Lotus Pharmaceuticals Reports Strong Second Quarter 2010 Financial Results

Monday, August 16, 2010 Corporate News
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BEIJING, Aug. 16 Lotus Pharmaceuticals, Inc.(OTC Bulletin Board: LTUS) ("Lotus" or the "Company"), a growing developer,manufacturer and seller of medicine and drugs in the People's Republic ofChina (the "PRC"), reported today its financial results for the quarter andsix months ended June 30, 2010.

-- The Company attended the 63rd PHARMCHINA exhibition to strengthencustomer relationships and attract new distributors. Through the event, theCompany added three independent distributors in Guizhou, Gansu and Ningxiaprovinces and signed one year Supply Contracts with these distributors. Inaddition, the Company signed Over-the-Counter ("OTC") Drug Purchase Agreementswith 11 drug manufacturers.

-- The Company received SFDA's approval for the anti-Asthma drug R-Bambuterol(R) Hydrochloride Tablets to commence clinical trials as a Class 1New Drug under special/fast track review.

-- The board approved the extension of the contract term between LotusPharmaceuticals, Inc.'s wholly-owned foreign enterprise and two operatingentities in China from 10 years to 30 years.

-- As of today, the Company has completed the pilot scale production of R-Bambuterol with sufficient active pharmaceutical ingredient and tablets foruse in clinical trials I & II, an important step towards entering clinicaltrials.

-- The construction of Lotus' new building complex in Beijing continued,construction approximately 65% completed as of today.

-- Attended the Global Hunter Securities 2010 China Conference.

-- Terminated the Standby Equity Distribution Agreement with YA GlobalMaster SPV LTD prior to obtaining any financing under the agreement to helpprotect against stock dilution.

-- In July, the board of directors unanimously approved a maximum of 3million shares to be allocated to a stock incentive plan as a means to attract,retain and reward individuals who can contribute to the long term financialsuccess of the Company.

-- The Company reaffirms FY2010 Revenue and Net Income Guidance andprovides exact targets.

"During the first half of 2010, the value-added output of China'spharmaceutical industry increased 14.9% over the same period in 2009. China'sinvestments in (i) providing medical insurance to over 90% of its populationand (ii) improving quality of rural care contribute to the long-term growthopportunities over the course of the next ten years," commented Dr. ZhongyiLiu, Chairman and CEO of Lotus. "We implement our business strategies toalign with China's medical reforms. We are working on upgrading ourfacilities. We also continue to deepen our customer relationships, andstructure our high quality prescription drug offerings and services accordingto market opportunities."

"On one hand, we are now offering 20 different types of prescription drugsthrough our nationwide wholesales channels which are complimented by our over60 performing independent distributors. On the other hand, in the directsales to other drug stores in Beijing, we have had great success mainlybecause we are driven by the market demand in the Beijing area, and by our OTCsales team's excellent performance."

Net Revenues for the second quarter of 2010 increased 40% to $19.1 millionfrom $13.6 million during the same period of 2009. Wholesale revenues, one ofour revenue segments (which accounted for 67% of the Company's total revenues)increased 19% primarily due to the Company's five new prescription drugscovered by the National Health Insurance Program having established theirmarket acceptance. They are both Western and TCM prescription drugs treatingduodenal ulcer, chronic prostate infection, psoriasis, influenza and meridianpain, respectively. Retail revenues (which accounted for 32% of totalrevenues) increased 123% due to relatively fast growth in direct sales to OTCdrug outlets in Beijing. Once our new 10,000 sqm storage facility is readyfor use, we would be qualified for bidding through the centralized tenderprocess for hospitals in Beijing.

Gross margins for the second quarter of 2010 decreased to 52.3% ascompared to 57.9% in the second quarter of 2009. The decrease in gross profitmargin was attributable to the increase in cost of sales as a higherpercentage of total net revenues than during the prior year's period. Theincrease in cost of sales as a percentage of total net revenues is a result ofreducing sales price per unit by increasing inventory turnover. Themanagement reduced average sales prices per unit to speed up inventoryturnover because our warehouse space was insufficient due to 1) the removal ofone of the Company's warehouses during construction of our new facility inBeijing, and 2) humidity-related problems occurring in spring and summer thatincreased the need for warehouse space.

