<PAGE>

                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 OF 1934

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2008

                        COMMISSION FILE NUMBER 333-135107

                               LOTUS BANCORP, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                         <C>
            MICHIGAN                                             20-2377468
(State or other jurisdiction of                                (IRS Employer
 incorporation or organization)                             Identification No.)
</TABLE>

                    44350 W. TWELVE MILE ROAD, NOVI, MI 48377
          (Address of principal executive offices, including zip code)

                                 (248) 735-1000
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act (Check one):

     Large accelerated filer [ ]                  Accelerated filer [ ]

     Non-accelerated filer [ ]                    Smaller reporting company [X]
     (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The number of shares outstanding of the Issuer's Common Stock, $0.01 par value,
as of November 13, 2008 was 1,389,965 shares.

<PAGE>

                                      INDEX

<TABLE>
<S>                                                                        <C>
PART I FINANCIAL INFORMATION
   ITEM 1.  FINANCIAL STATEMENTS
   ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATION
   ITEM 3.  QUANTITATIVE AND QUALIFTATIVE DISCLOSURES ABOUT MARKET
            RISK
   ITEM 4T. CONTROLS AND PROCEDURES
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
   ITEM 5.  OTHER INFORMATION
   ITEM 6.  EXHIBITS
SIGNATURES
</TABLE>

Certification Pursuant to Rule 13a - 15(e) and 15(d) - 15(e)
Certification Pursuant to Rule 13a - 15(e) and 15(d) - 15(e)
Certification Pursuant to Rule 13a - 14(b) and 15(d) - 14(b)

                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

<PAGE>

                         PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

                               LOTUS BANCORP, INC.
                                 AND SUBSIDIARY
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                      September
                                                      30, 2008       December
                                                     (unaudited)     31, 2007
                                                     -----------   -----------
<S>                                                  <C>           <C>
Cash and cash equivalents
   Cash and due from banks                           $   239,627   $   356,783
   Interest bearing balances due from banks                   --     3,000,000
   Federal funds sold                                  1,927,153     4,209,078
                                                     -----------   -----------
      Total cash and cash equivalents                  2,166,780     7,565,861
Loans, less allowance for loan losses of
   $240,500 and $88,000 at September 30, 2008
   and December 31, 2007, respectively (Note 2)       19,256,930     9,021,152
Property & equipment, net of depreciation (Note 5)     3,524,140     2,507,552
Accrued interest receivable and other assets             165,739       186,961
                                                     -----------   -----------
      Total assets                                   $25,113,589   $19,281,526
                                                     ===========   ===========
</TABLE>

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                      September
                                                       30, 2008      December
                                                     (unaudited)     31, 2007
                                                     -----------   -----------
<S>                                                  <C>           <C>
Deposits (Note 3)
   Non-interest bearing                              $ 2,843,151   $ 1,401,162
   Interest bearing                                   11,339,770     5,981,961
                                                     -----------   -----------
      Total deposits                                  14,182,921     7,383,123
Accrued interest payable and other liabilities            87,743        39,277
                                                     -----------   -----------
      Total liabilities                               14,270,664     7,422,400
                                                     -----------   -----------
Stockholders' equity
   Common Stock, $0.01 par value
         Authorized -8,000,000 shares Issued
            and outstanding - 1,389,965 shares
            at September 30, 2008 and at
            December 31, 2007, respectively               13,899        13,899
Additional paid in capital                            13,974,867    13,950,787
Accumulated deficit                                   (3,145,841)   (2,105,560)
                                                     -----------   -----------
      Total stockholders' equity                      10,842,925    11,859,126
                                                     -----------   -----------
      Total liabilities and stockholders'
         equity                                      $25,113,589   $19,281,526
                                                     ===========   ===========
</TABLE>

See accompanying notes to unaudited condensed financial statements


                                        3
<PAGE>

                              LOTUS BANCORP, INC.
                                 AND SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                   (unaudited)

<TABLE>
<CAPTION>

                                                  Three Months Ended          Nine Months Ended
                                                     September 30                September 30
                                              -------------------------   -------------------------
                                                  2008          2007          2008          2007
                                              -----------   -----------   -----------   -----------
<S>                                           <C>           <C>           <C>           <C>
Interest income:
   Loans receivable, including fees            $  261,217    $   78,787   $   622,957    $  102,608
   Interest bearing balances due from banks            --            --        23,034            --
   Federal funds sold                              10,712       158,875        63,895       481,921
                                               ----------    ----------   -----------    ----------
      Total interest income                       271,929       237,662       709,886       584,529
                                               ----------    ----------   -----------    ----------
Interest Expense:
   Deposits                                        67,381        43,498       173,909        74,970
   Other                                               --            --            --        21,675
                                               ----------    ----------   -----------    ----------
      Total interest expense                       67,381        43,498       173,909        96,645
                                               ----------    ----------   -----------    ----------
Net interest income                               204,548       194,164       535,977       487,884
                                               ----------    ----------   -----------    ----------
      Provision for loan losses                    18,500        30,500       152,500        57,500
                                               ----------    ----------   -----------    ----------
      Net interest income after provision         186,048       163,664       383,477       430,384
                                               ----------    ----------   -----------    ----------
Non-interest income:
   Service charges and fees                         5,662         2,661        14,613         3,646
   Gain on sale of loans                               --            --         4,575            --
   Other income                                     4,371            --         6,557            --
                                               ----------    ----------   -----------    ----------
      Total non-interest income                    10,033         2,661        25,745         3,646
                                               ----------    ----------   -----------    ----------
Non-interest expense:
   Compensation and employee benefits             228,942       189,407       715,246       563,956
   Occupancy and equipment                         64,524        48,380       172,987       125,469
   Stock based compensation                        14,448            --        24,080            --
   Professional fees                               46,000        33,000       147,000       110,419
   Data processing costs                           23,850        14,689        73,654        28,867
   Advertising and promotion                       12,575        29,518        43,910        79,996
   Travel and entertainment                        19,661        15,011        42,388        32,639
   Michigan business tax                            9,000            --        28,500            --
   ATM and debit card expenses                      8,770         7,621        26,040         8,929
   Other                                           55,586        50,298       175,698       128,198
                                               ----------    ----------   -----------    ----------
      Total non-interest expense                  483,356       387,924     1,449,503     1,078,473
                                               ----------    ----------   -----------    ----------
Loss before income tax benefit                   (287,275)     (221,599)   (1,041,281)     (644,443)
Income tax benefit                                     --            --            --            --
                                               ----------    ----------   -----------    ----------
Net Loss                                       $ (287,275)   $ (221,599)  $(1,040,281)   $ (644,443)
                                               ==========    ==========   ===========    ==========
Basic and Diluted Loss Per Share               $     (.21)   $     (.16)  $      (.75)   $     (.60)
                                               ==========    ==========   ===========    ==========
Weighted Average Shares Outstanding             1,389,965     1,389,965     1,389,965     1,077,082
</TABLE>

