, compared with $16.7 million in the third quarter of 2008.

The third quarter was highlighted by continued strong performance in the Company's wholesale business. Profitability increased due to increased sales demand and successful cost-reduction actions.

    Third-Quarter 2009 Results
    -- Earnings Before Interest and Taxes (EBIT) for the third quarter ended
       September 30, 2009, were $6.0 million, compared with EBIT of $3.7
       million during the same period in 2008.
    -- EBIT was $15.3 million for the first nine months of 2009, compared with
       EBIT of $7.8 million during the same period of 2008.
    -- Gross margin as a percentage of net revenues was 59 percent in the
       third quarter of 2009, compared with 51 percent in the same period of
       2008.
    -- Selling expenses were $1.9 million, less than for the same period in
       2008.

"I'm pleased with our strong third-quarter results," said Dr. Zhong Yi Liu, chairman and chief executive officer. "By slowing down our buildup of new manufacturing facility in Inner Mongolia, we have set our priority in improving our operational efficiency in Beijing by preparing for moving the separated operation units into one single location. We will maintain our focus on improving operation efficiency and maintaining client relationships, and believe we will finish the year well-positioned to enter 2010."

Outlook

Lotus believes it is on track to meet its earnings guidance for 2009. The Company improved its cash position in the third quarter, which stood at $2.6 million as of September 30th, 2009, as compared to $1.3 million as of December 31, 2008.

In the wholesale segment which accounted for 80% of net revenues in the third quarter, the Company believes demand will continue to increase given the increases in distributor and product offerings, as well as increasing demand from existing distributors. In response to market conditions, unit average price of wholesale drugs in this segment decreased to follow deflation in raw material costs from the beginning of this year. As a result of our success in reducing purchase prices for drugs we sell but produced by third parties, prices we offer to our distributors have reduced and remained stable since the beginning of 2009, indirectly increasing incentives for them to promote our drugs. In addition, our cost reductions have proven to be effective as we managed to reduce selling expenses by reducing commissions paid to our sales representatives. Offsetting the impact of a 42% decrease in average unit selling price resulted in higher sales volume by 39% in the past nine months. The impact of these combined efforts resulted in EBIT margin in this quarter being 41%, compared to 22% in the same period last year.

In the retail segment which accounted for 19% of net revenues in the third quarter, although there was a 4% decrease from the same period last year, Lotus believes the demand for drugs treating influenza is expected to increase through the remainder of 2009 due to the upcoming of influenza season.

About Lotus Pharmaceuticals, Inc. ( http://www.lotuspharma.com )

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.

    For more information, please contact:

    Lotus Pharmaceuticals, Inc.
     Yan ZENG, CFO
     Tel:   +86-10-6389-9868
     Email: zy@lotuspharma.com



                  LOTUS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                          September 30, 2009 December 31,2008
                                             (Unaudited)
    ASSETS
    CURRENT ASSETS:
       Cash                                     $2,561,489        $1,278,808
       Accounts receivable, net of
        allowance for doubtful accounts          1,765,390         6,132,912
       Other receivable                             16,131            15,757
       Other receivable-related party                   --         2,027,954
       Inventories, net of reserve for
        obsolete inventory                       2,994,995         3,787,802
        Prepaid expenses and other assets          123,695           121,274
       Deferred debt costs                         153,024           398,067

           Total Current Assets                  7,614,724        13,762,574

    PROPERTY AND EQUIPMENT - Net                22,872,484         7,554,817

    OTHER ASSETS
       Deposit and Installments on
        intangible assets                       41,924,067        41,093,053
       Intangible assets, net of
        accumulated amortization                 8,429,005         1,231,730
       Deferred debt costs                              --            66,344

