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, 2002
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
Toronto, Ontario, Canada M3H 6B4
--------------------------------
(address of principal executive offices) (Zip Code)
(877) 526-7717
------------------------
(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 July 31, 2002, the Company had 26,096,635 issued and outstanding shares of
common stock.
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Lewiston, New York
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FINANCIAL REPORTS
AT
June 30, 2002
-------------------------------------
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Lewiston, New York
TABLE OF CONTENTS
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Independent Accountants' Report on Interim Financial Information F-2
Balance Sheets at June 30, 2002 (Unaudited) and December 31, 2001 F-3
Statements of Changes in Stockholders' Equity (Deficit)
for the Six Months Ended June 30, 2002 and 2001 and for
the Period from Date of Inception (February 1, 1994)
through June 30, 2002 (Unaudited) F-4 to F-6
Statements of Operations for the Three and Six Months
Ended June 30, 2002 and 2001 and for the Period from
Date of Inception (February 1, 1994) through June 30, 2002
(Unaudited) F-7 to F-8
Statements of Cash Flows for the Six Months Ended June 30,
2002 and 2001 and for the Period from Date of Inception
(February 1, 1994) through June 30, 2002 (Unaudited) F-9 to F-10
Notes to Financial Statements F-11 to F-13
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
L.A.M. Pharmaceutical, Corp.
(A Development Stage Company)
(A Delaware Corporation)
Lewiston, New York
We have reviewed the accompanying balance sheet of L.A.M. Pharmaceutical,
Corp. as of June 30, 2002, the related statements of operations for the three
and six months ended June 30, 2002 and 2001 and for the period from date of
inception ( February 1, 1994) through June 30, 2002, and the statements of
changes in stockholders' equity (deficit) and cash flows for the six months
ended June 30, 2002 and 2001 and for the period from date of inception (February
1, 1994) through June 30, 2002. These financial statements are the
responsibility 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 to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted 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 such financial statements for them to be in conformity with
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the balance sheet of L.A.M.
Pharmaceutical, Corp. as of December 31, 2001 (presented herein), and the
related statements of changes in stockholders' equity (deficit) (presented
herein), operations, and cash flows (not presented herein) for the year then
ended and for the period from date of inception (February 1, 1994) through
December 31, 2001; and in our report dated February 8, 2002, except for Note P,
as to which the date is March 27, 2002, we expressed an unqualified opinion on
those financial statements. In our opinion, the information set forth in the
accompanying balance sheet as of December 31, 2001 and the related statement of
stockholders' equity (deficit) for the year then ended and for the period from
date of inception (February 1, 1994) through December 31, 2001 is fairly stated,
in all material respects. No auditing procedures have been performed subsequent
to the date of our report.
/s/ Rotenberg & Co., LLP
Rotenberg & Co., LLP
Rochester, New York
July 23, 2002
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Lewiston, New York
BALANCE SHEETS
- -------------------------------------------------------------------------------
(Unaudited)
June 30, December 31,
2002 2001
- -------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 154,044 $ 11,284
Other Receivable 215,586 44,433
Inventory - Raw Materials 250,750 97,750
Prepaid Expenses 113,677 5,344
- ------------------------------------------------------------------------------
Total Current Assets 734,057 158,811
Property and Equipment - Net of Accumulated Depreciation 123,423 121,185
Other Assets
Patents and Trademarks - Net of Accumulated Amortization 599,299 489,322
- -------------------------------------------------------------------------------
Total Assets $ 1,456,779 $ 769,318
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts Payable and Accrued Expenses $ 669,388 $ 601,999
Other Liabilities
Due to Stockholders 164,037 848,037
Deferred Royalty Revenue 207,360 207,360
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Total Liabilities 1,040,785 1,657,396
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Stockholders' Equity (Deficit)
Common Stock - $.0001 Par; 50,000,000 Shares
Authorized; 25,109,740 and 19,784,520
Shares Issued and Outstanding,
