Parallel Industries (EAPH) 10QSB 2004 Q3 Quarterly report (small business)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-QSB

þ Quarterly Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the quarterly period ended September 30, 2004

or

o Transition Report under Section 13 or 15 (d) of the
Securities Exchange Act of 1934

Commission file No. 000-30641

L.A.M. PHARMACEUTICAL, CORP.

(Exact name of registrant as specified in its charter)

Delaware	52-2278236
(State of incorporation)	(I.R.S. Employer Identification Number)

800 Sheppard Avenue West,
Commercial Unit 1
Toronto, Ontario, Canada M3H 6B4

(Address of principal executive offices) (Zip Code)

(877) 526-7717

(Registrant’s telephone number, including area code)

Check 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 past 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    o

As of November 9, 2004, we had 64,452,713 issued and outstanding shares of common stock.

TABLE OF CONTENTS

CERTIFICATIONS PURSUANT TO SECTION 302

CERTIFICATIONS PURSUANT TO SECTION 906

INDEX

PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets at September 30, 2004 (Unaudited) and December 31, 2003	4
Statements of Changes in Stockholders’ Equity (Deficit) for the Nine Months Ended September 30, 2004 and 2003 (Unaudited)	5
Statements of Operations for the Three Months Ended September 30, 2004 and 2003 (Unaudited)	6
Statements of Operations for the Nine Months Ended September 30, 2004 and 2003 (Unaudited)	7
Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003 (Unaudited)	8
Notes to Financial Statements	10
Item 2 Management’s Discussion and Analysis or Plan of Operation.	12
Item 3 Controls and Procedures	17
PART II OTHER INFORMATION
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 6 Exhibits	17

2

PART I

FINANCIAL INFORMATION

     Item. 1 Financial Statements.

L.A.M. PHARMACEUTICAL, CORP.

(A DELAWARE CORPORATION)
Lewiston, New York

FINANCIAL REPORTS
AT
SEPTEMBER 30, 2004

3

L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York

BALANCE SHEETS

	(Unaudited)			(Restated)
	September 30,			December 31,
	2004			2003
ASSETS
Current Assets
Cash and Cash Equivalents	$	75,151		$	25,132
Accounts Receivable, net		7,702			8,936
Inventory		451,020			482,667
Prepaid Expenses		99,523			73,560
Total Current Assets		633,396			590,295
Property and Equipment — Net of Accumulated Depreciation		80,195			100,020
Other Assets
Patents and Trademarks — Net of Accumulated Amortization		650,812			591,543
Total Assets	$	1,364,403		$	1,281,858
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities
Accounts Payable and Accrued Expenses	$	717,810		$	1,027,561
Current Portion of Deferred Licensing Revenue		112,500			—
Total Current Liabilities		830,310			1,027,561
Other Liabilities
Due to Stockholders		149,545			149,545
Deferred Licensing Revenue		57,360			207,360
Total Liabilities		1,037,215			1,384,466
Stockholders’ Equity (Deficit)
Common Stock — $.0001 Par; 150,000,000 and 50,000,000 Shares Authorized, Respectively; 50,724,473 and 45,809,364 Shares Issued and Outstanding, Respectively		5,072			4,581
Additional Paid-In Capital		32,978,076			29,022,904
Accumulated Deficit		(32,655,960	)		(29,130,093	)
Total Stockholders’ Equity (Deficit)		327,188			(102,608	)
Total Liabilities and Stockholders’ Equity (Deficit)	$	1,364,403		$	1,281,858

The accompanying notes are an integral part of these financial statements.

