Lotus Pharmaceuticals first-quarter net income up 38%

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 of China (the "PRC") today reported its financial results for the first quarter ended March 31, 2010.

First Quarter 2010 Highlights and Recent Developments: -- Diluted EPS of $0.09, up 27% from first quarter 2009 -- Net revenues of $14.9 million, up 26% from first quarter 2009 -- Net income of $4.9 million, up 38% from first quarter 2009 -- Gross margin of 58%, as compared with 56% from first quarter of 2009 -- Net margin of 33%, as compared with 30% from first quarter of 2009 -- Reduced our current liability under the outstanding Series A Preferred Stock from $2,477,433 on March 31, 2010 to $621,333 May 13, 2010 due to the conversion of preferred shares to common stocks -- Added five prescription drugs under the National Health Insurance Program to deliver through the wholesale channel nationwide, achieving the goal of increasing product for 2010 -- Continued Sarbanes-Oxley compliance project, to be fully and timely compliant in 2010 -- Commenced construction of the Beijing building complex which is scheduled for completion in 2010 -- Received SFDA's approval for R-Bambuterol(R) Hydrochloride Tablets to commence clinical trials as a Class 1 New Drug for special/fast track review -- Approved extension of contract term from 10 years to 30 years between Lotus Pharmaceuticals, Inc.'s wholly-owned foreign enterprise and two operating entities in China

Revenues for the first quarter of 2010 increased 26% to $14.9 million, up from $11.8 million in the first quarter of 2009. As compared to the first quarter of 2009, wholesale revenues, which were 77% of total net revenues for the first quarter of 2010, increased 29%; and retail revenues, which were 22% of total net revenues for the first quarter of 2010, increased 52% for the first quarter of 2010. The increase in wholesale revenues was mainly attributed to strong sales from two areas: 1) sales increases in the three core prescription drugs-Valsartan Capsules, Brimonidine Tartrate Eye Drops and Yipubishan-Octreotide Acetate Injection resulting from increased demand from existing channels and an expanded sales network. These three drugs continue to gain popularity in the market for their safety, efficacy and stability; and 2) revenues contributed from five new prescription drugs added this quarter. For 2010, the Company has not raised prices for its prescription drugs and maintains its pricing from 2009. However, if the market price demands adjustment, the Company will act accordingly.

The increase in retail revenues was attributable to direct sales to Over-the-Counter ("OTC") drug outlets in Beijing. Currently, the Company has established direct sales to over 1000 drug stores in Beijing with nearly 1000 over-the-counter drugs produced by third party manufacturers. The Company has exclusive distribution rights to 40% of such drugs. This new segment is expected to grow with our strong and experienced sales team recruited at the end of 2009 and the opportunities in Beijing. Once the 10,000sqm storage facility is built and fully utilized, it can fully support the expansion of direct sales to OTC drug stores as well as hospitals.

Gross profit in the first quarter increased 31% year over year to $8.7 million from $6.6 million. Gross margin increased to 58% in the first quarter 2010 from 56% in the prior year corresponding period.

Net income for the 2010 first quarter was $4.9 million, or $0.09 per diluted share, compared with $3.6 million, or $0.07 per diluted share, in the first quarter of 2009. Net margin increased to 33% in the first quarter 2010 from 30% in the prior year comparable period.

The Company's cash position at the end of the first quarter was $1.1 million, as compared to $3.9 million at the end of 2009. Its adjusted working capital ratio was 1.0X due to its adjusted current liabilities calculation. The adjusted current liability amount is $7,286,444 instead of $9,142,544 because current liabilities under Series A convertible redeemable preferred stock have been reduced to $621,333 as of May 13, 2010 after conversion of preferred shares to common shares.

CEO Dr. Liu commented, "We have delayed the buildup in Inner Mongolia to focus on our efforts in Beijing. We use our internally generated cash to fund the construction of the Beijing new building complex so that our dispersed operating units can be consolidated into one single location. We are positioning to capture the fast growing demand in the pharmaceutical sector by establishing the foundations of a modern facility, a pipeline of innovative drugs under patent protection and an excellent sales network."

2010 Earnings Guidance

Looking forward for the balance of 2010, the Company continues to expect to grow its revenues and net income by 20-30% compared to its performance in 2009. The growth drivers are growth in direct sales to OTC drug stores and hospitals, increased medical equipment sales and increased prescription drug sales.