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 September 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 October 31, 2002, the Company had 27,189,151 issued and outstanding
shares of common stock.
L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York
-------------------------------------
FINANCIAL REPORTS
AT
SEPTEMBER 30, 2002
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F - 1
L.A.M. PHARMACEUTICAL, CORP.
(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 September 30, 2002 (Unaudited) and December 31, 2001 F-3
Statements of Changes in Stockholders' Equity (Deficit) for the
Nine Months Ended September 30, 2002 and 2001 (Unaudited) F-4
Statements of Operations for the Three and Nine Months Ended
September 30, 2002 and 2001 (Unaudited) F-5 to F-6
Statements of Cash Flows for the Nine Months Ended
September 30, 2002 and 2001 (Unaudited) F-7 to F-8
Notes to Financial Statements F-9 to F-12
F - 2
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
L.A.M. Pharmaceutical, Corp.
(A Delaware Corporation)
Lewiston, New York
We have reviewed the accompanying balance sheet of L.A.M.
Pharmaceutical, Corp. as of September 30, 2002, the related statements of
operations for the three and nine months ended September 30, 2002 and 2001,
and the statements of changes in stockholders' equity (deficit) and cash
flows for the nine months ended September 30, 2002 and 2001. 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 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 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
November 12, 2002
See Accountants' Review Report
F - 3
L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York
BALANCE SHEETS
- -------------------------------------------------------------------------------
(Unaudited)
September December
30, 31,
2002 2001
- --------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 102,817 $ 11,284
Accounts Receivable 21,054 --
Other Receivable -- 44,433
Inventory 432,592 97,750
Prepaid Expenses 63,567 5,344
- --------------------------------------------------------------------------------------
Total Current Assets 620,030 158,811
Property and Equipment - Net of Accumulated Depreciation 120,722 121,185
Other Assets
Patents and Trademarks - Net of Accumulated Amortization 600,884 489,322
- --------------------------------------------------------------------------------------
Total Assets $ 1,341,636 $ 769,318
- --------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts Payable and Accrued Expenses $ 714,461 $ 601,999
Other Liabilities
Due to Stockholders 164,037 848,037
Deferred Royalty Revenue 207,360 207,360
- --------------------------------------------------------------------------------------
Total Liabilities 1,085,858 1,657,396
- --------------------------------------------------------------------------------------
Stockholders' Equity (Deficit)
Common Stock - $.0001 Par; 50,000,000 Shares Authorized;
26,814,151 and 19,515,919
Shares
Issued and Outstanding,
Respectively 2,681 1,978
Additional Paid-In Capital 23,589,404 17,964,009
Loan Receivable - Director/Officer -- (640,000)
Receivable on Option Exercise (396,000)
Accumulated Deficit (22,940,307) (18,214,065)
- --------------------------------------------------------------------------------------
Total Stockholders' Equity (Deficit) 255,778 (888,078)
- --------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity (Deficit) $ 1,341,636 $ 769,318
- --------------------------------------------------------------------------------------
L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Loan Total
Additional Receivable - Stockholders'
Number Common Paid-In Director/ Accumulated Equity
of Shares Stock Capital Officer Deficit (Deficit)
- -------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 2000 13,998,930 $ 1,400 $8,812,199 $ -- $ (9,815,305) $(1,001,706)
Capital Contribution - Interest Expense -- -- 85,747 -- -- 85,747
Debentures Converted to Common Stock 2,816,563 282 1,611,228 -- -- 1,611,510
Common Shares Issued -
Compensation for Services Rendered 945,000 95 877,705 -- -- 877,800
Common Shares Issued - Debenture
Conversion Premium 1,143,105 114 777,198 -- -- 777,312
Stock Options Exercised 173,300 17 112,433 -- -- 112,450
Stock Options Issued -- -- 2,676,450 -- -- 2,676,450
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 -- -- -- 320,000 -- 320,000
Net Loss for the Period (Unaudited) -- -- -- -- (6,817,732) (6,817,732)
- --------------------------------------------------------------------------------------------------------------------------------
Balance - September 30, 2001 (Unaudited) 19,515,919 $1,952 $ 16,536,552 $ (755,000) $(16,633,037) $ (849,533)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 2001 19,784,520 $1,978 $ 17,964,009 $(640,000) $(18,214,065) $ (888,078)
Capital Contribution - Interest Expense -- -- 16,906 -- -- 16,906
Stock Options Granted -
Compensation for Services Rendered -- -- 1,349,437 -- -- 1,349,437
Common Shares Issued -
Compensation for Services Rendered 1,496,500 150 913,102 -- -- 913,252
