UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
Commission file No. 0-30641
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
North York, Ontario, Canada M3H 6B4 (address of
principal executive offices) (Zip Code)
(416) 633-3004
--------- ----------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the proceeding 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 June 30, 2001, the Company had 14,321,846 issued and outstanding shares of
common stock.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
-------------------------------------
FINANCIAL REPORTS
AT
JUNE 30, 2001 and 2000
-------------------------------------
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
Independent Accountants' Report on Unaudited Interim Financial Data F-2
Balance Sheets at June 30, 2001 (Unaudited) and December 31, 2000 F-3
Statements of Changes in Stockholders' Deficit for the Three and
Six Months Ended June 30, 2001 and 2000 (Unaudited) F-4 to F-5
Statements of Operations for the Three Months and Six Months
Ended June 30, 2001 And 2000 and for the Period From the Date
of Inception (February 1, 1994) Through June 30, 2001 (Unaudited) F-6
Statements of Cash Flows for the Three Months and Six Months
Ended June 30, 2001 and 2000 and for the Period From the Date
of Inception (February 1, 1994) Through June 30, 2001 (Unaudited) F-7 to F-8
Notes to Financial Statements F-9 to F-11
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
L.A.M. Pharmaceutical, Corp.
We have reviewed the accompanying balance sheet of L.A.M. Pharmaceutical,
Corp. (a Development Stage Company) (A Delaware Corporation) as of June 30, 2001
and the related statements of operations, changes in stockholders' deficit and
cash flows for the three months and six months ended June 30, 2001 and 2000 and
for the period from the date of inception (February 1, 1994) through June 30,
2001. All information included in these financial statements is the
representation of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit in accordance with generally
accepted auditing standards in the United States of America, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles in the United States
of America.
We have previously audited, in accordance with auditing standards,
generally accepted in the United States, the balance sheet as of December 31,
2000 (presented herein), and the related statements of operations, changes in
stockholders' deficit and cash flows for the year then ended, and for the period
from the date of inception (February 1, 1994) through December 31, 2000 (not
presented herein), and in our report dated February 9, 2001, we expressed an
unqualified opinion on those financial statements. We have not performed any
auditing procedures subsequent to the date of our previous report.
/s/ Rotenberg & Company, LLP
Rochester, New York
August 9, 2001
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
BALANCE SHEETS
- --------------------------------------------------------------------------------
(Unaudited)
June 30, December 31,
2001 2000
- --------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 928,488 $ 1,545,692
Cash Held by Broker - Debentures -- 357,250
Loan Receivable - Officer 985,000 --
Accounts Receivable 20,931 75,000
Inventory - Raw Materials 114,750 121,125
Prepaid Expenses -- 2,639
- --------------------------------------------------------------------------------
Total Current Assets 2,049,169 2,101,706
Property and Equipment - Net of Accumulated
Depreciation 121,897 19,601
Other Assets
Patents and Trademarks - Net of Accumulated
Amortization 310,206 336,196
- --------------------------------------------------------------------------------
Total Assets $ 2,481,272 $ 2,457,503
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts Payable and Accrued Expenses $ 551,341 $ 326,762
Convertible Debentures 1,391,250 1,658,250
- --------------------------------------------------------------------------------
Total Current Liabilities 1,942,591 1,985,012
Non-Current Liabilities
Due to Stockholders $ 1,241,837 $ 1,266,837
Deferred Royalty Revenue 207,360 207,360
- --------------------------------------------------------------------------------
Total Liabilities $ 3,391,788 $ 3,459,209
- --------------------------------------------------------------------------------
Stockholders' Deficit
Common Stock - $.0001 Par; 50,000,000 Shares
Authorized; 14,848,251and 13,998,930 Shares Issued
and Outstanding as of June 30, 2001 and December 31,
Respectively 1,485 1,400
Additional Paid in Capital 11,485,732 8,812,199
Deficit Accumulated During Development Stage (12,397,733) (9,815,305)
- --------------------------------------------------------------------------------
