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"We are pleased with our revenue and gross margin results in the secondquarter and first six months of 2008. Wholesale distribution was strongthroughout the first half of 2008 for products which we produce andpharmaceutical products which we distribute that are produced by third-partymanufacturer. Much of our revenue growth last quarter was the result of asales incentive program that temporarily offered our sales people higher thanusual sales commissions," said Dr. Zhongyi Liu, Chairman and CEO of LotusPharmaceuticals, Inc. "We continued to develop and acquire new pharmaceuticalproducts throughout the second quarter and first six months of 2008 whilesupporting our current products and growing distribution network."
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Second Quarter 2008 Results
Lotus Pharmaceutical's net revenue was $19.4 million in the second quarterof 2008, an increase of 51.4% from $12.8 million in the second quarter of 2007.Wholesale distribution and manufacturing revenue was $18.4 million in thesecond quarter of 2008, 94.8% of total revenues, an increase of 55.2% from thesecond quarter of 2007. This increase was because of increased sales of third-party pharmaceuticals and increased sales of the Company's BrimonidineTartrate Eyes Drops (sold under the brand name "Mu Xin") used in the treatmentof glaucoma. Retail revenue was $903,404 in the second quarter of 2008, a28.8% increase from $701,421 in the second quarter of 2007. The Companyincreased its sales of pharmaceutical products through its ten retailpharmacies. Other revenues were $99,876 in the second quarter of 2008 comparedto $258,487 in the second quarter of 2007 which was attributable to a decreasein research and development services.
Gross profit in the second quarter of 2008 was $9.7 million, an increaseof 76.4% compared to the second quarter of 2007. Gross margin was 50.0%, upfrom 42.9% in the second quarter of 2007 and up from 33.7% in the firstquarter of 2008. Gross margin in the year ago period benefited from thecollection of $1.8 million in previously reserved allowance for sales returnthat lowered cost of sales and increased gross margin by 9.3%.
Operating expenses were $6.9 million in the second quarter of 2008, a264.6% increase from $1.9 million in the second quarter of 2007. Most of theincrease was because of an increase in selling expenses, which were $5.9million in the second quarter of 2008 compared to $791,784 in the secondquarter of 2007. Selling expenses increased because of a short term salesincentive program that provided higher sales commissions to salesrepresentatives and bonuses paid to improve collections of accounts receivable.Research and development expenses were $471,243 in the second quarter of 2008,compared to $109,153 in the second quarter of 2007. General and administrativeexpenses were $542,043, down from $988,233 in the second quarter of 2007.
Operating income was $2.8 million in the second quarter of 2008 comparedto $3.6 million in the second quarter of 2007.
Net income for the second quarter of 2008 was $2.2 million, or $0.05 perdiluted share, compared to $3.0 million, or $0.07 per fully diluted share, inthe second quarter of 2007.
Adjusting net income for non-cash financing costs associated with itsconvertible notes and convertible preferred stock, adjusted net income was$2.5 million, or $0.06 per fully diluted share, in the second quarter of 2008,compared to adjusted net income of $3.4 million, or $0.08 per fully dilutedshare, in the second quarter of 2007.
Six Month Financial Results
Revenues for the first six months of 2008 were $31.1 million, up 47.4%from revenues of
