-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M29jKPZjklRcxQ/X051tJwa9rOCQfBo/eYUYbzRTYdePlVzZaMuHTSRHIJgukQod CI6JzGulLretxrf2S6cbeg== 0001004878-03-000042.txt : 20030401 0001004878-03-000042.hdr.sgml : 20030401 20030401164130 ACCESSION NUMBER: 0001004878-03-000042 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAM PHARMACEUTICAL CORP CENTRAL INDEX KEY: 0001071272 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 522278236 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-30641 FILM NUMBER: 03634733 BUSINESS ADDRESS: STREET 1: 800 SHEPPARD AVENUE WEST CITY: TORONTO STATE: A6 ZIP: 00000 BUSINESS PHONE: 4166333004 MAIL ADDRESS: STREET 1: 800 SHEPPARD AVENUE WEST CITY: TORONTO STATE: A6 ZIP: 00000 10KSB 1 dec02form10ksbapril03.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 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 charter) Delaware 52-2278236 --------------------------------- ------------- (State or other jurisdiction (IRS Employer of incorporation) I.D. Number) 800 Sheppard Avenue West, Commercial Unit 1, Toronto, Ontario, Canada M3H 6B4 (Address of principal executive offices) Registrant's telephone number, including Area Code: (877) 526-7717 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock (Title of Class) Check whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. X YES NO Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] The aggregate market value of the voting stock held by non-affiliates of the Company (25,160,280 shares) based upon the closing price of the Company's common stock on March 28, 2003 was approximately $6,038,000. As of March 28, 2003 the Company had 29,583,146 issued and outstanding shares of common stock. ITEM 1. DESCRIPTION OF BUSINESS L.A.M. Pharmaceutical, Corp. was incorporated in Delaware in July 1998. In September 1998, L.A.M. acquired all of the issued and outstanding shares of LAM Pharmaceuticals LLC for 6,000,000 shares of L.A.M.'s common stock. LAM Pharmaceuticals LLC was organized in Florida in 1994 (initially as a partnership) to commercialize a new drug delivery system which offers patients, among other benefits, safer and more effective treatment for a number of serious diseases. Unless otherwise indicated, all references to L.A.M. include LAM Pharmaceuticals LLC. L.A.M. is the owner of a proprietary wound healing and transdermal drug delivery technology that involves the use of an original L.A.M. Ionic Polymer Matrix(TM) technology (L.A.M. IPM(TM)) for the purpose of delivering, enhancing and sustaining the action of certain established therapeutic agents. L.A.M.'s corporate objective is to develop, market and license wound healing and transdermally delivered drugs, both prescription and over-the-counter, using the patented L.A.M. Ionic Polymer Matrix(TM) technology. L.A.M. intends to seek out corporate alliances and co-marketing partnerships where other drugs and topical products can be enhanced by L.A.M. IPM(TM) technology. On April 15, 2002, L.A.M. obtained approval from the U.S. Food and Drug Administration ("FDA") of its Section 510(k) pre-market notification of intent (number K020325) to market its proprietary L.A.M. IPM Wound Gel(TM). Commercial sales of this product began in August 2002. All of L.A.M.'s other products are in various stages of development and testing, and L.A.M. has not obtained FDA approval for any of these other products. As a result, to date L.A.M. has not generated any significant revenues from the sale of pharmaceutical products, and expects to incur losses until significant revenues are earned from the sale of L.A.M. IPM Wound Gel(TM) or other products. In order to fully understand and appreciate the significance and effectiveness of L.A.M.'s drug delivery technology it is important to understand how various drug-based formulations are applied to the skin and the ways that substances applied to the skin are absorbed by the skin and other structures of the body. For many years, lotions, creams, suspensions and solutions of various natural (herbal) and therapeutic (drug) substances have been applied to the skin. When it comes to treating pain, sexual dysfunction and other disease states which emanate from structures of the body below the skin, topical therapy is not effective unless the therapeutic agent can penetrate the outer layer of the skin (stratum corneum) which acts as a protective barrier. This layer consists of numerous dead cells and cells in transition, which collectively form an effective barrier to penetration of substances, such as bacteria, in the air or in water. Thus the stratum corneum plays an important role in protecting the body from invasion by harmful substances. It is this same protective role which has posed a major challenge over the years regarding devising a mechanism that can effectively penetrate the stratum corneum for the purpose of delivering therapeutic substances to structures deep within the body. In 1994, L.A.M.'s scientists discovered that certain molecules called polymers possessed strong electrical charges which, when combined with other polymers of a specific electrical charge, are able to effectively penetrate the outer layers of the skin. In addition, these molecules are able to attach or surround other molecules such as therapeutic drug molecules and carry them within a matrix through the outer layers of the skin into the deeper structures below. L.A.M.'s scientists recognized that these discoveries would be of great significance in regard to the delivery of therapeutic agents. This phenomenon, which is the basis for the L.A.M. Ionic Polymer Matrix(TM) delivery system, is covered by fourteen U.S. patents which are owned by L.A.M. The L.A.M. IPM(TM) technology combines in a matrix, in a novel manner, those drugs that are well established and generally regarded by the public, the regulatory authorities and pharmaceutical industry as safe. When combined with an active drug ingredient, the L.A.M. Ionic Polymer Matrix(TM) technology allows the delivery of greater amounts of drug to the target area than is otherwise possible. The L.A.M. Ionic Polymer Matrix(TM) technology therefore offers potential benefits by providing faster and more prolonged therapeutic activity, less intrusive and less painful methods of delivery and a faster onset of therapeutic activity. L.A.M.'s products are regulated in the United States by the FDA. L.A.M.'s first product, L.A.M. IPM Wound Gel(TM) falls into the hydrogel and burn dressing group as defined by the FDA, and is therefore considered a Class I device (pursuant to FDA ruling of November 4, 1999). Class I devices are subject to "general controls". This is the lowest level of FDA control that focuses on basic factors such as quality regulation. L.A.M. is of the opinion that other products which it is developing will be classified as cosmetics, OTC drugs, or new drugs. Products classified as cosmetics or OTC drugs may be marketed without FDA approval. New drugs that are not cosmetics and that are not considered an OTC drug must be approved by the FDA prior to marketing in the United States. Before human testing can begin with respect to a new drug in the United States preclinical studies are conducted in laboratory animals to evaluate the potential efficacy and the safety of a product. Human clinical studies generally involve a three-phase process. The initial clinical evaluation, Phase I, consists of administering the product and testing for safe and tolerable dosage levels. Phase II trials continue the evaluation of safety and determine the appropriate dosage for the product, identify possible side effects and risks in a larger group of subjects, and provide preliminary indications of efficacy. Phase III trials consist of testing for actual clinical efficacy within an expanded group of patients at geographically dispersed test sites. L.A.M. believes that its L.A.M. IPM(TM) technology, when used with prescription drugs, will be regulated as an unapproved new drug and will require approval by the FDA. Conversely, L.A.M.'s IPM technology, when used with a cosmetic or an OTC drug, could be marketed without FDA approval. Production scale up and manufacture of L.A.M.'s IPM Wound Gel(TM) has been contracted to an independent FDA approved manufacturer. Sales of L.A.M. IPM Wound Gel(TM) began in August 2002. L.A.M. has developed a comprehensive marketing strategy for L.A.M. IPM Wound Gel(TM) that covers direct sales to wound healing centers and other specialized medical practices, Internet sales, sales through contract sales organizations and licensing. L.A.M. is also evaluating a limited number of IPM/drug formulations that have shown promise during preliminary clinical investigation. L.A.M.'s preferred course for these formulations is to negotiate licensing agreements and/or joint ventures with larger pharmaceutical companies which have the financial resources to fund the research and/or clinical trials necessary to complete the development of L.A.M.'s products. If the results of the clinical trials involving these formulations are promising, L.A.M. may then be in a position to negotiate licenses which would generate sufficient revenue so as to allow L.A.M. to exploit the L.A.M. IPM(TM) technology using a variety of other drugs. It should be emphasized that a number of risks may be associated with this approach. While preliminary results have been promising, there is no certainty that the efficacy of the IPM/drug formulations currently being tested will be borne out in subsequent clinical trials. In addition, more clinical studies may be requested by a potential licensee before it is willing to enter into an agreement. L.A.M.'s objective is to raise sufficient capital to enable it to sustain ongoing research, marketing and administrative overhead as well as to enable it to undertake the work necessary to obtain FDA approval for its products, if required, and to license the products to third parties. The longer L.A.M. is able to fund development and the clinical trials for its products and thereby establish their efficacy, the greater their value will be to a potential licensee given the reduced risk of failure. Consequently, the longer L.A.M. retains sole ownership of the products the greater will be its bargaining position with prospective licensees and strategic alliance partners. Indeed, the industry places incrementally larger different values on drugs as they progress through the clinical trials required by the FDA. L.A.M. plans to market its products in any country where a suitable market exists and which has approved L.A.M.'s products for sale. L.A.M. currently serves the healthcare market in the USA. At the present time L.A.M. is focusing its efforts on the following projects: WOUND HEALING In mid-April 2002, L.A.M.'s 510(k) Pre-Marketing Notification submission (K020325) to the FDA for L.A.M. IPM Wound Gel(TM) was approved. This approval gives L.A.M. the ability to market L.A.M. IPM Wound Gel(TM) as a Class I OTC device, while also acting as a platform to enable L.A.M. to market the product internationally. L.A.M. IPM Wound Gel(TM) is designed to deliver high concentrations of sodium Hyaluronate to an ulcer bed, providing an optimal environment for wound healing. L.A.M. IPM Wound Gel(TM) takes full advantage of the proprietary L.A.M. Ionic Polymer Matrix(TM) technology to saturate an ulcer bed with the L.A.M. IPM(TM) active ingredient, hyaluronic acid, a highly purified