Respectively 2,511 1,978
Additional Paid-In Capital 22,267,933 17,964,009
Loan Receivable - Director/Officer -- (640,000)
Receivable on Option Exercise (369,000) --
Deficit Accumulated During Development Stage (21,485,450) (18,214,065)
- -------------------------------------------------------------------------------
Total Stockholders' Equity (Deficit) 415,994 (888,078)
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Total Liabilities and Stockholders' Equity (Deficit) $ 1,456,779 $ 769,318
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
See Accountants' Review Report
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Lewiston, New York
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
- -----------------------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Additional Loan During Total
Number Common Paid-In Receivable - Development Stockholders
of Shares Stock Capital Director/Officer Stage Equity(Deficit)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance - February 1, 1994 -- $ -- $ -- $ -- $ -- $ --
Capital Contribution - Services Rendered -- -- 757,386 -- -- 757,386
Capital Contribution - Laboratory
Equipment -- -- 24,245 -- -- 24,245
Capital Contribution - Leasehold
Improvements -- -- 9,775 -- -- 9,775
Capital Contribution - Interest Expense -- -- 468,161 -- -- 468,161
Capital Contribution in Cash -- -- 162,200 -- -- 162,200
Distribution -- -- (68,660) -- -- (68,660)
Recapitalization as L.A.M. Pharmaceutical,
Corp. 6,000,000 600 (600) -- -- --
Issuance of Common Stock for Cash 4,392,500 439 438,346 -- -- 438,785
Debentures Converted to Common Stock 3,319,430 332 2,211,176 -- -- 2,211,508
Conversion Premium on Convertible
Debentures -- -- 3,647,093 -- -- 3,647,093
Stock Options and Awards Granted -
Compensation for Services Rendered -- -- 973,956 -- -- 973,956
Stock Options Exercised 287,000 29 189,121 -- -- 189,150
Net Loss for the Period -- -- -- -- (9,815,305) (9,815,305)
- ----------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 2000 13,998,930 $ 1,400 $ 8,812,199 $ -- $(9,815,305) $(1,001,706)
- ----------------------------------------------------------------------------------------------------------------------------
- continued -
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Lewiston, New York
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) - continued
- -----------------------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Additional Loan During Total
Number Common Paid-In Receivable - Development Stockholders
of Shares Stock Capital Director/Officer 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 -- -- 55,105 -- -- 55,105
Debentures Converted to Common Stock 127,333 13 207,714 -- -- 207,727
Stock Options Granted -
Compensation for Services Rendered -- -- 404,700 -- -- 404,700
Common Shares Issued -
Compensation for Services Rendered 110,000 11 309,989 -- -- 310,000
Stock Options Exercised 173,000 17 112,433 -- -- 112,450
Warrants Issued to Hockbury Limited and
GKN Securities -- -- 1,100,000 -- -- 1,100,000
Sale of Shares Under the Equity Line of
Credit Agreement 439,021 44 483,592 -- -- 483,636
Loan to Director/Officer -- -- -- (1,075,000) -- (1,075,000)
Loan Repayments from Director/Officer -- -- -- 90,000 -- 90,000
Net Loss for the Period (Unaudited) -- -- -- -- (2,582,428) (2,582,428)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 2001 (Unaudited) 14,848,284 $ 1,485 $11,485,732 $ (985,000) $(12,397,733) $(1,895,516)
- ----------------------------------------------------------------------------------------------------------------------------------
-continued -
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Lewiston, New York
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) - continued
- -----------------------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Additional Loan During Total
Number Common Paid-In Receivable - Development Stockholders
of Shares Stock Capital Director/Officer Stage Equity(Deficit)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 2001 (Unaudited)(Restated) 14,848,284 $ 1,485 $11,485,732 $(985,000) $(12,397,733) $(1,895,516)
Capital Contribution - Interest Expense -- -- 58,095 -- -- 58,095
Common Shares Issued -
Debenture Conversion Premium 3,106,502 311 1,057,844 -- -- 1,058,155
Debentures Converted to Common Stock 725,834 72 1,403,400 -- -- 1,403,472
Stock Options Granted -
Compensation for Services Rendered -- -- 2,813,763 -- -- 2,813,763
Common Shares Issued -
Compensation for Services Rendered 1,103,900 110 737,097 -- -- 737,207
Loan Repayments from Director/Officer -- -- -- 345,000 -- 345,000
Short-Swing Profit on Insider Trading -- -- 408,078 -- -- 408,078