4

L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

					Additional					Total
	Number		Common		Paid-In		Accumulated			Stockholders’
	of Shares		Stock		Capital		Deficit			Equity (Deficit)
Balance — December 31, 2002 (Restated)		27,511,412	$	2,751	$	25,952,644	$	(26,411,739	)	$	(456,344	)
Capital Contribution – Interest Expense		—		—		6,346		—			6,346
Stock Options Granted - Compensation for Services Rendered		—		—		27,148		—			27,148
Common Shares Issued - Compensation for Services Rendered		4,215,172		421		368,829		—			369,250
Sale of Shares Under the Stock Subscription Agreements		—		—		684,265		—			684,265
Conversion of Convertible Notes		1,736,734		174		510,426		—			510,600
Collection of Receivable on Option Exercise		—		—		25,000		—			25,000
Net Loss for the Period (Unaudited)		—		—		—		(1,846,140	)		(1,846,140	)
Balance – September 30, 2003 (Unaudited and Restated)		33,463,318	$	3,346	$	27,574,658	$	(28,257,879	)	$	(679,875	)
Balance – December 31, 2003 (Restated)		45,809,364	$	4,581	$	29,022,904	$	(29,130,093	)	$	(102,608	)
Capital Contribution – Interest Expense		—		—		5,764		—			5,764
Stock Options Granted - Compensation for Services Rendered		—		—		752,564		—			752,564
Common Shares Issued - Compensation for Services Rendered		481,560		48		416,189		—			416,237
Sale of Shares Under the Stock Subscription Agreements		300,000		30		1,239,480		—			1,239,510
Premium on the Issuance of Warrants		—		—		627,635		—			627,635
Proceeds from Warrant Exercise		2,133,549		213		259,160		—			259,373
Collection of Receivable on Option Exercise		—		—		580		—			580
Collection of Receivable on Sale of Stock Subscription Agreements		—		—		94,000		—			94,000
Common Stock Issued in Settlement of Lawsuit		2,000,000		200		559,800		—			560,000
Net Loss for the Period (Unaudited)		—		—		—		(3,525,867	)		(3,525,867	)
Balance – September 30, 2004 (Unaudited)		50,724,473	$	5,072	$	32,978,076	$	(32,655,960	)	$	327,188

The accompanying notes are an integral part of these financial statements.

5

L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York

STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended
	September 30,
	2004			2003
Revenues
Licensing and Royalty Revenue	$	37,500		$	—
Net Sales		18,057			26,163
Total Revenue		55,557			26,163
Expenses
Cost of Sales		4,754			7,571
General and Administrative		174,804			196,064
Marketing and Business Development		189,656			183,833
Research and Development		16,016			32,885
Depreciation and Amortization		18,400			17,717
Total Expenses		403,630			438,070
Loss Before Other Expenses		(348,073	)		(411,907	)
Other Expenses
Interest Expense		2,026			2,058
Provision for Arbitration Settlement		—			3,000
Total Other Expenses		2,026			5,058
Net Loss for the Period	$	(350,099	)	$	(416,965	)
Net Loss per Common Share – Basic and Diluted	$	(0.01	)	$	(0.01	)
Weighted Average Number of Common Shares
Outstanding – Basic and Diluted		50,724,473			31,488,867

The accompanying notes are an integral part of these financial statements.

6

L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York

STATEMENTS OF OPERATIONS (UNAUDITED)

	Nine Months Ended
	September 30,
	2004			2003
Revenues
Licensing and Royalty Revenue	$	75,000		$	—
Net Sales		53,959			79,784
Total Revenue		128,959			79,784
Expenses
Cost of Sales		12,976			20,856
General and Administrative		821,420			547,003
Marketing and Business Development		1,493,411			537,046
Research and Development		80,150			156,767
Depreciation and Amortization		53,470			51,616
Total Expenses		2,461,427			1,313,288
Loss Before Other Expenses		(2,332,468	)		(1,233,504	)
Other Expenses
Interest Expense		5,764			6,504
Lawsuit Settlement		560,000			—
Provision for Arbitration Settlement		—			606,132
Warrant Premium		627,635			—
Total Other Expenses		1,193,399			612,636
Net Loss for the Period	$	(3,525,867	)	$	(1,846,140	)
Net Loss per Common Share — Basic and Diluted	$	(0.07	)	$	(0.06	)
Weighted Average Number of Common Shares
Outstanding – Basic and Diluted		49,675,416			30,107,786

The accompanying notes are an integral part of these financial statements.