derivative of sodium Hyaluronate, derived from avian sources. QST Consultations Ltd., an independent consulting firm based in Allendale, Michigan, reported very positive results of L.A.M.'s clinical trials in the treatment of hard to heal skin ulcers. By the end of the study, 47 of the 53 ulcers (89%) reported in the study, had healed within 25 weeks of applying L.A.M. IPM Wound Gel(TM). The mean time to healing was 12 weeks and the median time was 8.2 weeks. Because of poor circulation, diabetics are prone to the development of severe and hard to treat ulcers in the extremities, particularly in the area of the lower legs. Based on review of the data, L.A.M. has contracted DPT Laboratories in San Antonio, Texas to initially produce commercial quantity batches of L.A.M. IPM Wound Gel(TM). L.A.M. is expected to accelerate its wound-healing product for the purpose of slow healing diabetic ulcers, which have not responded to previous treatment. As a derivative of L.A.M. IPM Wound Gel(TM), L.A.M. is also developing a wound healing matrix designed to be used on incisions following surgical procedures. One of the most common post-surgical complications is the development of scar tissue, in tissue sutured or stapled following surgery. Adhesions often form and result in a painful condition, which sometimes requires surgical treatment. The availability of a product which could reduce such complications will reduce the cost of post-operative care significantly. L.A.M. believes its wound healing matrix has potential as an effective post-operative treatment for the prevention of adhesions and scar tissue following surgery. SEXUAL DYSFUNCTION Female sexual dysfunction matrix L.A.M.'s Personal Female Lubricant (Sexual Dysfunction) Matrix is a highly viscoelastic (lubricating) liquid incorporating proprietary L.A.M. IPM(TM) technology. The matrix provides enhanced lubrication while Vitamin B3 (Niacin), encapsulated in the technology, stimulates the tissues of the female genitalia. Vitamin B3 has long been associated with a process known as "flushing", whereby the blood supply in the stimulated area is increased. The L.A.M. IPM(TM) - Personal Female Lubricant (Sexual Dysfunction) Matrix is designed primarily to address the problems of mature women who often experience post-menopausal problems that may inhibit their intimate relationships. Specifically, the matrix acts to either eliminate or at least substantially minimize post-menopausal symptoms including vaginal dryness, pain during intercourse and absence of feeling or sensation. L.A.M. IPM(TM) - Personal Female Lubricant (Sexual Dysfunction) Matrix is not classified as a drug. The product uses substances which have been approved by the regulatory authorities for many applications. Vitamin B3, for example, forms a part of B Complex taken orally as a daily supplement by millions of people worldwide. The phenomenon of flushing is not only harmless, but has been declared by several regulatory authorities as beneficial. Consequently, L.A.M. believes that FDA approvals are not required for this product. L.A.M. will ensure, however, that the matrix is manufactured to Good Manufacturing Standards and that the product is safe and performs to its specifications. Licensing of Sexual Dysfunction Products In December 1997, L.A.M. granted an exclusive worldwide license to Ixora Bio-Medical Co. ("Ixora") for the marketing, sale and distribution of certain of its transdermal drugs for the treatment of male and female sexual dysfunction. L.A.M. has received licensing payments of $500,000 from Ixora. Ixora is required to reimburse L.A.M. for all costs of clinical studies and related research required by the FDA or other government agencies as well as patent procurement and maintenance costs, provided however that after January 1, 2000 Ixora is not, without its consent, obligated to reimburse L.A.M. for costs in excess of $10,000 per quarter. L.A.M. will receive the following royalties on sales by Ixora: o 9% of all Net Sales of licensed products approved by the FDA and for which the patent rights have not expired. o 6.5% of all Net Sales of all licensed products which did not require FDA approval and for which the patent rights have not expired. o 4.5% of all Net Sales of all licensed products for which the patent rights have expired or have been held to be invalid. For purposes of the license agreement the term "Net Sales" means gross sales less advertising/promotion expenses not exceeding 8% of gross sales and sales taxes. In January 1998 L.A.M. acquired a 45% interest in Ixora for $207,360. As a result of subsequent sales by Ixora of its common stock to other persons, L.A.M., as of March 28, 2003, owned 18% of Ixora's common stock. EXTREME DRY SKIN L.A.M.'s IPM matrix spreads easily over large areas of skin, making it ideal for use as a cosmetic in various applications to the skin. Cosmetics are a multi-billion dollar a year industry that do not require approval before marketing, although cosmetics must be safe, contain appropriate cosmetic ingredients and be labeled properly. Various uses for L.A.M.'s product include controlling body odors, relief of dryness, and for moisturization. For example, the IPM matrix could be used as a lubricant, to replenish moisture and general skin conditioning, particularly because it is non-staining and non-irritating. When used with a fragrance, it could control odor. When combined with certain over-the-counter (OTC) drugs, L.A.M.'s IPM-drug matrix could be marketed as a cosmetic. Certain products marketed in the United States are considered cosmetics and OTC drugs because they make cosmetic claims as well as therapeutic claims and are intended to treat or prevent disease. Examples of such products include, but are not limited to, anti-dandruff shampoos; sunscreens; make-ups, moisturizers and skin care products that bear sunscreen, skin protectant or acne claims; products that make breath-freshening or whitening claims; antiperspirants that bear deodorant claims; and anti-microbial soaps. These products must comply with the FDA requirements for both cosmetics and OTC drugs. As a cosmeceutical, a combination of an OTC drug and a cosmetic product, the IPM matrix can be used for a variety of topical and other uses. These include use with certain antibiotic first aid products, antifungal drugs, dandruff, dermatitis and psoriasis control products, external analgesics, skin protectant-type products, such as for poison ivy and fever blisters and cold sores, first aid antiseptics, and anorectal products. Preliminary skin care trials have been successfully completed on approximately twenty patients in the Redding, California area by a cutaneous surgeon and dermatologist. Since L.A.M. is of the opinion that its skin care products will be classified as a cosmetic or an OTC drug, these skin care trials are being conducted without FDA approval. GOVERNMENT REGULATION L.A.M.'s drug and cosmetic products are regulated in the United States under the Federal Food, Drug and Cosmetic Act (FD&C Act), the Public Health Service Act, and the laws of certain states. The FDA exercises significant regulatory control over drugs manufactured and/or sold in the United States, including those that are unapproved. Federal laws such as the FD&C Act cover the testing, manufacture, distribution, marketing, labeling, advertising (for prescription drugs), of all new drugs. Drug registration and listing requirements also exist. L.A.M. is of the opinion that the products being developed by L.A.M. will be subject to one or more of the following FDA classifications: Cosmetics Cosmetics are generally the least regulated by the FDA compared to other products subject to the FD&C Act. The legal distinction between cosmetics and drugs is typically based on the intended use of the product, which is normally discerned from its label or labeling. Cosmetic products are those intended for "cleansing, beautifying, promoting attractiveness, or altering appearance" whereas drugs are those intended for "diagnosis, cure, mitigation, treatment, or prevention of disease", or that "affect the structure or any function of the body". A claim suggesting that a product affects the body in some "physiological" way usually renders the product a drug - even if the effect is temporary. A claim that the product penetrates and affects layers beneath the skin's surface most likely would be viewed by the FDA as a drug claim. However, claims that a product affects appearance through a "physical" effect are generally considered cosmetic claims. The FDA's rationale for this distinction is that a claim of a physiological effect is a claim that the product "affects" the structure or function of the body, which is one element of the statutory definition of a drug. A claim indicating that a product's effects are on the surface of the skin can be a cosmetic claim. Although cosmetics may be marketed without FDA approval, in order to be marketed lawfully as a cosmetic, the product must be properly labeled and each ingredient and each finished cosmetic product must be adequately substantiated for safety prior to marketing. Products which are not cosmetics, and which are marketed in the United States, must either comply with specified OTC drug regulations (monographs) or be specifically approved through the New Drug Application (NDA) or biologic licensure process. OTC Drugs OTC drugs generally are defined as those drug products that can be used safely and effectively by the general public without seeking treatment by a physician or other health care professional. Thus, they do not require a prescription by a health care professional and are available at retail establishments. An OTC drug may be marketed without FDA approval if it conforms to a particular product monograph as described below and otherwise meets the requirements of the FD&C Act. OTC monographs list active ingredients, their dosage levels, and uses (claims) for which OTC drug products are considered generally recognized as safe and effective for specific use and are not misbranded. If a particular level of an active ingredient and claim are allowed by a monograph, then a manufacturer may market a product containing that ingredient and bearing that claim without specific FDA approval, subject to compliance with other requirements of the monographs and FD&C Act, including drug registration and listing obligations. Aspirin is a common drug allowed by a monograph. If a drug product does not conform to a particular OTC monograph, then typically a New Drug Application must be reviewed and approved by the FDA prior to marketing. Unlike prescription drugs, OTC drugs must bear adequate directions for safe and effective use and warnings against misuse. New Drug Applications and Biologic License Applications New drugs and products that are not cosmetics or devices and that are not covered by an OTC monograph must be approved by the FDA prior to marketing in the United States. Pre-clinical testing programs on animals, followed by three phases of clinical testing on humans, are typically required by the FDA in order to establish product safety and efficacy. L.A.M. believes that its L.A.M. IPM(TM) technology, when used with approved or unapproved prescription drugs or biologics, will be regulated as an unapproved new drug or unapproved biologic and will require approval by the FDA. It is also possible that the L.A.M. IPM(TM) technology