Lotus Pharmaceuticals, Inc. Announces Fourth Quarter and Fiscal Year 2007 Results

Lotus Pharmaceuticals, Inc. Announces Fourth Quarter and Fiscal Year 2007
Results

BEIJING, April 17 /Xinhua-PRNewswire-FirstCall/ -- Lotus Pharmaceuticals,
Inc. (OTC Bulletin Board: LTUS) (''Lotus'' or the ''Company''), a
pharmaceutical company in the People's Republic of China ("PRC"), today
announced financial results for the fourth quarter and fiscal year ended
December 31, 2007.
Fourth Quarter 2007 Highlights
-- Total revenues increased to $19.2 million, up 72.7% from the fourth
quarter of 2006
-- Gross profit reached $8.3 million, up 234% from the fourth quarter of
2006
-- Gross margin was 43.1%, up from 22.3% in the fourth quarter of 2006
-- Operating income totaled $3.4 million, up from a loss of $0.1 million
in the fourth quarter of 2006
-- Net income increased to $5.1 million, or $0.12 per diluted share, up
from a loss of $0.2 million, or ($0.00) per diluted share, in the
fourth quarter of 2006
-- Excluding non-cash debt financing costs and a gain from the forgiveness
of income and value-added taxes, adjusted net income was $3.4 million,
or $0.08 per fully diluted share

Full Year 2007 Highlights
-- Total revenues increased 57% in 2007 to $56.9 million
-- Gross profit increased 130% in 2007 to $23.2 million
-- Gross margin was 40.8%, up from 27.8% in 2006
-- Operating income increased 153% to $11.3 million
-- Net income increased to $11.2 million, or $0.26 per fully diluted
share,
up from $4.1 million, or $0.10 per fully diluted share in 2006
-- Excluding non-cash debt financing costs and one-time financial items,
adjusted net income was $8.5 million, or $0.19 per fully diluted share,
up 34.3% from adjusted net income in 2006