See accompanying notes to unaudited condensed financial statements


                                       4

<PAGE>

                               LOTUS BANCORP, INC.
                                 AND SUBSIDIARY
       CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                                  (unaudited)

<TABLE>
<CAPTION>
                              Common     Paid In     Accumulated
                              Stock      Capital       Deficit        Total
                             -------   -----------   -----------   -----------
<S>                          <C>       <C>           <C>           <C>
Balance December 31, 2007    $13,899   $13,950,787   $(2,105,560)  $11,859,126
Stock option expense              --        24,080            --        24,080
Net loss                          --            --    (1,040,281)   (1,040,281)
                             -------   -----------   -----------   -----------
Balance September 30, 2008   $13,899   $13,974,867   $(3,145,841)  $10,842,925
                             =======   ===========   ===========   ===========
</TABLE>

See accompanying notes to unaudited condensed financial statements


                                       5

<PAGE>

                               LOTUS BANCORP, INC.
                                 AND SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                              Nine Months Ended
                                                         -----------------------------
                                                         September 30,   September 30,
                                                             2008            2007
                                                         -------------   -------------
<S>                                                      <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Adjustments to reconcile actual loss to net cash
      from operating activities:
      Net loss                                            $ (1,040,281)    $  (644,443)
      Stock option expense                                      24,080              --
      Depreciation                                             111,395          77,984
      Provision for loan losses                                152,500          57,500
      Increase (decrease) in accrued interest
         receivable and other assets                            21,222         (50,125)
      (Increase) decrease in accrued interest payable
         and other liabilities                                  48,466           5,376
      Decrease in federal income taxes payable                      --          (7,700)
                                                          ------------     -----------
         Net cash used in operating activities                (682,618)       (561,408)
                                                          ------------     -----------
CASH FLOWS FROM INVESTING ACTIVITIES
      Net increase in loans                                (10,388,278)     (5,361,099)
      Purchase of equipment                                 (1,127,983)       (399,756)
                                                          ------------     -----------
         Net cash used in investing activities             (11,516,261)     (5,760,855)
                                                          ------------     -----------
CASH FLOWS FROM FINANCING ACTIVITIES
      Decrease in deferred offering costs                           --        (286,610)
      Increase in non-interest bearing deposits              1,441,989       1,332,806
      Increase (decrease) in interest bearing deposits       5,357,809       6,674,154
      Payments on line of credit                                    --      (1,856,775)
      Issuance of common stock and warrants                         --      13,789,650
      Decrease in advances from organizers                          --         (80,000)
                                                          ------------     -----------
      Net cash provided by financing activities              6,799,798      19,573,225
                                                          ------------     -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS            (5,399,081)     13,250,962
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD             7,565,861           6,422
                                                          ------------     -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                $  2,166,780     $13,257,384
                                                          ============     ===========
Supplemental Disclosure of Non-Cash Financing
   Activity:
   Conversion of advances from organizers into
      shares of common stock                              $         --     $   109,990
Cash Paid for Interest                                    $    165,393     $    83.883
</TABLE>

See accompanying notes to unaudited condensed financial statements


                                       6
<PAGE>

                               LOTUS BANCORP, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF FINANCIAL STATEMENT PRESENTATION - The accompanying unaudited
consolidated interim financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America and
with the instructions to Form 10-Q. Accordingly, certain information and
disclosures required by the accounting principles generally accepted in the
United States of America for complete financial statements are not included
herein. The interim financial statements of Lotus Bancorp, Inc. should be read
in conjunction with the financial statements of Lotus Bancorp, Inc. and the
notes thereto included in the Company's annual report on Form 10-KSB for the
year ended December 31, 2007.

All adjustments, consisting of normal recurring adjustments, which in the
opinion of management are necessary for a fair presentation of the results of
operations and cash flows, have been made. The results of operations for the
nine months ended September 30, 2008 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2008.

PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
include accounts of Lotus Bancorp, Inc. and its wholly-owned subsidiary, Lotus
Bank. All significant inter-company accounts and transactions have been
eliminated.

ORGANIZATION - Lotus Bancorp, Inc. (the "Company") was incorporated as De Novo
Holdings, Inc. on October 27, 2004 for the purpose of becoming a bank holding
company under the Bank Holding Company Act of 1956, as amended. The Company
subsequently changed its name to Lotus Bancorp, Inc. The Company received the
required regulatory approvals to purchase the common stock of Lotus Bank (the
"Bank") on February 2, 2007. The Company withdrew common stock subscription
funds totaling $12,582,050 from its escrow account on February 27, 2007 and
capitalized the Bank with $10,500,000 on that same date. The Bank commenced
operations on February 28, 2007. The Company completed the public offering of
its common stock on June 30, 2007. The Company raised a total of $13,899,650 in
capital. As of November 13, 2008, there were 1,389,965 shares of the Company's
common stock issued and outstanding.

USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates and assumptions. Material estimates that are
particularly susceptible to significant change in the near term include the
determination of loan losses and the valuation of deferred tax assets.

ORGANIZATION AND PRE-OPENING COSTS - Organization and pre-opening costs
represent incorporation costs, legal, accounting, consultant and other
professional fees and costs relating to the organization. The organization and
pre-opening costs totaled approximately $790,000 through the commencement of
operations, and were charged to expense as incurred.

DEFERRED OFFERING COSTS - Direct costs relating to the offering of common stock
totaled approximately $487,000 through September 30, 2008, and were capitalized
and netted against the offering proceeds.

CASH AND CASH EQUIVALENTS - Cash and cash equivalents are comprised of highly
liquid investments with purchase maturities of three months or less. Cash
equivalents are carried at cost, which approximates fair value. At times bank
balances may be in excess of insured limits. Management has deemed this a normal
business risk.

LOANS - The Company grants mortgage, commercial and consumer loans to customers.
A large portion of the loan portfolio is represented by commercial and
commercial real estate loans in Oakland County, Michigan and elsewhere. The
ability of the Company's debtors to honor their contracts is dependent on the
real estate and general economic conditions in those areas.

Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off are reported at their outstanding unpaid
principal balances adjusted for charge-offs, the allowance for loan losses, and
any deferred fees or costs on originated loans. Interest income is accrued on
the unpaid principal balance. Loan origination, net of certain direct
origination costs, are deferred and recognized as an adjustment of the related
loan yield using either the straight line or interest method.


