UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
x Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2005
or
¨ 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 ¨
As of May 11, 2005, we had 83,157,389 issued and outstanding shares of common stock.
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INDEX
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PART I
FINANCIAL INFORMATION
Item 1 Financial Statements
L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York
| FINANCIAL REPORTS AT MARCH 31, 2005 | ||
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L.A.M. PHARMACEUTICAL, CORP. BALANCE SHEETS |
| (Unaudited) | ||||||
| March 31, | December 31, | |||||
| 2005 | 2004 | |||||
| ASSETS | ||||||
| Current Assets | ||||||
| Cash and Cash Equivalents | $ | 29,722 | $ | 65,866 | ||
| Accounts Receivable, net | 163,648 | 4,795 | ||||
| Inventory | 72,230 | 440,746 | ||||
| Prepaid Expenses | 77,480 | 75,879 | ||||
| Total Current Assets | 343,080 | 587,286 | ||||
| Property and Equipment - Net of Accumulated Depreciation | 66,979 | 73,587 | ||||
| Other Assets | ||||||
| Patents and Trademarks - Net of Accumulated Amortization | 634,037 | 634,629 | ||||
| Total Assets | $ | 1,044,096 | $ | 1,295,502 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||
| Current Liabilities | ||||||
| Accounts Payable and Accrued Expenses | $ | 766,393 | $ | 864,525 | ||
| Current Portion of Deferred Licensing Revenue | 132,360 | 131,250 | ||||
| Total Current Liabilities | 898,753 | 995,775 | ||||
| Other Liabilities | ||||||
| Due to Stockholders | 149,545 | 149,545 | ||||
| Deferred Licensing Revenue | — | 19,860 | ||||
| Total Liabilities | 1,048,298 | 1,165,180 | ||||
| Stockholders' Equity (Deficit) | ||||||
| Common Stock - $.0001 Par; 150,000,000 Shares | ||||||
| Authorized; 78,348,713 and 66,115,713 | ||||||
| Shares Issued and Outstanding, Respectively | 7,835 | 6,611 | ||||
| Additional Paid-In Capital | 34,351,351 | 33,234,036 | ||||
| Accumulated Deficit | (34,363,388 | ) | (33,110,325 | ) | ||
| Total Stockholders' Equity (Deficit) | (4,202 | ) | 130,322 | |||
| Total Liabilities and Stockholders' Equity (Deficit) | $ | 1,044,096 | $ | 1,295,502 |
The accompanying notes are an integral part of these financial statements.
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L.A.M. PHARMACEUTICAL, CORP. STATEMENTS OFCHANGES INSTOCKHOLDERS'EQUITY(DEFICIT) |
| Additional | Total | |||||||||||||
| Number | Common | Paid-In | Accumulated | Stockholders' | ||||||||||
| of Shares | Stock | Capital | Deficit | Equity (Deficit) | ||||||||||
| Balance - December 31, 2003 | 45,809,364 | $ | 4,581 | $ | 29,022,904 | $ | (29,130,093 | ) | $ | (102,608 | ) | |||
| Capital Contribution – Interest Expense | — | — | 1,869 | — | 1,869 | |||||||||
| Stock Options Granted - | ||||||||||||||
| Compensation for Services Rendered | — | — | 12,188 | — | 12,188 | |||||||||
| Common Shares Issued - | ||||||||||||||
| Compensation for Services Rendered | 607,560 | 61 | 110,979 | — | 111,040 | |||||||||
| Sale of Shares Under the Stock Subscription Agreements | 300,000 | 30 | 958,480 | — | 958,510 | |||||||||
| Proceeds from Warrant Exercise | 2,133,549 | 213 | 259,160 | — | 259,373 | |||||||||
| Premium on the Issuance of Warrants | — | — | 624,707 | — | 624,707 | |||||||||
| Lawsuit Accrual | — | — | 560,000 | — | 560,000 | |||||||||
| Collection of Receivable on Option Exercise | — | — | 580 | — | 580 | |||||||||
| Collection of Receivable on Sale of Stock Subscription Agreements | — | — | 32,000 | — | 32,000 | |||||||||
| Net Loss for the Period (Unaudited) | — | — | — | (1,583,780 | ) | (1,583,780 | ) | |||||||
| �� | ||||||||||||||
| Balance – March 31, 2004 (Unaudited) | 48,850,473 | $ | 4,885 | $ | 31,582,867 | $ | (30,713,873 | ) | $ | 873,879 | ||||
| Balance - December 31, 2004 | 66,115,713 | $ | 6,611 | $ | 33,234,036 | $ | (33,110,325 | ) | $ | 130,322 | ||||
| Capital Contribution – Interest Expense | — | — | 2,430 | — | 2,430 | |||||||||
| Stock Options Granted - | ||||||||||||||
| Compensation for Services Rendered | — | — | 1,811 | — | 1,811 | |||||||||
| Common Shares Issued - | ||||||||||||||
| Compensation for Services Rendered | 12,233,000 | 1,224 | 929,259 | — | 930,483 | |||||||||
| Sale of Shares Under the Stock Subscription Agreements | — | — | 183,815 | — | 183,815 | |||||||||
| Net Loss for the Period (Unaudited) | — | — | — | (1,253,063 | ) | (1,253,063 | ) | |||||||
| Balance – March 31, 2005 (Unaudited) | 78,348,713 | $ | 7,835 | $ | 34,351,351 | $ | (34,363,388 | ) | $ | (4,202 | ) |
Theaccompanying notes are anintegral part of thesefinancialstatements.
