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''This was a very successful year for Lotus Pharmaceuticals, both in termsof financial performance and the execution of our strategic initiatives. Weachieved significant growth in revenues, due in large part to our strategy ofpenetrating the direct sales channels into agencies and hospitals andenhancing our production capacity. We also focused on our best sellingproducts, including our hypertension medication VALSARTAN Capsules, and begandistributing higher-margin, third-party pharmaceutical products through ourexisting network,'' said Mr. Zhongyi Liu, Chairman and CEO of LotusPharmaceuticals, Inc. ''We will continue to maintain this strategy in theyear ahead and plan to explore new markets.''
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Fourth Quarter 2007 Results
Lotus Pharmaceutical's total revenue in the fourth quarter was $19.2million, an increase of 73% on year-over-year basis. This was primarily theresult of strong performance associated with the Company's continued effortsto develop its sales distribution channels. Wholesale revenue increased 143%year-over-year to $15.9 million, or 83% of total revenue, and includes theeffect of the recording of a $2.2 million sales return allowance in 2006,which reduced 2006 revenues. Other revenue decreased 24% year-over-year to$3.1 million, or 16% of revenue in the fourth quarter of 2007, mainly due to adecrease in third-party manufacturing. Retail revenue was $0.2 million in thefourth quarter of 2007, due to the Company's strategy to sell its traditionalChinese medicines at reduced prices through its retail channel due to qualitycontrol concerns.
Gross profit in the fourth quarter of 2007 was $8.3 million, an increaseof 234% on year-over-year basis. Gross margin was 43.1%, up from 22.3% in thefourth quarter of 2006, primarily due to production efficiencies as well asthe recording of a sales allowance in the fourth quarter of 2006, whichdecreased revenue by $2.2 million.
Operating expenses in the fourth quarter of 2007 were $4.8 million, up 85%from $2.6 million in the fourth quarter of 2006. This increase was primarilythe result of higher selling expenses associated with the Company's salesgrowth. Research and development expenses were $0.9 million in the fourthquarter of 2007, compared with $0.1 in the fourth quarter of 2006. Generaland administrative expenses were $0.4 million, down from $0.7 million a yearago. Operating expenses were 25% of total revenue in the fourth quarter of2007, up from 24% in the fourth quarter of 2006.
Operating income was $3.4 million, compared with an operating loss of $0.1million in the fourth quarter of 2006.
Net income for the fourth quarter of 2007 was $5.1 million, or $0.12 perdiluted share, compared to loss of $0.1 million, or ($0.00) per fully dilutedshare, in the fourth quarter of 2006. Adjusting net income for non-cashfinancing costs associated with its convertible notes, and a one-timeforgiveness of income and value added taxes of $2.2 million, adjusted netincome was $3.4 million, or $0.08 per fully diluted share, in the fourthquarter of 2007, up 68% from adjusted net income of $2.0 million, or $0.05 perfully diluted share, in the fourth quarter of 2006.
Full Year 2007 Results
For the full year 2007, total revenues were $56.9 million, up 57% from$36.2 million in 2006. Wholesale revenue increased 64% in 2007 $41.7 million,or 73% of total revenue, and includes the effect of a $2.2 million reversal ofa sales return allowance originally recorded in 2006. Other revenue increased62% in 2007 to $11.8 million, or 21% of revenue in 2007. Retail revenue wasrelatively unchanged at $3.5