Total Stockholders' Deficit (910,516) (1,001,706)
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficit $ 2,481,272 $ 2,457,503
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Three and Six Months Ended June 30, 2001 and 2000
(Unaudited)
- --------------------------------------------------------------------------------
Deficit
Accumulated
Additional During Total
Common Paid-In Development Stockholders
Shares Stock Capital Stage Equity/(Deficit)
- ---------------------------------------------------------------------------------------------------------------
Balance - December 31, 1999 10,392,500 $ 1,039 $ 3,384,823 $ (5,038,297) $ (1,652,435)
Capital Contribution - Interest -- -- 26,923 -- 26,923
Stock Options Issued -- -- 76,660 -- 76,660
Conversion Premium on
Convertible Debentures -- -- 265,000 -- 265,000
Net Loss - Restated (Unaudited) -- -- -- (724,566) (724,566)
- ----------------------------------------------------------------------------------------------------------------
Balance - March 31, 2000 10,392,500 1,039 $ 3,753,406 (5,762,863) $(2,008,418)
- ----------------------------------------------------------------------------------------------------------------
Capital Contribution -
Interest Expense -- -- 26,923 -- 26,923
Conversion Premium on
Convertible Debentures -- -- 10,000 -- 10,000
Net Loss for the Period -
(Unaudited) -- -- -- (191,801) (191,801)
- ----------------------------------------------------------------------------------------------------------------
Balance - June 30, 2000 10,392,500 $ 1,039 $ 3,790,329 $ (5,954,664) $ (2,163,296)
- ----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Three and Six Months Ended June 30, 2001 and 2000
(Unaudited)
- --------------------------------------------------------------------------------
Deficit
Accumulated
Additional During Total
Common Paid-In Development Stockholders
Shares Stock Capital Stage Equity/(Deficit)
- ---------------------------------------------------------------------------------------------------------------
Balance - December 31, 2000 13,998,930 $ 1,400 $ 8,812,199 $ (9,815,305) $ (1,001,706)
Capital Contribution -
Interest Expense -- -- 26,920 -- 26,920
Debentures Converted to Common
Stock 107,300 11 197,716 -- 197,727
Stock Options Exercised 173,000 17 112,433 -- 112,450
Common Shares Issues as
Compensation for Services
Rendered 10,000 1 9,999 -- 10,000
Warrants Issued to Hockbury
Limited and GKN Securities -- -- 1,100,000 -- 1,100,000
Net Loss for the Period -
(Unaudited) -- -- -- (1,667,723) (1,667,723)
- -------------------------------------------------------------------------------------------------------------
Balance - March 31, 2001 14,289,230 $ 1,429 $10,259,267 $(11,483,028) $ (1,222,332)
- -------------------------------------------------------------------------------------------------------------
Capital Contribution -
Interest Expense -- -- 28,185 -- 28,185
Debentures Converted to Common
Stock 20,000 2 9,998 -- 10,000
Common Shares Issued as
Compensation for Services
Rendered 100,000 10 299,990 -- 300,000
Stock Options Issued -- -- 404,700 -- 404,700
Sale of Shares Under the
Equity Line of Credit
Agreement 439,021 44 483,592 -- 483,636
Net Loss for the Period -
(Unaudited) -- -- -- (914,750) (914,750)
- --------------------------------------------------------------------------------------------------------------
Balance - June 30, 2001 14,848,251 $ 1,485 $11,485,732 $(12,397,733) $(910,516)
- --------------------------------------------------------------------------------------------------------------
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended June 30, 2001 and 2000 and for the
Period From the Date of Inception (February 1, 1994) Through June 30, 2001
- --------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Six Months Ended Quarter Ended Date of
Inception
June 30, June 30, (February 1,
1994)
Through
2001 2000 2001 2000 June 30, 2001
- --------------------------------------------------------------------------------
Licensing Revenue $300,000 $ -- $300,000 $ -- $500,000
- --------------------------------------------------------------------------------
Expenses
Research and Development 140,725 113,969 62,309 22,904 2,159,794
General and Administrative 809,630 407,545 397,982 101,048 4,240,097
Warrants Issued - Equity
Line of Credit 1,100,000 -- -- -- 1,100,000
Stock Compensation -
Officer 300,000 -- 300,000 -- 300,000
Options and Awards Granted 414,700
Officers and Directors 95,500 -- 85,500 --
Investors and Investor
Relations
Consultants 319,200 -- 319,200 --
Interest Expense 121,336 120,376 60,187 60,188 786,359
Conversion Premium on
Convertible Debentures -- 275,000 -- 10,000 3,647,093
Depreciation and