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L.A.M. PHARMACEUTICAL, CORP. STATEMENTS OF OPERATIONS (UNAUDITED) |
| Three Months Ended | ||||||
| March 31, | ||||||
| 2005 | 2004 | |||||
| Revenues | ||||||
| Licensing and Royalty Revenue | $ | 37,500 | $ | — | ||
| Net Sales | 175,220 | 18,636 | ||||
| Total Revenue | 212,720 | 18,636 | ||||
| Expenses | ||||||
| Cost of Sales | 363,606 | 3,963 | ||||
| General and Administrative | 202,772 | 197,887 | ||||
| Marketing and Business Development | 862,476 | 165,582 | ||||
| Research and Development | 16,037 | 31,239 | ||||
| Depreciation and Amortization | 18,462 | 17,169 | ||||
| Total Expenses | 1,463,353 | 415,840 | ||||
| Loss Before Other Expenses | (1,250,633 | ) | (397,204 | ) | ||
| Other Expenses | ||||||
| Interest Expense | 2,430 | 1,869 | ||||
| Premium on Issuance of Warrants | — | 624,707 | ||||
| Provision for Lawsuit Settlement | — | 560,000 | ||||
| Total Other Expenses | 2,430 | 1,186,576 | ||||
| Net Loss for the Period | $ | (1,253,063 | ) | $ | (1,583,780 | ) |
| Net Loss per Common Share - Basic and Diluted | $ | (0.02 | ) | $ | (0.03 | ) |
| Weighted Average Number of Common Shares | ||||||
| Outstanding – Basic and Diluted | 74,641,191 | 47,886,434 | ||||
The accompanying notes are an integral part of these financial statements.
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L.A.M. PHARMACEUTICAL, CORP. STATEMENTS OF CASH FLOWS (UNAUDITED) |
| Three Months Ended | ||||||
| March 31, | ||||||
| 2005 | 2004 | |||||
| Cash Flows from Operating Activities | ||||||
| Net Loss for the Period | $ | (1,253,063 | ) | $ | (1,583,780 | ) |
| Adjustments to Reconcile Net Loss for the Period | ||||||
| to Net Cash Flows from Operating Activities: | ||||||
| Depreciation and Amortization | 18,462 | 17,169 | ||||
| Capital Contributions: | ||||||
| Premium on the Issuance of Warrants | — | 624,707 | ||||
| Deemed Interest Expense on | ||||||
| Loans from Stockholders | 2,430 | 1,869 | ||||
| Deferred Licensing Revenue | (18,750 | ) | — | |||
| Share and Option Grants to Consultants | 830,294 | 60,123 | ||||
| Provision for Lawsuit Settlement | — | 560,000 | ||||
| Inventory Obsolescence Reserve | 257,063 | — | ||||
| Changes in Assets and Liabilities: | ||||||
| Accounts Receivable | (158,853 | ) | 1,190 | |||
| Inventory | 111,453 | 7,899 | ||||
| Prepaid Expenses | (1,601 | ) | — | |||
| Accounts Payable and Accrued Expenses | 3,868 | (147,039 | ) | |||
| Net Cash Flows from Operating Activities | (208,697 | ) | (457,862 | ) | ||
| Cash Flows from Investing Activities | ||||||
| Investment in Patents and Trademarks – Net | (11,262 | ) | (34,887 | ) | ||
| Net Cash Flows from Investing Activities | (11,262 | ) | (34,887 | ) | ||
| Cash Flows from Financing Activities | ||||||
| Proceeds from Exercise of Stock Options | — | 580 | ||||
| Proceeds from the Sale of Shares Under | ||||||
| Stock Subscription Agreements | 183,815 | 990,510 | ||||
| Proceeds from Exercise of Warrants | — | 259,373 | ||||
| Net Cash Flows from Financing Activities | 183,815 | 1,250,463 | ||||
| Net Change in Cash and Cash Equivalents | (36,144 | ) | 757,714 | |||
| Cash and Cash Equivalents - Beginning of Period | 65,866 | 25,132 | ||||
| Cash and Cash Equivalents - End of Period | $ | 29,722 | $ | 782,846 | ||
The accompanying notes are an integral part of these financial statements.