                                       7

<PAGE>

The accrual of interest on loans is discontinued at the time the loan is 90 days
delinquent unless the credit is well secured and in the process of collection.
In all cases, loans are placed on nonaccrual or charged-off at an earlier date
if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed in nonaccrual
or charged-off is reversed against interest income. The interest on these loans
is accounted for on the cash basis or cost-recovery method, until qualifying for
return to accrual. Loans are returned to accrual status when all the principal
and interest amounts contractually due are brought current and future payments
are reasonably assured.

ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is established as
losses are estimated to have occurred through a provision for loan losses
charged to earnings. Actual loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral, and prevailing economic conditions. The
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and allocated components. The
specific component relates to loans that are classified as either doubtful,
substandard or special mention. For such loans that are also classified as
impaired, an allowance is established when the discounted cash flows (or
collateral value or observable market value) of the impaired loan is lower than
the carrying value of that loan. The general component covers nonclassified
loans and is based on historical loss experience adjusted for qualitative
factors. An unallocated component is maintained to cover uncertainties that
could affect management's estimates of probable losses. The unallocated
component of the allowance reflects the margin of imprecision inherent in the
underlying assumptions used in the methodologies for estimating specific and
general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration all of the circumstances
surrounding the borrower and the loan, including length of the delay, the
reasons for the delay, the borrower's prior payment record, and the amount of
the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan-by-loan basis for commercial loans by either the present
value of expected future cash flows discounted at the loan's effective interest
rate, or the loan's obtainable interest rate, or by the fair value of the
collateral if the loan is collateral dependent.

Large groups of homogenous loans are collectively evaluated for impairment.
Accordingly, the Company does not separately identify individual consumer and
residential mortgage loans for impairment disclosures.

During the first three years of operation, the Bank will maintain an allowance
for loan losses at or above a minimum level of 1.00% established by the Federal
Deposit Insurance Corporation and the State of Michigan Office of Financial and
Insurance Regulation pursuant to their orders granting the Bank authority to
commence activity as a de novo financial institution.

OFF-BALANCE-SHEET INSTRUMENTS - In the ordinary course of business, the Company
has entered into commitments under commercial lines of credit and standby
letters of credit. Such financial instruments are recorded when they are funded.

PROPERTY AND EQUIPMENT - Equipment is stated at cost. Depreciation is computed
for financial reporting purposes using the straight-line method over the useful
life of the assets.

INCOME TAXES - Deferred income tax assets and liabilities are determined using
the liability (or balance sheet) method. Under this method, the net deferred tax
asset or liability is determined based on the tax effect of the various
temporary differences between the book value and tax basis of the various
balance sheet assets and liabilities, and requires the current recognition of
changes in tax rates and laws. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.


                                       8

<PAGE>

EARNINGS PER SHARE - Basic earnings per share have been computed by dividing the
net loss by the weighted-average number of common shares outstanding for the
period.

RECLASSIFICATION - Certain amounts appearing in the prior year's financial
statements have been reclassified to conform to the current year's financial
statements.

RECENT ACCOUNTING PRONOUNCEMENTS - In September 2006, the FASB issued Statement
of Financial Accounting Standards No. 157, Fair Value Measurements. FASB 157
enhances existing guidance for measuring assets and liabilities using fair
value. Prior to the issuance of FASB 157, guidance for applying fair value was
incorporated in several accounting pronouncements. FASB 157 provides a single
definition of fair value, together with a framework for measuring it, and
requires additional disclosure about the use of fair value to measure assets and
liabilities. FASB 157 also emphasizes that fair value is a market-based
measurement, not an entity-specific measurement, and sets out a fair value
hierarchy with the highest priority being quoted prices in active markets. Under
FASB 157, fair value measurements are disclosed by level within the hierarchy.
While FASB 157 does not add any new fair value measurements, it does change
current practice. Changes to practice include: (1) a requirement for an entity
to include its own credit standing in the measurement of its liabilities; (2) a
modification of the transaction price presumption; (3) a prohibition on the use
of block discounts when valuing large blocks of securities for broker-dealers
and investment companies; and (4) a requirement to adjust the value of
restricted stock for the effect of the restriction even if the restriction
lapses within one year. FASB 157 was initially effective for the Company
beginning January 1, 2008. In February 2008, the FASB approved the issuance of
FASB Staff Position (FSP) FAS No. 157-2, Effective Date of FASB Statement No.
157. FSP FAS No. 157-2 allows entities to electively defer the effective date of
SFAS No. 157 until January 1, 2009 for nonfinancial assets and nonfinancial
liabilities except those items recognized or disclosed at fair value on an
annual or more frequently recurring basis. The Company will apply the fair value
measurement and disclosure provisions of SFAS No. 157 to nonfinancial assets and
nonfinancial liabilities effective January 1, 2009. Such application is not
expected to be material to our results of operations or financial position. In
October 2008, the FASB approved the issuance of FSP FAS No. 157-3, Determining
the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active. FSP FAS No. 157-3 became effective upon issuance, including prior
periods for which financial statements have not been issued, such as the period
ended September 30, 2008. SFAS No. 157 requires the Company to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring
fair value. As such, it is Company policy to maximize the use of observable
inputs and minimize the use of unobservable inputs when determining fair value
levels for those financial assets for which there exists an active market. In
instances where the market is indicated to be inactive, the Company incorporates
measured risk adjustments which market participants would assume for credit and
liquidity risks when determining fair value levels.

Fair value levels for financial assets in instances where there is limited or no
observable market activity and, thus, are determined upon estimates, are often
derived based on the specific characteristics of the financial asset, as well as
the competitive and economic environment in existence at that particular time.
As a result, fair value levels cannot be measured with certainty and may not be
achieved in a sale of the financial asset. Any pricing model utilized to
determine fair value may contain potential weaknesses and variation in
assumptions utilized, including discount rates, prepayment speeds, default rates
and future cash flow estimates, can result in substantially different estimates
of fair values. The Company has determined the impact of adopting FASB 157 is
immaterial to the financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans, ("FASB 158"), which amends FASB 87 and FASB 106 to require
recognition of the overfunded or underfunded status of pension and other
postretirement benefit plans on the balance sheet. Under FASB 158, gains and
losses, prior to service costs and credits, and any remaining transition amounts
under FASB 87 and FASB 106 that have not yet been recognized through net
periodic benefit cost will be recognized in accumulated other comprehensive
income, net of tax effects, until they are amortized as a component of net
periodic cost. The measurement date (the date at which the benefit obligation
and plan assets are measured) is required to be the company's fiscal year end.
FASB 158 is effective for publicly-held companies for fiscal years ending after
December 15, 2006, except for the measurement date provisions, which are
effective for fiscal years ending after December 15, 2008. This FASB is not
applicable to the Company because they do not have defined benefit pension or
other postretirement plans.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities. This statement permits entities to
choose to measure many financial instruments and certain other items at fair
value. An entity shall report unrealized gains and losses on items for which the
fair value option has been elected in earnings at each subsequent reporting
date. The statement is effective as of the beginning of an entity's first fiscal
year that begins after November 15, 2007. Early adoption is permitted as of the
beginning of a fiscal year that begins on or after November 15, 2007, provided
the entity also elects to apply the provisions of FASB 157. The Company has
determined the impact of adopting FASB 159 is immaterial to the financial
statements.