Stock Options Exercised 4,918,975 492 2,858,647 -- -- 2,859,139
Sale of Shares Under the Equity Line of
Credit Agreement 614,156 61 487,303 -- -- 487,364
Receivable on Option Exercise -- -- (396,000) -- -- (396,000)
Loan Repayments from Director/Officer -- -- -- 640,000 -- 640,000
Net Loss for the Period (Unaudited) -- -- -- -- (4,726,242) (4,726,242)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance - September 30, 2002 (Unaudited) 26,814,151 $ 2,681 $ 23,193,404 $ -- $ (22,940,307) $ 255,778
- ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
See Accountants' Review Report
F - 8
L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York
STATEMENTS OF OPERATIONS (UNAUDITED)
- ------------------------------------------------------------------------------
Three Months Ended
September 30,
--------------------------
2002 2001
- --------------------------------------------------------------------
Revenues
Net Sales $ 22,165 --
- --------------------------------------------------------------------
22,165 --
Expenses
Cost of Sales 5,172 --
Research and Development 114,146 193,470
Marketing and Business Development 360,611 55,662
General and Administrative 570,902 294,329
- --------------------------------------------------------------------
1,050,831 543,461
Financial Accounting Expenses Not
Requiring
the Use of Cash During the Period:
Depreciation and Amortization 15,916 10,831
Interest Expense 2,358 82,265
Share and Option Grants to
Officers, Directors, Investors, and
Consultants 407,917 2,839,550
Conversion Premium on Convertible
Debentures -- 777,312
- --------------------------------------------------------------------
Total Expenses 1,477,022 4,253,419
- --------------------------------------------------------------------
Loss Before Other Income and (Expenses) (1,454,857) (4,253,419)
- --------------------------------------------------------------------
Other Income and (Expenses)
Interest Income -- 18,115
- --------------------------------------------------------------------
Total Other Income and (Expenses) -- 18,115
- --------------------------------------------------------------------
Net Loss for the Period $ (1,454,857) $(4,235,304)
====================================================================
Loss per Common Share - Basic and
Diluted $ (0.06) $ (0.28)
====================================================================
Weighted Average Number
of Common Shares Outstanding 26,133,394 15,366,725
====================================================================
L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York
STATEMENTS OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------------------------
Nine Months Ended
September 30,
--------------------------
2002 2001
- --------------------------------------------------------------------
Revenues
Licensing Revenues $ -- $ 300,000
Net Sales 22,165 --
- --------------------------------------------------------------------
22,165 300,000
Expenses
Cost of Sales 5,172 --
Research and Development 432,683 322,244
Marketing and Business Development 748,557 122,483
General and Administrative 1,154,563 1,059,089
- --------------------------------------------------------------------
2,340,975 1,503,816
Financial Accounting Expenses Not
Requiring
the Use of Cash During the Period:
Depreciation and Amortization 45,220 28,332
Interest Expense 17,473 203,601
Share and Option Grants to
Officers, Directors, Investors, and
Consultants 2,344,739 3,544,250
Conversion Premium on Convertible
Debentures -- 777,312
Warrants Issued on Equity Line of
Credit Agreement -- 1,100,000
- --------------------------------------------------------------------
Total Expenses 4,748,407 7,157,311
- --------------------------------------------------------------------
Loss Before Other Income and (Expenses) (4,726,242) (6,857,311)
- --------------------------------------------------------------------
Other Income and (Expenses)
Interest Incomes -- 39,579
- --------------------------------------------------------------------
Total Other Incomer and (Expenses) -- 39,579
- --------------------------------------------------------------------
Net Loss for the Period $(4,726,242) $(6,817,732)
====================================================================
Loss per Common Share - Basic and
Diluted $ (0.20) $ (0.47)
====================================================================
Weighted Average Number
of Common Shares Outstanding 23,913,887 14,673,967
====================================================================
L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York
STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------
Nine Months Ended
September 30,
---------------------------
2002 2001
- -------------------------------------------------------------------
Cash Flows from Operating Activities
Net Loss for the Period $(4,726,242) $(6,817,732)
Adjustments to Reconcile Net Loss for
the Period
to Net Cash Flows from Operating
Activities:
Depreciation and Amortization 45,220 28,332
Capital Contributions:
Deemed Interest Expense on
Loans from Stockholders 16,906 85,747
Share and Option Grants - Officers,
Directors, Investors, and
Consultants 2,107,682 3,554,250
Warrants Issued - Equity Line of Credit -- 1,100,000
Conversion Premium on Convertible
Debentures -- 777,312
Changes in Assets and Liabilities:
Accounts Receivable (21,054) (19,470)
Inventory - Raw Materials (334,842) 10,375
Prepaid Expenses (58,223) 2,639
Accounts Payable and Accrued Expenses 396,662 139,505
- -------------------------------------------------------------------
Net Cash Flows from Operating
Activities (2,573,891) (1,139,042)
- -------------------------------------------------------------------
Cash Flows from Investing Activities
Purchases of Property and Equipment (16,405) (85,520)
Purchases of Patents and Trademarks -
Net (139,914) (86,330)
- -------------------------------------------------------------------
Net Cash Flows from Investing
Activities $ (156,319) $ (171,850)
- -------------------------------------------------------------------
- continued -
L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York
STATEMENTS OF CASH FLOWS (UNAUDITED) -
(continued)
- ---------------------------------------------------------------------------
Nine Months Ended
September 30,
--------------------------
2002 2001
- ---------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from Convertible Debentures $ -- $ (168,500)
Proceeds from Exercise of Stock Options 1,357,303 112,450
Proceeds from Sale of Shares Under the
Equity Line of Credit Agreement 487,364 483,636
Loan Receivable - Director/Officer 976,643 (755,000)
Advances from Stockholders 433 54,069
- ---------------------------------------------------------------------------
Net Cash Flows from Financing Activities 2,821,743 (273,345)
- ---------------------------------------------------------------------------
Net Increase (Decrease) in
Cash and Cash Equivalents 91,533 (1,584,237)
Cash and Cash Equivalents - Beginning of Period 11,284 1,902,942
- ---------------------------------------------------------------------------
Cash and Cash Equivalents - End of Period $ 102,817 $ 318,705
- ---------------------------------------------------------------------------
Non-Cash Investing and Financing Activities
- ---------------------------------------------------------------------------
Exercise of Stock Options $ 857,450 $ --
Offsetting of Stockholders Receivable and
Payables $ 728,000 $ --
Debentures Converted to Common Stock $ -- $1,602,237
===========================================================================
L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Note A - Basis of Presentation
The condensed financial statements of L.A.M. Pharmaceutical, Corp.
(the "Company") included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Certain information
and footnote disclosures normally included in financial statements
prepared in conjunction with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. These
condensed financial statements should be read in conjunction with the
annual audited financial statements and the notes thereto included in
the Company's Form 10-KSB, and other reports filed with the SEC.
The accompanying unaudited interim financial statements reflect all
adjustments of a normal and recurring nature, which are, in the
opinion of management, necessary to present fairly the financial
position, results of operations and cash flows of the Company for the
interim periods presented. The results of operations for these
periods are not necessarily comparable to, or indicative of, results
of any other interim period or for the fiscal year as a whole.
Factors that affect the comparability of financial data from year to
year and for comparable interim periods include non-recurring
expenses associated with market launch of new products, costs
incurred to raise capital, acquisitions of patents and trademarks,
and stock options and awards.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform with the current year presentation.
Note B - Accounting Policies
In August 2002, the Company commenced sales of its L.A.M. IPM Wound
Gel(TM) and as a result has revised its presentation of the financial
statements from a development stage company to that of an operating
company.
Revenue Recognition
The Company recognizes 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.
Note C - 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
L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Note C - Receivable - Director/Officer (continued)
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 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.
During the nine months ended September 30, 2002, Mr. Drizen exercised
options to acquire 2,650,000 shares of the Company's common stock.
The total exercise price of these options was $1,537,000. At
September 30, 2002, $627,000 of the exercise price remained unpaid.
Pursuant to the terms of a pending agreement with Mr. Drizen, the
Company will forgive $289,000 of the $627,000 owed by Mr. Drizen.