Amortization 17,501 13,122 10,458 8,577 96,419
- --------------------------------------------------------------------------------
Total Expenses 2,903,892 930,012 1,235,636 202,717 12,744,462
- --------------------------------------------------------------------------------
Loss From Operations (2,603,892) (930,012) (935,636)(202,717) (12,244,462)
- --------------------------------------------------------------------------------
Other Income (Expense)
Interest Income 21,464 13,663 20,931 10,916 54,089
Loss on Investment in
Affiliate -- -- -- -- (207,360)
- --------------------------------------------------------------------------------
Total Other Income (Expense) 21,464 13,663 20,931 10,916 (153,271)
- --------------------------------------------------------------------------------
Net Loss (2,582,428) (916,349) (914,705) (191,801)(12,397,733)
- --------------------------------------------------------------------------------
Loss Per Common Share - Basic
and Diluted $(0.18) $ (0.09) $ (0.06) $ (0.02) $ (1.26)
- --------------------------------------------------------------------------------
Weighted Average
Number of Common
Shares Outstanding 14,321,846 10,392,500 14,241,358 10,392,500
- ----------------------------------------------------------------------
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
STATEMENTS OF CASH FLOWS
For the Three Months and Six Months Ended June 30, 2001 and 2000 and for the
Period From the Date of Inception (February 1, 1994) Through
June 30, 2001
- --------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Six Months Ended Quarter Ended Date of
Inception
June 30, June 30, (February 1,
1994)
Through
2001 2000 2001 2000 June 30, 2001
- --------------------------------------------------------------------------------
Cash Flows from Operating
Activities
Net Loss $(2,582,428)$(916,349)$(914,705)$(191,801)$(12,397,733)
Adjustments to
Reconcile Net Loss
to Net Cash Flows
From Operating
Activities:
Depreciation and
Amortization 17,501 13,122 10,458 8,597 96,419
Capital Contributions:
Services Rendered
Including Stock
Stock Compensation
- Officer 300,000 -- 300,000 -- 300,000
Options and Awards Granted
Officers and Directors 95,500 -- 85,500 -- 2,146,042
Investors and Investor
Relations Consultants 319,200 -- 319,200 --
Warrants Issued -
Equity Line of Credit 1,100,000 -- -- -- 1,100,000
Conversion Premium on
Convertible Debentures -- 275,000 -- 10,000 3,647,093
Interest Expense 55,105 87,111 28,185 26,923 523,266
Loss on Investment in
Affiliate -- -- -- -- 207,360
Liabilities:
Accounts Receivable 54,069 -- 54,069 -- (20,931)
Inventory 6,375 (25,000) 6,375 (25,000) (114,750)
Prepaid Expenses 2,639 (7,917) 6,460 22,083 --
Accounts Payable
and Accrued Expenses 225,306 124,338 170,344 121,594 703,490
Due to Stockholders (25,000) (124,000) (25,000)(124,000) 1,241,837
Other -- -- (467) --
- --------------------------------------------------------------------------------
Net Cash Flows from
Operating Activities (431,733) (573,695) 40,886 (152,071) (2,567,907)
- --------------------------------------------------------------------------------
Cash Flows from Investing
Activities
Equipment (85,137) (14,942) (23,704) (1,738) (127,854)
Patents and Trademarks (8,670) (54,899) 16,462 -- (366,645)
Loans to an Officer (985,000) -- 40,000 -- (985,000)
- --------------------------------------------------------------------------------
Net Cash Flows from
Investing Activities (1,078,807) (69,841) 32,758 (1,738) (1,479,499)
- --------------------------------------------------------------------------------
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
STATEMENTS OF CASH FLOWS
For the Three Months and Six Months Ended June 30, 2001 and 2000 and for the
Period From the Date of Inception (February 1, 1994) Through
June 30, 2001
- --------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Six Months Ended Quarter Ended Date of
Inception
June 30, June 30, (February 1,
1994)
Through
2001 2000 2001 2000 June 30, 2001
- --------------------------------------------------------------------------------
Cash Flows from
Financing Activities
Cash Capital Contributions -- -- -- -- 162,200
Proceeds from Issuance of
Common Stock -- -- -- -- 438,785
Proceeds from (Repayment)
of Convertible Debentures (60,000) 275,000 (60,000) 10,000 3,658,333
Proceeds from Exercise of
Stock Options 112,450 -- -- -- 301,600
Sale of Shares Under the
Equity Line of Credit
Agreement 483,636 -- 483,636 -- 483,636
Distributions to
Stockholders -- -- -- -- (68,660)
- --------------------------------------------------------------------------------
Net Cash Flows from
Financing Activities 536,086 275,000 423,636 10,000 4,975,894
- --------------------------------------------------------------------------------
