Document:

EXHIBIT
      10.3

    FORM
      OF NOTE

    

    

    THIS
      NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
      COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
      FOR
      SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
      STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
      SATISFACTORY TO LOTUS PHARMACEUTICALS, INC. THAT SUCH REGISTRATION IS NOT
      REQUIRED.

     

    
      	Principal Amount: $_______________	
              Issue
                Date: February ___,
                2007

            

    

    

    SECURED
      CONVERTIBLE NOTE

    

    FOR
      VALUE
      RECEIVED, LOTUS PHARMACEUTICALS, INC., a Nevada corporation (hereinafter called
      "Borrower"), hereby promises to pay to
      _____________________________________

    ______________________________________________,
      Fax: ______________ (the "Holder") or order, without demand, the sum of
      ___________________________ Dollars ($__________), with simple and unpaid
      interest thereon, on February ____, 2008 (the "Maturity Date"), if not paid
      sooner.

    

    This
      Note
      has been entered into pursuant to the terms of a subscription agreement between
      the Borrower and the Holder, dated of even date herewith (the “Subscription
      Agreement”), and shall be governed by the terms of such Subscription Agreement.
      Unless otherwise separately defined herein, all capitalized terms used in this
      Note shall have the same meaning as is set forth in the Subscription Agreement.
      The following terms shall apply to this Note:

    

    ARTICLE
      I

    

    GENERAL
      PROVISIONS

    

    1.1 Payment
      Grace Period.
      The
      Borrower shall have a five (5) business day grace period to pay any monetary
      amounts due under this Note, after which grace period and during the pendency
      of
      an Event of Default (as defined in Article III) a default interest rate of
      eighteen percent (18%) per annum shall apply to the amounts owed hereunder.
      The
      interest rate payable on Note principal corresponding to the Withdrawn
      Registrable Securities (as defined in Section 11.4 of the Subscription Agreement
      and such Note principal referred to hereinafter as “Unregistered Note
      Principal”) shall accrue at the annual rate of 18% during the pendency of a
      Non-Registration Event which would have occurred in connection with such
      Unregistered Note Principal if the Rule 415 Waiver (described in Section 11.4
      of
      the Subscription Agreement) had not been in effect (such period referred to
      herein as the “Rule 415 Exclusion Period”).

    

    1.2.  Interest
      Rate.
      Simple
      interest payable on this Note shall accrue at the annual rate of fourteen
      percent (14%). Interest will be payable on April 30, 2007 and on the last
      business day of each calendar quarter thereafter and on the Maturity Date,
      accelerated or otherwise, when the principal and remaining accrued but unpaid
      interest shall be due and payable, or sooner as described below. Interest will
      be payable in cash so long as neither an Event of Default, nor an event which
      with the passage of time or the giving of notice could become an Event of
      Default has occurred, at the election of the Holder, by the Borrower’s delivery
      of registered Common Stock which were registered exclusively for the purpose
      of
      satisfying the payment of interest and not principal (“Interest Shares”) valued
      at 75% of the average of the three lowest closing bid prices of the Common
      Stock
      as reported by Bloomberg L.P. for the Principal Market for the twenty trading
      days ending on the trading day preceding the relevant interest payment date.
      The
      Borrower must notify the Holder, in writing, not less than fifteen trading
      days
      prior to the relevant interest payment date of its intention to pay interest
      with shares of Common Stock otherwise such payment must be made in cash. The
      Interest Shares must be delivered not later than two trading days after the
      date
      the cash interest payment would otherwise be payable.

    

    
      
         

      

      
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    1.3. Conversion
      Privileges.
      The
      Conversion Privileges set forth in Article II shall remain in full force and
      effect immediately from the date hereof and until the Note is paid in full
      regardless of the occurrence of an Event of Default. The Note shall be payable
      in full on the Maturity Date, unless previously converted into Common Stock
      in
      accordance with Article II hereof; provided, that if an Event of Default has
      occurred that has not been timely cured, the Borrower may not pay this Note,
      without the consent of the Holder, until one year after the later of the date
      the Event of Default has been cured or one year after the Maturity
      Date.

    

    ARTICLE
      II

    

    CONVERSION
      RIGHTS

    

    The
      Holder shall have the right to convert the principal due under this Note into
      Shares of the Borrower's Common Stock, $.001 par value per share (“Common
      Stock”) as set forth below.

    

    2.1. Conversion
      into the Borrower's Common Stock.

    

    (a) The
      Holder shall have the right from and after the Issue Date of the issuance of
      this Note and then at any time until this Note is fully paid, to convert any
      outstanding and unpaid principal portion of this Note, and accrued interest
      if
      any, at the election of the Holder (the date of giving of such notice of
      conversion being a "Conversion Date") into fully paid and nonassessable shares
      of Common Stock as such stock exists on the date of issuance of this Note,
      or
      any shares of capital stock of Borrower into which such Common Stock shall
      hereafter be changed or reclassified, at the conversion price as defined in
      Section 2.1(b) hereof (the "Conversion Price"), determined as provided herein.
      Upon delivery to the Borrower of a completed Notice of Conversion, a form of
      which is annexed hereto, Borrower shall issue and deliver to the Holder within
      three (3) business days after the Conversion Date (such third day being the
      “Delivery Date”) that number of shares of Common Stock for the portion of the
      Note converted in accordance with the foregoing. At the election of the Holder,
      the Borrower will deliver accrued but unpaid interest on the Note in the manner
      provided in Section 1.3 through the Conversion Date directly to the Holder
      on or
      before the Delivery Date (as defined in the Subscription Agreement). The number
      of shares of Common Stock to be issued upon each conversion of this Note shall
      be determined by dividing that portion of the principal of the Note and interest
      to be converted, by the Conversion Price.

    

    (b)  Subject
      to adjustment as provided in Section 2.1(c) hereof, the Conversion Price per
      share shall be $1.00, except that the Conversion Price in connection with
      Unregistered Note Principal shall be 75% of the Conversion Price otherwise
      in
      effect during the Rule 415 Exclusion Period.

    

    (c) 
      The
      Conversion Price and number and kind of shares or other securities to be issued
      upon conversion determined pursuant to Section 2.1(a), shall be subject to
      adjustment from time to time upon the happening of certain events while this
      conversion right remains outstanding, as follows:

    

    
      
         

      

      
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    A. Merger,
      Sale of Assets, etc. If the Borrower at any time shall consolidate with or
      merge
      into or sell or convey all or substantially all its assets to any other
      corporation, this Note, as to the unpaid principal portion thereof and accrued
      interest thereon, shall thereafter be deemed to evidence the right to purchase
      such number and kind of shares or other securities and property as would have
      been issuable or distributable on account of such consolidation, merger, sale
      or
      conveyance, upon or with respect to the securities subject to the conversion
      or
      purchase right immediately prior to such consolidation, merger, sale or
      conveyance. The foregoing provision shall similarly apply to successive
      transactions of a similar nature by any such successor or purchaser. Without
      limiting the generality of the foregoing, the anti-dilution provisions of this
      Section shall apply to such securities of such successor or purchaser after
      any
      such consolidation, merger, sale or conveyance.

    

    B. Reclassification,
      etc. If the Borrower at any time shall, by reclassification or otherwise, change
      the Common Stock into the same or a different number of securities of any class
      or classes that may be issued or outstanding, this Note, as to the unpaid
      principal portion thereof and accrued interest thereon, shall thereafter be
      deemed to evidence the right to purchase an adjusted number of such securities
      and kind of securities as would have been issuable as the result of such change
      with respect to the Common Stock immediately prior to such reclassification
      or
      other change.

    

    C. Stock
      Splits, Combinations and Dividends. If the shares of Common Stock are subdivided
      or combined into a greater or smaller number of shares of Common Stock, or
      if a
      dividend is paid on the Common Stock in shares of Common Stock, the Conversion
      Price shall be proportionately reduced in case of subdivision of shares or
      stock
      dividend or proportionately increased in the case of combination of shares,
      in
      each such case by the ratio which the total number of shares of Common Stock
      outstanding immediately after such event bears to the total number of shares
      of
      Common Stock outstanding immediately prior to such event..

     

    D. Share
      Issuance. So long as this Note is outstanding, if the Borrower shall issue
      or
      agree to issue any shares of Common Stock except for the Excepted Issuances
      (as
      defined in the Subscription Agreement) for a consideration less than the
      Conversion Price in effect at the time of such issue, then, and thereafter
      successively upon each such issue, the Conversion Price shall be reduced to
      such
      other lower issue price. For purposes of this adjustment, the issuance of any
      security carrying the right to convert such security into shares of Common
      Stock
      or of any warrant, right or option to purchase Common Stock shall result in
      an
      adjustment to the Conversion Price upon the issuance of the above-described
      security and again upon the issuance of shares of Common Stock upon exercise
      of
      such conversion or purchase rights if such issuance is at a price lower than
      the
      then applicable Conversion Price. The reduction of the Conversion Price
      described in this paragraph is in addition to other rights of the Holder
      described in this Note and the Subscription Agreement.