           Total Assets                        $80,840,280       $63,708,518

    LIABILITIES AND SHAREHOLDERS' EQUITY

    CURRENT LIABILITIES:
       Accounts payable and accrued
        expenses                                  $477,619          $895,283
       Other payables                            1,305,565         1,274,882
       Taxes payable                             6,751,037         5,015,908
       Unearned revenue                            630,475           565,629
       Due to related parties                    1,968,158         1,588,689
       Series A convertible redeemable
        preferred stock, $.001 par value;
        10,000,000 shares authorized;
        5,748,271 and 5,747,118 shares
        issued and outstanding at September
        30, 2009 and December 31, 2008,
        respectively, net                        4,534,129                --

           Total Current Liabilities            15,666,983         9,340,391

    LONG-TERM LIABILITIES:
       Due to related parties                      329,063           525,225
       Notes payable - related parties           5,068,726         5,056,451
       Series A convertible redeemable
        preferred stock, $.001 par value;
        10,000,000 shares authorized;
        5,748,271 and 5,747,118 shares
        issued and outstanding at
        September 30, 2009 and December
        31, 2008, respectively, net                     --         3,652,341

           Total Liabilities                    21,064,772        18,574,408


    STOCKHOLDERS' EQUITY:
       Common stock ($.001 par value;
        200,000,000 shares authorized;
        44,239,095 and 42,420,239 shares
        issued and outstanding on
        September 30, 2009 and December
        31, 2008, respectively)                     44,239            42,420
       Additional paid-in capital               12,318,895        11,554,381
       Statutory reserves                        5,296,804         3,750,529
       Retained earnings                        37,755,694        25,557,537
       Accumulated other comprehensive
        income                                   4,359,876         4,229,243

           Total stockholders' Equity           59,775,508        45,134,110

           Total Liabilities and
            Stockholders' Equity               $80,840,280       $63,708,518



                   LOTUS PHARMACEUTICALS, INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
                                   (UNAUDITED)

                          For the Three Months Ended For the Nine Months Ended
                                September 30,              September 30,
                              2009         2008          2009         2008

    NET REVENUES:
         Wholesale         $11,606,288  $12,191,037  $31,220,411  $34,863,680
          Retail             2,708,071    2,831,030    7,604,678    8,492,107
          Other revenues       198,345    1,681,817    1,143,631    4,442,886

            Total Net
             Revenues       14,512,704   16,703,884   39,968,720   47,798,673

    COST OF SALES            5,993,176    8,219,358   16,922,500   25,684,501

    GROSS PROFIT             8,519,528    8,484,526   23,046,220   22,114,172

    OPERATING EXPENSES:
         Selling expenses    1,895,901    4,293,704    5,398,935   11,291,590
         Research and
          development               --       12,448           --    1,193,916
         General and
          administrative       610,519      420,716    2,126,828    1,589,176

            Total Operating
             Expenses        2,506,420    4,726,868    7,525,763   14,074,682

    INCOME FROM OPERATIONS   6,013,108    3,757,658   15,520,457    8,039,490

    OTHER INCOME (EXPENSE):
         Debt issuance
          costs               (112,355)     (99,516)    (311,388)    (261,919)
         Registration
          rights penalty            --           --           --         (650)
         Interest income         1,295        9,032       47,407       11,620
         Interest expense     (436,481)    (453,498)  (1,355,129)  (1,399,507)

            Total Other
             Income (Expense) (547,541)    (543,982)  (1,619,110)  (1,650,456)

    INCOME BEFORE INCOME
     TAXES                   5,465,567    3,213,676   13,901,347    6,389,034

    INCOME TAXES                74,770           --      156,915           --

    NET INCOME              $5,390,797   $3,213,676  $13,744,432   $6,389,034

    COMPREHENSIVE INCOME:
          NET INCOME         5,390,797    3,213,676   13,744,432    6,389,034

          OTHER COMPREHENSIVE
           INCOME:
               Unrealized
                foreign
                currency
                translation
                gain            65,626      127,833      130,633    2,173,475