                                       9

<PAGE>

In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative
Instruments and Hedging Activities - an Amendment of FASB Statement No. 133.
SFAS No. 161 expands disclosure requirements regarding an entity's derivative
instruments and hedging activities. Expanded qualitative disclosures that will
be required under SFAS No. 161 include: (1) how and why an entity uses
derivative instruments; (2) how derivative instruments and related hedged items
are accounted for under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, and related activities; and (3) how derivative instruments
and related hedged items affect an entity's financial statements. SFAS No. 161
is effective beginning January 1, 2009. Management does not expect SFAS No. 161
will have a material effect on its derivative disclosures upon adoption.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. SFAS No. 162 is intended to improve financial reporting
by identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in the preparation of financial statements in
nongovernmental entities that are presented in conformity with U.S. generally
accepted accounting principles (GAAP). SFAS No. 162 directs the GAAP hierarchy
to the entity, not the independent auditors, as the entity is responsible for
selecting accounting principles for financial statements that are presented in
conformity with GAAP. SFAS No. 162 is effective 60 days following the Securities
and Exchange Commission's approval of the Public Company Accounting Oversight
Board amendments to remove the GAAP hierarchy for the auditing standards. We do
not expect SFAS No. 162 to have a material effect on our consolidated results of
operations or financial position upon adoption.


                                       10

<PAGE>

NOTE 2 - LOANS

A summary of the balances of loans as of September 30, 2008 and December
31,2007, respectively, is as follows:

<TABLE>
<CAPTION>
                                            September 30, 2008   December 31, 2007
                                            ------------------   -----------------
<S>                                         <C>                  <C>
Mortgage loans on real estate:
   Residential 1 to 4 family                    $ 1,977,180         $ 1,097,735
   Commercial                                     9,227,324           3,238,981
   Second mortgage                                  189,213             147,000
   Equity lines of credit                           824,857             363,462
                                                -----------         -----------
      Total mortgage loans on real estate        12,218,574           4,847,178
Commercial loans                                  6,639,818           3,441,966
Consumer installment loans                          648,675             802,756
                                                -----------         -----------
      Total loans                                19,507,067           9,091,900
                                                -----------         -----------
Less:
   Allowance for loan losses                        240,500              88,000
   Net deferred loan fees (costs)                     9,637             (17,252)
                                                -----------         -----------
      Net loans                                 $19,256,930         $ 9,021,152
                                                ===========         ===========
</TABLE>

The following table shows the maturities and sensitivity to changes in interest
rates of the loan portfolio as of September 30, 2008:

<TABLE>
<CAPTION>
                                         Maturing or repricing in
                                   ------------------------------------
                                   less than      1 to 5        after
                                     1 year        years       5 years       Total
                                   ----------   ----------   ----------   -----------
<S>                                <C>          <C>          <C>          <C>
Commercial and financial           $8,330,523   $3,593,032   $3,943,587   $15,867,142
Real estate - mortgage              1,400,970    1,176,092      414,188     2,991,250
Installment loans to individuals      212,398      429,139        7,138       648,675
                                   ----------   ----------   ----------   -----------
Total loans                        $9,943,891   $5,198,263   $4,364,913   $19,507,067
                                   ==========   ==========   ==========   ===========
</TABLE>

At September 30, 2008, loans maturing in greater than 1 year are comprised of
the following:

<TABLE>
<S>             <C>
Fixed rate      $9,322,439
Variable rate   $6,031,390
</TABLE>

The Company has no loan concentrations greater than 10% of total loans.

An analysis of the allowance for loan losses is as follows:

<TABLE>
<CAPTION>
                                             September 30, 2008
                                             ------------------
<S>                                          <C>
Balance at December 31, 2007                      $ 88,000
Provision for loan losses                          152,500
Loans charged-off                                       --
Recoveries on loans previously charged-off              --
                                                  --------
Balance at September 30, 2008                     $240,500
                                                  ========
</TABLE>

At September 30, 2008, there were no loans considered to be impaired or over 90
days delinquent and still accruing.

In the ordinary course of business, the Bank has granted loans to executive
officers and directors and their affiliates amounting to $4,375,423 at September
30, 2008 and $1,027,280 at September 30, 2007.


                                       11

<PAGE>

NOTE 3 - DEPOSITS

The following is a distribution of deposits as of September 30, 2008 and
December 31, 2007:

<TABLE>
<CAPTION>
                                                September 30, 2008   December 31, 2007
                                                ------------------   -----------------
<S>                                             <C>                   <C>
Non-interest bearing deposits                       $ 2,843,151          $1,401,162
NOW accounts                                            360,871             293,119
Savings and money market accounts                     6,837,104           4,396,649
Certificates of deposit less than $100,000            1,845,454             504,079
Certificates of deposit greater than $100,000         2,296,341             788,114
                                                    -----------          ----------
   Total                                            $14,182,921          $7,383,123
                                                    ===========          ==========
</TABLE>

At September 30, 2008, the scheduled maturities of time deposits are as follows:

<TABLE>
<CAPTION>
                          Less than   Greater than
                          $100,000      $100,000        Total
                         ----------   ------------   ----------
<S>                      <C>          <C>            <C>
Less than one year       $1,747,454    $2,196,341    $3,943,795
One through five years       98,000       100,000       198,000
Over five years                  --            --            --
                         ----------    ----------    ----------
   Total                 $1,845,454    $2,296,341    $4,141,795
                         ==========    ==========    ==========
</TABLE>

NOTE 4 - OFF BALANCE SHEET ARRANGEMENTS

CREDIT RELATED FINANCIAL INSTRUMENTS - The subsidiary bank is a party to
credit-related financial instruments with off-balance sheet risk in the normal
course of business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit, standby letters of credit, and
undisbursed lines of credit. Such commitments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated balance sheet.