    

    (d) Whenever
      the Conversion Price is adjusted pursuant to Section 2.1(c) above, the Borrower
      shall promptly mail to the Holder a notice setting forth the Conversion Price
      after such adjustment and setting forth a statement of the facts requiring
      such
      adjustment.

    

    (e) Borrower
      will reserve from its authorized and unissued Common Stock the number of shares
      of Common Stock during the time periods and in the amounts described in the
      Subscription Agreement. Borrower represents that upon issuance, such shares
      will
      be duly and validly issued, fully paid and non-assessable. Borrower agrees
      that
      its issuance of this Note shall constitute full authority to its officers,
      agents, and transfer agents who are charged with the duty of executing and
      issuing stock certificates to execute and issue the necessary certificates
      for
      shares of Common Stock upon the conversion of this Note.

    

    
      
         

      

      
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    2.2 Method
      of Conversion.
      This
      Note may be converted by the Holder in whole or in part as described in Section
      2.1(a) hereof and the Subscription Agreement. Upon partial conversion of this
      Note, a new Note containing the same date and provisions of this Note shall,
      at
      the request of the Holder, be issued by the Borrower to the Holder for the
      principal balance of this Note and interest which shall not have been converted
      or paid.

    

    2.3 Maximum
      Conversion.
      The
      Holder shall not be entitled to convert on a Conversion Date that amount of
      the
      Note in connection with that number of shares of Common Stock which would be
      in
      excess of the sum of (i) the number of shares of Common Stock beneficially
      owned
      by the Holder and its affiliates on a Conversion Date, (ii) any Common Stock
      issuable in connection with the unconverted portion of the Note, and (iii)
      the
      number of shares of Common Stock issuable upon the conversion of the Note with
      respect to which the determination of this provision is being made on a
      Conversion Date, which would result in beneficial ownership by the Holder and
      its affiliates of more than 4.99% of the outstanding shares of Common Stock
      of
      the Borrower on such Conversion Date. For the purposes of the provision to
      the
      immediately preceding sentence, beneficial ownership shall be determined in
      accordance with Section 13(d) of the Securities Exchange Act of 1934, as
      amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder
      shall not be limited to aggregate conversions of only 4.99% and aggregate
      conversion by the Holder may exceed 4.99%. The Holder shall have the authority
      and obligation to determine whether the restriction contained in this Section
      2.3 will limit any conversion hereunder and to the extent that the Holder
      determines that the limitation contained in this Section applies, the
      determination of which portion of the Notes are convertible shall be the
      responsibility and obligation of the Holder. The
      Subscriber may increase the permitted beneficial ownership amount up to 9.99%
      upon and effective after 61 days prior written notice to the
      Company.
      The
      Holder may allocate which of the equity of the Borrower deemed beneficially
      owned by the Holder shall be included in the 4.99% amount described above and
      which shall be allocated to the excess above 4.99%.

    

    2.4. Optional
      Redemption of Principal Amount.
      Provided an Event of Default or an event which with the passage of time on
      the
      giving of notice could become an Event of Default has not occurred, whether
      or
      not such Event of Default has been cured, the Borrower will have the option
      of
      prepaying the outstanding initial principal amount of this Note ("Optional
      Redemption"), in whole or in part, by paying to the Holder a sum of money equal
      to one hundred and fifteen percent (115%) of the Principal Amount to be
      redeemed, together with accrued but unpaid interest thereon and any and all
      other sums due, accrued or payable to the Holder arising under this Note or
      any
      Transaction Document through the Redemption Payment Date as defined below (the
      "Redemption Amount"). Borrower’s election to exercise its right to prepay must
      be by notice in writing (“Notice of Redemption”). The Notice of Redemption shall
      specify the date for such Optional Redemption (the "Redemption Payment Date"),
      which date shall be thirty (30) days after the date of the Notice of Redemption
      (the "Redemption Period"). A Notice of Redemption shall not be effective with
      respect to any portion of the Principal Amount for which the Holder has a
      pending election to convert pursuant to Section 2.1, or for conversions
      initiated or made by the Holder pursuant to Section 2.1 during the Redemption
      Period. A Redemption Notice may be given not more frequently than one time
      each
      sixty days. A Redemption Notice may be given for an amount of principal which
      is
      not greater than an amount of Note Principal which when converted into Common
      stock would not exceed the limitation described in Section 2.3 above. On the
      Redemption Payment Date, the Redemption Amount, less any portion of the
      Redemption Amount against which the Holder has exercised its rights pursuant
      to
      Section 2.1, shall be paid in good funds to the Holder. In the event the
      Borrower fails to pay the Redemption Amount on the Redemption Payment Date
      as
      set forth herein, then (i) such Notice of Redemption will be null and void,
      (ii)
      Borrower will not have the right to deliver another Notice of Redemption, and
      (iii) Borrower’s failure may be deemed by Holder to be a non-curable Event of
      Default. A Notice of Redemption may be cancelled at the option of the Holder,
      if
      at any time during the Redemption Period an Event of Default, or an event which
      with the passage of time or giving of notice could become an Event of Default
      (whether or not such Event of Default has been cured), has
      occurred.

    

    
      
         

      

      
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    ARTICLE
      III

    

    EVENT
      OF DEFAULT

    

    The
      occurrence of any of the following events of default ("Event of Default") shall,
      at the option of the Holder hereof, make all sums of principal and interest
      then
      remaining unpaid hereon and all other amounts payable hereunder immediately
      due
      and payable, upon demand, without presentment, or grace period, all of which
      hereby are expressly waived, except as set forth below:

    

    3.1 Failure
      to Pay Principal or Interest.
      The
      Borrower fails to pay any installment of principal, interest or other sum due
      under this Note when due and such failure continues for a period of five (5)
      business days after the due date. The five (5) day period described in this
      Section 3.1 is the same five (5) business day period described in Section 1.1
      hereof.

    

    3.2 Breach
      of Covenant.
      The
      Borrower breaches any material covenant or other material term or condition
      of
      the Subscription Agreement or this Note in any material respect and such breach,
      if subject to cure, continues for a period of ten (10) business days after
      written notice to the Borrower from the Holder.

    

    3.3 Breach
      of Representations and Warranties.
      Any
      material representation or warranty of the Borrower made herein, in the
      Subscription Agreement, or in any agreement, statement or certificate given
      in
      writing pursuant hereto or in connection therewith shall be false or misleading
      in any material respect as of the date made and the Closing Date.

    

    3.4 Receiver
      or Trustee.
      The
      Borrower shall make an assignment for the benefit of creditors, or apply for
      or
      consent to the appointment of a receiver or trustee for it or for a substantial
      part of its property or business; or such a receiver or trustee shall otherwise
      be appointed without the consent of the Borrower is not dismissed within
      forty-five (45) days of appointment.

    

    3.5 Judgments.
      Any
      money judgment, writ or similar final process shall be entered or filed against
      Borrower or any of its property or other assets for more than $100,000, and
      shall remain unpaid, unvacated, unbonded or unstayed for a period of forty-five
      (45) days.

    

    3.6 Bankruptcy.
      Bankruptcy, insolvency, reorganization or liquidation proceedings or other
      proceedings or relief under any bankruptcy law or any law, or the issuance
      of
      any notice in relation to such event, for the relief of debtors shall be
      instituted by or against the Borrower and if instituted against Borrower are
      not
      dismissed within forty-five (45) days of initiation.

    

    3.7 Delisting.
      Failure
      of the Common Stock to be listed for trading or quotation on a Principal
      Market.

    

    3.8 Non-Payment.
      A
      default by the Borrower under any one or more obligations in an aggregate
      monetary amount in excess of $150,000 for more than thirty days after the due
      date, unless the Borrower is contesting the validity of such obligation in
      good
      faith and has segregated cash funds equal to not less than one-half of the
      disputed amount.

    

    
      
         

      

      
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    3.9 Stop
      Trade.
      An SEC
      or judicial stop trade order or Principal Market trading suspension that lasts
      for ten or more consecutive trading days.

    

    3.10 Failure
      to Deliver Common Stock or Replacement Note.
      Borrower's failure to deliver Common Stock to the Holder pursuant to and in
      the
      form required by this Note and Sections 7 and 11 of the Subscription Agreement,
      or, if required, a replacement Note more than five Business Days after the
      required delivery date of such Common Stock or Note.

    

    3.11 Non-Registration
      Event.
      The
      occurrence of a Non-Registration Event as described in Section 11.4 of the
      Subscription Agreement.

    

    3.12 Reservation
      Default.
      Failure
      by the Borrower to have reserved for issuance upon conversion of the Note the
      amount of Common stock as set forth in this Note and the Subscription
      Agreement.