7

L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York

STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended
	September 30,
	2004			2003
Cash Flows from Operating Activities
Net Loss for the Period	$	(3,525,867	)	$	(1,846,140	)
Adjustments to Reconcile Net Loss for the Period to Net Cash Flows from Operating Activities:
Depreciation and Amortization		53,470			51,616
Capital Contributions:
Premium on the Issuance of Warrants		627,635			—
Deemed Interest Expense on Loans from Stockholders		5,764			6,346
Deferred Licensing Revenue		(37,500	)		—
Share and Option Grants to Consultants		1,105,696			396,398
Share Issuance for Lawsuit Settlement		560,000			—
Provision for Arbitration Settlement		—			606,132
Changes in Assets and Liabilities:
Accounts Receivable		1,234			2,415
Inventory		31,647			50,257
Prepaid Expenses		(25,963	)		(89,295	)
Accounts Payable and Accrued Expenses		(246,646	)		276,141
Net Cash Flows from Operating Activities		(1,450,530	)		(546,130	)
Cash Flows from Investing Activities
Purchase of Property and Equipment		—			(1,495	)
Investment in Patents and Trademarks – Net		(92,914	)		(88,735	)
Net Cash Flows from Investing Activities		(92,914	)		(90,230	)
Cash Flows from Financing Activities
Proceeds from Exercise of Stock Options		580			25,000
Proceeds from the Sale of Shares Under Share Subscription Agreements		1,333,510			400,315
Proceeds from Exercise of Warrants		259,373			—
Advances from Stockholders		—			163,898
Repayments to Stockholders		—			(103,390	)
Net Cash Flows from Financing Activities		1,593,463			485,823
Net Change in Cash and Cash Equivalents		50,019			(150,537	)
Cash and Cash Equivalents — Beginning of Period		25,132			210,214
Cash and Cash Equivalents — End of Period	$	75,151		$	59,677

The accompanying notes are an integral part of these financial statements.

-continued-

8

L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York

STATEMENTS OF CASH FLOWS (UNAUDITED) – continued

	Nine Months Ended
	September 30,
	2004		2003
Non-Cash Investing and Financing Activities
Debentures Converted to Common Stock	$	—	$	510,600
Stock Subscriptions – Offset Against Due to Stockholder	$	—	$	75,000
SUPPLEMENTAL DISCLOSURE
Interest Paid	$	—	$	—
Income Taxes Paid	$	—	$	—

The accompanying notes are an integral part of these financial statements.

9

L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York

NOTES TO FINANCIAL STATEMENTS

Note A — Basis of Presentation

The condensed financial statements of L.A.M. Pharmaceutical, Corp. (the “Company”) included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in conjunction with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the annual audited financial statements and the notes thereto included in the Company’s Form 10-KSB and other reports filed with the SEC.

The accompanying unaudited interim financial statements reflect all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year as a whole. Factors that affect the comparability of financial data from year to year and for comparable interim periods include non-recurring expenses associated with market launch of new products, costs incurred to raise capital, acquisitions of patents and trademarks, and stock options and awards.

Reclassifications

Certain amounts in the prior year financial statements have been reclassified to conform with the current year presentation. The reclassifications made to the prior year have no impact on the net loss, or overall presentation of the financial statements.

Note B — Accounting Policies

Revenue Recognition

Royalty Revenue Recognition

The Company recognizes royalty revenue based on royalty reports or related information received from the licensee and when collectibility is reasonably assured.

Sales Revenue Recognition

The Company recognizes sales revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable when the product has been shipped to the customer, the sales price is fixed or determinable and collectibility is reasonably assured. The Company reduces revenue for estimated customer returns.

Method of Accounting

The Company maintains its books and prepares its financial statements on the accrual basis of accounting.