Accordingly, as of September 30, 2002 $289,000 of this receivable was
charged to expense, leaving a balance of $338,000 due from Mr. Drizen.
Note D - 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
1,053,177 shares of common stock and received $971,000 in net
proceeds as of September 30, 2002 under the equity line of credit
agreement.
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
had no effect on the income statement for the three months ended
September 30, 2002. The warrants may be exercised at any time prior
to January 24, 2004.
L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Note E- Subsequent Events
On November 1, 2002, L.A.M. sold convertible notes, plus Series A, B, C
and D warrants, to a group of private investors for $500,000. The notes
do not bear interest, are unsecured and are payable on November 1, 2005.
At the holder's option the notes are convertible into shares of
L.A.M.'s common stock equal in number to the amount determined by
dividing each $1,000 of note principal to be converted by the
Conversion Price. The initial Conversion Price is $0.29.
If L.A.M. sells any additional shares of common stock, or any
securities convertible into common stock at a price below the then
applicable Conversion Price, the Conversion Price will be lowered to
the price at which the shares were sold or the lowest price at which
the securities are convertible, as the case may be.
L.A.M. has agreed to file a registration statement with the Securities
and Exchange Commission in order that the shares of common stock
issuable upon the conversion of the notes or the exercise of the
warrants may be resold in the public market.
Until 180 days after the effective date of the registration statement
which L.A.M. has agreed to file the note holders will have a first
right of refusal to participate in any subsequent financings involving
L.A.M.
Upon the occurrence of any of the following events L.A.M. is required
to redeem the notes at a price equal to 120% of the then outstanding
principal balance of the notes:
- - the suspension from listing or the failure of L.A.M.'s common stock to be
listed on the OTC Bulletin Board for a period of five consecutive trading
days; or
- - the registration statement which L.A.M. has agreed to file is not effective
by March 31, 2003
- - the effectiveness of the registration statement lapses for any reason or
the registration statement is unavailable to the note holders and the lapse
or unavailability continues for a period of 15 consecutive trading days, or
25 non-consecutive trading days during any 12 month period, provided the
cause of the lapse or unavailability is not due to factors primarily within
the control of the note holders.
- - any representation or warranty made by L.A.M. to the note holders proves to
be materially inaccurate or L.A.M. fails to perform any material covenant
or condition in its agreement with the note holders.
- - a purchase, tender or exchange offer accepted by the holders of more than
33% of L.A.M.'s outstanding shares of common stock.
- - L.A.M. files for protection from its creditors under the federal Bankruptcy
code.
L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Note E- Subsequent Events (continued)
The Series A warrants allow the holders to purchase 426,136 shares of
L.A.M.'s common stock at a price of $0.35 per share at any time prior
to November 1, 2007.
If L.A.M. sells any additional shares of common stock, or any
securities convertible into common stock at a price below the then
applicable warrant exercise price, the exercise price of the Series A
warrants will be lowered to the price at which the shares were sold or
the lowest price at which the securities are convertible, as the case
may be.
The Series B warrants allow the holders to purchase 937,500 shares of
L.A.M.'s common stock at a price of $0.80 per share at any time prior
to November 1, 2007. Within two days after the end of any period of ten
consecutive days that the closing bid price of L.A.M.'s common stock
has exceeded $1.20, L.A.M. has the right, upon 15 days advance written
notice to the holders of the Series B warrants, to force the holders to
exercise the unexercised portion of the Series B warrants.
The Series C warrants allow the holders to purchase 625,000 shares of
L.A.M.'s common stock at a price of $1.20 per share at any time prior
to November 1, 2007. Within two days after the end of any period of ten
consecutive days that the closing bid price of L.A.M.'s common stock
has exceeded $2.00, L.A.M. has the right, upon 15 days advance written
notice to the holders of the Series C warrants, to force the holders to
exercise the unexercised portion of the Series C warrants.
The Series D warrants allow the holders to purchase 468,750 shares of
L.A.M.'s common stock at a price of $1.60 per share at any time prior
to November 1, 2007. Within two days after the end of any period of ten
consecutive days that the closing bid price of L.A.M.'s common stock
has exceeded $2.50, L.A.M. has the right, upon 15 days advance written
notice to the holders of the Series D warrants, to force the holders to
exercise the unexercised portion of the Series D warrants.