    

    3.13 Cross
      Default.
      A
      default by the Borrower of a material term, covenant, warranty or undertaking
      of
      any other agreement to which the Borrower and Holder are parties, or the
      occurrence of a material event of default under any such other agreement which
      is not cured after any required notice and/or cure period.

    

    ARTICLE
      IV

    

    SECURITY
      INTEREST

    

    4. Security
      Interest/Waiver of Automatic Stay.
      This
      Note is secured by a security interest granted to the Collateral Agent for
      the
      benefit of the Holder pursuant to a Security Agreement, as delivered by Borrower
      to Holder. The Borrower acknowledges and agrees that should a proceeding under
      any bankruptcy or insolvency law be commenced by or against the Borrower, or
      if
      any of the Collateral (as defined in the Security Agreement) should become
      the
      subject of any bankruptcy or insolvency proceeding, then the Holder should
      be
      entitled to, among other relief to which the Holder may be entitled under the
      Transaction Documents and any other agreement to which the Borrower and Holder
      are parties (collectively, "Loan Documents") and/or applicable law, an order
      from the court granting immediate relief from the automatic stay pursuant to
      11
      U.S.C. Section 362 to permit the Holder to exercise all of its rights and
      remedies pursuant to the Loan Documents and/or applicable law. THE BORROWER
      EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION
      362. FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER
      11
      U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE
      OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY,
      INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER
      TO
      ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR
      APPLICABLE LAW. The Borrower hereby consents to any motion for relief from
      stay
      that may be filed by the Holder in any bankruptcy or insolvency proceeding
      initiated by or against the Borrower and, further, agrees not to file any
      opposition to any motion for relief from stay filed by the Holder. The Borrower
      represents, acknowledges and agrees that this provision is a specific and
      material aspect of the Loan Documents, and that the Holder would not agree
      to
      the terms of the Loan Documents if this waiver were not a part of this Note.
      The
      Borrower further represents, acknowledges and agrees that this waiver is
      knowingly, intelligently and voluntarily made, that neither the Holder nor
      any
      person acting on behalf of the Holder has made any representations to induce
      this waiver, that the Borrower has been represented (or has had the opportunity
      to he represented) in the signing of this Note and the Loan Documents and in
      the
      making of this waiver by independent legal counsel selected by the Borrower
      and
      that the Borrower has discussed this waiver with counsel.

    

    
      
         

      

      
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    ARTICLE
      V

    

    MISCELLANEOUS

    

    5.1 Failure
      or Indulgence Not Waiver.
      No
      failure or delay on the part of Holder hereof in the exercise of any power,
      right or privilege hereunder shall operate as a waiver thereof, nor shall any
      single or partial exercise of any such power, right or privilege preclude other
      or further exercise thereof or of any other right, power or privilege. All
      rights and remedies existing hereunder are cumulative to, and not exclusive
      of,
      any rights or remedies otherwise available.

    

    5.2 Notices.
      All
      notices, demands, requests, consents, approvals, and other communications
      required or permitted hereunder shall be in writing and, unless otherwise
      specified herein, shall be (i) personally served, (ii) deposited in the mail,
      registered or certified, return receipt requested, postage prepaid, (iii)
      delivered by reputable air courier service with charges prepaid, or (iv)
      transmitted by hand delivery, telegram, or facsimile, addressed as set forth
      below or to such other address as such party shall have specified most recently
      by written notice. Any notice or other communication required or permitted
      to be
      given hereunder shall be deemed effective (a) upon hand delivery or delivery
      by
      facsimile, with accurate confirmation generated by the transmitting facsimile
      machine, at the address or number designated below (if delivered on a business
      day during normal business hours where such notice is to be received), or the
      first business day following such delivery (if delivered other than on a
      business day during normal business hours where such notice is to be received)
      or (b) on the second business day following the date of mailing by express
      courier service, fully prepaid, addressed to such address, or upon actual
      receipt of such mailing, whichever shall first occur. The addresses for such
      communications shall be: (i) if to the Borrower to: Lotus
      Pharmaceuticals, Inc., Boca Corporate Plaza, 7900 Glades Road, Suite 420, Boca
      Raton, FL 33434, Attn: Mr. Zhongyi Liu,
      CEO,
      telecopier: (561) 988-9890, with a copy by telecopier only to: Casale Alliance,
      LLP, 1158 26th
      Street,
      Suite 325, Santa Monica, CA 90403, telecopier number: (310) 919-2810, and (ii)
      if to the Holder, to the name, address and telecopy number set forth on the
      front page of this Note, with a copy by telecopier only to Grushko &
Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176,
      telecopier number: (212) 697-3575.

    

    5.3 Amendment
      Provision.
      The
      term "Note" and all reference thereto, as used throughout this instrument,
      shall
      mean this instrument as originally executed, or if later amended or
      supplemented, then as so amended or supplemented.

    

    5.4 Assignability.
      This
      Note shall be binding upon the Borrower and its successors and assigns, and
      shall inure to the benefit of the Holder and its successors and
      assigns.

    

    5.5 Cost
      of Collection.
      If
      default is made in the payment of this Note, Borrower shall pay the Holder
      hereof reasonable costs of collection, including reasonable attorneys'
      fees.

    

    
      
         

      

      
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    5.6 Governing
      Law.
      This
      Note shall be governed by and construed in accordance with the laws of the
      State
      of New York. Any action brought by either party against the other concerning
      the
      transactions contemplated by this Agreement shall be brought only in the civil
      or state courts of New York or in the federal courts located in the State and
      county of New York. Both parties and the individual signing this Agreement
      on
      behalf of the Borrower agree to submit to the jurisdiction of such courts.
      The
      prevailing party shall be entitled to recover from the other party its
      reasonable attorney's fees and costs. In
      the
      event that any provision of this Note is invalid or unenforceable under any
      applicable statute or rule of law, then such provision shall be deemed
      inoperative to the extent that it may conflict therewith and shall be deemed
      modified to conform with such statute or rule of law. Any such provision which
      may prove invalid or unenforceable under any law shall not affect the validity
      or unenforceability of any other provision of this Note. Nothing contained
      herein shall be deemed or operate to preclude the Holder from bringing suit
      or
      taking other legal action against the Borrower in any other jurisdiction to
      collect on the Borrower's obligations to Holder, to realize on any collateral
      or
      any other security for such obligations, or to enforce a judgment or other
      decision in favor of the Holder. This
      Note shall be deemed an unconditional obligation of Borrower for the payment
      of
      money and, without limitation to any other remedies of Holder, may be enforced
      against Borrower by summary proceeding pursuant to New York Civil Procedure
      Law
      and Rules Section 3213 or any similar rule or statute in the jurisdiction where
      enforcement is sought. For purposes of such rule or statute, any other document
      or agreement to which Holder and Borrower are parties or which Borrower
      delivered to Holder, which may be convenient or necessary to determine Holder’s
      rights hereunder or Borrower’s obligations to Holder are deemed a part of this
      Note, whether or not such other document or agreement was delivered together
      herewith or was executed apart from this Note.

    

    5.7 Maximum
      Payments.
      Nothing
      contained herein shall be deemed to establish or require the payment of a rate
      of interest or other charges in excess of the maximum permitted by applicable
      law. In the event that the rate of interest required to be paid or other charges
      hereunder exceed the maximum permitted by such law, any payments in excess
      of
      such maximum shall be credited against amounts owed by the Borrower to the
      Holder and thus refunded to the Borrower.

    

    5.8 Shareholder
      Status.
      The
      Holder shall not have rights as a shareholder of the Borrower with respect
      to
      unconverted portions of this Note. However, the Holder will have all the rights
      of a shareholder of the Borrower with respect to the shares of Common Stock
      to
      be received by Holder after delivery by the Holder of a Conversion Notice to
      the
      Borrower.

    

    [THIS
      SPACE INTENTIONALLY LEFT BLANK]

     

     

     

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF,
      Borrower has caused this Note to be signed in its name by an authorized officer
      as of the ____ day of February, 2007.

     

    
      	 	 	 
	 	LOTUS
              PHARMACEUTICALS, INC.
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
              
Name:

	 	Title 
	 	 
	WITNESS:	 
	 	 
	 	 
	
              

            	 

    

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    NOTICE
      OF CONVERSION

    

    (To
      be
      executed by the Registered Holder in order to convert the Note)

    

    The
      undersigned hereby elects to convert $_________ of the principal and $_________
      of the interest due on the Note issued by Lotus Pharmaceuticals, Inc. on
      February ___, 2007 into Shares of Common Stock of Lotus Pharmaceuticals, Inc.
      (the "Borrower") according to the conditions set forth in such Note, as of
      the
      date written below.