The Bank's exposure to credit loss is represented by the contractual amount of
these commitments. The Bank follows the same credit policies in making
commitments as it does for on-balance sheet instruments.

The total contractual amounts of commitments to extend credit, standby letters
of credit, and undisbursed lines of credit as of September 30, 2008 and December
31, 2007 are shown below:

<TABLE>
<CAPTION>
                               September 30, 2008   December 31, 2007
                               ------------------   -----------------
<S>                            <C>                  <C>
Commitments to extend credit       $5,829,000           $2,373,000
Standby letters of credit             886,017              212,214
Undisbursed lines of credit         2,904,149            2,608,965
                                   ----------           ----------
Total                              $9,619,166           $5,194,179
                                   ==========           ==========
</TABLE>

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require repayment of a fee. The commitments for equity lines of credit may
expire without being drawn upon. Therefore, the total commitment amounts do not
necessarily represent future cash requirements. The amount of collateral
obtained, if it is deemed necessary by the Company, is based on management's
credit evaluation of the customer.

Undisbursed lines of credit under commercial lines of credit, revolving credit
lines, and overdraft protection agreements are commitments for possible future
extensions of credit to existing customers. These lines of credit can be
collateralized and may not be drawn upon to the total extent to which the
Company is committed.

Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those letters of
credit are used primarily to support public and private borrowing arrangements.
Essentially all letters of credit have expiration dates within one year. The
Company generally holds collateral supporting those commitments if deemed
necessary.


                                       12

<PAGE>

COLLATERAL REQUIREMENTS - To reduce credit risk related to the use of credit
related financial instruments, the Company might deem it necessary to obtain
collateral. The amount and nature of the collateral obtained are based on the
Company's evaluation of the customer. Collateral held varies but may include
cash, securities, accounts receivable, inventory, property, plant and equipment,
and real estate.

If the counterparty does not have the right and the ability to redeem the
collateral or the Company is permitted to sell or repledge the collateral on
short notice, the Company records the collateral on its balance sheet at fair
value with a corresponding obligation to return it.

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                             September 30, 2008   December 31, 2007
                                             ------------------   -----------------
<S>                                          <C>                  <C>
Building                                         $2,247,225           $1,276,741
Land                                                854,233              854,233
Office equipment                                    631,099              479,092
                                                 ----------           ----------
                                                  3,732,557            2,610,066
Less: Accumulated depreciation                      208,417              102,514
                                                 ----------           ----------
Property and equipment net of depreciation       $3,524,140           $2,507,552
                                                 ----------           ----------
</TABLE>

On August 19, 2007, the Company broke ground and commenced construction on its
headquarters building located at the intersection of 12 Mile and Dixon Roads in
Novi, and took occupancy of the building on April 14, 2008. The approximately
5,200 square foot building features full service banking accommodations and also
houses the Company's executive management.

NOTE 6 - INCOME TAXES

The Company has net operating loss carryforwards of approximately $3,146,000 as
of September 30, 2008 that are available to reduce future taxable income through
the year ending December 31, 2027. The deferred tax asset created by that loss
carryforward has been offset with a valuation allowance since the Company does
not have a history of earnings.

The components of the Company's net deferred tax assets, included in other
assets, are as follows:

<TABLE>
<S>                                  <C>
Deferred Tax Asset:
   Net Operating Loss Carryforward   $ 1,069,586
   Less: Valuation Allowance          (1,069,586)
                                     -----------
      Total net deferred tax asset   $        --
                                     -----------
</TABLE>

A reconciliation of the provision for income taxes for each period ended
September 30 follows:

<TABLE>
<CAPTION>
                                                                2008        2007
                                                             ---------   ---------
<S>                                                          <C>         <C>
Income tax benefit at federal statutory rate of 34 percent   $ 353,696   $ 219,111
Change in valuation allowance                                 (354,000)   (219,000)
Other - net                                                        304        (111)
                                                             ---------   ---------
Net income tax expense                                       $      --   $      --
                                                             ---------   ---------
</TABLE>


                                       13
<PAGE>

NOTE 7 - STOCK BASED COMPENSATION

At the Company's Annual Meeting of Shareholders held May 21, 2008, its
shareholders approved the 2008 Stock Incentive Plan, which had previously been
approved by the Board of Directors. Under the Company's stock based incentive
plan, the Company may grant stock options to its directors, officers and
employees for up to 166,795 shares of common stock. Effective January 1, 2007,
the Company adopted the fair value recognition provisions of SFAS No. 123 (R),
Share based Payment. SFAS No. 123 (R) established a fair value method of
accounting for stock options whereby compensation expense is recognized based on
the computed fair value of the options on the grant date.

At September 30, 2008, stock options outstanding had a weighted average
remaining contractual life of 9.6 years. The following table summarizes stock
options outstanding and aggregate intrinsic value as of September 30, 2008:

<TABLE>
<CAPTION>
                                  Weighted Average
                               ----------------------
                                Remaining               Aggregate
                    Number     Contractual   Exercise   Intrinsic
Exercise Price   Outstanding       Life        Price      Value
--------------   -----------   -----------   --------   ---------
<S>              <C>           <C>           <C>        <C>
    $10.00          59,024      9.9 years     $10.00        --
</TABLE>

The Company did not grant stock options during the three months ended September
30, 2008. During the nine month period ended September 30, 2008, the Company
granted 59,024 options to purchase common stock to certain officers of the
Company.

The fair value of the stock options granted during the nine month period ended
September 30, 2008 was $3.66 per share. A summary of the weighted average
assumptions used in the Black-Scholes pricing model for grants of stock options
during the nine month period ended September 30, 2008 were as follows:

<TABLE>
<CAPTION>
                            Nine Months Ended
                           September 30, 2008
                           ------------------
<S>                        <C>
Risk Free Interest Rate           3.81%
Expected Volatility              22.00%
Expected Dividend Yield           0.00%
Expected Life (in years)          8.00
Forfeiture Rate                   0.00%
</TABLE>

Stock options have an exercise price of $10.00 per share. 41,649 of the options
vest over a five year term, while 17,375 of the options vest ratably over a
three year term. All of the options expire 10 years following the date of grant.

As of September 30, 2008, there was $191,928 of total unrecognized pre-tax
compensation expense related to nonvested stock options outstanding. The
weighted average term over which this expense will be recognized is 2.1 years.
Common shares issued upon exercise of stock options result in new shares issued
by the Company from authorized but unissued shares.

As of September 30, 2008, there were 59,024 options to purchase the Company's
common stock issued and outstanding.