-continued-
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L.A.M. PHARMACEUTICAL, CORP. STATEMENTS OF CASH FLOWS (UNAUDITED) – continued |
| Three Months Ended | ||||||
| March 31, | ||||||
| 2005 | 2004 | |||||
| SUPPLEMENTAL DISCLOSURE | ||||||
| Interest Paid | $ | — | $ | — | ||
| Income Taxes Paid | $ | — | $ | — | ||
The accompanying notes are an integral part of these financial statements.
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L.A.M. PHARMACEUTICAL, CORP. 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 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 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 the Company to estimate excess inventories and inventories that are not saleable. The determination of excess or non-saleable inventories requires the Company to estimate the future demand for the Company’s product and consider | |
| -continued- |
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L.A.M. PHARMACEUTICAL, CORP. NOTES TO FINANCIAL STATEMENTS |
| Note C - | Inventory - continued |
| the shelf life of the inventory. The Company has revised its estimate of the demand for the Company’s product and recorded an inventory obsolescence provision for the estimated excess inventory as at March 31, 2005 in the amount of $257,063. |
| March 31, | 2005 | 2004 | ||||
| IPM Wound Gel™ | $ | 329,293 | $ | 438,621 | ||
| Raw Materials | — | 2,125 | ||||
| 329,293 | 440,746 | |||||
| Inventory Obsolescence | (257,063 | ) | — | |||
| Inventories | $ | 72,230 | $ | 440,746 |
| 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 | |||||
| March 31, | |||||
| 2005 | 2004 | ||||
| Net loss | |||||
| As reported | $ | 1,253,063 | $ | 1,583,780 | |
| Pro forma | $ | 1,253,063 | $ | 1,583,780 | |
| Net Loss per share | |||||
| As reported | $0.02 | $0.03 | |||
| Pro forma | $0.02 | $0.03 | |||
| Note E - | Concentrations |
| During the period ended March 31, 2005, the Company generated sales from one customer representing 91% of total net sales. |
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Item 2 Management’s Discussion and Analysis of Financial Condition 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. In December 2003 we entered in an agreement with a distributor in the Latin America market and in March 2005 we received regulatory approval to market and sell our LAM IPM Wound Gel™ in Ecuador. The approval was granted by the Instituto Nacional de Higiene y Medicina Tropical Leopoldo Izquieta Perez (the Ecuadorian Ministry of Health), approval number “26291-03-05.”
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 and $150,000 for the second year of sales. As of March 31, 2005 we have received royalty payments of $75,000.
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 three months of 2005 increased to $213,000 compared to $19,000 in the same period in the prior year. This increase in revenue is primarily attributable to increased sales of our IPM Wound Gel™ to our distributor in China and licensing and royalty revenue that did not occur in the first quarter of 2004. Our operating expenses increased from $416,000 in 2004 to $1,463,000 in 2005 primarily as a result of non-cash consulting expenses relating to sourcing and due diligence activities regarding potential acquisitions and partnering opportunities in China as well as the United States and an inventory obsolescence provision. Net loss for the three months decreased to $1,253,000 in 2005 compared to $1,584,000 in 2004.
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Selected Financial Data
The summary financial data set forth below with respect to the statements of operations for the three months ended March 31, 2005 and 2004 and with respect to the balance sheets as at March 31, 2005 and December 31, 2004, 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 | |||||||
| March 31, | Percentage | ||||||
| 2005 | 2004 | Change | |||||
| Revenue | $ | 212,720 | 18,636 | 1041% | |||
| Operating Expenses | 1,463,353 | 415,840 | 252% | ||||
| Other Expenses | 2,430 | 1,186,576 | |||||
| Net Loss | $ | (1,253,063 | ) | $ | (1,583,780 | ) | |
Balance Sheet Data:
| As at | |||||||
| March 31, 2005 | December 31, 2004 | ||||||
| Current Assets | $ | 343,080 | $ | 587,286 | |||
| Total Assets | 1,044,096 | 1,295,502 | |||||
| Current Liabilities | 898,753 | 995,775 | |||||
| Total Liabilities | 1,048,298 | 1,165,180 | |||||
| Working Capital (Deficiency) | (555,673 | ) | (408,489 | ) | |||
| Stockholders' Equity (Deficit) | (4,202 | ) | 130,322 | ||||
Results of Operations
Three months Ended March 31, 2005 compared with Three Months Ended March 31, 2004
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 and $150,000 for the second year of sales. During the three months ended March 31, 2005 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.
Sales of our IPM Wound Gel™ during the first quarter of 2005 increased by $156,000 to $175,000 from sales in the same quarter of 2004 of $19,000. The increase in sales resulted from our efforts in distributing our product in China.