    

    

    Date
      of
      Conversion:____________________________________________________________________

    

    

    Conversion
      Price:______________________________________________________________________

    

    

    Shares
      To
      Be
      Delivered:_________________________________________________________________

    

    

    Signature:____________________________________________________________________________

    

    

    Print
      Name:__________________________________________________________________________

    

    

    Address:_____________________________________________________________________________

    

    ____________________________________________________________________________

     

    
      
         

      

        10EXH.
      10.4

    

    SECURITY
      AGREEMENT

    1. Identification.

    

    This
      Security Agreement (the "Agreement"), dated as of February 12, 2007, is entered
      into by and between Lotus Pharmaceuticals, Inc., a Nevada corporation
      ("Parent"), Lotus Pharmaceutical International, Inc. (“Subsidiary”), En Ze Jia
      Shi Pharmaceutical CO., Ltd., a People’s Republic of China corporation, Liang
      Fang Pharmaceutical CO., Ltd., a People’s Republic of China corporation, Zhongyi
      Liu, a shareholder of each of En Ze Jia Shi Pharmaceutical CO., Ltd. and Liang
      Fang Pharmaceutical CO., Ltd., Zhenghong Song, a shareholder of each of En
      Ze
      Jia Shi Pharmaceutical CO., Ltd. and Liang Fang Pharmaceutical CO., Ltd., and
      Wenli Xian, a shareholder of Liang Fang Pharmaceutical CO., Ltd. (each a
      "Guarantor" and together with Parent, each a “Debtor” and collectively the
      "Debtors"), and S. Michael Rudolph, as collateral agent acting in the manner
      and
      to the extent described in the Collateral Agent Agreement defined below (the
      "Collateral Agent"), for the benefit of the parties identified on Schedule
      A
      hereto (collectively, the "Lenders").

    

    2. Recitals.

    

    2.1 The
      Lenders have made and are making loans to Parent (the "Loans"). It is beneficial
      to each Debtor that the Loans were made and are being made.

    

    2.2 The
      Loans
      are and will be evidenced by certain promissory notes (each a “Note”) issued by
      Parent on or about the date of and after the date of this Agreement pursuant
      to
      subscription agreements (each a “Subscription Agreement”) to which Parent and
      Lenders are parties. The Notes are further identified on Schedule A hereto
      and
      were and will be executed by Parent as “Borrower” or “Debtor” for the benefit of
      each Lender as the “Holder” or “Lender” thereof.

    

    2.3 In
      consideration of the Loans made and to be made by Lenders to Parent and for
      other good and valuable consideration, and as security for the performance
      by
      Parent of its obligations under the Notes and as security for the repayment
      of
      the Loans and all other sums due from Debtors to Lenders arising under the
      Transaction Documents (as defined in the Subscription Agreement), and any other
      agreement between or among them (collectively, the "Obligations"), each Debtor,
      for good and valuable consideration, receipt of which is acknowledged, has
      agreed to grant to the Collateral Agent, for the benefit of the Lenders, a
      security interest in the Collateral (as such term is hereinafter defined),
      on
      the terms and conditions hereinafter set forth. Obligations include all future
      advances by Lenders to Debtor made pursuant to the Subscription
      Agreement.

    

    2.4 The
      Lenders have appointed the Collateral Agent pursuant to that certain Collateral
      Agent Agreement dated at or about the date of this Agreement (“Collateral Agent
      Agreement”), among the Lenders and Collateral Agent.

    

    2.5 The
      following defined terms which are defined in the Uniform Commercial Code in
      effect in the State of New York on the date hereof are used herein as so
      defined: Accounts, Chattel Paper, Documents, Equipment, General Intangibles,
      Instruments, Inventory and Proceeds. Other capitalized terms employed herein
      shall have the meanings attributed to them in the Subscription
      Agreement.

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    3. Grant
      of General Security Interest in Collateral.

    

    3.1  As
      security for the Obligations of Debtors, each Debtor hereby grants the
      Collateral Agent, for the benefit of the Lenders, a security interest in the
      Collateral.

    

    3.2  “Collateral”
      shall mean all of the following property of Debtors:

    

    (A) All
      now
      owned and hereafter acquired right, title and interest of Debtors in, to and
      in
      respect of all Accounts, Goods, real or personal property, all present and
      future books and records relating to the foregoing and all products and Proceeds
      of the foregoing, and as set forth below:

    

    (i) All
      now
      owned and hereafter acquired right, title and interest of Debtors in, to and
      in
      respect of all: Accounts, interests in goods represented by Accounts, returned,
      reclaimed or repossessed goods with respect thereto and rights as an unpaid
      vendor; contract rights; Chattel Paper; investment property; General Intangibles
      (including but not limited to, tax and duty claims and refunds, registered
      and
      unregistered patents (including but not limited to the patents, patents pending
      and applications set forth on Schedule B hereto), trademarks, service marks,
      certificates, copyrights trade names, applications for the foregoing, trade
      secrets, goodwill, processes, drawings, blueprints, customer lists, licenses,
      whether as licensor or licensee, chooses in action and other claims, and
      existing and future leasehold interests in equipment, real estate and fixtures);
      Documents; Instruments; letters of credit, bankers’ acceptances or guaranties;
      cash moneys, deposits; securities, bank accounts, deposit accounts, credits
      and
      other property now or hereafter owned or held in any capacity by Debtors, as
      well as agreements or property securing or relating to any of the items referred
      to above;

    

    (ii) Goods:
      All now
      owned and hereafter acquired right, title and interest of Debtors in, to and
      in
      respect of goods, including, but not limited to:

    

    (a) All
      Inventory, wherever located, whether now owned or hereafter acquired, of
      whatever kind, nature or description, including all raw materials,
      work-in-process, finished goods, and materials to be used or consumed in
      Debtors’ business; finished goods, timber cut or to be cut, oil, gas,
      hydrocarbons, and minerals extracted or to be extracted, and all names or marks
      affixed to or to be affixed thereto for purposes of selling same by the seller,
      manufacturer, lessor or licensor thereof and all Inventory which may be returned
      to any Debtor by its customers or repossessed by any Debtor and all of Debtors’
right, title and interest in and to the foregoing (including all of a Debtor’s
      rights as a seller of goods);

    

    (b) All
      Equipment and fixtures, wherever located, whether now owned or hereafter
      acquired, including, without limitation, all machinery, furniture and fixtures,
      and any and all additions, substitutions, replacements (including spare parts),
      and accessions thereof and thereto (including, but not limited to Debtors’
rights to acquire any of the foregoing, whether by exercise of a purchase option
      or otherwise);

    

    (iii) Property:
      All now
      owned and hereafter acquired right, title and interests of Debtors in, to and
      in
      respect of any other personal property in or upon which a Debtor has or may
      hereafter have a security interest, lien or right of setoff; 

    

    (iv) Books
      and Records:
      All
      present and future books and records relating to any of the above including,
      without limitation, all computer programs, printed output and computer readable
      data in the possession or control of the Debtors, any computer service bureau
      or
      other third party; and

    

    (v) Products
      and Proceeds:
      All
      products and Proceeds of the foregoing in whatever form and wherever located,
      including, without limitation, all insurance proceeds and all claims against
      third parties for loss or destruction of or damage to any of the
      foregoing.

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    (B) All
      now
      owned and hereafter acquired right, title and interest of Debtors in, to and
      in
      respect of the following:

    

    (i) Parent
      will deliver to the Collateral Agent, the shares of stock, partnership
      interests, member interests or other equity interests at any time and from
      time
      to time acquired by Debtors of any and all entities now or hereafter existing,
      (such entities, being hereinafter referred to collectively as the "Pledged
      Issuers" and individually as a "Pledged Issuer"), including but not limited
      to
      100% of the equity ownership of each Guarantor, the certificates representing
      such shares, partnership interests, member interests or other interests all
      options and other rights, contractual or otherwise, in respect thereof and
      all
      dividends, distributions, cash, instruments, investment property and other
      property from time to time received, receivable or otherwise distributed in
      respect of or in exchange for any or all of such shares, partnership interests,
      member interests or other interests;

     

    (ii) all
      additional shares of stock, partnership interests, member interests or other
      equity interests from time to time acquired by Debtors, of any Pledged Issuer,
      the certificates representing such additional shares, all options and other
      rights, contractual or otherwise, in respect thereof and all dividends,
      distributions, cash, instruments, investment property and other property from
      time to time received, receivable or otherwise distributed in respect of or
      in
      exchange for any or all of such additional shares, interests or equity; and
      

    

    (iii) all
      security entitlements of Debtors in, and all Proceeds of any and all of the
      foregoing in each case, whether now owned or hereafter acquired by a Debtor
      and
      howsoever its interest therein may arise or appear (whether by ownership,
      security interest, lien, claim or otherwise).

