##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT 0F 1934
 For the Quarter Ended June 30, 2009
 Commission File Number 333-135107
 LOTUS BANCORP, INC.
  Michigan
    
    20-2377468(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer
Identification No.)
 44350 W. Twelve Mile Road, Novi, MI 48377
 (248) 735-1000
 þ o
 o o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ o þ




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##### 



INDEX
 PART I
    
    FINANCIAL INFORMATION
    
    
    3ITEM 1.
    
    FINANCIAL STATEMENTS
    
    
    3ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
    
    
    15ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    18ITEM 4T.
    
    CONTROLS AND PROCEDURES
    
    
    18PART II
    
    OTHER INFORMATION
    
    
    20ITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    20ITEM 1A.
    
    RISK FACTORS
    
    
    20ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    20ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    20ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    20ITEM 5.
    
    OTHER INFORMATION
    
    
    21ITEM 6.
    
    EXHIBITS
    
    
    21SIGNATURES
    
    
    
    
    22EX-31.1EX-31.2EX-32
 
 Information Concerning Forward-Looking Statements
 Statements contained in this Form 10-Q which are not historical facts are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements involve important known and unknown risks,
uncertainties and other factors and can be identified by phrases using estimate, anticipate,
believe, project, expect, intend, predict, potential, future, may, should and
similar expressions or words. Such forward-looking statements are subject to risk and
uncertainties which could cause actual results to differ materially from those projected. Such
risks and uncertainties include potential changes in interest rates, competitive factors in the
financial services industry, general economic conditions, the effect of new legislation and other
risks detailed in documents filed by the Company with the Securities and Exchange Commission from
time to time.
  2




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##### Table of Contents



PART 1  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS.
 
 ASSETS
 June 30, 2009(unaudited)
    
    
    December 31, 2008Cash and cash equivalentsCash and due from banks
    
    $
    850,208
    
    
    $
    457,103Interest bearing balances due from banks
    
    
    4,900,000
    
    
    
    1,960,000Federal funds sold
    
    
    5,001,242
    
    
    
    3,194,033Total cash and cash equivalents
    
    
    10,751,450
    
    
    
    5,611,136Loans, less allowance for loan losses of
$402,418 and $314,000 at June 30, 2009 and
December 31, 2008, respectively (Note 2)
    
    
    33,016,589
    
    
    
    25,085,558Property & equipment, net of depreciation (Note 5)
    
    
    3,390,088
    
    
    
    3,478,775Accrued interest receivable and other assets
    
    
    196,542
    
    
    
    174,865Total assets
    
    $
    47,354,669
    
    
    $
    34,350,334
 LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
 June 30, 2009(unaudited)
    
    
    December 31, 2008Deposits (Note 3)Non-interest bearing
    
    $
    4,612,933
    
    
    $
    3,613,283Interest bearing
    
    
    32,448,941
    
    
    
    20,107,144Total deposits
    
    
    37,061,874
    
    
    
    23,720,427Accrued interest payable and other liabilities
    
    
    244,599
    
    
    
    103,520Total liabilities
    
    
    37,306,473
    
    
    
    23,823,947Shareholders equityCommon Stock, $0.01 par value
Authorized 8,000,000 shares
Issued and outstanding  1,389,965
shares at June 30, 2009 and
at December 31, 2008, respectively
    
    
    13,899
    
    
    
    13,899Additional paid in capital
    
    
    14,018,211
    
    
    
    13,989,315Accumulated deficit
    
    
    (3,983,914
    )
    
    
    (3,476,827
    )Total shareholders equity
    
    
    10,048,196
    
    
    
    10,526,387Total liabilities and shareholders
equity
    
    $
    47,354,669
    
    
    $
    34,350,334
  3




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 30
    
    
    June 30
    
    
    June 302009
    
    
    2008
    
    
    2009
    
    
    2008Interest income:Loans receivable, including fees
    
    $
    452,786
    
    
    $
    195,760
    
    
    $
    834,062
    
    
    $
    361,740Interest bearing balances due from banks
    
    
    20,386
    
    
    
    
    
    
    
    31,297
    
    
    
    23,034Federal funds sold
    
    
    3,214
    
    
    
    21,658
    
    
    
    6,009
    
    
    
