Lotus Pharmaceuticals Announces Business Reorganization and Provides Updates on the Beijing Headquarters Building

Lotus Pharmaceuticals, Inc. LTUS 0.00% ("Lotus" or the "Company"), a profitable developer, manufacturer and seller of medicine and drugs in the People's Republic of China ("PRC"), today announced it entered into an agreement to dispose its Inner Mongolia branch company, including land use right for the 1000 Mu (approximately 165 acre) land in Inner Mongolia, in order to focus its business on the Beijing wholesale market.Pursuant to the agreement with Meng Xin Vegetable Product Company (Meng Xin), the previous owner of the land use right for this tract of land, Lotus Pharmaceuticals will transfer ownership of Liang Fang Pharmaceutical, Ltd. Inner Mongolia branch company and certain assets and liabilities to Meng Xin. The assets, valued at approximately $52.6 million (based on RMB6.298/$), include the entire 1000 Mu land and building thereon (valued at approximately $44.5 million), approximately $7.3 million of account receivables, and three retail drug stores in Beijing (Feng Tai store, Yong An Zhong Sheng store, and He Ping Li store). The liabilities, also valued at approximately $52.6 million, include all tax payable and late payment fees, land use taxes and compensation to farmers which are collected retroactively, unpaid utilities and sewage, as well as management fees to the local government. Meng Xin will receive the assets and assume the liabilities after the transaction. There is no cash payment between Lotus and Meng Xin.Chairman and Chief Executive Officer Mr. Zhongyi Liu stated, "Because we have not undertaken development of the 1000 Mu land in Inner Mongolia as stipulated in the original agreement when we made the purchase in 2008, we are subject to some significant taxes and penalties, which are collected retroactively. As a result, we could not afford to hold the land any more. In addition, our decision to dispose of the Inner Mongolia branch and the 1000 Mu land is based on our strategic decision to focus on the Beijing wholesale market once the headquarters building is put into use. The transaction enables us to reduce current liabilities, which is very important to us as our resources are currently tied to the operation of the new headquarters building in Beijing."Separately, the Company started moving into its new headquarters building in Beijing's Chaoyang district at the end of December 2011. This over 34,000 square meter multi-story building will host the Company's key divisions, including manufacturing, R&D, sales and marketing, storage warehouse, and administrative offices. The Company expects the new storage warehouse to become functional by March 2012.Mr. Liu commented, "We expect the storage warehouse in the new headquarters building will be put into use by March, and the manufacturing facility by the end of Q3 of 2012, after inspection and certification are completed. With these new facilities, we anticipate additional capacity for growth and significant efficiency improvements in the coming years."