    

    3.3 The
      Collateral Agent is hereby specifically authorized, after the Maturity Date
      (defined in the Notes) accelerated or otherwise, or after an Event of Default
      (as defined herein) and the expiration of any applicable cure period, to
      transfer any Collateral into the name of the Collateral Agent and to take any
      and all action deemed advisable to the Collateral Agent to remove any transfer
      restrictions affecting the Collateral.

    

    4. Perfection
      of Security Interest.

    

    4.1 Each
      Debtor shall prepare, execute and deliver to the Collateral Agent UCC-1
      Financing Statements. The Collateral Agent is instructed to prepare and file
      at
      each Debtor’s cost and expense, financing statements in such jurisdictions
      deemed advisable to the Collateral Agent, including but not limited to the
      State
      of Nevada. The Financing Statements are deemed to have been filed for the
      benefit of the Collateral Agent and Lenders identified on Schedule A
      hereto.

    

    4.2 Upon
      the
      execution of this Agreement, Parent shall deliver to Collateral Agent stock
      certificates representing all of the shares of outstanding capital stock of
      Parent and Lotus Pharmaceutical International, Inc. (the "Securities"). All
      such
      certificates shall be held by or on behalf of Collateral Agent pursuant hereto
      and shall be delivered in suitable form for transfer by delivery, or shall
      be
      accompanied by duly executed instruments of transfer or assignment or undated
      stock powers executed in blank, all in form and substance satisfactory to
      Collateral Agent. 

     

    4.3 
      All
      other certificates and instruments constituting Collateral from time to time
      required to be pledged to Collateral Agent pursuant to the terms hereof (the
      "Additional Collateral") shall be delivered to Collateral Agent promptly upon
      receipt thereof by or on behalf of Debtors. All such certificates and
      instruments shall be held by or on behalf of Collateral Agent pursuant hereto
      and shall be delivered in suitable form for transfer by delivery, or shall
      be
      accompanied by duly executed instruments of transfer or assignment or undated
      stock powers executed in blank, all in form and substance satisfactory to
      Collateral Agent. If any Collateral consists of uncertificated securities,
      unless the immediately following sentence is applicable thereto, Debtors shall
      cause Collateral Agent (or its custodian, nominee or other designee) to become
      the registered holder thereof, or cause each issuer of such securities to agree
      that it will comply with instructions originated by Collateral Agent with
      respect to such securities without further consent by Debtors. If any Collateral
      consists of security entitlements, Debtors shall transfer such security
      entitlements to Collateral Agent (or its custodian, nominee or other designee)
      or cause the applicable securities intermediary to agree that it will comply
      with entitlement orders by Collateral Agent without further consent by Debtors.
      

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    4.4 Within
      five (5) days after the receipt by a Debtor of any Additional Collateral, a
      Pledge Amendment, duly executed by such Debtor, in substantially the form of
      Annex I hereto (a "Pledge Amendment"), shall be delivered to Collateral Agent
      in
      respect of the Additional Collateral to be pledged pursuant to this Agreement.
      Each Debtor hereby authorizes Collateral Agent to attach each Pledge Amendment
      to this Agreement and agrees that all certificates or instruments listed on
      any
      Pledge Amendment delivered to Collateral Agent shall for all purposes hereunder
      constitute Collateral.

     

    4.5 If
      Debtor
      shall receive, by virtue of Debtor being or having been an owner of any
      Collateral, any (i) stock certificate (including, without limitation, any
      certificate representing a stock dividend or distribution in connection with
      any
      increase or reduction of capital, reclassification, merger, consolidation,
      sale
      of assets, combination of shares, stock split, spin-off or split-off),
      promissory note or other instrument, (ii) option or right, whether as an
      addition to, substitution for, or in exchange for, any Collateral, or otherwise,
      (iii) dividends payable in cash (except such dividends permitted to be retained
      by Debtor pursuant to Section 5.2 hereof) or in securities or other property
      or
      (iv) dividends or other distributions in connection with a partial or total
      liquidation or dissolution or in connection with a reduction of capital, capital
      surplus or paid-in surplus, Debtor shall receive such stock certificate,
      promissory note, instrument, option, right, payment or distribution in trust
      for
      the benefit of Collateral Agent, shall segregate it from Debtor's other property
      and shall deliver it forthwith to Collateral Agent, in the exact form received,
      with any necessary endorsement and/or appropriate stock powers duly executed
      in
      blank, to be held by Collateral Agent as Collateral and as further collateral
      security for the Obligations.

    

    5. Distribution.

    

    5.1 So
      long
      as an Event of Default does not exist, Debtors shall be entitled to exercise
      all
      voting power pertaining to any of the Collateral, provided such exercise is
      not
      contrary to the interests of the Lenders and does not impair the
      Collateral.

    

    5.2. At
      any
      time an Event of Default exists or has occurred, all rights of Debtors, upon
      notice given by Collateral Agent, to exercise the voting power and receive
      payments, which it would otherwise be entitled to pursuant to Section 5.1,
      shall
      cease and all such rights shall thereupon become vested in Collateral Agent,
      which shall thereupon have the sole right to exercise such voting power and
      receive such payments.

    

    5.3 All
      dividends, distributions, interest and other payments which are received by
      Debtors contrary to the provisions of Section 5.2 shall be received in trust
      for
      the benefit of Collateral Agent as security and Collateral for payment of the
      Obligations shall be segregated from other funds of Debtors, and shall be
      forthwith paid over to Collateral Agent as Collateral in the exact form received
      with any necessary endorsement and/or appropriate stock powers duly executed
      in
      blank, to be held by Collateral Agent as Collateral and as further collateral
      security for the Obligations.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    6. Further
      Action By Debtors; Covenants and Warranties.

    

    6.1 Except
      for Permitted Liens, Collateral Agent at all times shall have a perfected
      security interest in the Collateral. Each Debtor represents that it has and
      will
      continue to have full title to the Collateral free from any liens, leases,
      encumbrances, judgments or other claims. The Collateral Agent's security
      interest in the Collateral constitutes and will continue to constitute a first,
      prior and indefeasible security interest in favor of Collateral Agent. Each
      Debtor will do all acts and things, and will execute and file all instruments
      (including, but not limited to, security agreements, financing statements,
      continuation statements, etc.) reasonably requested by Collateral Agent to
      establish, maintain and continue the perfected security interest of Collateral
      Agent in the perfected Collateral, and will promptly on demand, pay all costs
      and expenses of filing and recording, including the costs of any searches
      reasonably deemed necessary by Collateral Agent from time to time to establish
      and determine the validity and the continuing priority of the security interest
      of Collateral Agent, and also pay all other claims and charges that, in the
      opinion of Collateral Agent, exercised in good faith, are reasonably likely
      to
      materially prejudice, imperil or otherwise affect the Collateral or Collateral
      Agent’s or Lenders’ security interests therein.

    

    6.2 Except
      in
      connection with sales of Collateral, subject to Permitted Liens or other than
      in
      the ordinary course of business, for fair value and in cash, and except for
      Collateral which is substituted by assets of identical or greater value (with
      the consent of the Collateral Agent) or which is inconsequential in value,
      each
      Debtor will not sell, transfer, assign or pledge those items of Collateral
      (or
      allow any such items to be sold, transferred, assigned or pledged), without
      the
      prior written consent of Collateral Agent other than a transfer of the
      Collateral to a wholly-owned United States formed and located subsidiary or
      to
      another Debtor on prior notice to Collateral Agent, and provided the Collateral
      remains subject to the security interest herein described. Although Proceeds
      of
      Collateral are covered by this Agreement, this shall not be construed to mean
      that Collateral Agent consents to any sale of the Collateral, except as provided
      herein. Sales of Collateral in the ordinary course of business shall be free
      of
      the security interest of Lenders and Collateral Agent and Lenders and Collateral
      Agent shall promptly execute such documents (including without limitation
      releases and termination statements) as may be required by Debtors to evidence
      or effectuate the same.

    

    6.3 Each
      Debtor will, at all reasonable times during regular business hours and upon
      reasonable notice, allow Collateral Agent or its representatives free and
      complete access to the Collateral and all of such Debtor's records which in
      any
      way relate to the Collateral, for such inspection and examination as Collateral
      Agent reasonably deems necessary.

    

    6.4 Each
      Debtor, at its sole cost and expense, will protect and defend this Security
      Agreement, all of the rights of Collateral Agent and Lenders hereunder, and
      the
      Collateral against the claims and demands of all other persons.

    

    6.5 Debtors
      will promptly notify Collateral Agent of any levy, distraint or other seizure
      by
      legal process or otherwise of any part of the Collateral, and of any threatened
      or filed claims or proceedings that are reasonably likely to affect or impair
      any of the rights of Collateral Agent under this Security Agreement in any
      material respect.