Total operating expenses for the second quarter of 2010 were $3.5 million,a 34% increase from the second quarter of 2009. The increase resulted fromthe increase of selling expenses mainly as a result of our increase of salesactivities in relation to direct sales to OTC drug stores in Beijing, as wellas increases in professional fees.

Net income for the second quarter of 2010 was $6.3 million, or $0.12 perdiluted share, compared to $4.8 million, or $0.10 per diluted share, in thesecond quarter of 2009.

Financial Condition

Cash for operations and liquidity needs are funded through cash flows fromoperations. Cash and cash equivalents were approximately $1.1 million as ofJune 30, 2010. Current assets and current liabilities as of June 30, 20010,were $9.0 million and $7.8 million, yielding a current ratio of 1.1X. For thesix months ended June 30, 2010, net cash provided by operating activities wasapproximately $8.9 million, which resulted primarily from the Company'sorganic growth and effective management of cash flow.

Six-Month Results

For the six-month period ended June 30, 2010, total revenues were $34.1million, an increase of 34% from $25.5 million in the same period last year.Gross profit was $18.7 million, up 28.8% from gross profit of $14.5 millionfor the six months of 2009. Gross margin was 54.9 %, compared to 57.1% forthe first six months of 2009. Operating income was $12.1 million, compared to$9.5 million for the six months ended June 30, 2009.

Net income for the period was $11.3 million, an increase of 35% from $8.4million during the same period last year. Earnings per share (diluted) forthe first half of 2010 was $0.21, as compared to $0.17 in the first half of2009.

Fiscal Year 2010 Guidance

Lotus both reiterates its prior guidance for the fiscal year 2010, andalso provides exact guidance for the fiscal year 2010 due to its growth in thefirst half of 2010. Lotus expects net revenues to increase from approximately$57.8 million in 2009 to $73.6 million in 2010 and for net income to rise from$16.4 million in 2009 to $21.4 million in 2010.

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

Lotus Pharmaceuticals, Inc. is a growing developer and producer of drugsand a licensed national seller of pharmaceutical items in the PRC. Lotusoperates its business through its two controlled entities: Liang FangPharmaceutical, Ltd. and En Ze Jia Shi Pharmaceutical, Ltd. Lotus' currentdrug development is focused on the treatment of cerebro-cardiovascular disease,asthma and diabetes. Liang Fang sells drugs directly and indirectly throughits national sales channels to hospitals, clinics and drugs stores in 30provinces of the PRC.

Safe Harbor Statement

This press release contains "forward-looking statements" within themeaning of the "safe-harbor" provisions of the Private Securities LitigationReform 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 ofsimilar meaning. Such statements are not guarantees of future performance andcould cause the actual results of the Company to differ materially from theresults expressed or implied by such statements, including, but not limited to,changes from anticipated levels of sales, future national or regional economicand competitive and regulatory conditions, changes in relationships withcustomers, access to capital, increased costs, difficulties in developing andmarketing new products, marketing existing products, customer acceptance ofexisting and new products, the time to get new drugs approved by the StateFood and Drug Administration and other factors. Additional informationregarding risks can be found in the Company's Annual Report on Form 10K andits other filings with the SEC. Accordingly, although the Company believesthat the expectations reflected in such forward-looking statements arereasonable, there can be no assurance that such expectations will prove to becorrect. The Company has no obligation to update the forward-lookinginformation contained in this press release.Second Quarter ("Q2") 2010 Highlights and Developments: -- Q2 diluted EPS of $0.12 vs. $0.10 for Q2 2009 -- Q2 net income increased 32% from Q2 2009 to $6.3 million -- Q2 gross margin of 52.3% compared to 57.9% in Q2 of 2009

SOURCE Lotus Pharmaceuticals, Inc.


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