          COMPREHENSIVE
           INCOME           $5,456,423   $3,341,509  $13,875,065   $8,562,509

    NET INCOME PER COMMON
     SHARE:
        Basic                    $0.12        $0.08        $0.32        $0.15
        Diluted                  $0.11        $0.07        $0.28        $0.13

    WEIGHTED AVERAGE
     COMMON SHARES
     OUTSTANDING:
        Basic               43,997,079   42,420,239   43,527,746   42,269,997
        Diluted             49,745,350   48,167,357   49,186,167   48,017,115



                   LOTUS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                 For the Nine Months Ended
                                                       September 30,
                                                   2009              2008

    CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income                                $13,744,432        $6,389,034
      Adjustments to reconcile net income
       from operations to net cash
       provided by  operating activities:
        Depreciation and amortization             1,081,953           469,455
        Amortization of deferred debt
         issuance costs                             311,388           261,545
        Amortization of debt discount                    --           208,355
        Amortization of discount on
         convertible redeemable preferred
         stock                                      880,788           592,966
        Amortization of prepaid expense
         attributable to warrants                    14,849                --
        Stock-based compensation                    113,834           392,341
        Warrants revaluation                             --            74,593
        Decrease in allowance for doubtful
         accounts and sales returns                      --          (490,310)
        Recognition of unearned revenue            (594,738)               --
      Changes in assets and liabilities:
        Accounts receivable                       4,379,267         8,244,225
        Inventories                                 801,428        (4,880,418)
        Prepaid expenses and other current
         assets                                   2,018,565         1,080,576
        Accounts payable and accrued
         expenses                                   230,951         1,032,245
        Other current payables                     (287,905)               --
        Taxes payable                             1,721,716         2,637,331
        Unearned revenue                            658,165            26,139
        Due to related parties                      178,047                --

    NET CASH PROVIDED BY OPERATING
     ACTIVITIES                                  25,252,740        16,038,077

    CASH FLOWS FROM INVESTING ACTIVITIES:
        Deposits on patent right                         --        (2,857,608)
        Deposits on land use right                       --       (16,768,445)
        Payments on intangible assets            (8,622,567)           (3,429)
        Purchase of property and equipment      (15,352,107)       (1,430,894)

    NET CASH USED IN INVESTING ACTIVITIES       (23,974,674)      (21,060,376)

    CASH FLOWS FROM FINANCING ACTIVITIES:
        Repayment of convertible debt                    --        (2,520,000)
        Proceeds from sale of convertible
         redeemable stocks                               --         5,000,000
        Payment of debt issuance costs                   --          (468,568)
        Proceeds from related party
         advances                                        --           860,916

    NET CASH PROVIDED BY FINANCING
     ACTIVITIES                                          --         2,872,348

    EFFECT OF EXCHANGE RATE ON CASH                   4,615           248,764

    NET INCREASE (DECREASE) IN CASH               1,282,681        (1,901,187)

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

    CASH - end of period                         $2,561,489        $2,656,770

    SUPPLEMENTAL DISCLOSURE OF CASH FLOW
     INFORMATION:
      Cash paid for:
        Interest                                        $--          $103,250
        Income taxes                                    $--               $--

      Non-cash investing and financing
       activities:
        Warrants issued for prepaid
         financing costs and consulting
         service                                        $--          $505,752
        Common stock issued for prior
         services                                  $249,000          $318,551
        Common stock issued for future
         services                                    $4,500               $--
        Common stock issued for conversion
         of convertible debt                            $--          $250,000
        Common stock issued for conversion
         of convertible redeemable
         preferred stock                           $399,000               $--
        Debt discount for grant of
         warrants and beneficial
         conversion feature                             $--        $2,033,025
        Increase in payable for
         construction-in-progress                  $315,473               $--
        Preferred stock issued for
         dividend payable                          $400,000               $--

SOURCE Lotus Pharmaceuticals, Inc.


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SOURCE Lotus Pharmaceuticals, Inc.
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