Net Increase in Cash
and Cash Equivalents (974,454) (368,536) 497,280 (143,809) 928,488
Cash and Cash Equivalents -
Beginning of Period 1,902,942 1,023,710 431,208 798,983 --
- --------------------------------------------------------------------------------
Cash and Cash Equivalents
- - End of Year 928,488 655,174 928,488 655,174 928,488
- --------------------------------------------------------------------------------
NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of Common Stock in
Exchange for Property
and Equipment $ -- $ -- $ -- $ -- $ 34,020
Debentures Converted
to Common Stock $ 207,000 $ -- $(10,000) $ -- $2,247,083
Investment in Affiliate $ -- $ -- $ -- $ -- $ 207,360
Deferred Royalty Revenue $ -- $ -- $ -- $ -- $ (207,360)
- --------------------------------------------------------------------------------
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Note A -Basis of Presentation
The condensed financial statements of L.A.M. Pharmaceutical, Corp.
(L.A.M.) included herein have been prepared by L.A.M., 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 L.A.M. 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 L.A.M.'s annual report on Form 10-KSB.
The accompanying unaudited interim financial statements reflect all
adjustments of a normal and recurring nature that are, in the opinion of
management, necessary to present fairly the financial position, results
of operations and cash flows of L.A.M. 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 calendar year taken 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 L.A.M.'s registration with the Securities and Exchange Commission
and costs incurred to raise capital and acquisitions of patents and
trademarks.
Note B - Loan Receivable - Director
Between February and April 2001, Alan Drizen, the Company's President,
borrowed $1,075,000 from L.A.M. The amounts borrowed were used by Mr. Drizen
to purchase shares of L.A.M.'s common stock in an effort to stabilize the
share price in the face of extensive short selling of the shares. The
amounts advanced to Mr. Drizen are repayable no later than December 31,
2001. Mr. Drizen has agreed to to secure the repayment of this note by
pledging his personal securities, real estate assets and any other
obligations the Board of Directors deems necessary to secure the repayment
of the borrowed amounts. The loan bears interest at 8.5% per annum.
Repayment of the loan began in June, 2001 and the balance as of June 30,
2001 was $985,000.
Note C - Equity Line of Credit Agreement
On January 24, 2001, L.A.M. entered into an equity line of credit
agreement with Hockbury Limited in order to establish a possible source
of funding for the development of L.A.M.'s technology. The equity line
of credit agreement establishes what is sometimes also referred to as an
equity drawdown facility.
Under the equity line of credit agreement, Hockbury Limited has agreed
to provide L.A.M. with up to $20,000,000 of funding during the
twenty-month period following the date of an effective registration
statement. During this twenty-month period, L.A.M. may request a
drawdown under the equity line of credit by selling shares of its common
stock to Hockbury Limited, and Hockbury Limited will be obligated to
purchase the shares. L.A.M. may request a drawdown once every 27 trading
days, although L.A.M. is under no obligation to request any drawdowns
under the equity line of credit.
- continued -
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note C - Equity Line of Credit Agreement - continued
During the 22 trading days following a drawdown request, L.A.M. will
calculate the amount of shares it will sell to Hockbury Limited and the
purchase price per share. The purchase price per share of common stock
will based on the daily volume weighted average price of L.A.M.'s common
stock during each of the 22 trading days immediately following the
drawdown date, less a discount of 10%. L.A.M. will receive the purchase
price less a placement agent fee payable to GKN Securities equal to 7%
of the aggregate purchase price. Hockbury Limited may then resell all or
a portion of these shares. GKN Securities is the placement agent which
introduced Hockbury Limited to L.A.M. and is a registered broker-dealer.
The minimum amount L.A.M. can draw down at any one time is $100,000. The
maximum amount L.A.M. can draw down at any one time is the lesser of
$1,000,000 or the amount equal to:
o 4.5% of the weighted average price of L.A.M.'s common stock for the sixty
calendar days prior to the date of the drawdown request
o multiplied by the total trading volume of L.A.M.'s common stock for the
sixty calendar days prior to the date of the drawdown request.