Note C — Inventory

Inventory at period end consisted of the following:

	September 30,		December 31,
	2004		2003
IPM Wound Gel™	$	448,895	$	480,542
Raw Materials		2,125		2,125
Inventory	$	451,020	$	482,667

10

L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York

NOTES TO FINANCIAL STATEMENTS

Note D — Share and Option Grants

The Company has stock option plans under which employees, non-employee directors, consultants and investors may be granted options to purchase shares of the Company’s common stock. Options have varying vesting and expiration dates.

The Company has elected to follow Accounting Principles Board Opinion (APB) No. 25 and related interpretations in accounting for its stock-based compensation made to its employees. APB No. 25 requires no recognition of compensation expense for most of the stock-based compensation arrangements provided by the Company, namely, broad-based employee stock purchase plans and option grants where the exercise price is equal to or less than the market value at the date of grant. However, APB No. 25 requires recognition of compensation expense for variable award plans over the vesting periods of such plans, based upon the then-current market values of the underlying stock. In contrast, Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123, requires recognition of compensation expense for grants of stock, stock options, and other equity instruments, over the vesting periods of such grants, based on the estimated grant-date fair values of those grants. The Company generally uses the straight-line method of amortization for stock based compensation.

Had compensation cost for these plans been determined consistent with SFAS No. 123, the Company’s net loss and net loss per share would have been adjusted to the following pro forma amounts:

	For the three months ended				For the nine months ended
	September 30,				September 30,
	2004		2003		2004		2003
Net loss
As reported	$	350,099	$	416,965	$	3,525,867	$	1,846,140
Pro forma	$	350,099	$	424,791	$	3,525,867	$	1,857,484
Net Loss per share
As reported	$	0.01	$	0.01	$	0.07	$	0.06
Pro forma	$	0.01	$	0.01	$	0.07	$	0.06

Note E — Restatement

The Company’s Balance Sheets and Statements of Changes in Stockholders’ Equity have been restated to reflect a correction to a mechanical error that was discovered in the calculation of the Company’s non-cash compensation expense on the issuance of option grants and the non-cash premium expense on warrants issued in connection with the Company’s private placement in 2003 and 2002. The restatements in the share and option grants compensation expense and in the warrant premium resulted in the following restatements. The restatements had no effect on the net loss for the three and nine months ended September 30, 2004 and 2003 and on total stockholders’ equity at September 30, 2004 or 2003.

	As at December 31, 2003				As at December 31, 2002
	Restated		Originally Reported		Restated		Originally Reported
Additional Paid-In Capital		29,022,904		26,605,165		25,952,644		24,054,187
Accumulated Deficit		29,130,093		26,712,354		26,411,739		24,513,282

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Item 2 Management’s Discussion and Analysis or Plan of Operation.

     The following sets forth certain financial data with respect to us and is qualified in its entirety by reference to the more detailed financial statements and notes included elsewhere in this quarterly report on form 10-QSB. The following contains statements that constitute “forward looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. In some cases, you can also identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar expressions. All forward-looking statements are based on assumptions that we have made based on our experience and perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate. These statements are subject to numerous risks and uncertainties, many of which are beyond our control. No forward-looking statement can be guaranteed, and actual results may differ materially from those projected. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

Overview

     We are the owner of a proprietary wound healing and transdermal drug delivery technology that involves the use of an original L.A.M. Ionic Polymer Matrix™ technology that we developed for the purpose of delivering, enhancing and sustaining the action of certain established therapeutic agents. Our corporate objective is to develop, market and license wound healing and transdermally delivered drugs, both prescription and over-the-counter, using our patented L.A.M. Ionic Polymer Matrix™ technology. We intend to seek out corporate alliances and co-marketing partnerships where other drugs and topical products can be enhanced by our L.A.M. IPM™ technology. We intend to acquire complementary products, technologies or companies by identifying and evaluating potential products and technologies developed by third parties that we believe fit within our overall objective. Acquisitions may be funded through a combination of issuance of shares and/or cash, in which case we would be required to raise additional funding through debt instruments or equity financing. We currently do not have any agreements to acquire any complementary products, technologies or companies.