    53,183Total interest income
    
    
    476,386
    
    
    
    217,418
    
    
    
    871,368
    
    
    
    437,957Interest expense:Deposits
    
    
    176,883
    
    
    
    53,312
    
    
    
    338,284
    
    
    
    106,528Other
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    Total interest expense
    
    
    176,886
    
    
    
    53,312
    
    
    
    338,287
    
    
    
    106,528Net interest income
    
    
    299,500
    
    
    
    164,106
    
    
    
    533,081
    
    
    
    331,429Provision for loan losses
    
    
    54,500
    
    
    
    108,000
    
    
    
    90,500
    
    
    
    134,000Net interest income after provision for loan losses
    
    
    245,000
    
    
    
    56,106
    
    
    
    442,581
    
    
    
    197,429Non-interest income:Service charges and fees
    
    
    9,577
    
    
    
    4,085
    
    
    
    16,017
    
    
    
    8,951Gain on sale of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.575Other income
    
    
    10,682
    
    
    
    2,186
    
    
    
    12,781
    
    
    
    2,186Total non-interest income
    
    
    20,259
    
    
    
    6,271
    
    
    
    28,798
    
    
    
    15,712Non-interest expense:Compensation and employee benefits
    
    
    251,532
    
    
    
    231,076
    
    
    
    497,925
    
    
    
    486,304Occupancy and equipment
    
    
    69,496
    
    
    
    63,109
    
    
    
    144,249
    
    
    
    108,463Stock based compensation
    
    
    14,448
    
    
    
    9,632
    
    
    
    28,896
    
    
    
    9,632Professional fees
    
    
    34,010
    
    
    
    56,000
    
    
    
    68,010
    
    
    
    101,000Data processing costs
    
    
    35,549
    
    
    
    24,883
    
    
    
    60,711
    
    
    
    49,804Advertising and promotion
    
    
    6,882
    
    
    
    18,691
    
    
    
    18,207
    
    
    
    31,335Travel and entertainment
    
    
    11,243
    
    
    
    10,457
    
    
    
    18,753
    
    
    
    22,727Michigan business tax
    
    
    7,000
    
    
    
    10,500
    
    
    
    14,000
    
    
    
    19.500ATM and debit card expenses
    
    
    10,092
    
    
    
    7,714
    
    
    
    19,423
    
    
    
    17,270Other
    
    
    62,714
    
    
    
    68,166
    
    
    
    108,292
    
    
    
    120,112Total non-interest expense
    
    
    502,969
    
    
    
    500,228
    
    
    
    978,466
    
    
    
    966,147Loss before income tax benefit
    
    
    (237,710
    )
    
    
    (437,851
    )
    
    
    (507,087
    )
    
    
    (753,006
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Loss
    
    $
    (237,710
    )
    
    $
    (437,851
    )
    
    $
    (507,087
    )
    
    $
    (753,006
    )Basic and Diluted Loss Per Share
    
    $
    (.17
    )
    
    $
    (.32
    )
    
    $
    (.36
    )
    
    $
    (.54
    )Weighted Average Shares Outstanding
    
    
    1,389,965
    
    
    
    1,389,965
    
    
    
    1,389,965
    
    
    
    1,389,965
  4




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Common
    
    Paid In
    
    AccumulatedStock
    
    Capital
    
    Deficit
    
    TotalBalance December 31,
2008
    
    $
    13,899
    
    
    $
    13,989,315
    
    
    $
    (3,476,827
    )
    
    $
    10,526,387Stock option expense
    
    
    
    
    
    
    28,896
    
    
    
    
    
    
    
    28,896Net loss
    
    
    
    
    
    
    
    
    
    
    (507,087
    )
    
    
    (507,087
    )Balance June 30, 2009
    
    $
    13,899
    
    
    $
    14,018,211
    
    
    $
    (3,983,914
    )
    
    $
    10,048,196
  5




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##### Table of Contents



Six Months EndedJune 30, 2009
    
    June 30, 2008CASH FLOWS FROM OPERATING ACTIVITIESAdjustments to reconcile actual loss to
net cash from operating activities:Net loss
    
    $
    (507,087
    )
    
    $
    (753,006
    )Stock option expense
    
    
    28,896
    
    
    