Upon closing of the equity line of credit Agreement, L.A.M. paid to
Hockbury Limited's legal counsel, Epstein Becker & Green P.C., $25,000 to
cover its legal and administrative expenses.
Grant of Warrants
As consideration for extending the equity line of credit, L.A.M. granted
Hockbury Limited warrants to purchase 482,893 shares of common stock at
a price of $ 4.56 per share at any time prior to January 24, 2004. As
partial consideration for GKN Securities' services as placement agent in
connection with this offering, L.A.M. granted GKN Securities warrants to
purchase 455,580 shares of common stock at a price of $4.83 per share at
any time prior to January 24, 2006. GKN Securities subsequently assigned
warrants to purchase 209,500 shares to four employees of GKN Securities.
The fair value of these warrants using customary pricing models was
approximately $1,100,000 and is reflected in L.A.M.'s financial
statements and recorded as an expense during the six months ended June
30, 2001.
As of June 30, 2001, Hockbury Limited had purchased 439,021 shares of
common stock at a price of $483,636 under the equity line of credit
agreement.
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note D - Repricing of Options
During the quarter ended June 30, 2001 the Company elected to reprice
certain outstanding stock options. The repricing did not have a material
impact on operations for the three and six month periods ended June 30,
2001.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report on Form 10-QSB contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of L.A.M. Such statements are only predictions and the actual events
or results may differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below as well as those discussed in other
filings made by L.A.M. with the Securities and Exchange Commission, including
L.A.M.'s Annual Report included in its annual filing on Form 10-KSB.
Overview
The Company's principal present business activities comprise:
o Development of proprietary wound healing and trans-dermal drug delivery
systems; and
o Conducting related pre-clinical studies and clinical trials.
All of L.A.M's products are in the development stage. As a result, L.A.M. has
not generated any significant revenues from the sale of pharmaceutical products.
It could be several years, if ever, before the Company realizes significant
revenue from royalties received pursuant to any license agreements, and it is
not expected ever to generate revenue directly from the sale of products.
Due to the lack of any significant revenues, L.A.M. has relied upon proceeds
realized from the public and private sale of its common stock and convertible
debentures to meet its funding requirements. Funds raised by L.A.M. have been
expended primarily in connection with research, development, clinical studies
and administrative costs. L.A.M. does not anticipate realizing revenues until
such time as it begins the commercial sale of its products or enters into
licensing arrangements regarding these products, and in the interim it will be
required to fund its operations through the sale of securities, debt financing
or other arrangements. However, there can be no assurance that such financing
will be available or be available on favorable terms.
Results of Operations
Three months ended June 30, 2001 as compared to the three months ended June 30,
2000
Licensing revenue
During the three months ended June 30, 2001, licensing revenue of $300,000 was
received from Ixora Biomedical Company Inc. ("Ixora") under the terms of their
license agreement in respect of L.A.M.'s sexual dysfunction products.
Research and Development Expenses
Research and development expenses increased during the three months ended June
30, 2001 as compared with the three months ended June 30, 2000, primarily as a
result of increased clinical studies activity during the second quarter of 2001.
Costs associated with these activities tend to fluctuate from period to period
depending on the status and timing of the individual projects in progress.
General and Administrative Expenses
General and administrative expenses increased for the three months ended June
30, 2001 as compared with the three months ended June 30, 2000, primarily as a
result of costs incurred in connection with obtaining the equity line of credit,
commissions on the sale of convertible notes, and additional investor relations
costs.
The primary components of general and administrative expenses for the three
months ended June 30, 2001 and 2000 were as follows:
2001 2000
---- ----
Officer's salary $ 27,112 $ 30,000
Employee salaries and benefits 74,159 15,765
Less: Salaries classified as
Research & Development (18,000) (18,000)
Investor Relations 111,867 33,350
Commissions paid on sales of
Convertible Notes 35,854 ---
Financial Banking and Consulting 37,333 14,000
Filing and Registration Fees 8,345 ---
Legal and Auditing 44,809 13,046
Other Supplies and Expenses 76,503 12,887
-------------- ------------
Total $ 397,982 $ 101,048
============ ==========
Conversion Premium
During the three months ended June 30, 2000 a conversion premium of $10,000
relating to the sale of convertible notes was charged to expense. The conversion
premium represented the difference between the fair value of L.A.M.'s common
stock and the conversion price of the convertible notes sold during the quarter.