may be regulated as a combination drug and medical device, in which case it would be subject both to medical device and drug regulation. Medical device regulation is based on classification of the device into three classes, I, II, or III. Class III medical devices are regulated much like drugs, whereas Class I and II devices are subject to abbreviated clearance procedures. It is also possible that the use of the L.A.M. IPM(TM) technology with a monographed OTC drug could render the product an unapproved new drug, which would mean that the product is subject to new drug application approval requirements before marketing. The FDA may choose to regulate certain uses of the L.A.M. IPM(TM) technology as a medical device if it determines that the mechanism by which the L.A.M. IPM(TM) technology exerts its effects meets the definitional requirements of a medical device. A medical device is a product that, among other requirements, does not achieve its primary intended purposes through chemical action within or on the human body and is not dependent upon being metabolized for the achievement of its primary intended purposes. Although L.A.M. expects that most uses of the L.A.M. IPM(TM) technology will be regulated as a drug, which is in essence a product that usually achieves its effects by chemical action or physiological action in or on the body, to the extent that the L.A.M. IPM(TM) technology is used to deliver pharmaceutically active ingredients, it can be subject to both medical device and drug regulation. The first stage of evaluation, pre-clinical testing, must be conducted in animals. After safety has been demonstrated, the test results are submitted to the FDA (or a state regulatory agency) along with a request for authorization to conduct clinical testing, which includes the protocol that will be followed in the initial human clinical evaluation. If the applicable regulatory authority does not object to the proposed study, the investigator can proceed with Phase I trials. Phase I trials consist of pharmacological studies on a relatively few number of human subjects under rigidly controlled conditions in order to establish lack of toxicity and a safe dosage range. After Phase I testing is completed, one or more Phase II trials are conducted in a limited number of patients to continue to test the product's safety and also its efficacy, i.e. its ability to treat or prevent a specific disease. If the results appear to warrant further studies, the data are submitted to the applicable regulatory authority along with the protocol for a Phase III trial. Phase III trials consist of extensive studies in large populations designed to assess the safety of the product and the most desirable dosage in the treatment or prevention of a specific disease. The results of the clinical trials for a new drug are submitted to the FDA as part of a New Drug Application ("NDA"). Biological drugs, such as vaccines, are subject to Biologics License Applications (BLAs), not NDAs as are other drugs. They must be safe, pure and potent. Generic competition does not exist for biologics, as it does for other drugs. Biological drugs are generally subject to the same testing, manufacturing, distribution, marketing, labeling, advertising and other requirements for other drugs. To the extent all or a portion of the manufacturing process for a product is handled by an entity other than L.A.M., the manufacturing entity is subject to inspections by the FDA and by other Federal, state and local agencies and must comply with FDA Good Manufacturing Practices ("GMP") requirements. In complying with GMP regulations, manufacturers must continue to expend time, money and effort in the area of production, quality control and quality assurance to ensure full compliance. L.A.M. may undertake extensive and costly clinical testing to assess the safety and efficacy of its potential drug delivery systems. Failure to comply with FDA regulations applicable to such testing can result in delay, suspension or cancellation of testing, and refusal by the FDA to accept the results of the testing. In addition, the FDA may suspend clinical studies at any time if it concludes that the subjects or patients participating in trials are being exposed to unacceptable health risks. Further there can be no assurance that human clinical testing will show any of L.A.M.'s drug delivery systems to be safe and effective or that data derived from any testing will be suitable for submission to the FDA. The processes required by European regulatory authorities before L.A.M.'s systems can be marketed in Western Europe are similar to those in the United States. First, appropriate pre-clinical laboratory and animal tests must be done, followed by submission of a clinical trial exemption or similar documentation before human clinical studies can be initiated. Upon completion of adequate and well controlled clinical studies in humans that establish that the drug is safe and efficacious, regulatory approval of a Market Authorization Application must be obtained from the relevant regulatory authorities. As with the FDA review process, there are numerous risks associated with the Market Authorization Application review. Additional data may be requested by the regulatory agency reviewing the Market Authorization Application to demonstrate the contribution of a product component to the clinical safety and efficacy of a product, or to confirm the comparable performance of materials produced by a changed manufacturing process or at a changed manufacturing site. The process of biologic and new drug development and regulatory approval or licensure requires substantial resources and many years. There can be no assurance that regulatory approval will ever be obtained for other products being developed by L.A.M. Authorization for testing, approval for marketing of drugs, including biologics, by regulatory authorities of most foreign countries must also be obtained prior to initiation of clinical studies and marketing in those countries. The approval process varies from country to country and the time period required in each foreign country to obtain approval may be longer or shorter than that required for regulatory approval in the United States. There are no assurances that clinical trials conducted in foreign countries will be accepted by the FDA for approval in the United States. Product approval or licensure in a foreign country does not mean that the product will be approved or licensed by the FDA and there are no assurances that L.A.M. will receive any approval or license by the FDA or any other governmental entity for the marketing of a drug product. Likewise product approval by the FDA does not mean that the product will be approved or licensed by any foreign country. Product Status L.A.M. has completed the development of its IPM Wound Gel(TM) and obtained approval (number K020325) from the FDA on April 15, 2002 to market the product. L.A.M. began commercial sales of this product in August 2002. All of L.A.M.'s other products are in various stages of development and testing and the commercial sale of any of these products may not occur until the latter part of 2003 at the earliest. As a result, L.A.M. expects to incur additional losses for the foreseeable future. L.A.M.'s estimates of the costs associated with future research and clinical studies may be substantially lower than the actual costs of these activities. If L.A.M.'s cost estimates are incorrect, L.A.M. will need additional funding for its research efforts. There can be no assurance that L.A.M.'s products will prove to have any therapeutic or other value. The following is a summary of the status of the products which are being developed by L.A.M.: Projected Cost Projected Date Anticipated FDA Needed to Complete of Completion Product Name Classification Studies/Trials of Studies/Trials Wound Healing Cosmetic/OTC Drug $1,000,000(1) Completed Female Sexual Dysfunction Cosmetic/OTC Drug $1,500,000 Dec. 2003 (2) Extreme Dry Skin Cosmetic/OTC Drug $1,500,000 (3) (1) Projected costs associated with the wound healing product include costs for scaling up production. (2) L.A.M. has licensed this product to Ixora Bio-Medical Co. Pursuant to the terms of the Licensing Agreement, Ixora is responsible for all the costs required to obtain regulatory approval of this product. (3) Beginning in the second quarter of 2003 L.A.M. plans an aggressive sampling program for its Extreme Dry Skin product with consumers, doctors and skin care professionals. Research and Development As part of its ongoing research and development program, L.A.M. intends to develop and commercialize as many products as possible based on its L.A.M. IPM(TM) technology. L.A.M.'s long-range goal is to exploit other uses of its matrix drug delivery system to improve the therapeutic effects of various drugs. During the years ended December 31, 2000, 2001 and 2002 L.A.M. spent approximately $317,000, $480,000 and $573,000, respectively on research and development. L.A.M.'s research and development expenditures do not include research and development expenses relating to L.A.M.'s Sexual Dysfunction Drug, which were paid by Ixora Bio-Medical Co. Patents and Trademarks As of March 28, 2003, L.A.M. owned fourteen U.S. patents, three foreign patents, four U.S. patent applications and numerous international patent applications designating over 100 foreign countries with claims relating to its sustained release delivery matrix system, systems containing drug preparations, uses of the systems for various treatment therapies and addiction therapeutic program. L.A.M.'s patents will expire between 2015 and 2018. Employees As of March 28, 2003 L.A.M. had nine full time and one part time employee. offices and facilities In the fourth quarter of 2001, L.A.M. consolidated its research, pilot production and head office activities into its 3,500 square foot facility in Lewiston, New York. This facility is leased at a rate of $1,700 per month. The lease on this space expires in 2004. L.A.M. continues to maintain a business office at 800 Sheppard Avenue West, Commercial Unit 1, Toronto, Ontario, Canada. L.A.M. has leased this space at $4,675 per month until August 31, 2004. ITEM 2. DESCRIPTION OF PROPERTIES See Item 1 of this report. ITEM 3. LEGAL PROCEEDINGS. ----------------- An investor relations firm formerly used by L.A.M. has filed a claim against L.A.M. with the American Arbitration Association. The claim alleges that L.A.M. failed to pay the investor relations firm in accordance with the terms of an agreement between the parties. On March 26, 2003, a hearing was held before an arbitrator regarding this matter. At the hearing the investor relations firm claimed damages from L.A.M. in the amount of approximately $600,000 as a result of L.A.M.'s breach of the agreement. In contrast, L.A.M. contends that the investor relations firm did not provide the services required by the agreement and as a result no additional amounts are due to the investor relations firm. A decision by the arbitrator is expected by April 30, 2003. While management is not able at the present time to determine the outcome of this matter, based upon information currently available, management presently believes that the probability is remote that the resolution of this claim will have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable ITEM 5. MARKET FOR L.A.M.'