In conjunction with its initial stock offering, the Company has issued a total
of 277,993 warrants to initial shareholders in the ratio of one warrant for
every five shares of common stock purchased in the offering. These warrants have
a strike price of $12.50. Additionally, the Company has issued 142,500 warrants
to its organizers. These warrants have a strike price of $10.00. A total of
420,493 warrants to purchase the Company's common stock were outstanding as of
September 30, 2008 and 277,993 warrants to purchase the Company's stock were
issued and outstanding as of September 30, 2007.

Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised) requires
the measurement and recognition of compensation expense for all stock-based
payment awards made to employees and directors. SFAS No. 123 (R) requires
companies to estimate the fair value of the stock-based payment awards on the
date of grant using an option-pricing model. The value of the portion of the
award that is ultimately expected to vest is recognized as compensation expense
over the requisite service periods in the Company's statement of operations.


                                       14

<PAGE>

NOTE 8 - MINIMUM REGULATORY CAPITAL REQUIREMENTS

Banks and bank holding companies are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and,
additionally for the Bank, prompt corrective action regulations, involve
quantitative measures of assets, liabilities, and certain off-balance sheet
items calculated under regulatory accounting policies. Capital amounts and
classifications are also subject to qualitative judgments by regulators. Failure
to meet capital requirements can initiate regulatory action. The prompt
corrective action regulations provide five classifications; well capitalized,
adequately capitalized, undercapitalized and critical undercapitalized, although
these terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The Bank and the
Company were well capitalized as of September 30, 2008.

The Bank's and Company's actual capital amounts and ratios as of September 30,
2008 are presented in the following table (dollars in thousands):

<TABLE>
<CAPTION>
                                                  For Capital           To Be
                                  Actual       Adequacy Purposes   Well Capitalized
                             ---------------   -----------------   ----------------
                              Amount   Ratio    Amount    Ratio     Amount    Ratio
                             -------   -----   --------   ------   -------   ------
<S>                          <C>       <C>     <C>        <C>      <C>       <C>
As of September 30, 2008:
Total Risk Based Capital
   to Risk Weighted Assets
      Lotus Bank             $ 8,871   36.67%    $1,935   8.00%     $2,419   10.00%
      Lotus Bancorp, Inc.     11,084   45.81%     1,936   8.00%      2,420   10.00%
Tier One Capital to Risk
   Weighted Assets
      Lotus Bank             $ 8,630   35.67%    $  968   4.00%     $1,452    6.00%
      Lotus Bancorp, Inc.     10,843   44.81%       968   4.00%      1,452    6.00%
Tier One Capital to
   Assets
      Lotus Bank             $ 8,630   34.37%    $1,004   4.00%     $1,256    5.00%
      Lotus Bancorp, Inc.     10,843   43.18%     1,004   4.00%      1,256    5.00%
</TABLE>


                                       15

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.

The following discussion and analysis provides information which the Company
believes is relevant to an assessment and understanding of its results of
operations and financial condition. This discussion should be read in
conjunction with the financial statements and accompanying notes appearing in
this report.

OVERVIEW

Lotus Bancorp, Inc.(the "Company") is a Michigan corporation that was
incorporated on October 27, 2004 to serve as a bank holding company for Lotus
Bank (the "Bank"). On February 2, 2007, the Company received approval from the
Federal Reserve Bank of Chicago to become a bank holding company. The Bank
received final regulatory approvals on February 5, 2007, and commenced banking
operations on February 28, 2007. The Company has no material business operations
other than owning and managing the Bank, and has no plans for other business
operations in the foreseeable future.

The Company commenced its initial public offering on September 28, 2006 to raise
the capital required to capitalize Lotus Bank. The initial public offering was
completed on September 30, 2007. On February 26, 2007, we broke escrow in the
amount of $12,769,358, which consisted of $12,582,050 in stock subscriptions
received and $187,308 in accrued interest receivable. On February 27, 2007, the
Company capitalized the Bank by downstreaming $10,500,000 into its capital
accounts. Early in the third quarter of 2007, the Company closed on the
remaining portion of its equity offering of $1,317,600, bringing its total
equity to $13,899,650. As of November 13, 2008, there were 1,389,965 shares of
the Company's common stock issued and outstanding.

We provide customary retail and commercial banking services to our customers,
including checking and savings accounts, time deposits, safe deposit facilities,
commercial loans, real estate mortgage loans, installment loans, IRAs and night
depository facilities. Our deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") to applicable legal limits and we are supervised and
regulated by the FDIC and Michigan Office of Financial and Insurance Regulation.

We provide a full range of retail and commercial banking services designed to
meet the borrowing and depository needs of small and medium-sized businesses and
consumers in local areas. Substantially all of our loans are to customers
located within our service area. We conduct our lending activities pursuant to
the loan policies adopted by our Board of Directors. These loan policies grant
individual loan officers authority to make secured and unsecured loans in
specific dollar amounts; senior officers or various loan committees must approve
larger loans. Our management information systems and loan review policies are
designed to monitor lending sufficiently to ensure adherence to our loan
policies.

PLAN OF OPERATION

The Company's (and the Bank's) main office is located at the intersection of 12
Mile and Dixon Roads in Novi, Michigan. The building, completed in April 2008,
is a free standing facility of approximately 5,200 square feet.

The Bank has 11.5 full-time equivalent employees, and the Company does not
currently have any employees who are not also employees of the Bank.

The Bank will use its capital for customer loans, investments and other general
banking purposes. We believe that the Company's minimum initial public offering
proceeds will enable the Bank to maintain a leverage capital ratio, which is a
measure of core capital to average total assets, in excess of 8% for the first
three years of operations as required by the FDIC. While we do not anticipate
raising additional capital during the next 12 month period, we cannot assure you
that the Company will not need to raise additional capital within the next three
years or over the next 12 month period.