Net Loss for the Period (Unaudited) -- -- -- -- (5,816,332) (5,816,332)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 2001 19,784,520 1,978 17,964,009 (640,000) (18,214,065) (888,078)
Capital Contribution - Interest Expense -- -- 14,548 -- -- 14,548
Stock Options Granted -
Compensation for Services Rendered -- -- 1,269,045 -- -- 1,269,045
Common Shares Issued -
Compensation for Services Rendered 1,346,500 135 585,592 -- -- 585,727
Stock Options Exercised 3,418,786 342 1,988,704 -- -- 1,989,046
Sale of Shares Under the Equity Line of
Credit Agreement 559,934 56 446,035 -- -- 446,091
Receivable on Option Exercise -- -- (369,000) -- -- (369,000)
Loan Repayments from Director/Officer -- -- -- 640,000 -- 640,000
Net Loss for the Period (Unaudited) -- -- -- -- (3,271,385) (3,271,385)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 2002 (Unaudited) 25,109,740 $ 2,511 $21,898,933 $ -- $(21,485,450) $ 415,994
- ----------------------------------------------------------------------------------------------------------------------------------
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Lewiston, New York
STATEMENTS OF OPERATIONS (UNAUDITED)
- ------------------------------------------------------------------------------
Period from
Date of
Inception Three Months Ended
(February 1, 1994) June 30,
---------------------
through June 30, 2002 2002 2001
- -------------------------------------------------------------------------------
Revenues
Licensing Revenues $ 500,000 $ -- $ 300,000
- -------------------------------------------------------------------------------
Expenses
Research and Development 2,817,487 193,913 62,309
Marketing and Business Development 673,617 226,406 35,556
General and Administrative 3,577,714 367,906 362,426
- -------------------------------------------------------------------------------
7,068,818 788,225 460,291
Financial Accounting Expenses Not
Requiring the Use of Cash During the Period:
Depreciation and Amortization 135,381 15,159 10,458
Interest Expense 912,957 4,481 60,187
Share and Option Grants to
Officers, Directors, Investors,
and Consultants 7,933,834 988,222 704,700
Conversion Premium on Convertible
Debentures 4,704,937 -- --
Warrants Issued on Equity Line of
Credit Agreement 1,100,000 -- --
- -------------------------------------------------------------------------------
Total Expenses 21,855,927 1,796,087 1,235,636
- -------------------------------------------------------------------------------
Loss Before Other Income
and (Expenses) (21,355,927) (1,796,087) (935,636)
- -------------------------------------------------------------------------------
Other Income and (Expenses)
Interest Income 77,837 -- 20,931
Loss on Investment in Affiliate (207,360) -- --
- -------------------------------------------------------------------------------
Total Other Income and (Expenses) (129,523) -- 20,931
- -------------------------------------------------------------------------------
Net Loss for the Period $(21,485,450) $(1,796,087) $ (914,705)
- --------------------------------------------------------------------------------
Loss per Common Share - Basic and
Diluted $ (1.75) $ (0.07) $ (0.06)
- -------------------------------------------------------------------------------
Weighted Average Number
of Common Shares Outstanding 24,404,597 14,501,078
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
See Accountants' Review Report
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Lewiston, New York
STATEMENTS OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------------------------
Six Months Ended
June 30,
----------------------
2002 2001
- --------------------------------------------------------------------------------
Revenues
Licensing Revenues $ -- $ 300,000
- -------------------------------------------------------------------------------
Expenses
Research and Development 318,537 128,774
Marketing and Business Development 387,946 66,821
General and Administrative 583,661 764,760
- -------------------------------------------------------------------------------
1,290,144 960,355
Financial Accounting Expenses Not
Requiring the Use of Cash During the Period:
Depreciation and Amortization 29,304 17,501
Interest Expense 15,115 121,336
Share and Option Grants to
Officers, Directors, Investors, and
Consultants 1,936,822 704,700
Warrants Issued on Equity Line of
Credit Agreement -- 1,100,000
- -------------------------------------------------------------------------------
Total Expenses 3,271,385 2,903,892
- -------------------------------------------------------------------------------
Loss Before Other Income (3,271,385) (2,603,892)
- -------------------------------------------------------------------------------
Other Income
Interest Income -- 21,464
- -------------------------------------------------------------------------------