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of February 28, 2003, there were approximately 137 record owners of L.A.M.'s common stock. L.A.M.'s common stock is traded in the over-the-counter market under the symbol "LAMP". Set forth below are the range of high and low bid quotations for the periods indicated as reported by the National Quotation Bureau. The market quotations reflect interdealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. Quarter Ending High Low 3/31/01 $6.06 $2.63 6/30/01 $2.75 $0.75 9/30/01 $0.95 $0.58 12/31/01 $0.76 $0.51 3/31/02 $0.99 $0.46 6/30/02 $2.50 $0.69 9/30/02 $0.88 $0.45 12/31/02 $0.54 $0.27 Holders of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefore and, in the event of liquidation, to share pro rata in any distribution of L.A.M.'s assets after payment of liabilities. The Board of Directors is not obligated to declare a dividend. L.A.M. has not paid any dividends and L.A.M. does not have any current plans to pay any dividends. Other Shares Which May Be Issued: The following table lists, as of March 28, 2003, additional shares of L.A.M.'s common stock which may be issued as the result of the exercise of outstanding options, warrants or convertible notes: Number of Note Shares Reference Shares issuable upon conversion of promissory notes 545,578 A Shares issuable upon exercise of Series A, B, C and D warrants held by selling shareholders 3,468,340 A Shares issuable upon exercise of options and warrants granted to L.A.M.'s officers, directors, employees, private investors and financial consultants. 12,823,121 B Shares issuable upon exercise of warrants which were issued as part of the Equity Line of Credit. 938,473 C A. In November 2002, L.A.M. sold convertible notes, plus Series A, B, C and D warrants, to a group of private investors for $700,000. 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. As of March 28, 2003 notes in the principal amount of $510,600 had been converted into 1,736,734 shares of L.A.M.'s common stock. 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. 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 exercise price of the Series A warrants, 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. L.A.M.'s agreement with the noteholders and the warrant holders requires L.A.M. to register 150% of the number of shares that L.A.M. would be required to issue if all of the notes were converted and all of the Series A warrants were exercised so that additional shares will be available for sale 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 of the notes or the exercise price of the Series A warrants. See "Note J of the Financial Statements" for more information concerning the convertible notes and the Series A, B, C and D warrants. B. Options and warrants are exercisable at prices between $0.58 and $7.50 per share and expire between March 2003 and June 2011. C. On January 24, 2001, L.A.M. entered into an equity line of credit agreement with Hockbury Limited in order to establish a possible source of funding for the development of L.A.M.'s technology. The equity line of credit agreement established what is sometimes also referred to as an equity drawdown facility. 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 warrants may be exercised at any time prior to January 24, 2004. Prior to the termination of the equity line of credit L.A.M. had received net proceeds of $971,000 from the sale of 1,053,177 shares of common stock under the equity line. Shares Registered for Public Sale Substantially all the shares issuable upon the exercise of options and warrants, and which are referred to in Notes A, B, and C, have been, or will be registered for public sale by means of registration statements filed with the Securities and Exchange Commission. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS/ PLAN OF OPERATIONS The following sets forth certain financial data with respect to L.A.M. and is qualified in its entirety by reference to the more detailed financial statements and notes included elsewhere in this report. The following contains statements that constitute "forward looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, to differ materially from the anticipated results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from anticipated results include risks associated with the development of products and L.A.M.'s need for working capital. Summary Financial Data Income Statement Data: Year Ended Year Ended December 31, 2002 December 31, 2001 Sales $ 40,160 $ -- Licensing Revenue -- 300,000 Operating Expenses (3,530,273) (2,060,480) Financial Accounting Expenses (2,809,104) (6,683,492) Interest Income -- 45,212 ----------- ---------- Net Loss $(6,299,217) $(8,398,760) ============ ============ Balance Sheet Data: December 31, 2002 December 31, 2001 Current Assets $ 780,628 $158,811 Total Assets 1,452,217 769,318 Current Liabilities 1,537,164 601,999 Total Liabilities 1,908,561 1,657,396 Working Capital (Deficiency) (756,536) (443,188) Stockholders' Deficit (456,344) (888,078) Results of Operations Year Ended December 31, 2002 compared with Year Ended December 31, 2001 Sales During the year ended December 31, 2002, L.A.M. commenced commercial sales of its L.A.M. IPM Wound Gel(TM). Revenue for the sale of the product is recorded when the revenue is realized or realizable and earned. Licensing Revenue During the year ended December 31, 2001, licensing revenue of $300,000 was received from Ixora Bio-Medical Co. Inc. ("Ixora") under the terms of their license agreement related to L.A.M.'s sexual dysfunction products. See Item 1 of this report for further information concerning L.A.M.'s agreement with Ixora. Interest Expense Interest expense for the year ended December 31, 2002 decreased 91% to $20,000 from $233,000 for the year ended December 31, 2001 due to the conversion of all remaining debentures during 2001. General and Administrative Expenses General and administrative expenses for the year ended December 31, 2002 increased 43% to $1,972,000 from $1,379,000 for the year ended December 31, 2001. The increase included costs attributable to the write off of the option receivable as described in Note H to the financial statements; increased costs of regulatory filings in respect of past and present options, note conversions, share grants for services and quarterly and yearly filings as required by the Securities and Exchange Commission; and costs attributable to the increase in insurance costs due to the launch of the L.A.M. IPM Wound Gel (TM). 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 years ended December 31, 2002 and 2001 were as follows: 2002 2001 ---- ---- Officers' salaries $ 74,125 $ 149,612 Employee salaries and benefits 127,787 123,113 Investor Relations 265,819 337,680 Commissions and other costs in connection with financings 83,070 138,863 Financial Banking and Consulting 194,200 197,333 Legal and Auditing (including SEC filings) 327,945 276,415 Insurance 130,882 38,745 Write off of receivable 627,000 -- Other Expenses 141,501 117,030 ---------- --------- Total $ 1,972,329 $ 1,378,791 =========== =========== Marketing and Business Development Expense Marketing and business development expense for the year ended December 31, 2002 increased 383% to $975,000 from $202,000 for the year ended December 31, 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. Research and Development Expense Research and development expenses for the year ended December 31, 2002 increased 19% to $573,000 from $480,000 for the year ended December 31, 2001. The increase includes the scale up in production of L.A.M. IPM Wound Gel(TM) to commercial batch quantities. 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 L.A.M.'s paid in capital, decreased to $2,468,000 for the year ended December 31, 2002 compared with $4,266,000 for the year ended December 31, 2001. The non-cash expenses included costs attributed to options and shares granted to consultants and directors for services performed and in recognition of their additional efforts now required to bring L.A.M.'s first product to market; to options granted in connection with the related strengthening of the management team; and to other investors for their investment support. Conversion Premium During the years ended December 31, 2002 and 2001, conversion premiums of $205,000 and $1,058,000 respectively were charged to expense. The charge in 2002 related to the sale of convertible notes during that year, and represented the difference between the deemed fair value of L.A.M.'s common stock and the conversion price of the convertible notes sold. The charge in 2001 represented the deemed fair value of the enhanced terms granted in August of that year to note holders who agreed to convert their outstanding notes during the year. The conversion premiums did not require the use of cash. Warrants Issued The expense of $56,000 for the year ended December 31, 2002 represents the fair value of the warrants issued to the Convertible Note holders and the placement agent in connection with the issuance of the Convertible Notes. The expense of $1,100,000 for the year ended December 31, 2001 represents the fair value of the warrants issued to Hockbury Limited in connection with the equity line of credit and the warrants issued to GKN Securities as placement agent for the equity line. Liquidity and Sources of Capital - -------------------------------- Year Ended December 31, 2002 L.A.M.'s primary source of liquidity as of December 31, 2002 is cash and cash equivalents of $210,000. Working capital decreased from approximately $(443,000) as of December 31, 2001 to $(757,000) as of December 31, 2002. L.A.M.'s operations and an increase in accounts receivable and inventory used approximately $3,241,000 in cash during the year ended December 31, 2002. This was offset by an increase in accounts payable and accrued expenses in the amount of $548,000, which provided cash. During this period L.A.M. also spent $122,000 for patents, trademarks, and equipment purchases. Cash required during the year ended December 31, 2002 came principally from the exercise of stock options amounting to $1,750,000, proceeds from the sale of shares under the equity line of credit agreement amounting to $487,000 and proceeds from the sales of Convertible Notes in the amount of $700,000. On January 24, 2001, L.A.M. 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 L.A.M.'s technology. As of July 22, 2002, L.A.M. 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 L.A.M. terminated the equity line of credit agreement with Hockbury Limited. As consideration for the cancellation of the agreement, L.A.M. 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 operations for the year ended December 31, 2002. The warrants may be exercised at any time prior to January 24, 2004. See Note H 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 L.A.M. 