FINANCIAL RESULTS

For the three and nine months ended September 30, 2008, the Company generated
net losses of $287,275 and $1,040,281, respectively. The largest expenses in the
quarter ended September 30, 2008 were compensation and employee benefits which
amounted to $228,942, occupancy and equipment costs totaling $64,524,
professional fees totaling $46,000, data processing expenses totaling $23,850,
and advertising and promotion costs totaling $12,575. Similarly, for the nine
months ended September 30, 2008 the largest expenses were compensation and
employee benefits totaling $715,246, occupancy and equipment costs amounting to
$172,987, professional fees totaling $147,000, data processing costs totaling
$73,654, and advertising and marketing costs amounting to $43,910. Additionally,
stock based compensation expense totaling $14,448 was


                                       16

<PAGE>

recognized during the quarter ended September 30, 2008, and amounted to $24,080
year-to-date. Interest and fee income for the quarter of $271,929 was largely
due to interest and fees on loans of $261,217 and federal funds sold of $10,712,
which was offset by interest expense on deposits of $67,381. On a year-to-date
basis, interest and fee income totaling $709,886 was offset by interest expense
of $173,909. On a year-to-date basis, provisions to the reserve for possible
loan loss amounted to $152,500, and the reserve stood at $240,500, or 1.23% of
total loans outstanding at September 30, 2008. While the Company has no loans
past due more than 30 days, no watch list loans, or any loans in nonaccrual
status, the Company's management felt it prudent to increase its loan loss
reserve given the state of both the local and national economies.

In comparing the September 30, 2008 quarterly and year-to-date results to those
same period ends in 2007, it is necessary to remember that the Company's
subsidiary bank had only been in operation since February 28, 2007, and
therefore the September 30, 2007 period end included only seven months of the
Bank's operations. The Company's primary source of income at that point in time
was federal funds sold, as only approximately $5.3 million of the Bank's earning
assets were invested in loans. Similarly, at September 30, 2007, the Bank's
deposit totals stood at $8.0 million versus $14.2 million at September 30, 2008.
While the Company's net interest margin for the September 30, 2007 quarter end
and year-to-date periods approximately equaled its net interest margin at the
comparable September 30, 2008 periods due to significantly higher interest rate
levels and earning asset rates in early 2007, deposit pricing has exhibited
significant upward pressure in the latter part of the second quarter and the
third quarter of 2008. The stability in that margin has been offset over the
course of the year by higher levels of salary, benefits and other compensation
expense as the Bank grew and added to staff. In aggregate, these expenses have
increased by nearly one-third in the comparable year-to-date periods.
Additionally, the commencement of banking services has resulted in significant
increases in operating expenses in general. The advent of data processing
contracts, marketing, a focus on advertising, business development initiatives,
the costs of constructing and occupying the new headquarters building, as well
as the costs of legal, accounting and audit costs associated with being a
publicly owned corporation with a federally regulated bank have resulted in
total non-interest related operating costs increasing approximately 375% between
the September 30, 2007 and September 30, 2008 year-to-date periods.

The Company's assets and liabilities have grown by approximately 30% since
year-end 2007. We believe this growth is primarily attributable to the new
location of the Company's headquarters, recent marketing and advertising
promotions, and perceived instability of competitor financial institutions, all
of which have attracted additional customer relationships into the Bank. The
Bank's asset mix has continued to improve with the conversion of cash equivalent
assets into loans. Net loans totaled $19,256,930 at quarter end, an increase of
approximately $10.0 million over December 31, 2007, and were funded largely by
increases in deposits gathered amounting to $14,182,921. The Company expects
this growth to continue for the foreseeable future, as tempered competition and
increased consolidation in its market allow it to gain more customer
relationships, resulting in the continued enrichment in its asset mix as federal
funds sold balances continue to be converted into higher-yielding loans.

An approximately 92% increase in deposits at quarter-end, as compared to
year-end 2007, were comprised primarily of non-interest bearing demand balances
and certificates of deposit. The Company's equity declined during the same
period due exclusively to its operating losses discussed above.

The Bank derives its revenues primarily from interest charged on loans, and to a
lesser extent, from interest earned on investments, fees received in connection
with the origination of loans and other miscellaneous fees and service charges.
Its principal expenses are interest expense on deposits and operating expenses.
The funds for these activities are provided principally by operating revenues,
deposit growth, purchases of federal funds from other financial institutions,
sales of loans and investment securities, and the partial or full repayment of
loans by borrowers.

The Bank's operations depend substantially on its net interest income, which is
the difference between interest earned on loans and other investments, and
interest expense paid on deposits and other borrowings. This difference can be
largely affected by changes in market interest rates, credit policies of
monetary authorities, and other local, national or international economic
factors which are beyond the Bank's ability to predict or control. Large moves
in interest rates may decrease or eliminate the Bank's profitability.

FUNDING OF OPERATIONS AND LIQUIDITY

On February 26, 2007, the Company had its first closing on the common stock
subscriptions received, and issued 1,258,205 shares of stock for a total of
$12,582,050, which included the conversion of $109,990 of organizer advances
into common stock. The Company continued to offer its common stock for sale
pursuant to the terms of the registration statement until


                                       17

<PAGE>

June 30, 2007. Since the initial closing on February 26, 2007, the Company
closed on an additional $1,314,600 in common stock subscriptions, and issued an
additional 131,760 shares. As of November 13, 2008, a total of 1,389,965 shares
of the Company's common stock were issued and outstanding.

The Company believes that the proceeds raised during the initial public offering
will provide sufficient capital to support the growth of both the Company and
the Bank for their initial years of operations.

CAPITAL EXPENDITURES

The Company has made capital expenditures of $4,604 for the three month period
ended September 30, 2008, for certain office equipment, and sold certain office
equipment with a cost of $4,484 for the three month period ended September 30,
2008. The sale of this equipment resulted in a gain in the amount of $745. The
Company commenced occupancy of its headquarters on April 14, 2008, after
expending approximately $2,200,000 for its construction.

LIQUIDITY AND INTEREST RATE SENSITIVITY

Liquidity represents the ability to provide a steady source of funds for loan
commitments and other investment activities, as well as the ability to maintain
sufficient funds to cover deposit withdrawals and the payment of debt and
operating obligations. The Bank can obtain these funds by converting assets into
cash, obtaining new deposits, or by borrowing funds. Its ability to attract and
maintain these deposits will serve as its primary source of funding.

On February 26, 2007, the Company met the conditions to capitalize and open
Lotus Bank and issued 1,258,205 shares of stock for the subscriptions received
in escrow and in lieu of cash repayment of the organizer advances of $109,990.
The Company repaid the outstanding balance on its organizational line of credit
by using a portion of the proceeds of its initial public offering, and then
invested $10,500,000 of the proceeds in the capital of the Bank. Since that
date, the Company has issued an additional 131,760 shares. As of September 30,
2008, the Company's primary sources of liquidity are cash and due from banks and
federal funds sold which amounted to $2,166,780. As the Bank continues to grow,
it is expected that a substantial portion of these funds will be invested in
loans and be supplanted by increases in deposits.

Additionally, the Bank has arranged a federal funds borrowing line with one of
its correspondent banks, has gained access to the discount window of the Federal
Reserve Bank of Chicago (the "FRBC"), and has established a borrowing line with
the Federal Home Loan Bank of Indianapolis (the "FHLBI"). Any borrowings from
the FRBC and the FHLBI are required to be collateralized with certain of the
Bank's assets. The federal funds line is unsecured.