Net Loss for the Period $(3,271,385) $(2,582,428)
- --------------------------------------------------------------------------------
Loss per Common Share - Basic and
Diluted $ (0.14) $ (0.18)
- -------------------------------------------------------------------------------
Weighted Average Number
of Common Shares Outstanding 22,785,440 14,325,862
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
See Accountants' Review Report
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Lewiston, New York
STATEMENTS OF CASH FLOWS (UNAUDITED)
- ------------------------------------------------------------------------------
Period from
Date of
Inception Six Months Ended
(February 1, 1994) June 30,
Through -------------------
June 30, 2002 2002 2001
- --------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net Loss for the Period $(21,485,450) $(3,271,385) $(2,582,428)
Adjustments to Reconcile Net Loss for
the Period to Net Cash Flows from
Operating Activities:
Depreciation and Amortization 135,381 29,304 17,501
Capital Contributions:
Deemed Interest Expense on
Loans from Stockholders 595,909 14,548 55,105
Share and Option Grants - Officers,
Directors, Investors, and
Consultants 7,933,834 1,936,822 714,700
Warrants Issued on Equity Line of
Credit Agreement 1,100,000 -- 1,100,000
Conversion Premium on Convertible
Debentures 4,705,248 -- --
Interest on Converted Debentures 272,871 -- --
Loss on Investment in Affiliate 207,360 -- --
Changes in Assets and Liabilities:
Accounts Receivable -- -- 75,000
Inventory - Raw Materials (250,750) (153,000) 6,375
Prepaid Expenses (113,677) (108,333) 2,639
Accounts Payable and Accrued Expenses 669,388 67,389 225,306
- --------------------------------------------------------------------------------
Net Cash Flows from Operating
Activities (6,229,886) (1,484,655) (385,802)
- -------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchases of Property and Equipment (168,418) (13,193) (85,137)
Purchases of Patents and Trademarks -
Net (655,662) (128,326) (8,670)
- --------------------------------------------------------------------------------
Net Cash Flows from Investing
Activities $ (824,080) $ (141,519) $ (93,807)
- -------------------------------------------------------------------------------
- continued -
The accompanying notes are an integral part of this financial statement.
See Accountants' Review Report
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Lewiston, New York
STATEMENTS OF CASH FLOWS (UNAUDITED) - continued
- ------------------------------------------------------------------------------
Period from
Date of
Inception Six Months Ended
(February 1, 1994) June 30,
Through -------------------
June 30, 2002 2002 2001
- --------------------------------------------------------------------------------
Cash Flows from Financing Activities
Cash Capital Contributions $ 162,200 $ -- $ --
Distributions to Stockholders (68,660) -- --
Proceeds from Issuance of Common Stock 438,785 -- --
Proceeds from (Repayment of)
Convertible Debentures 3,549,833 -- (60,000)
Proceeds from Exercise of Stock Options 1,624,010 1,322,410 112,450
Proceeds from Sale of Shares Under the
Equity Line of Credit Agreement 929,727 446,091 483,636
Loan Receivable - Director/Officer -- -- (985,000)
Advances from (Repayments to)
Stockholders 572,115 433 (45,931)
- --------------------------------------------------------------------------------
Net Cash Flows from Financing
Activities 7,208,010 1,768,934 (494,845)
- -------------------------------------------------------------------------------
Net Increase (Decrease) in
Cash and Cash Equivalents 154,044 142,760 (974,454)
Cash and Cash Equivalents - Beginning
of Period -- 11,284 1,902,942
- -------------------------------------------------------------------------------
Cash and Cash Equivalents - End of
Period $ 154,044 $ 154,044 $ 928,488
- -------------------------------------------------------------------------------
NON-CASH INVESTING AND FINANCING ACTIVITIES
- -------------------------------------------------------------------------------
Acquisition of Property and Equipment
via Stockholder Contribution $ 34,020 $ -- $ --
Short-Swing Profit on Insider Trading -
Offset Against Due to Stockholders $ 408,078 $ -- $ --
Exercise of Stock Options $ 666,636 $ 666,636 $ --
Offsetting of Stockholders Receivable
and Payables $ 728,000 $ 728,000 $ --
Debentures Converted to Common Stock $3,549,833 $ -- $ 197,727
Investment in Affiliate $ 207,360 $ -- $ --
Deferred Royalty Revenue $ (207,360) $ -- $ --
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
See Accountants' Review Report
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(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.