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 $700,000. See Note J to the financial statements included as part of this report for information concerning this transaction. Year Ended December 31, 2001 L.A.M.'s operations and an increase in inventories used approximately $1,713,000 in cash during the year ended December 31, 2001. This was offset by a decrease in notes receivable and an increase in accounts payable and accrued expenses in the amount of $256,000, which provided cash. During this period L.A.M. also spent $282,000 for patents, trademarks, and equipment purchases. Cash required during the year ended December 31, 2001 came from the use of existing cash, the exercise of stock options amounting to $112,000 and proceeds from the sale of shares under the Equity Line of Credit Agreement amounting to $484,000. Application of Critical Accounting Policies L.A.M.'s financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. Critical accounting policies for L.A.M. include revenue recognition, inventory valuation and accounting for income taxes. L.A.M. recognizes revenue in accordance with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements". L.A.M. recognizes revenue when it is realized or realizable and earned. L.A.M. 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. L.A.M. reduces revenue for estimated customer returns. Inventory is comprised of finished goods and raw materials and is stated at the lower of cost or market. Cost is determined by the first-in, first-out method and market is based on the lower of replacement cost or net realizable value. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. All deferred tax assets have been fully reserved against due to the uncertainty as to when or whether the tax benefit will be realized. New Pronouncements In April 2002, the Financial Accounting Standards Board issued FASB Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS 145). SFAS 145 requires that gains and losses from extinguishment of debt be classified as extraordinary items only if they meet the criteria in Opinion 30. Applying the provisions of Opinion 30 will distinguish transactions that are part of an entity's recurring operations from those that are unusual and infrequent and therefore meet the criteria for classification as an extraordinary item. SFAS 145 also requires that modifications to a capital lease that make it an operating lease be accounted for, as applicable, in accordance with FASB Statement No. 98, Accounting for Leases, or FASB Statement No. 28, Accounting for Sales with Leasebacks. SFAS 145 is required to be applied in fiscal years beginning after May 15, 2002 and to provisions relating to modifications of a capital lease that makes it an operating lease as of May 15, 2002. Upon adoption of SFAS 145, gains and losses on debt extinguishment that have been shown on the income statement as extraordinary items in prior periods should be reclassified, unless they meet the criteria for extraordinary status per Opinion 30. Management does not anticipate that the adoption of SFAS 145 will have any material impact on the financial statements. In June 2002, the Financial Accounting Standards Board issued FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they incurred rather than at the date of a commitment to an exit or disposal plan. Costs covered by SFAS 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS 146 applies to all exit or disposal activities initiated after December 31, 2002. Management does not anticipate that the adoption of SFAS 146 will have any material impact on the financial statement. Plan of Operation During the twelve months ending December 31, 2003, L.A.M. will: o Continue the ongoing process of expanding its US sales channels for the LAM IPM Wound Gel(TM). o Ensure sustained sales ramp up through the effective targeting of the defined wound healing markets - wound care, home care, nursing homes and podiatry. o Seek and identify additional market segments for LAM IPM Wound Gel(TM). o Continue to develop and commercialize new derivatives of the LAM IPM Wound Gel(TM). o Commence commercial sales of its LAM IPM Wound Gel in Mexico o Complete the regulatory approval process for its LAM IPM Wound Gel(TM) in China and establish initial sales channels in the region. o Pursue and establish sales representations in other international locations, namely other Far East countries. o Seek a European distribution partner and commence the European regulatory approval process for the Gel. o Continue the development of other products based on LAM's proprietary and patented Ionic Polymer Matrix(TM) technology, including motion sickness, and skin care. o Continue to seek strategic relationships with international pharmaceutical companies that will enable LAM to accelerate the commercial application of its Ionic Polymer Matrix(TM) based technology. 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 to its L.A.M. IPM Wound Gel(TM). L.A.M. plans to use its existing financial resources as well as revenue streams from the sale 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 marketing of its IPM Wound Gel(TM), for its research and development activities in respect of its L.A.M. Ionic Polymer Matrix(TM) technology and for general operating losses, L.A.M. does not have any material capital commitments. Due to the previous lack of any significant revenues, to date L.A.M. has relied upon proceeds 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 the commercial sale of its products, L.A.M. will be required to fund its operations through the sale of securities, debt financing or other arrangements. However, there can be no assurance that such financing will be available or be available on favorable terms. ITEM 7. FINANCIAL STATEMENTS See the financial statements attached to this report. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The directors and executive officers of L.A.M. are as follows: Name Age Position Joseph T. Slechta 54 President, Chief Executive Officer and Director Peter Rothbart, M.D. 64 Treasurer and Director Gary M. Nath 58 Secretary and Director Richard Brokenshire 52 Vice President of Sales and Marketing Joseph T. Slechta has been L.A.M.'s Chief Operating Officer since November 2000. Mr. Slechta was appointed a director and became L.A.M.'s President on May 11, 2001. Mr. Slechta became L.A.M.'s Chief Executive Officer in November 2002. Between November 1998 and November 2000, Mr. Slechta was a consultant to L.A.M. Between 1994 and 2000, Mr. Slechta assisted corporate clients in financing, reorganization, expansion and improving operations. From 1987 to 1992, Mr. Slechta held executive management positions with three Canadian corporations. His corporate assignments included the management and financing of a high-technology company, the reorganization and sale of a helicopter company and financial consulting services to a major Canadian life insurance company. From 1979 to 1986, Mr. Slechta managed the treasury operations of Continental Bank. Peter Rothbart, M.D., Medical Director, has been a director and Treasurer of L.A.M. since its inception. He has been a consulting anesthetist for over 20 years and is a leading pain specialist and principal of the Rothbart Pain Management Clinic in Ontario, Canada. Dr. Rothbart is currently President of the North American Cervicogenic Headache Society, an association of specialists in the treatment of cervicogenic headaches. He was also recently elected Chair of the Chronic Pain Section of the Ontario Medical Association. In collaboration with Alan Drizen, Dr. Rothbart discovered the IPM delivery system. Gary M. Nath has been Secretary and a director of L.A.M. since its inception. He has a BS degree in Biology and Chemistry, two years of post-graduate work in Biochemistry and a law degree. Mr. Nath has worked in the patent and trademark law departments of FMC Corporation, NL Industries, and Warner Lambert Company in the capacities of patent attorney, group patent and trademark counsel and general patent counsel, respectively. Mr. Nath is the founding and managing partner of the intellectual property law firm Nath & Associates located in Washington, DC. He counsels a wide range of domestic and international clients across a broad range of technologies, including chemical, pharmaceutical, biotechnical and mechanical fields. He has published extensively and has spoken on intellectual property law procurement, enforcement and transfer before numerous professional and lay groups in the United States and Japan. He is a member of the American Bar Association, the New Jersey Bar Association, the American Intellectual Property Law Association, the International Patent Association, the Association of University Technology Managers, and is admitted to practice before the U.S. Patent and Trademark Office, Canadian Patent Office and numerous courts around the United States. Richard Brokenshire has been L.A.M.'s Vice President of Sales and Marketing since November 2001. Mr. Brokenshire has over 20 years of healthcare and marketing experience in senior management positions, with experience in product introduction. Mr. Brokenshire has held the positions of Director of U.S. Sales for St. Jude Medical, Vice President of U.S. Sales for Randi Medical and Vice President of Global Sales for the Sherwood Division of American Home Products. Key Employee Elena Milantoni (age 33) has been L.A.M.'s Director of Finance and Administration since June 2002. Ms. Milantoni has a BAS degree in accounting and is a Chartered Accountant. Ms. Milantoni has over 10 years of public accounting and industry experience for both biotech and hi-tech companies. Management Changes In November 2002, Alan Drizen resigned as L.A.M.'s Chief Executive Officer. Joseph Slechta, L.A.M.'s President, was appointed L.A.M.'s Chief Executive Officer by the Board of Directors to fill the vacant position. Mr. Drizen resigned as a Director of L.A.M. in December 2002. ITEM 10. EXECUTIVE COMPENSATION The following table sets forth in summary form the compensation earned or received by (i) the Chief Executive Officer of L.A.M. and (ii) by each other executive officer of L.A.M. who earned or received in excess of $100,000 during the fiscal years ended December 31, 2000, 2001 and 2002. Annual Compensation Long Term Compensation ------------------------------- --------------------------- Re- All stric- Other Other ted Com- Name and Compen- Stock Options pensa- Principal Fiscal Salary Bonus sation Awards Granted tion Position Year (1) (2) (3) (4) (5) (6) - ----------- ----- ------ ----- ------ ------- ------- ------- Joseph Slechta 2002 $102,000 -- -- -- -- -- President and 2001 $103,000 $25,000 -- $85,000 3,600,000 -- Chief Executive Officer Alan Drizen, 2002 $80,000 -- -- -- 2,000,000 -- (former Chief 2001 $120,000 -- -- -- 300,000 -- Executive 2000 $120,000 -- -- -- -- -- Officer) (1) The dollar value of base salary (cash and non-cash) received or earned. (2) The dollar value of bonus (cash and non-cash) received. (3) Any other annual compensation not properly categorized as salary or bonus, including perquisites and other personal benefits, securities or property. (4) During the period covered by the foregoing table, the shares of restricted stock issued as compensation for services. The table below shows the number of shares of L.A.M.'s common stock owned by the officers listed above, and the value of such shares as of December 31, 2002: Name Shares Value Joseph Slechta 20,000 $ 5,600 (5) The shares of common stock to be received upon the exercise of all stock options granted during the period covered by the table (6) All other compensation received that L.A.M. could not properly report in any other column of the table. The following shows the amounts which L.A.M. expects to pay to its officers during the twelve month period ending December 31, 2003, and the time which L.A.M.'s executive officers plan to devote to L.A.M.'s business. L.A.M. does