''This was a very successful year for Lotus Pharmaceuticals, both in terms
of financial performance and the execution of our strategic initiatives. We
achieved significant growth in revenues, due in large part to our strategy of
penetrating the direct sales channels into agencies and hospitals and
enhancing our production capacity. We also focused on our best selling
products, including our hypertension medication VALSARTAN Capsules, and began
distributing higher-margin, third-party pharmaceutical products through our
existing network,'' said Mr. Zhongyi Liu, Chairman and CEO of Lotus
Pharmaceuticals, Inc. ''We will continue to maintain this strategy in the
year ahead and plan to explore new markets.''
Fourth Quarter 2007 Results
Lotus Pharmaceutical's total revenue in the fourth quarter was $19.2
million, an increase of 73% on year-over-year basis. This was primarily the
result of strong performance associated with the Company's continued efforts
to develop its sales distribution channels. Wholesale revenue increased 143%
year-over-year to $15.9 million, or 83% of total revenue, and includes the
effect 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 a
decrease in third-party manufacturing. Retail revenue was $0.2 million in the
fourth quarter of 2007, due to the Company's strategy to sell its traditional
Chinese medicines at reduced prices through its retail channel due to quality
control concerns.
Gross profit in the fourth quarter of 2007 was $8.3 million, an increase
of 234% on year-over-year basis. Gross margin was 43.1%, up from 22.3% in the
fourth quarter of 2006, primarily due to production efficiencies as well as
the recording of a sales allowance in the fourth quarter of 2006, which
decreased 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 primarily
the result of higher selling expenses associated with the Company's sales
growth. Research and development expenses were $0.9 million in the fourth
quarter of 2007, compared with $0.1 in the fourth quarter of 2006. General
and administrative expenses were $0.4 million, down from $0.7 million a year
ago. Operating expenses were 25% of total revenue in the fourth quarter of
2007, up from 24% in the fourth quarter of 2006.
Operating income was $3.4 million, compared with an operating loss of $0.1
million in the fourth quarter of 2006.
Net income for the fourth quarter of 2007 was $5.1 million, or $0.12 per
diluted share, compared to loss of $0.1 million, or ($0.00) per fully diluted
share, in the fourth quarter of 2006. Adjusting net income for non-cash
financing costs associated with its convertible notes, and a one-time
forgiveness of income and value added taxes of $2.2 million, adjusted net
income was $3.4 million, or $0.08 per fully diluted share, in the fourth
quarter of 2007, up 68% from adjusted net income of $2.0 million, or $0.05 per
fully 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 of
a sales return allowance originally recorded in 2006. Other revenue increased
62% in 2007 to $11.8 million, or 21% of revenue in 2007. Retail revenue was
relatively unchanged at $3.5 million. Gross profit for the full year 2007 was
$23.2 million, an increase of 130% from $10.1 million in 2006. Gross margin
was 40.8%, up from 27.8% in 2006. Operating income was $11.3 million, up 153%
from $4.5 million in 2006. Net income for 2007 was $11.2 million, or $0.26
per diluted share, compared to $4.1 million, or $0.10 per diluted share, in
2006. Adjusting net income for non-cash financing costs associated with its
convertible notes, the previously mentioned one-time reversal of a sales
allowance and a one-time forgiveness of income and value added taxes, adjusted
net income was $8.5 million, or $0.19 per fully diluted share, in 2007, up 34%
from adjusted net income of $6.3 million, or $0.16 per fully diluted share, in
2006.
Financial Condition
As of December 31, 2007, Lotus had $4.6 million in cash and equivalents,
approximately $24.7 million in working capital, secured convertible notes of
$2.6 million and $4.7 million in notes payable. Stockholders' equity at
December 31, 2007 was $26.6 million, up 126% from $11.8 million at December
31,
2006.
In 2008 the Company received net proceeds from the sale of shares of its
Series A Convertible Redeemable Preferred Stock of approximately $4.6 million.
The Company used approximately $2.6 million to repay in full all of its
outstanding obligations under its 14% secured convertible notes, the remainder
will be used for working capital purposes.
2008 Outlook
''In 2008, we expect to see continued growth in sales and anticipate a
growing contribution from sales of our proprietary products. We plan to
utilize the capital raised in our private placement to fund our exciting new
R&D initiatives and to strengthen our sales channels. Additionally, we plan
to diversify our products,'' said Mr. Liu. ''We recently completed a $5.0
million private placement financing which provides us with the resources we
need to pursue our R&D efforts and pursue strategic acquisitions.
Additionally, we plan to use our sales and marketing expertise and the
benefits of scale to improve profitability. We believe we are in a very
strong position to take advantage of the growing pharmaceutical market in
China, and are committed to maximizing value to our shareholders now and in
the future.''
Conference Call
The Company will conduct a conference call at 9:00 a.m. Eastern Time on
Thursday, April 17, 2008 to discuss the fourth quarter and fiscal year 2007
results. To participate in the live conference call, please dial the
following number five to ten minutes prior to the scheduled conference call
time: 800-688-0796. International callers should dial 617-614-4070. The
Conference ID for this call is 615 756 86. If you are unable to participate
in the call at this time, a replay will be available for fourteen days
starting on Thursday, April 17, 2008 at 11:00 a.m. Eastern Time. To access
the replay, dial 888-286-8010, international callers dial 617-801-6888,
conference ID 35016441.
Use of Non-GAAP Financial Information
GAAP results for the three and twelve month periods ended December 31,
2007 and December 21, 2006 include certain non-cash debt financing expenses
related to the Company's convertible notes, a $2.2 million one-time reversal
of a sales allowance in 2007 that was originally recorded in the fourth
quarter of 2006 and a one-time tax relief of $2.2 million recorded in the
fourth quarter of 2007. To supplement the Company's condensed consolidated
financial statements presented on a GAAP basis, the Company has provided
non-GAAP financial information, which are adjusted net income and adjusted
earnings per share, excluding the impact of these items in this release. The
Company's management believes that these non-GAAP measures provide investors
with a better understanding of how the results relate to the Company's
historical performance. A reconciliation of adjustments to GAAP results
appears below. This additional non-GAAP information is not meant to be
considered in isolation or as a substitute for GAAP financials. The non-GAAP
financial information that the Company provides also may differ from the
non-GAAP information provided by other companies.
About Lotus Pharmaceuticals, Inc.
Lotus Pharmaceuticals, Inc. (''Lotus'') controls and operates Liangfang
Pharmaceutical, Ltd. (''Liangfang'') and Enzhe Jiashi Pharmaceutical, Ltd.
(''En zhe''), two Chinese pharmaceutical companies located in Beijing
(together ''Lotus East''). Lotus East is a comprehensive enterprise, which
deals in an integration of the production, trade, sales and marketing of
pharmaceuticals. The Company possesses some of the most advanced
pharmaceutical-production equipment used in China, workshops authenticated by
the National GMP, a suite of various medicines produced by Lotus East, and a
number of high-tech personnel. Lotus East has business and office facilities
of 2,000 square meters, warehouse of 1,000 square meters and operates ten
retail pharmacies in the Beijing area. Lotus East performs scientific
research on new medicines, and the production, wholesale and retail sale of
medicines through 10 retail pharmacy location through Beijing. For more
information, visit http://www.LotusEast.com .
Safe Harbor Statement
Certain statements set forth in this press release constitute
''forward-looking statements". 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," "intend," "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 are subject to risks and uncertainties that could cause
the Company's actual results and financial position to differ materially from
those included within the forward-looking statements. The potential risks and
uncertainties include, among others, the Company's limited operating history,
the limited financial resources, domestic or global economic conditions --
especially those relating to China, activities of competitors and the presence
of new or additional competition, and changes in Federal or State laws,
restrictions and regulations on doing business in a foreign country, in
particular China, and conditions of equity markets. More information about
the potential factors that could affect the Company's business and financial
results is included in the Company's filings, available via the United States
Securities and Exchange Commission.
-- FINANCIAL TABLES FOLLOW --