L.A.M.'s right to force the warrant holders to exercise the Series, B,
C and D warrants is subject to a number of conditions, including the
following:
- there is in effect a registration statement which the holders
may use to sell the shares issuable upon the exercise of the
warrants.
- L.A.M.'s common stock is listed for trading on the OTC
Bulletin Board
The exercise price of the Series B, C and D warrants is not subject to
adjustment except in the case of stock splits, consolidations and
similar transactions.
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 August 2002, L.A.M. commenced commercial sales of L.A.M. IPM Wound Gel(TM),
which received Section 510(k) approval from the U.S. Food and Drug
Administration in April 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.
On November 4, 2002, Alan Drizen resigned from his position as Chief
Executive Officer of L.A.M. Mr. Drizen plans to devote his future efforts to
independent research in the medical/pharmaceutical community. L.A.M.'s Board
of Directors appointed Joseph T. Slechta, who joined the Company in November
2000 and presently serves as President and Chief Operating Officer, as
L.A.M.'s Chief Executive Officer.
Results of Operations
Three months ended September 30, 2002 compared with three months ended
September 30, 2001
Net Sales
In August 2002, the Company commenced commercial sales of its L.A.M.
IPM Wound Gel(TM).
Research and Development Expense
Research and development expenses for the three months ended September
30, 2002 decreased 41% to $114,000 from $193,000 for the three months ended
September 30, 2001. In the third quarter of 2001 the Company incurred costs
for clinical trials which did not reoccur in the third quarter of 2002.
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
September 30, 2002 increased 545% to $361,000 from $56,000 for the three months
ended September 30, 2001. The increase partially reflects the build up of
marketing management and resources and promotional activity for the commercial
sale of L.A.M. IPM Wound Gel(TM). Expenses have also increased due to the
Company's efforts to introduce L.A.M. IPM Wound Gel(TM) to markets outside of
the U.S.
General and Administrative Expenses
As of September 30, 2002 Alan Drizen, who resigned from his position of
Chief Executive Officer on November 4, 2002, owed L.A.M. $627,000,
representing the unpaid portion of the exercise price of options exercised by
Mr. Drizen. Pursuant to the terms of a pending agreement with Mr. Drizen,
L.A.M. will forgive $289,000 of the $627,000 owed by Mr. Drizen.
Accordingly, as of September 30, 2002 $289,000 of this receivable was charged
to expense, leaving a balance of $338,000 due from Mr. Drizen.
General and administrative expenses for the three months ended
September 30, 2002 increased 94% to $571,000 from $294,000 for the three
months ended September 30, 2001 financial statements primarily as a result of
the $289,000 charged to expense.
The primary components of general and administrative expenses for the
three months ended September 30, 2002 and 2001 were as follows:
2002 2001
Officers' salaries $ 10,500 $ 65,500
Employee salaries and benefits 31,947 34,665
Investor Relations 49,143 99,208
Commissions and other costs in
connection with financings - 16,697
Financial banking and consulting 50,860 10,000
Legal and auditing (including SEC filings) 61,665 10,518
Insurance 49,896 8,720
Write-off of receivable 289,000 -
Other expenses 27,891 49,021
--------- ---------
Total $ 570,902 $ 294,329
========= =========
Interest Expense
Interest expense for the three months ended September 30, 2002
decreased 97% to $2,000 from $82,000 for three months ended September 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 $408,000 during the three
months ended September 30, 2002 and $2,800,000 during the three months ended
September 30, 2001.
The majority of theses costs were attributable to the issuance of
shares and options granted to third parties for services performed.
Nine months ended September 30, 2002 compared with nine months ended
September 30, 2001
Licensing Revenues
During the nine months ended September 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 nine months ended September
30, 2002 increased 34% to $433,000 from $322,000 for the nine months ended
September 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 nine months ended
September 30, 2002 increased 514% to $749,000 from $122,000 for the nine months
ended September 30, 2001. The increase reflects the build up of marketing
management and resources and promotional activity in preparation for the
commercial sales of L.A.M. IPM Wound Gel(TM) and the introduction of the product
to markets outside of the U.S.