Net interest income, the Bank's primary source of earnings, will fluctuate with
significant interest rate movements. The Company's profitability depends
substantially on the Bank's net interest income. A large change in interest
rates may significantly impact the Bank's net interest income and decrease or
eliminate the Company's profitability. Most of the factors that influence
changes in market interest rates, including economic conditions, are beyond the
Company's ability to control. While the Bank will take measures to minimize the
impact of these fluctuations, the Bank intends to structure its balance sheet
such that repricing opportunities exist both for assets and liabilities in
roughly equal amounts at approximately the same time intervals. Imbalances in
these repricing opportunities at any point in time constitute interest rate
sensitivity.

Interest rate sensitivity refers to the responsiveness of interest-bearing
assets and liabilities to changes in market interest rates. The Bank will
generally attempt to maintain a balance between rate sensitive assets and
liabilities and the changes in interest income and expense in order to limit its
overall interest rate risk. The Bank regularly evaluates the balance sheet's
asset mix in terms of several variables: yield, credit quality, funding sources
and liquidity.

To effectively manage the balance sheet's liability mix, the Bank plans to
expand its deposit base and converting assets to cash where necessary. As the
Bank continues to grow, it will continuously structure its rate sensitivity
position in an attempt to hedge against rapidly rising or falling interest
rates. The Bank's asset and liability committee meets regularly to develop
strategies for the upcoming period.

Other than increases in loans and deposits, management knows of no trends,
demands, commitments, events or uncertainties that would result in or are
reasonably likely to result in the Company's liquidity increasing or decreasing
in any material way in the foreseeable future.


                                       18

<PAGE>

OFF BALANCE SHEET ARRANGEMENTS

At September 30, 2008, the Company had unfunded loan commitments outstanding of
approximately $9.6 million. Because these commitments generally have fixed
expiration dates and many will expire without being drawn upon, the total
commitments level does not necessarily represent future cash requirements. The
Company has the ability to fund these commitments if required.

CAPITAL ADEQUACY

There are two primary measures of capital adequacy for banks and bank holding
companies: (i) risk-based capital guidelines and (ii) the leverage ratio. The
risk-based capital guidelines measure the amount of a bank's required capital in
relation to the degree of risk perceived in its assets and its off-balance sheet
items. Under the risk-based capital guidelines, capital is divided into two
"tiers." Tier 1 capital consists of common stockholder's equity, non-cumulative
perpetual preferred stock, and minority interests. Goodwill, if any, is deducted
from the total. Tier 2 capital consists of the allowance for loan losses, hybrid
capital instruments, term subordinated debt and immediate term preferred stock.
Banks are required to maintain a minimum risk-based capital ratio of 8%, with at
least 4% consisting of Tier 1 capital.

The second measure of capital adequacy relates to the leverage ratio. The FDIC
has established a 3% minimum leverage ratio requirement. The leverage ratio in
computed by dividing Tier 1 capital by total assets. In the case of the Bank and
other banks that are experiencing growth or have not received the highest
regulatory rating from their primary regulator, the minimum leverage ratio
should be 3% plus an additional cushion of at least 1% to 2%, depending upon
risk profiles and other factors.

The Bank is currently, and expects to continue to be, in compliance with these
guidelines. The following table shows the capital totals and ratios for the Bank
as of September 30, 2008:

<TABLE>
<S>                                      <C>
Tier 1 capital                           $8,630
Total capital                            $8,871
Tier 1 capital to risk-weighted assets    35.67%
Total capital to risk-weighted assets     36.67%
Tier 1 capital to average assets          34.37%
</TABLE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     This item does not apply to smaller reporting companies.

ITEM 4T. CONTROLS AND PROCEDURES.

The management of Lotus Bancorp, Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting. The Company's
internal control over financial reporting is a process designed under the
supervision of the Company's chief executive officer and chief financial officer
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of the company's financial statements for external reporting
purposes in accordance with U.S. generally accepted accounting principles.

Lotus Bancorp, Inc.'s management assessed the effectiveness of the company's
internal control over financial reporting as of September 30, 2008 based on
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in "Internal Control - Integrated Framework." Based on that
assessment, management determined that, as of September 30, 2008, the Company's
internal control over financial reporting is effective, based on those criteria.

There was no change in the Company's internal control over financial reporting
that occurred during the Company's fiscal quarter ended September 30, 2008, that
materially affected, or is reasonably likely to affect, the Company's internal
control over financial reporting.


                                       19

<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

There are no known pending legal proceedings to which the Company or the Bank is
a party or to which any of its properties are subject, nor are there any
material proceedings known to the Company in which any director, officer or
affiliate, or any principal shareholder is a party or has an interest adverse to
the Company.

ITEM 1A. RISK FACTORS.

     This item does not apply to smaller reporting companies.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

     This item is not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

     This item is not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     This item is not applicable.

ITEM 5. OTHER INFORMATION.

     This item is not applicable.

ITEM 6. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT NUMBER                       DESCRIPTION OF EXHIBIT
--------------   ------------------------------------------------------------
<S>              <C>
31.1             Rule 13 a - 14 (a) Certification of Chief Executive Officer
31.2             Rule 13 a - 14 (a) Certification of Chief Financial Officer
32               Certification pursuant to 18 U.S.C. Section 1350, as adopted
                 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
</TABLE>


                                       20

<PAGE>


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                       LOTUS BANCORP, INC.


Date: November 13, 2008                By: /s/ Satish B. Jasti
                                           -------------------------------------
                                           Satish B. Jasti
                                           President and Chief Executive Officer


Date: November 13, 2008                By: /s/ Richard E. Bauer
                                           -------------------------------------
                                           Richard E. Bauer
                                           Chief Financial Officer


                                       21

<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER                        DESCRIPTION OF EXHIBIT
--------------   ---------------------------------------------------------------
<S>              <C>
31.1             CERTIFICATION PURSUANT TO RULES 13A - 15(E) AND 15D - 15(E) OF
                 THE SECURITIES EXCHANGE ACT
31.2             CERTIFICATION PURSUANT TO RULES 13A - 15(E) AND 15D - 15(E) OF
                 THE SECURITIES EXCHANGE ACT
32               CERTIFICATION PURSUANT TO RULES 13A - 14(B) OR RULE 15D - 14(B)
                 OF THE SECURITIES EXCHANGE ACT AND 18 U.S.C. Section 1350
</TABLE>


                                       22