LOTUS PHARMACEUTICALS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations

Three Months Ended December 31,
2007 2006
(restated)
Revenues $ 19,223,779 $ 11,128,000
Cost of Goods Sold 10,940,507 8,647,623
Gross Profit 8,283,272 2,480,377

Operating Expenses
Selling 3,595,460 1,839,251
Research and development 862,519 96,833
General and administrative 382,646 684,888
Total operating expenses 4,840,625 2,620,972
Income (Loss) from Operations 3,442,647 (140,595)

Other Income (Expense)
Other income (expense) 2,102,115 --
Interest expense, net (427,800) (17,114)
Total other income (expense) 1,674,315 (17,114)

Income (Loss) Before Provision
for Income Tax 5,116,962 (157,709)

Net Income (Loss) $ 5,116,962 $ (157,709)

Basic Earnings Per Share $ 0.12 $ (0.00)
Diluted Earnings Per Share $ 0.12 $ (0.00)

Basic Weighted Average Shares
Outstanding 41,678,330 41,280,000
Diluted Weighted Average Shares
Outstanding 44,448,330 44,280,000

The Components of Other
Comprehensive
Income
Net Income (Loss) $ 5,116,962 $ (157,709)
Foreign currency translation
adjustment 927,537 130,223

Comprehensive Income (Loss) $ 6,044,499 $ (27,486)

LOTUS PHARMACEUTICALS, INC. AND SUBSIDIARIES
Audited Consolidated Statements of Operations

Years Ended December 31,
2007 2006
(restated)
Revenues $ 56,873,115 $ 36,207,689
Cost of Goods Sold 33,678,963 26,129,687
Gross Profit 23,194,152 10,078,002