    9,632Depreciation
    
    
    94,918
    
    
    
    64,398Provision for loan losses
    
    
    90,500
    
    
    
    134,000Decrease (increase) in accrued interest receivable and other assets
    
    
    (21,677
    )
    
    
    26,845Increase in accrued interest payable and other liabilities
    
    
    141,079
    
    
    
    23,036Net cash used in operating
activities
    
    
    (173,371
    )
    
    
    (495,095
    )CASH FLOWS FROM INVESTING ACTIVITIESNet increase in loans
    
    
    (8,019,449
    )
    
    
    (5,496,460
    )Net charge-offs on loans
    
    
    (2,082
    )
    
    
    Purchase of equipment
    
    
    (6,231
    )
    
    
    (1,127,117
    )Net cash used in investing
activities
    
    
    (8,027,762
    )
    
    
    (6,623,577
    )CASH FLOWS FROM FINANCING ACTIVITIESNet increase in non-interest bearing deposits
    
    
    999,650
    
    
    
    1,455,439Net increase in interest bearing deposits
    
    
    12,341,797
    
    
    
    1,894,161Net cash provided by
financing activities
    
    
    13,341,447
    
    
    
    3,349,600INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    5,140,314
    
    
    
    (3,769,072
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    5,611,136
    
    
    
    7,565,861CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    10,751,450
    
    
    $
    3,796,789Cash Paid for Interest
    
    $
    336,759
    
    
    $
    136,353
  6




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##### Table of Contents



LOTUS BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Financial Statement Presentation
  Principles of Consolidation
 Organization
 Use of Estimates
 Organization and Pre-opening costs
 Deferred Offering Costs
 Cash and Cash Equivalents
 Loans
  7




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Allowance for Loan Losses
      Off-balance-sheet Instruments
 Property and Equipment
 Income Taxes
 8




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##### Table of Contents



Earnings per Share
 Reclassification
 Recent Accounting Pronouncements Fair Value Measurements Effective Date of FASB Statement
No. 157. Determining the Fair Value of a Financial Asset When the Market
for That Asset Is Not Active. .
  The Fair Value Option for Financial Assets and
Financial Liabilities
 Subsequent Events Subsequent Events
 9




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##### Table of Contents



The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB Statement No. 162. FASB Accounting Standards Codification
 NOTE 2  LOANS
  June 30, 2009
    
    
    December 31, 2008Mortgage loans on real estate:Residential 1 to 4 family
    
    $
    2,963,604
    
    
    $
    2,419,361Commercial
    
    
    17,792,321
    
    
    
    12,843,133Second mortgage
    
    
    206,939
    
    
    
    172,393Equity lines of credit
    
    
    1,301,760
    
    
    
    839,607Total mortgage loans on real estate
    
    
    22,264,624
    
    
    
    16,274,494Commercial loans
    
    
    10,714,334
    
    
    
    8,443,881Consumer installment loans
    
    
    500,653
    
    
    
    700,235Total loans
    
    
    33,479,611
    
    
    
    25,418,610Less:Allowance for loan losses
    
    
    402,418
    
    
    
    314,000Net deferred loan fees (costs)
    
    
    60,604
    
    
    
    19,052Net loans
    
    $
    33,016,591
    
    
    $
    25,085,558
  Maturing or repricing inless than
    
    1 to 5
    
    after1 year
    
    years
    
    5 years
    
    TotalCommercial and financial
    
    $
    17,711,421
    
    
    $
    8,575,613
    
    
    $
    2,722,190
    
    
    $
    29,009,224Real estate  mortgage
    
    
    2,096,943
    
    
    
    1,462,968
    
    
    
    409,823
    
    
    
    3,969,734Installment loans to individuals
    
    
    221,100
    
    
    
    266,244
    
    
    
    13,309
    
    
    
    500,653Total loans
    
    $
    20,029,464
    
    
    $
    10,304,825
    
    
    $
    3,145,322
    
    
    $
    33,479,611
  Fixed rate
    
    $
    12,936,939Variable rate
    
    $
    13,289,028
   June 30, 2009Balance at December 31, 2008
    
    $
    314,000Provision for loan losses
    
    
    90,500Loans charged-off
    
    
    (2,082
    )Recoveries on loans previously charged-off
    
    
    Balance at June 30, 2009
    
    $
    402,418
 10




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##### Table of Contents



NOTE 3  DEPOSITS
  June 30, 2009
    
    
    December 31, 2008Non-interest bearing deposits
    
    $
    4,612,933
    
    
    $
    3,613,283NOW accounts
    
    
    449,627
    
    
    