Cost of Goods Sold
Cost of Goods Sold for the three months ended March 31, 2005 were $364,000, representing an increase of $360,000 from $4,000 in 2004. The increase includes an overall increase in sales and a charge for obsolete inventory. The gross profit percentage on sales of 39% for the first quarter of 2005 decreased when compared to 78% for the first quarter of 2004. The decrease in the gross profit percentage resulted from lower margin sales to our distributor in China.
General and Administrative Expenses
General and administrative expenses for the three months ended March 31, 2005 increased $5,000 to $203,000 from $198,000 for the three months ended March 31, 2004. The increase includes non-cash compensation
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paid to consultants for the introduction of different sources of financing. The increase was offset by the company’s continuing efforts to reduce ongoing operating costs
The primary components of general and administrative expenses for the three months ended March 31, 2005 and 2004 were as follows:
| Three months ended | ||
| March 31, | ||
| 2005 | 2004 | |
| Officers’ salaries | $9,625 | 12,750 |
| Employee salaries and benefits | 21,554 | 25,671 |
| Investor relations | 8,401 | 7,855 |
| Financial consulting | 13,527 | 13,011 |
| Legal and auditing (including SEC filings) | 12,628 | 50,380 |
| Insurance | 8,895 | 3,231 |
| Shares and options issued to consultants | 72,386 | 30,231 |
| Other expenses | 55,756 | 54,758 |
| Total | 202,772 | 197,887 |
Marketing and Business Development Expense
Marketing and business development expense for the three months ended March 31, 2005 increased $697,000 to $862,000 from $165,000 for the three months ended March 31, 2004. The increase included non-cash expenditures of $756,000 relating to sourcing and due diligence activities regarding potential acquisitions and partnering opportunities in China as well as the United States. The increase was offset by decreased costs relating to product approvals in China and Central America and a reduction in personnel which occurred in the second quarter of 2004.
Research and Development Expense
Research and development expenses for the three months ended March 31, 2005 decreased $15,000 to $16,000 from $31,000 for the three months ended March 31, 2004. 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 and adequate cash resources become available we will increase our research and development expenditures and accelerate the development of additional products.
Liquidity and Sources of Capital
Three Months ended March 31, 2005
Our cash and cash equivalents as of March 31, 2005 was $29,722. Our working capital decreased by $148,000 from a deficiency of $408,000 as of December 31, 2004 to a deficiency of $556,000 as of March 31, 2005.
Our operations used approximately $209,000 in cash during the three months ended March 31, 2005 compared to $458,000 used in the same period in the prior year. This was primarily due to the Company’s continuing efforts to reduce operating costs and the reduction of inventory. This was offset by an increase in accounts receivable of $159,000.
During this period we also invested $11,000 in patents and trademarks.
During the three months ended March 31, 2005, funds were raised principally from subscription agreements for the issuance of our common stock in the amount of $184,000.
During the three months ended March 31, 2005 we sold units of our common stock in which each unit consists of 1,000 shares of our common stock plus 750 warrants. Through private placements we sold 1,671,676 shares of our common stock, plus warrants for the purchase of an additional 1,253,756 shares to 11 investors for proceeds totaling $183,725. Full proceeds were received prior to March 31, 2005. As of March 31, 2005 we have
13
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 varying dates prior to January 31, 2006 at a price of $0.30 per share; | |
| • | One third of warrants may be exercised at varying dates prior to July 31, 2006 at a price of $0.50 per share; and | |
| • | One third of warrants may be exercised at varying dates prior to January 31, 2007 at a price of $0.75 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. The Company has currently recorded an inventory obsolescence reserve of $257,000.
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.
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PART II
OTHER INFORMATION
Item 2 Changes in Securities
During the three months ended March 31, 2005 we sold 1,671,676 shares of our common stock, plus warrants for the purchase of an additional 1,253,756 shares to 11 investors for proceeds totaling $183,725. Each warrant will entitle the holder to purchase one share of common stock as follows:
| • | One third of warrants may be exercised at varying dates prior to January 31, 2006 at a price of $0.30 per share; | |
| • | One third of warrants may be exercised at varying dates prior to July 31, 2006 at a price of $0.50 per share; and | |
| • | One third of warrants may be exercised at varying dates prior to January 31, 2007 at a price of $0.75 per share |
The Company will file a registration statement to register the common shares issued to the investors as a result of the private placement with the United States Securities and Exchange Commission.
Item 6 Exhibits
| Number | Title |
| 31.1 | |
| 32.1 |
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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. | ||
| May 16, 2005 | By: | /s/ Joseph T. Slechta |
| Joseph T. Slechta, President, Chief Executive Officer, Principal | ||
| Financial Officer and Chief Accounting Officer | ||
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