    

    6.6 Each
      Debtor, at its own expense, will obtain and maintain in force insurance policies
      covering losses or damage to those items of Collateral which constitute physical
      personal property, which insurance shall be of the types customarily insured
      against by companies in the same or similar business, similarly situated, in
      such amounts (with such deductible amounts) as is customary for such companies
      under the same or similar circumstances, similarly situated. Debtors shall
      make
      the Collateral Agent a loss payee thereon to the extent of its interest in
      the
      Collateral. Collateral Agent is hereby irrevocably (until the Obligations are
      paid in full) appointed each Debtor’s attorney-in-fact to endorse any check or
      draft that may be payable to such Debtor so that Collateral Agent may collect
      the proceeds payable for any loss under such insurance. The proceeds of such
      insurance, less any costs and expenses incurred or paid by Collateral Agent
      in
      the collection thereof, shall be applied either toward the cost of the repair
      or
      replacement of the items damaged or destroyed, or on account of any sums secured
      hereby, whether or not then due or payable.

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    6.7 Collateral
      Agent may, at its option, and without any obligation to do so, pay, perform
      and
      discharge any and all amounts, costs, expenses and liabilities herein agreed
      to
      be paid or performed by Debtor upon
      Debtor’s
      failure
      to do
      so. All
      amounts expended by Collateral Agent in so doing shall become part of the
      Obligations secured hereby, and shall be immediately due and payable by Debtor
      to Collateral Agent upon demand
      and
      shall
      bear interest at the lesser of 15% per annum or the highest legal amount from
      the dates of such expenditures until paid.

    

    6.8 Upon
      the
      request of Collateral Agent, Debtors will furnish to Collateral Agent within
      five (5) business days thereafter, or to any proposed assignee of this Security
      Agreement, a written statement in form reasonably satisfactory to Collateral
      Agent, duly acknowledged, certifying the amount of the principal and interest
      and any other sum then owing under the Obligations, whether to its knowledge
      any
      claims, offsets or defenses exist against the Obligations or against this
      Security Agreement, or any of the terms and provisions of any other agreement
      of
      Debtors securing the Obligations. In connection with any assignment by
      Collateral Agent of this Security Agreement, each Debtor hereby agrees to cause
      the insurance policies required hereby to be carried by such Debtor, if any,
      to
      be endorsed in form satisfactory to Collateral Agent or to such assignee, with
      loss payable clauses in favor of such assignee, and to cause such endorsements
      to be delivered to Collateral Agent within ten (10) calendar days after request
      therefor by Collateral Agent.

    

    6.9 Each
      Debtor will, at its own expense, make, execute, endorse, acknowledge, file
      and/or deliver to the Collateral Agent from time to time such vouchers,
      invoices, schedules, confirmatory assignments, conveyances, financing
      statements, transfer endorsements, powers of attorney, certificates, reports
      and
      other reasonable assurances or instruments and take further steps relating
      to
      the Collateral and other property or rights covered by the security interest
      hereby granted, as the Collateral Agent may reasonably require to perfect its
      security interest hereunder.

    

    6.10 Debtors
      represent and warrant that they are the true and lawful exclusive owners of
      the
      Collateral, free and clear of any liens and encumbrances.

    

    6.11 Each
      Debtor hereby agrees not to divest itself of any right under the Collateral
      except as permitted herein absent prior written approval of the Collateral
      Agent, except to a subsidiary organized and located in the United States on
      prior notice to Collateral Agent provided the Collateral remains subject to
      the
      security interest herein described.

     

    6.12 Each
      Debtor shall cause each Subsidiary of such Debtor in existence on the date
      hereof and each Subsidiary not in existence on the date hereof to execute and
      deliver to Collateral Agent promptly and in any event within 10 days after
      the
      formation, acquisition or change in status thereof (A) a guaranty guaranteeing
      the Obligations and (B) if requested by Collateral Agent, a security and pledge
      agreement substantially in the form of this Agreement together with (x)
      certificates evidencing all of the capital stock of each Subsidiary of and
      any
      entity owned by such Subsidiary, (y) undated stock powers executed in blank
      with
      signatures guaranteed, and (z) such opinion of counsel and such approving
      certificate of such Subsidiary as Collateral Agent may reasonably request in
      respect of complying with any legend on any such certificate or any other matter
      relating to such shares and (C) such other agreements, instruments, approvals,
      legal opinions or other documents reasonably requested by Collateral Agent
      in
      order to create, perfect, establish the first priority of or otherwise protect
      any lien purported to be covered by any such pledge and security agreement
      or
      otherwise to effect the intent that all property and assets of such Subsidiary
      shall become Collateral for the Obligations. For purposes of this Agreement,
      “Subsidiary”
means,
      with respect to any entity at any date, any corporation, limited or general
      partnership, limited liability company, trust, estate, association, joint
      venture or other business entity) of which more than 50% of (A) the
      outstanding capital stock having (in the absence of contingencies) ordinary
      voting power to elect a majority of the board of directors or other managing
      body of such entity, (B) in the case of a partnership or limited liability
      company, the interest in the capital or profits of such partnership or limited
      liability company or (C) in the case of a trust, estate, association, joint
      venture or other entity, the beneficial interest in such trust, estate,
      association or other entity business is, at the time of determination, owned
      or
      controlled directly or indirectly through one or more intermediaries, by such
      entity. Annex
      I annexed hereto contains a list of all Subsidiaries of the Debtors as of the
      date of this Agreement.

    

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    7. Power
      of Attorney.

    

    At
      any
      time an Event of Default has occurred and is continuing, each Debtor hereby
      irrevocably constitutes and appoints the Collateral Agent as the true and lawful
      attorney of such Debtor, with full power of substitution, in the place and
      stead
      of such Debtor and in the name of such Debtor or otherwise, at any time or
      times, in the discretion of the Collateral Agent, to take any action and to
      execute any instrument or document which the Collateral Agent may deem necessary
      or advisable to accomplish the purposes of this Agreement. This power of
      attorney is coupled with an interest and is irrevocable until the Obligations
      are satisfied.

    

    8. Performance
      By The Collateral Agent.

    

    If
      a
      Debtor fails to perform any material covenant, agreement, duty or obligation
      of
      such Debtor under this Agreement, the Collateral Agent may, after any applicable
      cure period, at any time or times in its discretion, take action to effect
      performance of such obligation. All reasonable expenses of the Collateral Agent
      incurred in connection with the foregoing authorization shall be payable by
      Debtors as provided in Paragraph 12.1 hereof. No discretionary right, remedy
      or
      power granted to the Collateral Agent under any part of this Agreement shall
      be
      deemed to impose any obligation whatsoever on the Collateral Agent with respect
      thereto, such rights, remedies and powers being solely for the protection of
      the
      Collateral Agent.

    

    9. Event
      of Default.

    

    An
      event
      of default ("Event of Default") shall be deemed to have occurred hereunder
      upon
      the occurrence of any event of default as defined and described in this
      Agreement, in the Notes, the Subscription Agreement, and any other agreement
      to
      which Debtor and a Lender are parties. Upon and after any Event of Default,
      after the applicable cure period, if any, any or all of the Obligations shall
      become immediately due and payable at the option of the Collateral Agent, for
      the benefit of the Lenders, and the Collateral Agent may dispose of Collateral
      as provided below. A default by Debtor of any of its material obligations
      pursuant to this Agreement and any of the Transaction Documents (as defined
      in
      the Subscription Agreement) shall be an Event of Default hereunder and an “Event
      of Default” as defined in the Notes, and Subscription Agreement.

    

    10. Disposition
      of Collateral.

    

    Upon
      and
      after any Event of Default which is then continuing,

    

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    10.1 The
      Collateral Agent may exercise its rights with respect to each and every
      component of the Collateral, without regard to the existence of any other
      security or source of payment for the Obligations. In addition to other rights
      and remedies provided for herein or otherwise available to it, the Collateral
      Agent shall have all of the rights and remedies of a lender on default under
      the
      Uniform Commercial Code then in effect in the State of New York.

    

    10.2 If
      any
      notice to Debtors of the sale or other disposition of Collateral is required
      by
      then applicable law, five business (5) days prior written notice (which Debtors
      agree is reasonable notice within the meaning of Section 9.612(a) of the Uniform
      Commercial Code) shall be given to Debtors of the time and place of any sale
      of
      Collateral which Debtors hereby agree may be by private sale. The rights granted
      in this Section are in addition to any and all rights available to Collateral
      Agent under the Uniform Commercial Code.

    

    10.3 The
      Collateral Agent is authorized, at any such sale, if the Collateral Agent deems
      it advisable to do so, in order to comply with any applicable securities laws,
      to restrict the prospective bidders or purchasers to persons who will represent
      and agree, among other things, that they are purchasing the Collateral for
      their
      own account for investment, and not with a view to the distribution or resale
      thereof, or otherwise to restrict such sale in such other manner as the
      Collateral Agent deems advisable to ensure such compliance. Sales made subject
      to such restrictions shall be deemed to have been made in a commercially
      reasonable manner.