     We received clearance of our L.A.M. IPM Wound Gel™ 510(k) pre-market notification from the FDA in April 2002 and commenced limited commercial sales in August of 2002. Since August 2002, we have continued efforts to develop commercial sales in the United States market. In addition, we have pursued a strategy of seeking regulatory approval to sell our L.A.M. IPM Wound Gel™ in additional markets outside of the United States.

     In March 2004, we received regulatory approval to import and sell our L.A.M. IPM Wound Gel™ in China. We also entered into an agreement with a distributor in the Chinese market. Subsequent to the agreement entered into in December 2003 with a distributor in the Latin America market, application for our regulatory approval to market our product in a number of Latin American countries have been filed by our distributor. As our marketing plans are currently in the process of being developed, we have received minimal orders for our product to date from the above distributors and will only receive payments to the extent that sales are made to the distributors.

     In May 2004, Ixora Bio-Medical Co. (“Ixora”) announced that it had commenced commercial sales of Ixora™ for Women. Upon commencement of commercial sales of this OTC product, Ixora is required to pay us royalties of 6.5% of all net sales with a minimum royalty payment of $75,000 for the first year. As of September 30, 2004 we have received royalty payments of $37,500.

     In January 2004, we announced the veterinary application of our L.A.M. IPM Wound Gel™ targeting Pyotraumatic dermatitis, commonly known as hot spots suffered by dogs. We are currently seeking licensing or partnership opportunity with companies already well established in the veterinary field and presently do not intend on marketing this application under our own brand.

     Our revenue in the first nine months of 2004 increased to $129,000 compared to $80,000 in the same period in the prior year. This increase in revenue is primarily attributable to licensing and royalty revenue that did not occur in 2003. Our operating expenses increased from $1,313,000 in 2003 to $2,461,000 in 2004 primarily as a result of investor relations expenditures and non-cash consulting expenses relating to potential acquisitions and partnering opportunities. Net loss for the nine months increased to $3,526,000 in 2004 compared to $1,846,000 in 2003.

12

Selected Financial Data

     The summary financial data set forth below with respect to the statements of operations for the three and nine months ended September 30, 2004 and 2003 and with respect to the balance sheets as at September 30, 2004 and December 31, 2003, are derived from, and should be read in conjunction with the financial statements and the related notes.

Income Statement Data

	For the Three Months Ended									For the Nine Months Ended
	September 30,									September 30,
							Percentage									Percentage
	2004			2003			Change			2004			2003			Change
Revenue	$	55,557			26,163			112	%	$	128,959		$	79,784			62	%
Operating Expenses		403,630			438,070			(8	)%		2,461,427			1,313,288			87	%
Other Expenses		2,026			5,058						1,193,399			612,636
Net Loss	$	(350,099	)	$	(416,965	)				$	(3,525,867	)	$	(1,846,140	)

Balance Sheet Data:

	As at
	September 30, 2004			December 31, 2003
Current Assets	$	633,396			$	590,295
Total Assets		1,364,403				1,281,858
Current Liabilities		830,310				1,027,561
Total Liabilities		1,037,215				1,384,466
Working Capital (Deficiency)		(196,914	)			(437,266	)
Stockholders’ Equity (Deficit)		327,188				(102,608	)

Results of Operations

Three months Ended September 30, 2004 compared with Three Months Ended September 30, 2003

Revenues

     In May 2004 Ixora Bio-Medical Co. (“Ixora”) announced that it had commenced commercial sales of Ixora™ for Women. Upon commencement of commercial sales of this OTC product, Ixora is required to pay us royalties of 6.5% of all net sales with a minimum royalty payment of $75,000 for the first year. During the three months ended September 30, 2004 we received royalty payments of $18,750 and have taken into income a portion of the deferred licensing revenue equal to the royalty payments received.