Operating Expenses
Selling 6,460,206 3,030,4216
General and administrative 3,014,002 2,191,400
Research and development 2,411,651 387,337
Total operating expenses 11,885,859 5,609,158
Income from operations 11,308,293 4,468,844

Other Income (Expense)
Other income 1,845,416 --
Interest expense, net (1,936,581) (325,824)
Total other income (expense) (91,165) (325,824)

Net Income Before Provision for
Income Tax 11,217,128 4,143,020

Net Income $ 11,217,128 $ 4,143,020

Basic Earnings Per Share $ 0.27 $ 0.10
Diluted Earnings Per Share $ 0.26 $ 0.10

Basic Weighted Average Shares
Outstanding 41,417,434 40,360,530
Diluted Weighted Average Shares
Outstanding 43,861,106 40,360,530

The Components of Other
Comprehensive Income
Net Income $ 11,217,128 $ 4,143,020
Foreign currency translation
adjustment 1,480,352 327,568

Comprehensive Income $ 12,697,480 $ 4,470,588

LOTUS PHARMACEUTICALS, INC. AND SUBSIDIARIES
Audited Consolidated Balance Sheets
December 31, 2007 and 2006

2007 2006
Current Assets (restated)
Cash and cash equivalents $ 4,557,957 $ 2,089,156
Accounts receivable, net 20,430,827 7,277,067
Inventories 3,410,739 3,133,677
Prepaid expenses 1,009,382 252,103
Deferred debt costs 29,340 --
Total current assets 29,438,245 12,752,003

Property and equipment, net 6,169,966 5,813,935
Intangible assets, net 1,291,322 1,345,041
Due from related party -- 1,826,626

Total Assets $ 36,899,533 $ 21,737,605

LIABILITIES AND STOCKHOLDERS'
EQUITY

Current Liabilities
Convertible debt, net of debt
discount $ 2,561,645 $ --
Accounts payable and accrued
expenses 764,491 705,147
VAT and service taxes payable 572,200 2,047,851
Advances from customers 34,531 231,340
Unearned revenue 530,063 426,358
Due to related parties 323,178 925,484
Total current liabilities 4,786,108 4,336,180

LONG-TERM LIABILITIES:
Due to related parties 738,300 863,447
Notes payable - related parties 4,738,508 4,729,880

Total Liabilities 10,262,916 9,929,507

Stockholders' Equity
Common stock ($.001 par value;
200,000,000 shares authorized;
41,794,200 and 41,280,000 shares
issued and outstanding, respectively) 41,794 41,280
Additional paid-in capital 8,095,848 5,965,323
Statutory reserves 2,161,505 769,930
Retained earnings 14,355,913 4,530,360
Other comprehensive gain - 1,981,557 501,205
cumulative foreign currency
translation adjustment
Total stockholders' equity 26,636,617 11,808,098

Total Liabilities and Shareholders'
Equity $ 36,899,533 $ 21,737,065

LOTUS PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year Ended
December 31,
2007 2006
(restated)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $11,217,128 $4,143,020
Adjustments to reconcile net income
from operations to net cash provided
by (used in) operating activities:
Depreciation and amortization 564,607 581,564
Amortization of deferred debt
issuance costs 205,379 --
Amortization of debt discount 1,458,484 --
Stock issued for compensation 284,200 --
(Decrease) increase in allowance
for doubtful accounts and sales
returns (2,385,354) 2,732,889
Forgiveness of income and
value-added taxes (2,160,795) --
Changes in assets and liabilities:
Accounts receivable (9,764,076) (8,922,247)
Inventories (58,942) 3,928,236
Prepaid and other current assets (714,013) (75,155)
Other payable -- --
Accounts payable and accrued expenses 27,266 206,516
Value-added and service taxes payable 608,526 1,999,675
Unearned revenue 71,402 200,811
Advances from customers (204,267) 39,333

NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (850,455) 4,834,642

CASH FLOWS FROM INVESTING
ACTIVITIES:
Collections from related party
advances 1,061,009 1,243,742
Purchase of property and equipment (381,772) (1,480)

NET CASH PROVIDED BY INVESTING
ACTIVITIES 679,237 1,242,262

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from convertible debt 2,950,000 --
Payment of debt issuance costs (231,526) --
Repayments of related party advances (816,732) (737,291)
Repayments of notes payable
- related parties 509,351 (3,456,196)

NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 2,411,093 (4,193,487)

NET INCREASE IN CASH 2,239,875 1,928,222

EFFECT OF EXCHANGE RATE ON CASH 228,926 44,805

CASH - beginning of year 2,089,156 160,934

CASH - end of year $4,557,957 $2,089,156

SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for:
Interest $477,001 $325,824
Income taxes $-- $--

Non-cash investing and
financing activities:
Due from related party offset
against note payable - related
parties $813,650 $--
Common stock issued for conversion
of convertible debt $230,000 $--
Debt discount for grant of warrants
and beneficial conversion feature $1,616,839 $--
Intangible assets for related
party liabilities $-- $1,127,551

LOTUS PHARMACEUTICALS, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL DATA

For the Three Months For the Three Months
Ended Ended
Adjusted Net income December 31, 2007 December 31, 2006
($ in thousands except
per share data) Diluted Diluted
Net Income (Loss) Diluted EPS Net Income EPS Net Income EPS

Adjusted Amount 3,431,557 0.08 2,042,291 0.05
Adjustments
Non cash debt financing
costs(1) (475,390) (0.01) --

Allowance for sales returns(2) -- -- (2,200,000) (0.05)
Forgiveness of income and
value-value added taxes(3) 2,160,795 0.05 --
Amount per consolidated
statement of operations 5,116,962 0.12 (157,709) 0.00

(1) Non cash debt financing costs for 2007 includes amortization of debt
issue costs of $58,680 and amortization of debt discount of $416,710
(2) Allowance for sales returns related to products sold in the fourth
quarter of 2006 and recognized in the second and third quarter of
2007
(3) Tax waiver from the Chinese local government

For the Year ended For the Year ended
Adjusted Net income December 31, 2007 December 31, 2006
($ in thousands except
per share data) Diluted Diluted
Net Income (Loss) Diluted EPS Net Income EPS Net Income EPS

Adjusted Amount 8,520,196 0.19 6,343,020 0.16
Adjustments
Non cash debt financing
costs(1) (1,663,863) (0.04) -- --

Allowance for sales returns(2) 2,200,000 0.05 (2,200,000) 0.06
Forgiveness of income and
value-value added taxes(3) 2,160,795 0.05 -- --
Amount per consolidated
statement of operations 11,217,128 0.26 4,143,020 0.10

(1) Non cash debt financing costs for 2007 includes amortization of debt
issue costs of $205,379 and amortization of debt discount of
$1,458,484
(2) Allowance for sales returns related to products sold in the fourth
quarter of 2006
(3) Tax waiver from the Chinese local government

For more information, please contact:

Lotus Pharmaceuticals, Inc.
Mr. Adam Wasserman, CFO
Tel: +1-877-801-0344
Email: info@LotusEast.com

CCG Elite Investor Relations Inc.
Mr. Crocker Coulson, President
Tel: +1-646-213-1915 (New York)
Email: crocker.coulson@ccgir.com

SOURCE Lotus Pharmaceuticals, Inc.

Mr. Adam Wasserman, CFO of Lotus Pharmaceuticals, Inc., +1-877-801-0344, or
info@LotusEast.com; Mr. Crocker Coulson, President of CCG Elite Investor
Relations Inc., +1-646-213-1915 (New York), or crocker.coulson@ccgir.com