    357,123Savings and money market accounts
    
    
    13,833,861
    
    
    
    9,505,159Certificates of deposit less than $100,000
    
    
    4,043,944
    
    
    
    2,718,608Certificates of deposit greater than $100,000
    
    
    14,121,509
    
    
    
    7,526,254Total
    
    $
    37,061,874
    
    
    $
    23,720,427
  Less than
    
    Greater than$100,000
    
    $100,000
    
    TotalLess than one year
    
    $
    3,833,944
    
    
    $
    13,807,542
    
    
    $
    17,641,486One through five years
    
    
    210,000
    
    
    
    313,967
    
    
    
    523,967Over five years
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    4,043,944
    
    
    $
    14,121,509
    
    
    $
    18,165,453
 NOTE 4  OFF BALANCE SHEET ARRANGEMENTS
 Credit Related Financial nstruments
   June 30, 2009
    
    
    December 31, 2008Commitments to extend credit
    
    $
    3,985,000
    
    
    $
    3,298,200Standby letters of credit
    
    
    908,798
    
    
    
    917,498Undisbursed lines of credit
    
    
    7,585,900
    
    
    
    5,241,053Total
    
    $
    12,479,698
    
    
    $
    9,456,751
   11




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##### Table of Contents



Collateral Requirements
  NOTE 5  PROPERTY AND EQUIPMENT
  June 30, 2009
    
    
    December 31, 2008Building and improvements
    
    $
    2,212,089
    
    
    $
    2,212,089Land
    
    
    854,233
    
    
    
    854,233Office equipment
    
    
    639,185
    
    
    
    632,9543,705,507
    
    
    
    3,699,276Less: Accumulated depreciation
    
    
    315,419
    
    
    
    220,501Property and equipment net of depreciation
    
    $
    3,390,088
    
    
    $
    3,478,775
  NOTE 6  INCOME TAXES
   Deferred Tax Asset:Net Operating Loss Carryforward
    
    $
    1,354,531Less: Valuation Allowance
    
    
    (1,354,531
    )Total net deferred tax asset
    
    $
    
  2009
    
    2008Income tax benefit at federal statutory rate of 34 percent
    
    $
    172,410
    
    
    $
    256,022Change in valuation allowance
    
    
    (172,000
    )
    
    
    (256,000
    )Other  net
    
    
    (410
    )
    
    
    (22
    )Net income tax expense
    
    $
    
    
    
    $
    
 NOTE 7  STOCK BASED COMPENSATION
  12




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Weighted AverageRemaining
    
    
    
    
    
    AggregateNumber
    
    Contractual
    
    Exercise
    
    IntrinsicExercise Price
    
    Outstanding
    
    Life
    
    Price
    
    Value$10.00
    
    
    59,024
    
    
    8.9 years
    
    $
    10.00
    
    
    
    
       NOTE 8  MINIMUM REGULATORY CAPITAL REQUIREMENTS
  13




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##### Table of Contents



For Capital
    
    To BeActual
    
    Adequacy Purposes
    
    Well CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of June 30, 2009:Total Risk Based Capital
to Risk Weighted Assets
Lotus Bank
    
    $
    8,198
    
    
    
    20.71
    %
    
    $
    3,167
    
    
    
    8.00
    %
    
    $
    3,959
    
    
    
    10.00
    %Tier One Capital to Risk
Weighted Assets
Lotus Bank
    
    $
    7,796
    
    
    
    19.69
    %
    
    $
    1,584
    
    
    
    4.00
    %
    
    $
    2,375
    
    
    
    6.00
    %Tier One Capital to
Total Assets
Lotus Bank
    
    $
    7,796
    
    
    
    16.46
    %
    
    $
    1,894
    
    
    
    4.00
    %
    
    $
    2,368
    
    
    