    

    10.4 All
      proceeds received by the Collateral Agent for the benefit of the Lenders in
      respect of any sale, collection or other enforcement or disposition of
      Collateral, shall be applied (after deduction of any amounts payable to the
      Collateral Agent pursuant to Paragraph 12.1 hereof) against the Obligations
      pro
      rata among the Lenders in proportion to their interests in the Obligations.
      Upon
      payment in full of all Obligations, Debtors shall be entitled to the return
      of
      all Collateral, including cash, which has not been used or applied toward the
      payment of Obligations or used or applied to any and all costs or expenses
      of
      the Collateral Agent incurred in connection with the liquidation of the
      Collateral (unless another person is legally entitled thereto). Any assignment
      of Collateral by the Collateral Agent to Debtors shall be without representation
      or warranty of any nature whatsoever and wholly without recourse. To the extent
      allowed by law, each Lender may purchase the Collateral and pay for such
      purchase by offsetting up to such Lender’s pro rata portion of the purchase
      price with sums owed to such Lender by Debtors arising under the Obligations
      or
      any other source.

    

    11. Waiver
      of Automatic Stay.
      Debtor
      acknowledges and agrees that should a proceeding under any bankruptcy or
      insolvency law be commenced by or against Debtor, or if any of the Collateral
      should become the subject of any bankruptcy or insolvency proceeding, then
      the
      Collateral Agent should be entitled to, among other relief to which the
      Collateral Agent or Lenders may be entitled under the Note, Subscription
      Agreement and any other agreement to which the Debtor, Lenders or Collateral
      Agent are parties, (collectively "Loan Documents") and/or applicable law, an
      order from the court granting immediate relief from the automatic stay pursuant
      to 11 U.S.C. Section 362 to permit the Collateral Agent to exercise all of
      its
      rights and remedies pursuant to the Loan Documents and/or applicable law. Debtor
      EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION
      362. FURTHERMORE, Debtor EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11
      U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE
      OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY,
      INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE COLLATERAL
      AGENT TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR
      APPLICABLE LAW. Debtor hereby consents to any motion for relief from stay which
      may be filed by the Collateral Agent in any bankruptcy or insolvency proceeding
      initiated by or against Debtor, and further agrees not to file any opposition
      to
      any motion for relief from stay filed by the Collateral Agent. Debtor
      represents, acknowledges and agrees that this provision is a specific and
      material aspect of this Agreement, and that the Collateral Agent would not
      agree
      to the terms of this Agreement if this waiver were not a part of this Agreement.
      Debtor further represents, acknowledges and agrees that this waiver is
      knowingly, intelligently and voluntarily made, that neither the Collateral
      Agent
      nor any person acting on behalf of the Collateral Agent has made any
      representations to induce this waiver, that Debtor has been represented (or
      has
      had the opportunity to be represented) in the signing of this Agreement and
      in
      the making of this waiver by independent legal counsel selected by Debtor and
      that Debtor has had the opportunity to discuss this waiver with counsel. Debtor
      further agrees that any bankruptcy or insolvency proceeding initiated by Debtor
      will only be brought in the Federal Court within the Southern District of New
      York.

    

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    12. Miscellaneous.

    

    12.1 Expenses.
      Debtors
      shall pay to the Collateral Agent, on demand, the amount of any and all
      reasonable expenses, including, without limitation, attorneys' fees, legal
      expenses and brokers' fees, which the Collateral Agent may incur in connection
      with (a) sale, collection or other enforcement or disposition of Collateral;
      (b)
      exercise or enforcement of any the rights, remedies or powers of the Collateral
      Agent hereunder or with respect to any or all of the Obligations upon breach
      or
      threatened breach; or (c) failure by Debtors to perform and observe any
      agreements of Debtors contained herein which are performed by the Collateral
      Agent.

    

    12.2 Waivers,
      Amendment and Remedies.
      No
      course of dealing by the Collateral Agent and no failure by the Collateral
      Agent
      to exercise, or delay by the Collateral Agent in exercising, any right, remedy
      or power hereunder shall operate as a waiver thereof, and no single or partial
      exercise thereof shall preclude any other or further exercise thereof or the
      exercise of any other right, remedy or power of the Collateral Agent. No
      amendment, modification or waiver of any provision of this Agreement and no
      consent to any departure by Debtors therefrom, shall, in any event, be effective
      unless contained in a writing signed by the Collateral Agent, and then such
      waiver or consent shall be effective only in the specific instance and for
      the
      specific purpose for which given. The rights, remedies and powers of the
      Collateral Agent, not only hereunder, but also under any instruments and
      agreements evidencing or securing the Obligations and under applicable law
      are
      cumulative, and may be exercised by the Collateral Agent from time to time
      in
      such order as the Collateral Agent may elect.

    

    12.3 Notices.
      All
      notices or other communications given or made hereunder shall be in writing
      and
      shall be personally delivered or deemed delivered the first business day after
      being faxed (provided that a copy is delivered by first class mail) to the
      party
      to receive the same at its address set forth below or to such other address
      as
      either party shall hereafter give to the other by notice duly made under this
      Section:

     

    
      	
            	To
              Debtors:	
              Lotus
                Pharmaceuticals, Inc.

            

    

    Boca
      Corporate Plaza

    7900
      Glades Road, Suite 420

    Boca
      Raton, FL 33434

    Attn:
      Mr.
      Zhongyi Liu,
      CEO

    Fax:
      (561) 988-9890

    

    With
      a
      copy by telecopier only to:

    

    Casale
      Alliance, LLP

    1158
      26th
      Street,
      Suite 325

    Santa
      Monica, CA 90403

    Fax:
      (310) 919-2810

    

    
      	
            	To
              Lenders:	
              To
                the addresses and telecopier numbers set
                forth

            

    

    on
      Schedule A 

    

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    

    
      	
            	To
              the Collateral Agent:	
              S.
                Michael Rudolph

            

    

    600
      Montgomery Street, 44th Floor

    San
      Francisco, CA 94111

    Fax:
      (415) 981-5301

    

    

    If
      to
      Debtor, Lender or Collateral Agent,

    with
      a
      copy by telecopier only to:

    Grushko
      & Mittman, P.C.

    551
      Fifth
      Avenue, Suite 1601

    New
      York,
      New York 10176

    Fax:
      (212) 697-3575

    

    Any
      party
      may change its address by written notice in accordance with this
      paragraph.

    

    12.4 Term;
      Binding Effect.
      This
      Agreement shall (a) remain in full force and effect until payment and
      satisfaction in full of all of the Obligations; (b) be binding upon each Debtor,
      and its successors and permitted assigns; and (c) inure to the benefit of the
      Collateral Agent, for the benefit of the Lenders and their respective successors
      and assigns. 

    

    12.5 Captions.
      The
      captions of Paragraphs, Articles and Sections in this Agreement have been
      included for convenience of reference only, and shall not define or limit the
      provisions hereof and have no legal or other significance
      whatsoever.

    

    12.6 Governing
      Law; Venue; Severability.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of New York without
      regard to conflicts
      of laws principles
      that
      would result in the application of the substantive laws of another
      jurisdiction,
      except
      to the extent that the perfection of the security interest granted hereby in
      respect of any item of Collateral may be governed by the law of another
      jurisdiction. Any legal action or proceeding against a Debtor with respect
      to
      this Agreement may be brought in the courts in the State of New York or of
      the
      United
      States for the Southern District of New York, and, by execution and delivery
      of
      this Agreement, each Debtor hereby irrevocably accepts for itself and in respect
      of its property, generally and unconditionally, the jurisdiction of the
      aforesaid courts. Each Debtor hereby irrevocably waives any objection which
      they
      may now or hereafter have to the laying of venue of any of the aforesaid actions
      or proceedings arising out of or in connection with this Agreement brought
      in
      the aforesaid courts and hereby further irrevocably waives and agrees not to
      plead or claim in any such court that any such action or proceeding brought
      in
      any such court has been brought in an inconvenient forum. If any provision
      of
      this Agreement, or the application thereof to any person or circumstance, is
      held invalid, such invalidity shall not affect any other provisions which can
      be
      given effect without the invalid provision or application, and to this end
      the
      provisions hereof shall be severable and the remaining, valid provisions shall
      remain of full force and effect.

    

    12.7 Entire
      Agreement.
      This
      Agreement contains the entire agreement of the parties and supersedes all other
      agreements and understandings, oral or written, with respect to the matters
      contained herein.

    

    12.8 Counterparts/Execution.
      This
      Agreement may be executed in any number of counterparts and by the different
      signatories hereto on separate counterparts, each of which, when so executed,
      shall be deemed an original, but all such counterparts shall constitute but
      one
      and the same instrument. This Agreement may be executed by facsimile signature
      and delivered by facsimile transmission.

