Lotus Pharmaceuticals, Inc. (OTCBB: LTUS) released its Q2 financial report, which showed the company followed a theme similar to several other China biopharmas this quarter: revenues are sharply higher, but net income fails to keep pace. In fact, Lotus said its net income actually slipped lower than the year earlier period. In terms of actual numbers, Lotus’ revenues climbed a more-than-respectable 51% to $19.4 million, but profits were 27% lower at $2.2 million. Adding back in a non-cash financing cost does not change the picture greatly. Lotus’ non-GAAP net income was $2.5 million, a 26% decline from Q2 in 2007.

Lotus blamed the shortfall on its sales costs, which were $5.9 million in the quarter. That was a mammoth increase from $792,000 in last year’s Q2 and constituted an outsized 85% of the company $6.9 million in operating expenses. The company said it instituted a short-term sales incentive program and also awarded bonuses to improve the collection of account receivables during Q2. They must have been quite impressive programs, judging by their costs. The company’s accounts receivable number was up by a relatively small $350,000 at $20,787,000 in the first six months of the year. That is very reasonable, considering the large rise in revenues, but it seems to have been attained at considerable cost to profitability.

G&A expenses were actually lower in the quarter, not something usually seen as a company expands its revenues. They dropped from just under $1 million a year ago to $542,000 in 2008.

Looking to the future, Lotus reminded investors that so far this year it has purchased the rights to asthma drug Laevo-Bambutero and put a down payment on land rights in Inner Mongolia for a manufacturing facility. The Laevo-Bambutero drug, which cost the company $7 million upfront, will require a full complement of clinical trials for approval. As a result, the asthma drug will not be marketed until 2012 at the earliest. The land rights require Lotus to begin almost immediate construction on the pharmaceutical factory. Lotus has said it will pay the $49 million cost of the project with a combination of bank loans and government grants.

Earlier this year, Lotus raised $5 million in a private placement. The financing contained a stringent “make good” clause that will cause Lotus founders to give up 7.5 million of their shares if Lotus does not achieve net income equaling 95% of $13.8 million in 2008 and 95% of $17.5 million in 2009. It now looks doubtful that Lotus will achieve those goals as the company has booked just $3.2 million in the first six months of this year. However, Lotus said in its release that it “remains confident” the targets will be met.

On the positive side, Lotus said the increase in revenues during Q2 was due to increased sales of third-party pharmaceuticals as well as higher sales of the company’s own Brimonidine Tartrate Eyes, used for glaucoma. The company intends to keep increasing the list of products it distributes. Also, Lotus says it has 15 drugs currently awaiting SFDA approval.