Note B - Receivable - Director/Officer
Between February and April 2001, Alan Drizen, the Company's President,
borrowed $1,075,000 from the Company. The amounts borrowed were used by Mr.
Drizen to purchase shares of the Company's common stock in an effort to
stabilize the share price in the face of extensive short selling of the
shares. Mr. Drizen agreed to pay this amount to the Company, together with
interest at 6% per year, in accordance with the terms of a promissory note.
The note provided for a series of periodic payments with the unpaid amount
of the note, together with any accrued and unpaid interest, due on March
31, 2002.
As a result of Mr. Drizen's purchases and sales of the Company's common
stock between October 2000 and May 2001, the Company was entitled to a
recoverable profit of $408,078 from Mr. Drizen, computed in accordance with
Section 16(b) of the Securities Exchange Act of 1934. During 2001, this
amount was applied to reduce the amount that the Company owed to Mr. Drizen
with the offset being to additional paid-in capital.
During March 2002, Mr. Drizen and the Company agreed that the balance of
$548,361 owed by the Company to Mr. Drizen at December 31, 2001, included
in amounts due to stockholders, would be offset against the remaining
amount due pursuant to Mr. Drizen's promissory note. In addition, two other
Directors and stockholders agreed with Mr. Drizen to apply a portion of
their receivables from the Company, included in amounts due to
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Lewiston, New York
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Note B - Receivable - Director/Officer - continued
stockholders, against the amounts due by Mr. Drizen in an amount
sufficient to offset the remaining balance due on Mr. Drizen's
promissory note. Following these offset arrangements, Mr. Drizen's
promissory note was paid in full.
In February 2002 and April 2002, Mr. Drizen exercised options to
acquire 1,050,000 shares and 750,000 shares of the Company's common
stock. The total exercise price of these options was $1,044,000. At
June 30, 2002, $539,000 of the exercise price remained unpaid. During
August 2002, an additional $170,000 was paid by Mr. Drizen.
Note C - Equity Line of Credit Agreement
On January 24, 2001, the Company entered into an equity line of credit
agreement with Hockbury Limited in order to establish a source of
funding for the development of the Company's technology. The equity line
of credit agreement establishes what is sometimes also referred to as an
equity drawdown facility. The Company has issued 998,955 shares of
common stock and received $929,727 in net proceeds as of June 30, 2002
under the equity line of credit agreement.
Under the equity line of credit agreement, Hockbury Limited has agreed
to provide the Company with up to $20,000,000 of funding. During this
period, the Company 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. The Company
may request a drawdown once every 27 trading days, although the Company
is under no obligation to request any drawdowns.
The price at which shares may be sold to Hockbury under the equity line
of credit agreement is based on the daily volume weighted average price
of the company's common shares during the 22 trading days following a
drawdown request, less a discount of 10%. The Company receives 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 the Company and is a
registered broker-dealer.
The minimum amount the Company can draw down at any one time is
$100,000, and the maximum is the lesser of $1,000,000 or the amount
equal to 4.5% of the weighted average price of the Company's common
stock multiplied by the total trading volume of the Company's common
stock for the sixty calendar days prior to the date of the drawdown
request.
