BEIJING, Nov. 18 /PRNewswire-FirstCall/ -- Lotus Pharmaceuticals, Inc. (OTC Bulletin Board: LTUS) ('Lotus' or the 'Company'), a company that controls and operates pharmaceutical companies in the People's Republic of China ('PRC'), today announced financial results for the quarter and nine months ended September 30, 2008.

    Third Quarter 2008 Highlights
    -- Total revenues were $16.7 million, compared to $16.6 million in
       the third quarter of 2007
    -- Gross profit was $8.5 million, up 26.7% from the third quarter of
       2007, and gross margin was 50.8% compared to 40.5% in the third
       quarter of 2007
    -- Net income was $3.2 million, or $0.07 per diluted share, up 44.7%
       from $2.2 million, or $0.05 per diluted share, in the third
       quarter of 2007
    -- Excluding non-cash financing costs, adjusted net income was $3.6
       million, or $0.08 per fully diluted share, compared to adjusted
       net income of $2.9 million, or $0.07 per fully diluted share, in
       the third quarter of 2007
    -- Received formal notice from China's State Food and Drug
       Administration (SFDA) that it has started to evaluate the asthma
       drug Laevo-Bambutero for clinical trials
    -- Submitted a manufacturing patent application to the State Intellectual
       Property Office for Gliclazide sustained-release tablets used in the
       treatment of diabetes

'We are pleased to have improved our profitability in the third quarter of 2008. We started a sales and accounts receivable collections incentive program in the second quarter of 2008 which paid higher than usual sales commissions and bonuses for collecting accounts receivable. The amount that we paid in commissions and bonuses in these incentive programs declined in the third quarter compared to the second quarter of 2008, which helped improve our margins and net income. Sales remained good and profitability improved after the impact of these incentive programs on our expenses declined,' said Dr. Zhongyi Liu, Chairman and CEO of Lotus Pharmaceuticals, Inc. 'During this quarter, we continued working toward getting government approvals for new pharmaceutical products which we plan to manufacture and distribute as soon as we receive those approvals.'

Third Quarter 2008 Results

Lotus Pharmaceutical's total net revenue was $16.7 million in the third quarter of 2008, compared to $16.5 million in the third quarter of 2007. Wholesale distribution and manufacturing revenue was $13.8 million in the third quarter of 2008, compared to $11.4 million in the third quarter of 2007, a $2.4 million or 208.9% increase. Retail revenue was $1.2 million in the third quarter of 2008, compared to $1.6 million in the third quarter of 2007, a $0.4 million or 26.8% decrease. Retail sales by the Company's pharmacies were affected by China's summer Olympic Games, during which there was an overall slowdown of pharmaceutical product sales to consumers in Beijing. The slowdown of overall economic growth in China throughout the third quarter of 2008 also resulted in fewer non-essential pharmaceutical items being purchased from the pharmacies. Other revenues were $1.7 million in the third quarter of 2008 compared to $3.5 million in the third quarter of 2007 mostly because of a decrease in third-party manufacturing, research and development and lab testing services.

Gross profit in the third quarter of 2008 was $8.5 million, an increase of 26.7% from $6.7 million in the third quarter of 2007. Gross margin was 50.8%, up from 40.5% in the third quarter of 2007.

Operating expenses were $4.7 million in the third quarter of 2008, a 30.9% increase from $3.6 million in the third quarter of 2007. Most of the increase was because of an increase in selling expenses, which were $4.3 million in the third quarter of 2008 compared to $1.4 million in the third quarter of 2007. Selling expense as a percentage of total revenue was 25.7% of total net revenue in the third quarter of 2008 and 8.7% in the third quarter of 2007. For the third quarter of 2008, selling expense declined by $1.6 million as compared to the second quarter of 2008. Consequently, the Company's operating margin improved in the third quarter of 2008 compared to the second quarter of 2008 because the impact of an incentive program that paid higher than usual commissions to sales people and accounts receivable personnel in the second quarter decreased in the third quarter of 2008.

Research and development expenses were $12,448 in the third quarter of 2008, compared to $1.3 million in the third quarter of 2007. General and administrative expenses were $420,716, down from $912,546 in the second quarter of 2007.

Operating income was $3.8 million in the third quarter of 2008, a 21.7% increase from $3.1 million in the third quarter of 2007.

Net income for the third quarter of 2008 was $3.2 million, or $0.07 per diluted share, compared to $2.2 million, or $0.05 per fully diluted share, in the third quarter of 2007.

Adjusting net income for non-cash financing costs associated with its convertible notes and convertible preferred stock, adjusted net income was $3.6 million, or $0.08 per fully diluted share, in the third quarter of 2008, compared to adjusted net income of $2.9 million, or $0.07 per fully diluted share, in the third quarter of 2007.

Nine Month Financial Results

Revenues for the first nine months of 2008 were $47.8 million, up 27.0% from revenues of $37.6 million for the first nine months of 2007. This increase was attributable to strong sales for the Company's Brimonidine Tartrate Eye Drops, used in the treatment of glaucoma, and strong sales of a number of third party manufactured drugs. Gross profit was $22.1 million, up 46.3% from gross profit of $14.9 million for the first nine months of 2007. Gross margin was 46.3%, compared to 39.6% for the first nine months of 2007. The cost of sales as a percentage of sales declined to 53.7% in the first nine months of 2008 compared to 60.4% in the first nine months of 2007 because of more efficient production cost controls and improved purchasing practices. Operating income was $8.0 million, compared to $7.9 million for the first nine months of fiscal 2007.

Net income was $6.4 million, or $0.13 per fully diluted share, compared to $6.1 million, or $0.14 per fully diluted share, for the first nine months of fiscal 2007.

Adjusting net income for non-cash financing costs associated with its convertible notes and convertible preferred stock, adjusted non-GAAP net income was $7.5 million, or $0.15 per fully diluted share, for the first nine months of 2008, compared to adjusted net income of $7.3 million, or $0.16 per fully diluted share, for the first nine months of 2007.

Financial Condition

As of September 30, 2008, Lotus had $2.7 million in cash and equivalents, and $18.7 million of working capital. Accounts receivable net of allowance for doubtful accounts and sales returns were $13.9 million, compared to $20.4 million as of December 31, 2007. Total assets were $54.8 million compared to $36.9 million as of December 31, 2007. Total liabilities were $16.4 million compared to $10.3 million as of December 31, 2007. Stockholders' equity as of September 30, 2008 was $38.4 million, up 44.1% from $26.6 million as of December 31, 2007.

The Company generated $16.0 million in net cash flow from operating activities in the first nine months of 2008, compared to $3.7 million in the first nine months of 2007. Net cash used in investing activities for the nine months ended September 30, 2008 amounted to $21.1 million made up of a $2.9 million deposit for a patent right to Laevo-Bambutero, a payment for land use rights in the Cha You Qian Qi Economy zone in Inner Mongolia of $16.8 million and the purchase of property and equipment of $1.4 million.

Recent Events

In September 2008, Lotus received formal notice from China's State Food and Drug Administration (SFDA) that it is evaluating the Company's drug Laevo- Bambutero for clinical trials.