The conversion premium did not require the use of cash.
Six months ended June 30, 2001 as compared to the six months ended June 30, 2000
Licensing revenue
During the six months ended June 30, 2001, licensing revenue of $300,000 was
received from Ixora Biomedical Company Inc. under the terms of their license
agreement in respect of L.A.M.'s sexual dysfunction products.
Research and Development Expenses
Research and development expenses increased during the six months ended June 30,
2001 as compared with the six months ended June 30, 2000 due to a higher level
of clinical studies activity during the first quarter of the current year
compared with the same quarter in the previous year.
General and Administrative Expenses
General and administrative expenses increased for the six months ended June 30,
2001 as compared with the six months ended June 30, 2000 primarily as a result
of costs incurred in connection with obtaining the equity line of credit,
commissions on the sale of convertible notes and additional investor relations
costs.
The primary components of general and administrative expenses for the six months
ended June 30, 2001 and 2000 were as follows:
2001 2000
---- ----
Officer's salary $ 57,112 $ 60,000
Employee salaries and benefits 90,917 86,612
Less: Salaries classified as
Research & Development (36,000) (36,000)
Investor Relations 223,842 69,734
Commissions paid on sales of
Convertible Notes 60,854 74,600
Financial Banking and Consulting 184,333 24,500
Filing and Registration Fees 23,009 ---
Legal and Auditing 105,084 58,346
Other Supplies and Expenses 100,479 69,753
-------------------------------
Total $ 809,630 $ 407,545
==============================
Conversion Premium
During the six months ended June 30, 2000 a conversion premium of $275,000
relating to the sale of convertible notes was charged to expense. The conversion
premium represents the difference between the fair value of L.A.M.'s common
stock and the conversion price of the convertible notes sold during the period.
The conversion premium did not require the use of cash.
Liquidity and Sources of Capital
L.A.M's primary source of liquidity as of June 30, 2001 was cash and cash
equivalent investments of $928,000. Working capital, exclusive of convertible
debentures expected to be converted, decreased from $1,775,000 as of December
31, 2000 to $1,498,000 as of June 30, 2001.
L.A.M.'s operations used $432,000 in cash during the six months ended June 30,
2001. During this period L.A.M. also spent $85,000 for property and equipment
purchases, $8,700 on patent and trademark applications, and $60,000 to repay
convertible note holders. $1,075,000 was advanced to the Company's president
during the period for purchase of shares of common stock in an effort to
stabilize L.A.M.'s stock price in the face of extensive short selling. During
the period $90,000 of these advances were repaid.
On January 24, 2001, L.A.M entered into an equity line of credit agreement with
Hockbury Limited in order to establish a possible source of funding for the
development of L.A.M.'s technology. The equity line of credit agreement
establishes what is sometimes also referred to as an equity drawdown facility.
Under the equity line of credit agreement, Hockbury Limited has agreed to
provide L.A.M. with up to $20,000,000 of funding during the twenty-month period.
L.A.M. may request drawdowns under the equity line of credit by selling shares
of its common stock to Hockbury Limited, and Hockbury Limited will be obligated
to purchase the shares. L.A.M. may request a drawdown once every 27 trading
days, although L.A.M. is under no obligation to request any drawdowns under the
equity line of credit.
During the 22 trading days following a drawdown request, the Company will
calculate the amount of shares it will sell to Hockbury Limited and the purchase
price per share. The purchase price per share of common stock will based on the
daily volume weighted average price of L.A.M.'s common stock during each of the
22 trading days immediately following the drawdown date, less a discount of 10%.
L.A.M. will receive the purchase price less a placement fee payable to GKN
Securities equal to 7% of the aggregate purchase price. Hockbury Limited may
then resell all or a portion of these shares in the public market. GKN
Securities is the placement agent which introduced Hockbury Limited to L.A.M.
and is a registered broker.
L.A.M. may request a drawdown by sending a drawdown notice to Hockbury Limited,
stating the amount of the drawdown and the lowest daily volume weighted average
price, if any, at which L.A.M. is willing to sell the shares. The minimum volume
weighted average price will be set by L.A.M.'s President in his sole and
absolute discretion.