Grant of Warrants
As consideration for extending the equity line of credit, the Company
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, the Company granted
GKN Securities warrants to purchase 455,580 shares of common stock at
L.A.M. PHARMACEUTICAL, CORP.
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Lewiston, New York
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
Note C - Equity Line of Credit Agreement - continued
a price of $4.83 per share at anytime 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 on January 24, 2001 and is reflected in the
Company's financial statements and recorded as an expense during the
three months ended March 31, 2001.
Note D- Subsequent Events
On July 22, 2002 the Company terminated the equity line of credit
agreement with Hockbury Limited. As consideration for the cancellation
of the agreement, the Company has re-priced the warrants held by
Hockbury Limited to purchase 482,893 shares of common stock from a price
of $4.56 per share to $1.35 per share. This re-pricing will have no
effect on the income statement for the three months ended September 30,
2002. The option may be exercised at any time prior to January 24, 2004.
The Company will begin to focus on more traditional financing, such as a
straightforward equity private placement. With the anticipated August
15th launch of the patented L.A.M. IPM Wound Gel(TM) and the ensuing
revenue stream, the Company is confident that additional financing will
be secured to fund the expansion of the research & development and
commercialization activities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS/ PLAN 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
To date the Company's principal business activities have comprised:
o Development of proprietary wound healing and trans-dermal drug delivery
systems; and
o Conducting related pre-clinical studies and clinical trials.
In April 2002, L.A.M. obtained Section 510(k) approval from the U.S. Food and
Drug Administration to market its proprietary L.A.M. IPM Wound Gel(TM). L.A.M.
will commence commercial sales of this product in August 2002.
All of L.A.M's other products are in the development stage. As a result, L.A.M.
has not generated any significant revenues from the sale of pharmaceutical
products.
Due to the previous lack of any significant revenues, to date 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. Until significant revenues commence from
commercial sale of its products, L.A.M. will need to fund its operations through
the sale of securities, debt financing or other arrangements. However, there can
be no assurance that any financing will be available or be available on
favorable terms.
Results of Operations
Three months ended June 30, 2002 compared with three months ended June 30, 2001
Licensing Revenues
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 dysfunctional products.
Research and Development Expense
Research and development expenses for the three months ended June 30, 2002
increased 213% to $194,000 from $62,000 for the three months ended June 30,
2001. The increase includes the scale up in production of L.A.M. IPM Wound
Gel(TM) to commercial batch quantities. Costs associated with these activities
tend to fluctuate from period to period depending on the status and timing of
the individual projects in process.
Marketing and Business Development Expense
Marketing and business development expense for the three months ended June
30, 2002 increased 528% to $226,000 from $36,000 for the three months ended June
30, 2001. The increase reflects the build up of marketing management and
resources and promotional activity in preparation for the market launch of
L.A.M. IPM Wound Gel(TM) in August 2002.
General and Administrative Expenses
General and administrative expenses of $368,000 for the three months ended
June 30, 2002 remained consistent when compared to $362,000 for the three months
ended June 30, 2001. The costs incurred in 2001 to arrange the equity line of
credit did not recur in the second quarter of 2002. The reduction of these costs
was offset by increases in legal, auditing and other expenditures in connection
with regulatory filings with the Securities and Exchange Commission in the
second quarter of 2002. Salary expense increased due to the additions to the
senior management team to prepare for the market launch of the L.A.M. IPM Wound
Gel(TM) in August 2002.
The primary components of general and administrative expenses for the
three months ended June 30, 2002 and 2001 were as follows:
2002 2001
---------------------------
Officers' salaries $ 10,500 $ 27,112
Employee salaries and benefits 78,690 56,159
Investor Relations 113,055 111,867
Commissions and other costs in
connection with financings - 35,854
Financial banking and consulting - 37,333
Legal and auditing (including SEC
filings) 87,414 53,154
Other expenses 78,247 40,947
----------- -----------
Total $ 367,906 $ 362,426
========= =========
Interest Expense
Interest expense for the three months ended June 30, 2002 decreased 93% to
$4,500 from $60,000 for three months ended June 30, 2001 following the
conversion or repayment of all remaining convertible debentures during 2001.