General and Administrative Expenses
General and administrative expenses for the nine months ended September
30, 2002 increased 9% to $1,155,000 from $1,059,000 for the nine months ended
September 30, 2001. The increase is attributable to increases in legal and
audit expense in connection with regulatory filings with the Securities and
Exchange Commission; insurance expense and the write off of the option
receivable as described in Note C to the financial statements. The increase
was offset by the decrease in investor relations due to the non-recurrence of
the exceptional level of activity in the previous year and the decrease in
costs incurred in 2001 to arrange the equity line of credit which did not
recur in 2002.
The primary components of general and administrative expenses for the
nine months ended September 30, 2002 and 2001 were as follows:
2002 2001
Officers' salaries $ 61,250 $ 86,612
Employee salaries and benefits 93,596 125,582
Investor Relations 210,101 323,050
Commissions and other costs in
connection with financings - 77,551
Financial banking and consulting 119,340 194,333
Legal and auditing (including SEC
filings) 195,624 138,611
Insurance 87,823 30,025
Write-off of receivable 289,000 -
Other expenses 97,829 83,325
---------- ----------
Total $ 1,154,563 $1,059,089
=========== ==========
Liquidity and Sources of Capital
L.A.M's primary source of liquidity was cash and cash equivalents as of
September 30, 2002 of approximately $103,000, compared with approximately
$11,000 at December 31, 2001. Working capital (deficiency) improved from
approximately $(443,000) as of December 31, 2001 to $(94,000) as of September
30, 2002.
L.A.M.'s operations used approximately $2,574,000 in cash during the
nine months ended September 30, 2002.
During this period L.A.M. also spent $156,000 for patents, trademarks,
and equipment purchases.
Cash required during the nine months ended September 30, 2002 came
principally from proceeds from the exercise of stock options ($1,357,000) and
from the sale of shares under the equity line of credit agreement ($487,000).
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.
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. This re-pricing had no effect on the income statement for
the three months ended September 30, 2002. The warrants may be exercised at
any time prior to January 24, 2004.
See Note C to the financial statements included as part of this report
for information concerning the settlement of receivables owed to L.A.M. by a
former officer of the Company.
On November 1, 2002, L.A.M. sold convertible notes, plus Series A, B, C
and D warrants, to a group of private investors for $500,000. See Note E to
the financial statements included as part of this report for information
concerning this transaction.
Plan of Operation
During the twelve months ending September 30, 2003 L.A.M. will:
o Continue to build market awareness for its product and to generate US
sales of its L.A.M. IPM Wound Gel(TM).
o Continue its program to develop and commercialize other products based
on its wound healing technology
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 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 September 30, 2002, the Company issued
675,000 shares of its common stock to three persons for services rendered.
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. All
of these shares were acquired for investment purposes only and without a view
to distribution. The persons who acquired these shares were fully informed
and advised about matters concerning the Company, including its business,
financial affairs and other matters. The purchasers acquired the shares for
their own accounts. The certificates evidencing the shares bear legends
stating that they 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. No underwriters were
involved with the sale of the shares of common stock and no commission or
other forms of remuneration were paid to any person in connection with the
sale of these shares. All of these shares are "restricted" securities as
defined in Rule 144 of the Securities and Exchange Commission.
Item 4. Controls and Procedures
Joseph Slechta, the Company's Chief Executive and Financial Officer,
has evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
report (the "Evaluation Date"); and in his opinion the Company's disclosure
controls and procedures ensure that material information relating to the
Company, including the Company's consolidated subsidiaries, is made know to
him by others within those entities, 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 the Company's internal controls or in other factors
that could significantly affect the Company's internal controls subsequent to
the Evaluation Date. As a result, no corrective actions with regard to
significant deficiencies or material weakness in the Company's internal
controls were required.
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 September 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.
November 14, 2002 By: /s/ Joseph Slechta
----------------------------------------
Joseph Slechta, Chief Executive and
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 September 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Joseph Slechta, President and 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: November 14, 2002 /s/ Joseph Slechta
--------------------------------------
Joseph Slechta
Chief Executive and Financial Officer
CERTIFICATION PURSUANT TO THE
SARBANES-OXLEY ACT
I, Joseph Slechta, the Chief Executive and Financial Officer of L.A.M.
Pharmaceutical Corp., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of L.A.M.
Pharmaceutical Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to me by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. I have indicated in this quarterly report whether there were significant
changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of my most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002 /s/ Joseph Slechta
--------------------------------------
Joseph Slechta
Chief Executive and Financial Officer