     Although sales of our IPM Wound Gel™ during the third quarter of 2004 decreased by $8,000 to $18,000 from sales in the same quarter of 2003 of $26,000, sales have increased $1,000 over the second quarter of 2004. We believe that the concentration of our efforts in signing distribution agreements in China and Latin America will lead to increased sales as these markets become established.

Cost of Goods Sold

     Cost of Goods Sold for the three months ended September 30, 2004 were $5,000, representing a decrease of $3,000 from $8,000 in 2003. The gross profit percentage of 75% for the third quarter of 2004 increased slightly when compared to 71% for the third quarter of 2003. The increase in the gross profit percentage resulted from special pricing offered to our customers on the L.A.M. IPM Wound Gel™ during part of 2003 which did not occur in 2004.

General and Administrative Expenses

     General and administrative expenses for the three months ended September 30, 2004 decreased $21,000 to $175,000 from $196,000 for the three months ended September 30, 2003. The decrease is primarily related to financial consulting costs incurred in the third quarter of 2003 in regards to our private placement.

13

     The primary components of general and administrative expenses for the three months ended September 30, 2004 and 2003 were as follows:

	Three months ended
	September 30,
	2004		2003
Officers’ salaries	$	11,875	$	9,375
Employee salaries and benefits		26,088		29,650
Investor relations		9,960		33,460
Legal and auditing (including SEC filings)		46,207		43,325
Insurance		19,048		9,694
Shares issued to consultants		12,188		16,788
Other expenses		49,438		53,772
Total		174,804		196,064

Marketing and Business Development Expense

     Marketing and business development expense for the three months ended September 30, 2004 increased $6,000 to $190,000 from $184,000 for the three months ended September 30, 2003. The increase included expenditures relating to the launch of our I.P.M. Wound Gel™ in Central America.

Research and Development Expense

     Research and development expenses for the three months ended September 30, 2004 decreased $17,000 to $16,000 from $33,000 for the three months ended September 30, 2003. We have chosen to reduce our research and development expenditures in order to focus on establishing our existing products in the market place. Costs incurred during the quarter represent fixed costs of running our R&D department. As our products obtain acceptance we will increase our research and development expenditures and accelerate the development of additional products.

Nine months Ended September 30, 2004 compared with Nine Months Ended September 30, 2003

Revenues

     In May 2004 Ixora Bio-Medical Co. (“Ixora”) announced that it had commenced commercial sales of Ixora™ for Women. Upon commercial sales of this OTC product, Ixora is required to pay us royalties of 6.5% of all net sales with a minimum royalty payment of $75,000 for the first year. In the first nine months of 2004 we received royalty payments of $37,500 and have taken into income a portion of the deferred licensing revenue equal to the royalty payments received.

     Although sales of our IPM Wound Gel™ during the nine months ended September 30, 2004 amounted to $54,000, a decrease of $26,000 over sales in the same period of 2003 of $80,000, we believe that the concentration of our efforts in the signing of distribution agreements in China and Latin America we will lead to increased sales as these markets become established.

Cost of Goods Sold

     Cost of Goods Sold for the nine months ended September 30, 2004 were $13,000, representing a decrease of $8,000 from $21,000 in 2003. The gross profit percentage of 77% for the first nine months of 2004 increased slightly when compared to 75% the first nine months of 2003. The increase in the gross profit percentage resulted from special pricing offered to our customers on the L.A.M. IPM Wound Gel™ during part of 2003 which did not recur in 2004.

General and Administrative Expenses

     General and administrative expenses for the nine months ended September 30, 2004 increased $274,000 to $821,000 from $547,000 for the nine months ended September 30, 2003. The increase included costs attributable to investor relation services performed in the second quarter of 2004, cash expenses and shares issuances relating to our private placement and increase in compensation relating to bonuses paid for obtaining regulatory approval in

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China. The increase was offset by the reduction in legal and auditing expenditures due to decreased business activity in these areas and decrease in insurance as we reduced our product liability coverage from $3,000,000 to $1,000,000. In May 2004 we increased our product liability coverage to $3,000,000.