not have employment agreements with any of its officers. Proposed Time to be Devoted Name Compensation To Company's Business Joseph Slechta $120,000 100% Peter Rothbart -- 5% Gary M. Nath -- 15% L.A.M.'s Board of Directors may increase the compensation paid to L.A.M.'s officers depending upon the results of L.A.M.'s future operations. As explained in Item 12 of this report Gary Nath provides legal services to L.A.M. See Item 12 of this report. During the year ending December 31, 2003, L.A.M. expects that it will continue to use the services of Mr. Nath's law firm. Long Term Incentive Plans - Awards in Last Fiscal Year None. Employee Pension, Profit Sharing or Other Retirement Plans L.A.M. does not have a defined benefit, pension plan, profit sharing or other retirement plan, although L.A.M. may adopt one or more of such plans in the future. Compensation of Directors Standard Arrangements. At present, L.A.M. does not pay its directors for attending meetings of the Board of Directors, although L.A.M. may adopt a director compensation policy in the future. L.A.M. has no standard arrangement pursuant to which directors of L.A.M. are compensated for any services provided as a director or for committee participation or special assignments. Other Arrangements. During the year ended December 31, 2002, and except as disclosed elsewhere in this registration statement, no director of L.A.M. received any form of compensation from L.A.M. See "Stock Option and Bonus Plans" below for information concerning stock options and stock bonuses granted to L.A.M.'s officers and directors. Stock Option and Bonus Plans L.A.M. has an Incentive Stock Option Plan, a Non-Qualified Stock Option Plan and a Stock Bonus Plan. A summary description of each Plan follows. In some cases these three Plans are collectively referred to as the "Plans". Incentive Stock Option Plan. The Incentive Stock Option Plan authorizes the issuance of options to purchase up to 1,000,000 shares of L.A.M.'s Common Stock, less the number of shares already optioned under both this Plan and the Non-Qualified Stock Option Plan. The Incentive Stock Option Plan became effective on March 15, 2000 and will remain in effect until March 15, 2010 unless terminated earlier by action of the Board. Only officers, directors and key employees of L.A.M. may be granted options pursuant to the Incentive Stock Option Plan. In order to qualify for incentive stock option treatment under the Internal Revenue Code, the following requirements must be complied with: 1. Options granted pursuant to the Plan must be exercised no later than: (a) The expiration of thirty (30) days after the date on which an option holder's employment by L.A.M. is terminated. (b) The expiration of one year after the date on which an option holder's employment by L.A.M. is terminated, if such termination is due to the Employee's disability or death. 2. In the event of an option holder's death while in the employ of L.A.M., his legatees or distributees may exercise (prior to the option's expiration) the option as to any of the shares not previously exercised. 3. The total fair market value of the shares of Common Stock (determined at the time of the grant of the option) for which any employee may be granted options which are first exercisable in any calendar year may not exceed $100,000. 4. Options may not be exercised until one year following the date of grant. Options granted to an employee then owning more than 10% of the Common Stock of L.A.M. may not be exercisable by its terms after five years from the date of grant. 5. The purchase price per share of Common Stock purchasable under an option is determined by the Committee but cannot be less than the fair market value of the Common Stock on the date of the grant of the option (or 110% of the fair market value in the case of a person owning L.A.M.'s stock which represents more than 10% of the total combined voting power of all classes of stock). Non-Qualified Stock Option Plan. The Non-Qualified Stock Option Plan authorizes the issuance of options to purchase up to 10,000,000 shares of L.A.M.'s Common Stock less the number of shares already optioned under both this Plan and the Incentive Stock Option Plan. The Non-Qualified Stock Option Plan became effective on March 15, 2000 and will remain in effect until March 15, 2010 unless terminated earlier by the Board of Directors. L.A.M.'s employees, directors, officers, consultants and advisors are eligible to be granted options pursuant to the Plan, provided however that bona fide services must be rendered by such consultants or advisors and such services must not be in connection with the offer or sale of securities in a capital-raising transaction. The option exercise price is determined by the Committee but cannot be less than the market price of L.A.M.'s Common Stock on the date the option is granted. Options granted pursuant to the Plan not previously exercised terminate upon the date specified when the option was granted. Stock Bonus Plan. Up to 3,000,000 shares of Common Stock may be granted under the Stock Bonus Plan. Such shares may consist, in whole or in part, of authorized but unissued shares, or treasury shares. Under the Stock Bonus Plan, L.A.M.'s employees, directors, officers, consultants and advisors are eligible to receive a grant of L.A.M.'s shares; provided, however, that bona fide services must be rendered by consultants or advisors and such services must not be in connection with the offer or sale of securities in a capital-raising transaction. Other Information Regarding the Plans. The Plans are administered by L.A.M.'s Board of Directors. The Board of Directors has the authority to interpret the provisions of the Plans and supervise the administration of the Plans. In addition, the Board of Directors is empowered to select those persons to whom shares or options are to be granted, to determine the number of shares subject to each grant of a stock bonus or an option and to determine when, and upon what conditions, shares or options granted under the Plans will vest or otherwise be subject to forfeiture and cancellation. In the discretion of the Board of Directors, any option granted pursuant to the Plans may include installment exercise terms such that the option becomes fully exercisable in a series of cumulating portions. The Board of Directors may also accelerate the date upon which any option (or any part of any options) is first exercisable. Any shares issued pursuant to the Stock Bonus Plan and any options granted pursuant to the Incentive Stock Option Plan or the Non-Qualified Stock Option Plan will be forfeited if the "vesting" schedule established by the Board of Directors at the time of the grant is not met. For this purpose, vesting means the period during which the employee must remain an employee of L.A.M. or the period of time a non-employee must provide services to L.A.M. At the time an employee ceases working for L.A.M. (or at the time a non-employee ceases to perform services for L.A.M.), any shares or options not fully vested will be forfeited and cancelled. At the discretion of the Board of Directors, payment for the shares of Common Stock underlying options may be paid through the delivery of shares of L.A.M.'s Common Stock having an aggregate fair market value equal to the option price, provided such shares have been owned by the option holder for at least one year prior to such exercise. A combination of cash and shares of Common Stock may also be permitted at the discretion of the Board of Directors. Options are generally non-transferable except upon death of the option holder. Shares issued pursuant to the Stock Bonus Plan will generally not be transferable until the person receiving the shares satisfies the vesting requirements imposed by the Board of Directors when the shares were issued. L.A.M.'s Board of Directors may at any time, and from time to time, amend, terminate, or suspend one or more of the Plans in any manner it deems appropriate, provided that such amendment, termination or suspension cannot adversely affect rights or obligations with respect to shares or options previously granted. The Board of Directors may not, without shareholder approval: make any amendment which would materially modify the eligibility requirements for the Plans; increase or decrease the total number of shares of Common Stock which may be issued pursuant to the Plans except in the case of a reclassification of L.A.M.'s capital stock or a consolidation or merger of L.A.M.; reduce the minimum option price per share; extend the period for granting options; or materially increase in any other way the benefits accruing to employees who are eligible to participate in the Plans. The Plans are not qualified under Section 401(a) of the Internal Revenue Code, nor are they subject to any provisions of the Employee Retirement Income Security Act of 1974. Summary. The following sets forth certain information as of March 28, 2003 concerning the stock options and stock bonuses granted by L.A.M. Each option represents the right to purchase one share of L.A.M.'s common stock. Total Shares Remaining Shares Reserved for Shares Options/ Reserved Outstanding Issued As Shares Name of Plan Under Plan Options Stock Bonus Under Plan Incentive Stock Option Plan 1,000,000 -- N/A 1,000,000 Non-Qualified Stock Option Plan1 10,000,000 6,827,000 N/A 1,773,000 Stock Bonus Plan 3,000,000 N/A 2,231,500 768,500 Options Granted During Fiscal Year Ending December 31, 2002 The following tables set forth information concerning the options granted, during the period of January 1, 2002 and December 31, 2002, to L.A.M.'s officers, and directors, and the value of all unexercised options (regardless of when granted) held by these persons as of December 31, 2002. % of Total Options Granted to Employees Exercise Date Options Officers Price Per Expiration Name of Grant Granted (#) & Directors Share Date - ---- -------- ----------- ------------ ------- --------- Richard Brokenshire 4/24/02 125,000 3.12% $0.58 4/24/07 Richard Brokenshire 4/24/02 350,000 8.75% $1.00 4/24/07 Alan Drizen (1) 2/22/02 2,000,000 50.0% $0.58 2/22/07