Share and Option Grants
L.A.M. is required to recognize non-cash expenses which represent the
deemed fair value of grants of stock options and of stock for services,
calculated in accordance with US generally accepted accounting principles. These
deemed non-cash costs, which are accounted for by correspondingly increasing the
Company's paid in capital, totaled $988,000 during the three months ended June
30, 2002 and $705,000 during the three months ended June 30, 2001.
The majority of theses costs were attributable to the issuance of shares and
options granted to third parties for services performed.
Six months ended June 30, 2002 compared with six months ended June 30, 2001
Licensing Revenues
During the six 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 dysfunctional products.
Research and Development Expense
Research and development expenses for the six months ended June 30, 2002
increased 147% to $319,000 from $129,000 for the three months ended June 30,
2001. The increase includes the scale up in production of L.A.M. IPM Wound
Gel(TM) to commercial batch quantities.
Marketing and Business Development Expense
Marketing and business development expense for the six months ended June
30, 2002 increased 479% to $388,000 from $67,000 for the six months ended June
30, 2001. The increase reflects the build up of marketing management and
resources and promotional activity in preparation for the market launch of
L.A.M. IPM Wound Gel(TM) in August 2002.
General and Administrative Expenses
General and administrative expenses for the six months ended June 30, 2002
decreased 24% to $584,000 from $765,000 for the six months ended June 30, 2001.
The decrease is partially due to costs incurred in 2001 to arrange the equity
line of credit which did not recur in 2002. Investor relations expense also
decreased due to non-recurrence of the exceptional level of activity in the
previous year. This was offset by costs attributable to the additions to the
senior management team to prepare for the market launch of the L.A.M. IPM Wound
Gel(TM) in August 2002.
The primary components of general and administrative expenses for the six
months ended June 30, 2002 and 2001 were as follows:
2002 2001
---------------------------
Officers' salaries $ 50,750 $ 57,112
Employee salaries and benefits 130,129 54,917
Investor Relations 160,958 204,400
Commissions and other costs in
connection with financings - 60,854
Financial banking and consulting - 184,333
Legal and auditing (including SEC
filings) 133,959 128,093
Other expenses 107,865 75,051
---------- -----------
Total $ 583,661 $ 764,760
========= =========
Liquidity and Sources of Capital
L.A.M's primary source of liquidity was cash and cash equivalents as of
June 30, 2002 of approximately $154,000, compared with approximately $11,000 at
December 31, 2001. Working capital (deficiency) improved from approximately
$(443,000) as of December 31, 2001 to $65,000 as of June 30, 2002.
L.A.M.'s operations used approximately $1,485,000 in cash during the six
months ended June 30, 2002. This included increases in inventory, prepaid
expenses and accounts payable and accrued expenses.
During this period L.A.M. also spent $142,000 for patents, trademarks, and
equipment purchases.
Cash required during the six months ended June 30, 2002 came principally
from proceeds from the exercise of stock options amounting to $1,322,000 and
from the sale of shares under the equity line of credit agreement amounting to
$446,000.
On January 24, 2001, the Company entered into an equity line of credit
agreement, or equity drawdown facility, with Hockbury Limited in order to
establish a source of funding for the development of the Company's technology.
As of July 10, 2002, the Company had sold 1,053,177 shares of common stock and
received $971,000 in net proceeds under the equity line of credit agreement.
Under the equity line of credit agreement, Hockbury Limited has agreed to
provide the Company with up to $20,000,000 of funding during the twenty-month
period commencing April 25, 2001. During this period, the Company may draw down
against the equity line of credit by selling shares of its common stock to
Hockbury Limited, and Hockbury Limited is obligated to purchase the shares.
The price at which shares may be sold to Hockbury under the equity line of
credit agreement is based on the daily volume weighted average price of the
company's common shares during the 22 trading days following a drawdown request,
less a discount of 10%. The Company receives the purchase price less a placement
agent fee payable to GKN Securities equal to 7% of the aggregate purchase price.