     The primary components of general and administrative expenses for the nine months ended September 30, 2004 and 2003 were as follows:

	Nine months ended
	September 30,
	2004		2003
Officers’ salaries	$	51,500	$	25,000
Employee salaries and benefits		73,742		86,227
Investor relations		277,505		57,108
Legal and auditing (including SEC filings)		126,741		156,819
Insurance		34,051		38,864
Shareholder special meeting expenses		7,496		—
Options and Shares issued to consultants		101,355		40,052
Other expenses		149,030		142,933
Total		821,420		547,003

Marketing and Business Development Expense

     Marketing and business development expense for the nine months ended September 30, 2004 increased $956,000 to $1,493,000 from $537,000 for the nine months ended September 30, 2003. The increase included a non-cash charge for the issuance of shares to companies for services rendered regarding potential acquisitions and partnership opportunities.

Research and Development Expense

     Research and development expenses for the nine months ended September 30, 2004 decreased $77,000 to $80,000 from $157,000 for the nine months ended September 30, 2003. We have chosen to reduce our research and development expenditures in order to focus on establishing our existing products in the market place. Costs incurred during this period represent fixed costs of running our R&D department. As our products obtain acceptance we will increase our research and development expenditures and accelerate the development of additional products.

Warrant Premium

     The expense of $628,000 for the nine months ended September 30, 2004 represents the fair value of the warrants issued to shareholders in connection with our private placement.

Legal Settlement

     In March 2004, a consultant filed a lawsuit against us and one of our directors with the District Court of Montreal in Quebec, Canada in the amount of $2.8 million alleging that we failed to issue shares of our common stock to the individual for services rendered during the periods of 2001 and 2002. On April 26, 2004 we reached an out of court settlement of the lawsuit with the consultant which resulted in the issuance of two million shares of our common stock. We have recorded $560,000, the effect of the settlement, in the financial statements for the period ended September 30, 2004.

Provision for Arbitration Settlement

     Capital Research Group, Inc. (CRG) an investor relations firm formerly used by us filed a claim against us with the American Arbitration Association alleging that we failed to pay Capital Research Group in accordance with the terms of an agreement between the parties. On November 19, 2003 we reached an agreement with Capital Research Group to settle all amounts owed by us to CRG. A provision for the arbitration settlement was recorded in the financial statements for the nine months ended September 30, 2003.

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Liquidity and Sources of Capital

Nine Months ended September 30, 2004

     Our cash and cash equivalents as of September 30, 2004 was $75,000. Our working capital improved by 240,000 from a deficiency of $437,000 as of December 31, 2003 to a deficiency of $197,000 as of September 30, 2004.

     Our operations used approximately $1,211,000 in cash during the nine months ended September 30, 2004 compared to $786,000 used in the same period in the prior year. This was primarily due to increased expenditures on investor relations and costs related to the development of the Chinese and Latin American markets and the reduction in accounts payable of $247,000.

     During this period we also invested $93,000 in patents and trademarks.

     During the nine months ended September 30, 2004, funds were raised principally from subscription agreements for the issuance of our common stock in the amount of $1,334,000 and the exercise of warrants in the amount of $259,000.

     During the nine months ended September 30, 2004 we sold units of our common stock in which each unit consists of 1,000 shares of our common stock plus 750 warrants. The sales were conduced by us through a private placement to a group of accredited investors, pursuant to Regulation D, promulgated the Securities Act of 1933, as amended. Through private placements we sold 5,594,000 shares of our common stock, plus warrants for the purchase of an additional 4,195,500 shares to 36 investors for proceeds amounting to $1,250,000, of which $1,243,000 was received prior to September 30, 2004. As of September 30, 2004 we have not issued the common stock in relation to the private placement. Each warrant will entitle the holder to purchase one share of common stock as follows:

• One third of warrants may be exercised at any time prior to June 30, 2005 at prices ranging from $0.35 to $0.60 per share;

• One third of warrants may be exercised at any time prior to December 31, 2005 at prices ranging from $0.35 to $0.75 per share; and

• One third of warrants may be exercised at any time prior to June 30, 2006 at prices ranging from $0.55 to $1.00 per share

Application of Critical Accounting Policies

     Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Critical accounting policies include revenue recognition, inventory valuation and accounting for income taxes.