L.A.M. requested its fist drawdown on March 21, 2001. On April 25, 2001 L.A.M.
sold 19,016 shares of its common stock to Hockbury Limited at any average price
of $4.16 per share. L.A.M. received $70,018 from the sale of these shares, which
amount is net of the placement agent fee paid to GKN Securities.
L.A.M. requested its second drawdown on May 7, 2001. On June 7, 2001 L.A.M. sold
420,005 shares of its common stock to Hockbury Limited at an average price of
$0.90 per share. L.A.M. received $378,794 from the sale of these shares, which
amount is net of the placement agent fee.
Cash required during the six months ended June 30, 2001 came from the use of
existing cash balances, the sale of stock as a result of the exercise of stock
options and to Hockbury Limited under the equity line of credit.
Plan of Operations
During the twelve months ending December 31, 2001 L.A.M. will continue:
o To seek and develop strategic relationships with companies interested in
using L.A.M.'s technology in conjunction with existing and future ethical,
OTC and cosmetic products
o Its program to commercialize its wound healing technology, including:
o completing negotiations for first manufacture;
o seeking distribution channels; and
o seeking licensees and other strategic partners
o The development of its motion sickness patch systems
o Supporting the next phase of Ixora's program to commercialize L.A.M.'s
sexual dysfunction products
o Testing L.A.M.'s skin care products with a view to licensing the IPM
technology to third parties for use in products which will be classified as
cosmetics or OTC drugs.
During this twelve-month period L.A.M. anticipates hiring up to four additional
employees (or full time equivalents).
During the twelve months ending December 31, 2001, L.A.M. expects that it will
spend between $250,000 and $300,000 on research, development, and clinical
studies relating to L.A.M.'s IPM Matrix technology. As of June 30, 2001 L.A.M.
had working capital of $1,498,000 (exclusive of convertible notes expected to be
converted to equity). L.A.M. plans to use its existing financial resources as
well as the proceeds from the sale of its common stock under the equity line of
credit agreement with Hockbury Limited to fund its capital requirements during
this period. It should be noted that substantial funds may be needed for more
extensive research and clinical studies before L.A.M. will be able to sell any
of its products on a commercial basis.
Other than funding its research and development activities and operating losses,
L.A.M. does not have any material capital commitments.
Due to the lack of any significant revenues, L.A.M. has relied upon proceeds
realized from the public and private sale of its common stock and convertible
debentures to meet its funding requirements. Funds raised by L.A.M. have been
expended primarily in connection with research, development, clinical studies
and administrative costs. L.A.M. does not anticipate realizing revenues until
such time as it begins the commercial sale of its products or enters into
licensing arrangements regarding these products, and in the interim it will be
required to fund its operations through the sale of securities, debt financing
or other arrangements. However, there can be no assurance that such financing
will be available or be available on favorable terms.
PART II
OTHER INFORMATION
Item 2. Changes in Securities
During the three months ending June 30, 2001, the Company:
1. Issued 20,000 shares of common stock as a result of the conversion of
certain notes previously sold by the Company and
2. Issued 100,000 shares of common stock to one person for service rendered.
3. Sold 439,021 shares of common stock to Hockbury Limited under the equity
line of credit.
The shares issued upon the conversion of the notes were issued in reliance
upon the exemption provided by Section 3(a)(9) of the Securities Act of 1933.
The shares issued for services rendered during the quarter ending June 30,
2001 were not registered under the Securities Act of 1933 but were sold in
reliance upon the exemption provided by Section 4(2) of the Act. The person who
acquired these shares was an officer and director of the Company. The shares of
common stock were acquired for investment purposes only and without a view to
distribution. The certificate representing the shares of common stock bears a
legend stating that the shares may not be offered, sold or transferred other
than pursuant to an effective registration statement under the Securities Act of
1933, or pursuant to an applicable exemption from registration. The shares are
"restricted" securities as defined in Rule 144 of the Securities and Exchange
Commission.
The shares sold to Hockbury Limited were registered by means of a
registration statement on Form SB-2.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No exhibits are filed with this report
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ending
June 30, 2001.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized
L.A.M. PHARMACEUTICAL CORP.
By: /s/ Joseph Slechta
-----------------------------------------
Joseph Slechta, President and Principal
Financial Officer
Date: August 10, 2001