On July 22, 2002 the Company terminated the equity line of credit agreement
with Hockbury Limited. As consideration for the cancellation of the agreement,
the Company repriced the warrants held by Hockbury Limited to purchase 482,893
shares of common stock from a price of $4.56 per share to $1.35 per share. The
option may be exercised at any time prior to January 24, 2004. L.A.M. will begin
to focus on more traditional financing, such as a straight-forward equity
private placement. With the anticipated August 15th launch of our patented
L.A.M. IPM Wound Gel(TM) and the ensuing revenue stream, we are confident that
we will secure additional financing to fund the expansion of our Research &
Development and commercialization activities.
During March 2002, Mr. Drizen and the Company agreed that the balance of
$548,361 owed by the Company to Mr. Drizen at December 31, 2001, included in
amounts due to stockholders, would be offset against the remaining amount due
pursuant to Mr. Drizen's promissory note. In addition, two other Directors and
stockholders agreed with Mr. Drizen to apply a portion of their receivables from
the Company, included in amounts due to stockholders, against the amounts due by
Mr. Drizen in an amount sufficient to offset the remaining balance due on Mr.
Drizen's promissory note. Following these offset arrangements, Mr. Drizen's
promissory note was paid in full.
In February 2002 and April 2002, Mr. Drizen exercised options to acquire
1,050,000 and 750,000 shares respectively for a total option amount of
$1,044,000. At June 30, 2002, $539,000 of the option amount remained unpaid.
During August 2002, an additional $170,000 was paid by Mr. Drizen.
Plan of Operation
During the twelve months ending June 30, 2003 L.A.M. will:
o Commence commercial sales of L.A.M. IPM Wound Gel(TM) in the third quarter
of 2002.
o Commence sample marketing of L.A.M.'s extreme dry skin matrix in
preparation of full scale commercial launch in the first quarter of 2003.
o Continue its program to develop and commercialize other products based on
its wound healing technology
o Continue supporting the next phase of Ixora's program to commercialize
L.A.M.'s sexual dysfunction products
o Continue to develop its motion sickness patch systems in cooperation with
major multinational partners
o Continue to seek and develop strategic relationships with companies
interested in using the L.A.M. Ionic Polymer Matrix(TM) technology in
conjunction with existing and future ethical, OTC and cosmetic products.
During this twelve-month period L.A.M. anticipates hiring up to four
additional technical and marketing employees.
During this period, L.A.M. expects that it will spend between $600,000 and
$800,000 on research, development, and clinical studies relating to the L.A.M.
Ionic Polymer Matrix(TM) technology, and $900,000 to $1,100,000 on marketing and
business development, in particular in respect of the market launch of L.A.M.
IPM Wound Gel(TM). L.A.M. plans to use its existing financial resources as well
as future revenue streams from the launch of its L.A.M. IPM Wound Gel(TM) 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 other products on a commercial basis.
Other than funding requirements relating to the market launch of its IPM
Wound Gel(TM), for its research and development activities in respect of its
Ionic Polymer Matrix(TM) technology and for general operating losses, L.A.M.
does not have any material capital commitments.
PART II
OTHER INFORMATION
Item 2. Changes in Securities
During the three months ended June 30, 2002 the Company issued 1,346,500
shares of its common stock to third parties for consulting services provided to
the Company. The Company relied upon the exemption provided by Section 4(2) of
the Securities Act of 1933 in connection with the issuance of these shares.
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, 2002.
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.
August 14, 2002 By: /s/ Joseph Slechta
--------------------------------------
Joseph Slechta, President and Principal
Financial Officer
CERTIFICATION
In connection with the Quarterly Report of L.A.M. Pharmaceutical, Corp.
(the "Company") on Form 10-QSB for the period ending June 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Joseph Slechta, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects the financial condition and results of the Company.
Date: August 14, 2002 /s/ Joseph Slechta
------------------------------------------
Joseph Slechta
Chief Financial Officer