     We recognize revenue in accordance with Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”. We recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable when the product has been shipped to the customer, the sales price is fixed or determinable and collectibility is reasonably assured. We reduce our revenue for estimated customer returns. We recognize royalty revenue based on royalty reports or related information received from the licensee and when collectibility is reasonably assured.

     Inventory is comprised of finished goods and raw materials and is stated at the lower of cost or market. Cost is determined by the first-in, first-out method and market is based on the lower of replacement cost or net realizable value. If the cost of the inventories exceeds their expected market value, provisions are recorded currently for the difference between the cost and the market value. These provisions are determined based on estimates. The valuation of inventories also requires us to estimate excess inventories and inventories that are not saleable. The determination of excess or non-saleable inventories requires us to estimate the future demand for our product and consider the shelf life of the inventory. If actual demand is less than our estimated demand, we could be required to record inventory reserves, which would have an adverse impact on our results of operations.

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     Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. All deferred tax assets have been fully reserved against due to the uncertainty as to when or whether the tax benefit will be realized.

Item 3 Controls and Procedures.

     Joseph T. Slechta, our President, Chief Executive Officer, Principal Financial Officer and Chief Accounting Officer, has evaluated the effectiveness of our disclosure controls and procedures as of a date within 90 days prior to the filing date of this report; and in his opinion our disclosure controls and procedures ensure that material information relating to us, is made known to him by others within our entity, particularly during the period in which this report is being prepared, so as to allow timely decisions regarding required disclosure. To the knowledge of Mr. Slechta there have been no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the date of their evaluation. As a result, no corrective actions with regard to significant deficiencies or material weakness in our internal controls were required.

PART II

OTHER INFORMATION

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

     During the nine months ended September 30, 2004 we sold units of our common stock in which each unit consists of 1,000 shares of our common stock plus 750 warrants. The sales were conduced by us through a private placement to a group of accredited investors, pursuant to Regulation D, promulgated the Securities Act of 1933, as amended. Through the private placement we sold 5,594,000 shares of our common stock, plus warrants for the purchase of an additional 4,195,500 shares to 36 investors for proceeds amounting to $1,250,000, of which $1,243,000 was received prior to September 30, 2004. As of September 30, 2004 we have not issued the common stock in relation to the private placement. Each warrant will entitle the holder to purchase one share of common stock as follows:

• One third of warrants may be exercised at any time prior to June 30, 2005 at prices ranging from $0.35 to $0.60 per share;

• One third of warrants may be exercised at any time prior to December 31, 2005 at prices ranging from $0.35 to $0.75 per share; and

• One third of warrants may be exercised at any time prior to June 30, 2006 at prices ranging from $0.55 to $1.00 per share

     On May 4, 2004 we filed a registration statement with the United States Securities and Exchange Commission (Commission File No. 333-115126) to register the common shares issued as a result of this private placement. On July 27, 2004 we filed Amendment No. 1 to this registration statement, on September 9, 2004 we filed Amendment No. 2 to this registration statement and on October 13, 2004 we filed Amendment No. 3 to this registration statement. The registration statement was declared effective by the SEC on October 15, 2004.

Item 6 Exhibits

Number		Title
	31.1	Certification by Joseph T. Slectha, President, Chief Executive Officer, Principal Financial Officer and Chief Accounting Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification by Joseph T. Slectha, President, Chief Executive Officer, Principal Financial Officer and Chief Accounting Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized

	L.A.M. PHARMACEUTICAL, CORP.
November 11, 2004	By:	/s/ Joseph T. Slechta
		Joseph T. Slechta, President, Chief Executive
		Officer, Principal Financial Officer and Chief Accounting Officer

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