    

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    13. Intercreditor
      Terms.
      As
      between the Lenders, any distribution under paragraph 10.4 shall be made
      proportionately based upon the remaining principal amount (plus accrued and
      unpaid interest) to each as to the total amount then owed to the Lenders as
      a
      whole. The rights of each Lender hereunder are pari
      passu
      to the
      rights of the other Lenders hereunder. Any recovery hereunder shall be shared
      ratably among the Lenders according to the then remaining principal amount
      owed
      to each (plus accrued and unpaid interest) as to the total amount then owed
      to
      the Lenders as a whole. 

    

    14. Termination;
      Release.
      When
      the Obligations have been indefeasibly paid and performed in full or
      all
      outstanding Convertible Notes have been converted to common stock pursuant
      to
      the terms of the Convertible Notes and the Subscription Agreements,
      this
      Agreement shall terminated, and the Collateral Agent, at the request and sole
      expense of the Debtors, will execute and deliver to the Debtors the proper
      instruments (including UCC termination statements) acknowledging the termination
      of the Security Agreement, and duly assign, transfer and deliver to the Debtors,
      without recourse, representation or warranty of any kind whatsoever, such of
      the
      Collateral, including, without limitation, Securities and any Additional
      Collateral, as may be in the possession of the Collateral Agent.

    

    15. Collateral
      Agent.

    

    15.1 Collateral
      Agent Powers.
      The
      powers conferred on the Collateral Agent hereunder are solely to protect its
      interest (on behalf of the Lenders) in the Collateral and shall not impose
      any
      duty on it to exercise any such powers.

    

    15.2 Reasonable
      Care.
      The
      Collateral Agent is required to exercise reasonable care in the custody and
      preservation of any Collateral in its possession; provided, however, that the
      Collateral Agent shall be deemed to have exercised reasonable care in the
      custody and preservation of any of the Collateral if it takes such action for
      that purposes as any owner thereof reasonably requests in writing at times
      other
      than upon the occurrence and during the continuance of any Event of Default,
      but
      failure of the Collateral Agent, to comply with any such request at any time
      shall not in itself be deemed a failure to exercise reasonable
      care.

    

    [THIS
      SPACE INTENTIONALLY LEFT BLANK]

    

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    
 

    IN
      WITNESS WHEREOF, the
      undersigned have executed and delivered this Security Agreement, as of the
      date
      first written above.

     

    
      	"DEBTOR"	"THE COLLATERAL
              AGENT"
	LOTUS PHARMACEUTICALS, INC.	 
	a Nevada corporation	 
	 	 
	By: /s/
              Zhongyi liu_______________________
              	/s/ S. Michael Rudolf_________________________
	 	S. MICHAEL RUDOLPH
	Zhongyi Liu,
              Chairman/CEO                                       	 
	 	 
	 	 
	
              "SUBSIDIARY"

              LOTUS
                PHARMACEUTICAL INTERNATIONAL, INC.

              a
                Nevada corporation

              

              By:
                /s/
                Zhongyi Liu_________________________  

               

               
                 Zhongyi
                Liu,
                Chairman/CEO                                    

            	 
	 	 
	
              “AFFILIATE”

              EN
                ZE JIA SHI PHARMACEUTICAL CO.,
                LTD.

              a
                People’s Republic of China corporation

            	
              “AFFILIATE”

              LIANG FAN PHARMACEUTICAL CO., LTD.

              a People’s Republic of China
                corporation

            
	 	 
	 	 
	
              
                EN
                  ZE JIA SHI PHARMACEUTICAL CO., LTD. 

                SHAREHOLDERS:

              

            	
              LIANG FAN PHARMACEUTICAL CO., LTD.

              SHAREHOLDERS:

            
	 	 
	By: /s/
              Zhongyi
              Liu                                                  	By: /s/
              Wenli Xian______________________
	 	 
	
               
Zhongyi
                Liu, Shareholder_________________ 

            	
              Wenli
                Xian,Shareholder--                                       
                

            
	 	 
	By: /s/
              Zhenghong
              Song                                        
              	By: /s/
              Zhenghong Song__________________
	
               
Zhenghong
                Song, Shareholder

            	
               
Zhenghong
                Song, Shareholder

            
	 	 
	 	
              By:
                /s/
                Zhongyi
                Liu                                                   
                

               
                Zhongyi Liu, Shareholder 

            
	 	 
	 	 
	
               APPROVED
                BY
                “LENDERS”:

            
	 	 
	 	 
	LONGVIEW FUND, L.P.	ALPHA CAPITAL ANSTALT
	 	 
	 	 
	By:/s/
              S. Michael Rudolph___________________ 	By:/s/
              Konrad Ackerman_____________________
	 	 
	Print Name of Signator: S.
              Michael
              Rudolph               
              	Print Name of Signator: Konrad
              Ackerman                  

    

      

     

    

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    

    

    

    This
      Security Agreement may be signed by facsimile signature
      and

    delivered
      by confirmed facsimile transmission.

    

     

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

       

       

    

    SCHEDULE
      A TO SECURITY AGREEMENT

    

    
      	
              LENDER

            	
              PRINCIPAL
                AMOUNT OF NOTE TO BE ISSUED ON CLOSING DATE

            
	
              LONGVIEW
                FUND, L.P.

              600
                Montgomery Street, 44th Floor

              San
                Francisco, CA 94111

              Fax:
                (415) 981-5301

            	
              $2,750,000.00

            
	
              ALPHA
                CAPITAL ANSTALT

              Pradafant
                7

              9490
                Furstentums

              Vaduz,
                Lichtenstein

              Fax:
                011-42-32323196

            	
              $250,000.00

            
	
              TOTAL

            	
              $3,000,000.00

            

    

    

    

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    SCHEDULE
      B TO SECURITY AGREEMENT

    

    CHINA
      PATENTS, PATENTS PENDING, APPLICATIONS

    

    

    
      	A.	
              Intellectual
                Property Rights owned by En Zhe Jia Shi Pharmaceutical Co. ,Ltd.
                

            

    

    

    	(1)  	
            Trademark
              Right

          

    

    Trademark
      “恩嘉”.
      The
      registration number is No. 1588441.

    

    Trademark
      “棟欣”.
      The
      registration number is No. 1580380.

    

    Trademark
      “沐欣”.
      The
      registration number is No. 3334683.

    

    Trademark
      “歙俪欣”.
      The
      registration number is No. 3039803.

    

    Trademark
      “沐明”.
      The
      registration number is No. 3334684.

    

    In
      the
      process of the registration for the trademark “枢立”,
      the
      application number is: 4847182,
      t

    he
      number
      of the Notice of Cognizance on Registration Application is: ZC4847182SL.

    

    The
      Company is in the process of the registration for the trademark “新枢”,
      the
      application number is: 4847181,
      the number of the Notice of Cognizance concerning the registration application
      isZC4847181SL. 

    

    	(2)  	
            Patent
              Right

          

    

    A
      patent
      right under application.

    

    Date
      of
      application: May 16. 2006;

    Number
      of
      application: 200610080459.2;

    Item
      of
      the patent under application:
      Valsartan Dropping Pill and the method of preparation and
      production.

    

    

    
      	B.	
              Intellectual
                Property Rights owned by Liang Fang Pharmaceutical
                CO., Ltd

            

    

    

    	(1)  	
            Trademark
              Right

          

    

    Trademark
      “綑方”.
      The
      registration number is No. 1599707.

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

       

    

    ANNEX
      I

     

    TO

     

    SECURITY
      AGREEMENT

     

    PLEDGE
      AMENDMENT

     

    This
      Pledge Amendment, dated _________________, is delivered pursuant to Section
      4.3
      of the Security Agreement referred to below. The undersigned hereby agrees
      that
      this Pledge Amendment may be attached to the Security Agreement, dated February
      ___, 2007, as it may heretofore have been or hereafter may be amended, restated,
      supplemented or otherwise modified from time to time and that the shares listed
      on this Pledge Amendment shall be hereby pledged and assigned to Collateral
      Agent and become part of the Collateral referred to in such Security Agreement
      and shall secure all of the Obligations referred to in such Security
      Agreement.

     

    

    

    
      	
              Name
                of Issuer

            	
              Number

              of
                Shares

            	
              Class

            	
              Certificate

              Number(s)

            
	
              EN
                ZE JIA SHI PHARMACEUTICAL CO., LTD.

            	 	 	 
	
              LIANG
                FANG PHARMACEUTICAL CO., LTD.

            	 	 	 
	
              Lotus
                Pharmaceuticals International, Inc.

            	 	 	 
	 	 	 	 

    

    

    

    
      	 	
              LOTUS
                PHARMACEUTICALS, INC.

              

              

              

              By: _____________________________________

              Zhongyi
                Liu, Chairman/CEO 

            

    

     

     

    
      
         

      

      
        16

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