    5.00
    %
 NOTE 9  FAIR VALUE OF FINANCIAL INSTRUMENTS
   Cash and Cash Equivalents
 Loans
 Deposit
 Accrued Interest
 Other Financial Instruments
 14




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##### Table of Contents



June 30, 2009
    
    December 31, 2008Carrying
    
    Fair
    
    Carrying
    
    FairValue
    
    Value
    
    Value
    
    ValueCash and due from banks
    
    $
    850,208
    
    
    $
    850,208
    
    
    $
    457,103
    
    
    $
    457,103Interest bearing deposits with banks
    
    
    4,900,000
    
    
    
    4,900,000
    
    
    
    1,960,000
    
    
    
    1,960,000Federal funds sold
    
    
    5,001,242
    
    
    
    5,001,242
    
    
    
    3,194,033
    
    
    
    3,194,033Loans  net
    
    
    33,016,589
    
    
    
    33,924,785
    
    
    
    25,085,558
    
    
    
    26,703,966Accrued interest receivable
    
    
    86,062
    
    
    
    86,062
    
    
    
    81,521
    
    
    
    81,521Noninterest bearing deposits
    
    
    4,612,933
    
    
    
    4,612,933
    
    
    
    3,613,283
    
    
    
    3,613,283Interest bearing deposits
    
    
    14,283,488
    
    
    
    14,283,488
    
    
    
    9,862,282
    
    
    
    9,862,282Time deposits
    
    
    18,165,453
    
    
    
    18,169,590
    
    
    
    10,244,862
    
    
    
    10,154,759Accrued interest payable
    
    
    48,761
    
    
    
    48,761
    
    
    
    47,233
    
    
    
    47.233
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
  OVERVIEW
     PLAN OF OPERATION
  15




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FINANCIAL RESULTS
      16




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FUNDING OF OPERATIONS AND LIQUIDITY
   CAPITAL EXPENDITURES
  LIQUIDITY AND INTEREST RATE SENSITIVITY
      17




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OFF BALANCE SHEET ARRANGEMENTS
  CAPITAL ADEQUACY
    Tier 1 capital
    
    $
    7,796Total capital
    
    $
    8,198Tier 1 capital to risk-weighted assets
    
    
    19.69
    %Total capital to risk-weighted assets
    
    
    20.71
    %Tier 1 capital to average assets
    
    
    16.46
    %
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4T. CONTROLS AND PROCEDURES.
 Disclosure Controls and Procedures
  18




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Changes in Internal Controls
  19




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  Vinaya Gavini
 For
    
    
    93.76
    %Abstentions
    
    
    6.24
    %
 Amarnath Gowda
 For
    
    
    89.73
    %Abstentions
    
    
    10.27
    %
 Ravindranath Gullapalli
 For
    
    
    88.81
    %Abstentions
    
    
    11.19
    %
 Murali Guthikonda
 For
    
    
    100.00
    %
 Krishna M. Malempati
 For
    
    
    86.66
    %Abstentions
    
    
    13.34
    %
 20




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##### Table of Contents



Haranath Policherla
 For
    
    
    93.54
    %Abstentions
    
    
    6.46
    %
 
 ITEM 5. OTHER INFORMATION.
  
 ITEM 6. EXHIBITS.
 Exhibit number
    
    Description of Exhibit31.1
    
    Rule 13 a  14 (a) Certification of Chief Executive Officer31.2
    
    Rule 13 a  14 (a) Certification of Chief Financial Officer32
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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##### Table of Contents



SIGNATURES
  LOTUS BANCORP, INC.Date: August 14, 2009
    By:
    /s/ Satish B. JastiSatish B. JastiPresident and Chief Executive OfficerDate: August 14, 2009
    By:
    /s/ Richard E. BauerRichard E. BauerChief Financial Officer 22




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##### Table of Contents



EXHIBIT INDEX
 Exhibit number
    
    Description of Exhibit31.1
    
    Certification pursuant to Rules 13a  15(e) and 15d  15(e) of the Securities Exchange Act31.2
    
    Certification pursuant to Rules 13a  15(e) and 15d  15(e) of the Securities Exchange Act32
    
    Certification pursuant to Rules 13a  14(b) or Rule 15d  14(b) of the Securities Exchange
Act and 18 U.S.C. §1350
 23