(1) Mr. Drizen resigned as an officer of L.A.M. in November 2002 and resigned as a director of L.A.M. in December 2002. All options shown above were granted pursuant to L.A.M.'s Non-Qualified Stock Option Plan. Substantially all the shares issuable upon the exercise of the options listed above have been registered for public sale by means of a registration statement on Form S-8 which has been filed with the Securities and Exchange Commission. Other Options During the year ended December 31, 2002 certain persons, who were not affiliated with L.A.M., assigned options to purchase shares of L.A.M.'s common stock to the following officers and directors: Shares Issuable Options Exercised Upon Exercise Exercise Expiration as of Name of Options Price Date March 28, 2003 ---- -------------- -------- --------- --------------- Joseph T. Slechta 190,000 $0.58 1/18/08 90,000 Peter Rothbart 190,000 $0.58 1/18/08 120,000 Gary M. Nath 190,000 $0.58 1/18/03 190,000 Alan Drizen (1) 1,550,000 $0.58 1/18/03 ,550,000 On January 10, 2003 L.A.M. issued the options shown below: Shares Issuable Options Exercised Upon Exercise Exercise Expiration as of Name of Options Price Date March 28, 2003 ---- ---------------- ----------- ------------- ---------------- Alan Drizen (1) 750,000 $0.58 7/15/08 -- (1) Mr. Drizen resigned as an officer of L.A.M. in November 2002 and resigned as a director of L.A.M. in December 2002. Option Repricing During 2001 L.A.M. repriced options held by the following persons: Repricing Date: September 5, 2001 ------------------------------------------------ Exercise Price Exercise Price Prior to After Name Options Repricing Repricing - ---- ------- --------------- ---------------- Joseph Slechta 3,600,000 $0.75 $0.58 Peter Rothbart 300,000 $0.75 $0.58 Gary Nath 300,000 $0.75 $0.58 Alan Drizen 300,000 $0.75 $0.58 Each option allowed the holder to purchase one share of L.A.M.'s common stock. In each case L.A.M.'s directors authorized the repricing of the options since the exercise price of the options prior to their repricing was substantially in excess of the market price of L.A.M.'s common stock on the repricing date and as a result the options no longer served as an effective incentive to the holders of the options. Option Exercises and Option Values Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at Shares December 31, 2002 December 31, 2002 Acquired on Value Exercisable/ Exercisable/ Name Exercise (1) Realized (2) Unexercisable (3) Unexercisable (4) - ---- ------------ ------------ ----------------- --------------- Joseph Slechta 90,000 $ 32,400 3,600,000/-- $ --/-- Peter Rothbart 120,000 $ 49,500 300,000/-- $ --/-- Gary M. Nath 490,000 $ 29,400 --/-- $ --/-- Alan Drizen (5) 2,650,000 $309,000 1,200,000/-- $ --/-- (1) The number of shares received upon exercise of any options. (2) With respect to options exercised the dollar value of the difference between the option exercise price and the market value of the option shares purchased on the date of the exercise of the options. (3) The total number of unexercised options held as of December 31, 2002, separated between those options that were exercisable and those options that were not exercisable. (4) For all unexercised options held as of December 31, 2002, the excess of the market value of the stock underlying those options as of December 31, 2002 over the option exercise price. (5) Mr. Drizen resigned as an officer of L.A.M. in November 2002 and resigned as a director of L.A.M. in December 2002 The following table shows the weighted average exercise price of the outstanding options granted pursuant to the Company's Incentive and Non-Qualified Stock Option Plans as of December 31, 2002. The Company's Incentive and Non-Qualified Stock Option Plans have not been approved by the Company's shareholders. Number of Securities Remaining Available Number For Future Issuance of Securities Under Equity to be Issued Weighted-Average Compensation Plans Upon Exercise Exercise Price of (Excluding Securities of Outstanding of Outstanding Reflected in Column Plan category Options [a] Options [b] (a)) [c] - ------------------------------------------------------------------------------- Incentive Stock Option Plan -- -- 1,000,000 Non-Qualified Stock Option Plan 6,827,000 $0.62 1,773,000 See Item 5 of this report for information concerning other outstanding options. Stock Bonuses The following officer of L.A.M. received shares of L.A.M.'s common stock as a stock bonus: Name Date Shares ---- ---- ------- Joseph Slechta 6/5/01 100,000 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information as of March 28, 2003 concerning the common stock owned by each officer and director of L.A.M., and each other person known to L.A.M. to be the beneficial owner of more than five percent (5%) of L.A.M.'s common stock. Amount and Nature of Beneficial Ownership Percentage Name Number of Shares (1) Ownership - --------------- --------------------- --------------- Joseph T. Slechta 20,000 -- 800 Sheppard Avenue West, Commercial Unit 1 Toronto, Ontario Canada M3H 6B4 Peter Rothbart 2,279,924 (2) 7.7% 274 St. Clements Avenue. Toronto, Ontario Canada M4R 1H5 Gary M. Nath 2,122,942 7.2% 6106 Goldtree Way, Bethesda, Maryland 20817 Richard Brokenshire -- -- 800 Sheppard Avenue West, Commercial Unit 1 Toronto, Ontario Canada M3H 6B4 (All Officers and Directors as a group, 4 persons) 4,422,866 15.0% (1) Excludes shares issuable upon the exercises of options held to the following persons: Shares Issuable Upon Exercise Option Expiration Name of Option Exercise Price Date of Option Joseph T. Slechta 600,000 $0.58 06/05/06 Joseph T. Slechta 3,000,000 $0.58 06/30/11 Joseph T. Slechta 100,000 $0.58 01/18/08 Peter Rothbart 300,000 $0.58 06/05/06 Peter Rothbart 70,000 $0.58 01/18/08 Richard Brokenshire 125,000 $0.58 04/24/07 Richard Brokenshire 350,000 $1.00 04/27/07 (2) Includes shares held by the Shasqua Limited, of which Dr. Rothbart may be deemed the beneficial owner. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. In September 1998, L.A.M. sold shares of its common stock to the persons, in the amounts, and for the consideration set forth below: Number Name of Shares Consideration ---------- --------- -------------- Alan Drizen 1,076,308 (1) $10,763 Peter Rothbart 1,076,308 (2) $10,763 Gary M. Nath 742,784 $7,423 In September 1998, L.A.M. issued 6,000,000 shares of its common stock in consideration for all of the issued and outstanding shares of LAM Pharmaceuticals LLC, a Florida limited liability company. See "Business" for further information concerning the acquisition of LAM Pharmaceuticals LLC. The following officers, directors and other persons received shares of L.A.M.'s common stock in connection with this transaction. Name Shares Acquired ---- --------------- Alan Drizen 1,603,616 (1) Peter Rothbart 1,603,616 (2) Gary M. Nath 1,105,942 Lisa Krinsky 674,510 (3) Arnold Hantman 376,019 All Other Sellers as a Group 636,297 ---------- 6,000,000 (1) Includes shares held by the Canyon Trust, a discretionary trust, of which Mr. Drizen may be deemed the beneficial owner. (2) Includes shares held by the Shasqua Limited, of which Dr. Rothbart may be deemed the beneficial owner. (3) Includes shares held by the South Florida Bioavailability Clinic of which Lisa Krinsky is the majority shareholder. Subsequent to September 1998, Mr. Drizen, Dr. Rothbart and Mr. Nath sold a portion of their shares in transactions which were exempt pursuant to Rule 144 of the Securities and Exchange Commission and gifted a portion of their shares to relatives. During 2000, 2001 and 2002 L.A.M. paid $51,262, $166,532 and $99,965 respectively to Nath & Associates, PLLC for legal services. Nath & Associates, PLLC is a law firm in which Mr. Nath, an officer and director of L.A.M., is a partner. As of December 31, 2002, L.A.M. owed Nath & Associates, PLLC approximately $338,000 for legal services. Prior to January 1, 1998, L.A.M. received advances from Mr. Drizen ($525,000), Dr. Rothbart ($170,000) and Mr. Nath ($475,000) that were used to fund L.A.M.'s operations, research and development and clinical trials. Subsequently additional advances were made, expenses disbursed and services performed by these directors on behalf of L.A.M. At December 31, 2002, the total of all such advances outstanding amounted to $164,037. Between February 2, 2001 and April 26, 2001 Mr. Drizen, an officer and one of three directors of L.A.M. at that time, borrowed $1,075,000 from L.A.M. The amounts borrowed by Mr. Drizen were used to purchase 441,200 shares of L.A.M.'s common stock between February 2, 2001 and May 10, 2001 in an effort to stabilize L.A.M.'s stock price in the face of extensive short selling. Dr. Peter Rothbart, also an officer and director of L.A.M., was advised by Mr. Drizen in late February 2001 that Mr. Drizen was purchasing shares of L.A.M.'s common stock in an effort to stabilize L.A.M.'s stock price. However, Dr. Rothbart did not know until May 11, 2001 that Mr. Drizen was using corporate funds for this purpose. Gary Nath, an officer and director of L.A.M., and Joseph Slechta, an officer of L.A.M., were not aware of Mr. Drizen's activities in this regard until May 11, 2001. Dr. Rothbart, Mr. Slechta and Mr. Nath became aware of Mr. Drizen's borrowings from L.A.M. in connection with Mr. Slechta's review of L.A.M.'s financial statements for the quarter ended March 31, 2001. Mr. Drizen agreed to pay the $1,075,000 borrowed from L.A.M., 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. On May 25, 2001 L.A.M.'s Directors approved these repayment terms, and at the same time ratified Mr. Drizen's borrowings from L.A.M. Although Mr. Drizen agreed to secure the repayment of this note, L.A.M.'s Board of Directors, in view of the fact that proceeds from the sale of Mr. Drizen's shares of L.A.M.'s common stock would be the primary source of funds which would be used to repay the Note, did not require Mr. Drizen to secure the repayment of the Note. Accordingly, the Note from Mr. Drizen was unsecured. In addition, as a result of Mr. Drizen's purchases and sales of L.A.M.'s common stock between October 2000 and May 2001, L.A.M. was entitled to a recoverable profit from Mr. Drizen, computed in accordance with 16(b) of the Securities Exchange Act of 1934, in the amount of $408,078, as explained below. During 2002 Mr. Drizen and L.A.M. agreed that the advance of $548,361 due to him as of December 31, 2001 would be offset against the remaining amount due pursuant to Mr. Drizen's promissory note. In addition, Dr. Rothbart and Mr. Nath agreed with Mr. Drizen to apply a portion of their receivables from L.A.M. 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, as of December 31, 2002 L.A.M. owed Dr. Rothbart and Mr. Nath $17,500 and $146,537 respectively, and Mr. Drizen's promissory note was paid in full. Section 16(b) of the Exchange Act allows a corporation to recover any profits realized by officers, directors, and principal shareholders of a corporation from the purchase and sale (or sale and purchase) of equity securities of the corporation within a six-month period. Although Section 16(b) was designed to prevent the unfair use of information that may have been obtained by insiders through their relationship to a corporation, Section 16(b) nevertheless imposes strict liability which does not depend upon the actual use or possession of inside information by an insider. The formula most frequently used by a corporation to recover profits is known as the "lowest price in/highest price out" method, by which profit is computed by matching the highest sale price with the lowest purchase price within six months, the next highest sale price with the next lowest purchase price within six months, and so forth, until all shares have been included in the computation. Although this profit computation allows for the maximum recovery to the corporation, in the case of multiple sales and purchases within a six month period, it often results in a higher profit than the profit actually realized by the insider, and in some cases may result in a profit when the insider actually incurred losses from the sales and purchases. Mr. Drizen, for example, estimates that he incurred a loss of approximately $900,000 as a result of his purchases and sales of L.A.M.'s common stock between October 2000 and May 2001. Item 13. Exhibits and Reports on Form 8-K Exhibit 2 Plan of Acquisition, Reorganization, Arrangement, Liquidation, etc. None Exhibit 3 Articles of Incorporation and Bylaws (1) Exhibit 4 Instruments Defining the Rights of Security Holders Exhibit 4.1 Incentive Stock Option Plan (1) Exhibit 4.2 Non-Qualified Stock Option Plan (1) Exhibit 4.3 Stock Bonus Plan (1) Exhibit 9 Voting Trust Agreement None Exhibit 10 Material Contracts Exhibit 10.1 Agreements with Ixora Bio-Medical Co. (1) Exhibit 10.2 Common Stock Purchase Agreement with Hockbury Limited (2) Exhibit 10.3 Stock Purchase Warrant issued to Hockbury Limited (2) Exhibit 10.4 Stock Purchase Warrant issued to GKN Securities Corp. and certain employees of GKN Securities Corp. (2) Exhibit 10.5 Securities Purchase Agreement (together with Schedule Required by Instruction 2 to Item 601 Regulation S-K) (3) (1) Incorporated by reference to the same exhibit filed with the Company's registration statement on Form 10-SB. (2) Incorporated by reference to the same exhibit filed with the Company's registration statement on Form SB-2 (Commission File # 333-56390). (3) Incorporated by reference to the same exhibit filed with the Company's registration statement on Form SB-2 (Commission File No. 333-101676 8-K Reports The Company filed a report on Form 8-K on November 4, 2002 announcing the sale of convertible notes and Series A, B, C, and D Warrants. ITEM 14. CONTROLS AND PROCEDURES. Based on the evaluation of the Company's disclosure controls and procedures by Joseph Slechta, the Company's Chief Executive Officer and Chief Financial Officer, as of a date within 90 days of the filing date of this annual report, such officer has concluded that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time period specified by the Securities and Exchange Commission's rules and forms. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York ------------------------------------- FINANCIAL REPORTS AT DECEMBER 31, 2002 ------------------------------------- L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York TABLE OF CONTENTS - ------------------------------------------------------------------------------ Independent Auditors' Report F-2 Balance Sheets at December 31, 2002 and 2001 F-3 Statements of Changes in Stockholders' Deficit for the Years Ended December 31, 2002 and 2001 F-4 to F-5 Statements of Operations for the Years Ended December 31, 2002 and 2001 F-6 Statements of Cash Flows for the Years Ended December 31, 2002 and 2001 F-7 to F-8 Notes to Financial Statements F-9 to F-21 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders L.A.M. Pharmaceutical, Corp. Lewiston, New York We have audited the accompanying balance sheets of L.A.M. Pharmaceutical, Corp. (A Delaware Corporation) as of December 31, 2002 and 2001, and the related statements of changes in stockholders' deficit, operations and cash flows for each of the two years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of L.A.M. Pharmaceutical, Corp. (A Delaware Corporation) as of December 31, 2002 and 2001 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Rotenberg & Co., LLP Rochester, New York February 27, 2003 (Except for Note O, as to which the date is March 27, 2003) L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York BALANCE SHEETS - -------------------------------------------------------------------------------- December 31, 2002 2001 - -------------------------------------------------------------------------------- ASSETS Current Assets Cash and Cash Equivalents $ 210,214 $11,284 Accounts Receivable 13,643 -- Other Receivable -- 44,433 Inventory 550,085 97,750 Prepaid Expenses 6,686 5,344 - -------------------------------------------------------------------------------- Total Current Assets 780,628 158,811 Property and Equipment - Net of Accumulated Depreciation 124,958 121,185 Other Assets Patents and Trademarks - Net of Accumulated Amortization 546,631 489,322 - -------------------------------------------------------------------------------- Total Assets $1,452,217 $2,457,503 - -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Accounts Payable and Accrued Expenses $ 866,164 $ 601,999 Convertible Notes 671,000 - - -------------------------------------------------------------------------------- Total Current Liabilities 1,537,164 601,999 Other Liabilities Due to Stockholders 164,037 848,037 Deferred Royalty Revenue 207,360 207,360 - -------------------------------------------------------------------------------- Total Liabilities 1,928,974 1,657,396 - -------------------------------------------------------------------------------- Stockholders' Deficit Common Stock - $.0001 Par; 50,000,000 Authorized; 27,511,412 and 19,784,520 Issued and Outstanding, respectively 2,751 1,978 Additional Paid-In Capital 24,054,187 17,964,009 Loan Receivable-Director/Officer -- (640,000) Deficit Accumulated During Development Stage (24,513,282) (18,214,065) - -------------------------------------------------------------------------------- Total Stockholders' Deficit (456,344) (888,078) - -------------------------------------------------------------------------------- Total Liabilities and Stockholders' Deficit $1,452,217 $ 769,318 - -------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT - ---------------------------------------------------------------------------------------------------------------------------- Additional Loan Total Number Common Paid-In Receivable- Accumulated Stockholders' of Shares Stock Capital Director/Office Deficit Deficit - ---------------------------------------------------------------------------------------------------------------------------- Balance - December 31, 2000 13,998,930 $ 1,400 $8,812,199 $ -- $(9,815,305) $(1,001,706) Capital Contribution - Interest Expense -- -- 113,200 -- -- 113,200 Common Shares Issued - Debenture Conversion Premium 3,106,502 311 1,057,844 -- -- 1,058,155 Debentures Converted to Common Stock 853,167 85 1,611,114 -- -- 1,611,199 Stock Options Issued - Compensation for Services Rendered -- -- 3,218,463 -- -- 3,218,463 Common Shares Issued - Compensation for Services Rendered 1,213,900 121 1,047,086 -- -- 1,047,207 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 Officer -- -- -- (1,075,000) -- (1,075,000) Loan Repayments from Officer -- -- -- 435,000 -- 435,000 Short-Swing Profit on Insider Trading -- -- 408,078 -- -- 408,078 Net Loss -- -- -- -- (8,398,760) (8,398,760) - --------------------------------------------------------------------------------------------------------------------------------- Balance - December 31, 2001 19,784,520 $ 1,978 $17,964,009 $(640,000) $(18,214,065) $ (888,078)
The accompanying notes are an integral part of these financial statements. L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York - ---------------------------------------------------------------------------------------------------------------------------- Additional Loan Total Number Common Paid-In Receivable- Accumulated Stockholders' of Shares Stock Capital Director/Office Deficit Deficit - ---------------------------------------------------------------------------------------------------------------------------- Balance - December 31, 2001 19,784,520 $ 1,978 $17,964,009 $ (640,000) $(18,214,065) $(888,078) Capital Contribution - Interest Expense -- -- 19,264 -- -- 19,264 Common Shares Issued - Note Conversion Premium -- -- 204,762 -- -- 204,762 Notes Converted to Common Stock 98,640 10 28,990 -- -- 29,000 Warrants Issued - Convertible Notes -- -- 55,543 -- -- 55,543 Stock Options Issued - Compensation for Services Rendered -- -- 1,394,752 -- -- 1,394,752 Common Shares Issued - Compensation for Services Rendered 1,821,500 182 979,694 -- -- 979,876 Stock Options Exercised 4,933,975 494 2,869,896 -- -- 2,870,390 Sale of Shares Under the Equity Line of Credit Agreement 614,156 61 487,303 -- -- 487,364 Sale of Shares Under the Private Placement Memorandum 258,621 26 74,974 -- -- 75,000 Receivable on Option Exercise -- -- (25,000) -- -- (25,000) Loan Repayments from Officer -- -- -- 640,000 -- 640,000 Net Loss -- -- -- -- (6,285,594) (6,285,594) - ------------------------------------------------------------------------------------------------------------------------------ Balance - December 31, 2002 27,511,412 $2,751 $24,054,187 $ -- $(24,499,659) $ (456,344) - ------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York STATEMENTS OF OPERATIONS - ---------------------------------------------------- Years ended December 31, 2002 2001 - ---------------------------------------------------------------- Revenues Licensing Revenue $ -- $ 300,000 Net Sales 40,160 -- - ---------------------------------------------------------------- 40,160 300,000 - ---------------------------------------------------------------- Expenses Cost of Sales 10,250 -- General and Administrative 1,972,329 1,378,791 Marketing and Business Development 975,077 201,808 Research and Development 572,617 479,881 - ---------------------------------------------------------------- 3,530,273 2,060,480 Financial Accounting Expenses Not Requiring the Use of Cash During the Period: Depreciation and Amortization 60,928 27,159 Interest Expense 19,942 232,819 Share and Option Grants to Officers, Directors Investors and Consultants 2,467,929 4,265,670 Conversion Premium on Convertible Notes 204,762 1,057,844 Warrants Issued 55,543 1,100,000 - ---------------------------------------------------------------- Total Expenses 6,339,377 8,743,972 - ---------------------------------------------------------------- Loss Before Other Income and (Expenses) (6,299,217) (8,443,972) - ---------------------------------------------------------------- Other Income and (Expenses) Interest Income -- 45,212 - ---------------------------------------------------------------- Total Other Income and (Expenses) -- 45,212 - ---------------------------------------------------------------- Net Loss for the Period $(6,299,217) $(8,398,760) - ---------------------------------------------------------------- Loss per Common Share - Basic and Diluted $ (0.26) $ (0.53) - ---------------------------------------------------------------- Weighted Average Number of Common Shares Outstanding - Basic and Diluted 24,644,912 15,817,111 - ---------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York STATEMENTS OF CASH FLOWS ----------------------------------------------------------------------------- Years ended December 31, 2002 2001 ----------------------------------------------------------------------------- Cash Flows from Operating Activities Net Loss $(6,299,217) $(8,398,760) Adjustments to Reconcile Net Loss for the Period to Cash Flows from Operating Activities: Depreciation and Amortization 60,928 27,159 Capital Contributions: Deemed Interest Expense on Loans from Stockholders 19,264 113,200 Share and Option Grants - Officers, Directors Investors and Consultants 2,558,328 4,265,670 Warrants Issued 55,543 1,100,000 Conversion Premium on Convertible Notes 204,762 1,058,155 Interest on Converted Debentures -- 121,449 Changes in Assets and Liabilities: Accounts Receivable (13,643) 30,567 Inventory (452,335) 23,375 Prepaid Expenses (1,342) (2,705) Accounts Payable and Accrued Expenses 548,365 204,515 ----------------------------------------------------------------------------- Net Cash Flows from Operating Activities (2,692,347) (1,457,375) ----------------------------------------------------------------------------- Cash Flows from Investing Activities Purchases of Property and Equipment (26,841) (112,508) Purchases of Patents and Trademarks, Net (95,169) (169,361) ----------------------------------------------------------------------------- Net Cash Flows from Investing Activities (122,010) (281,869) ----------------------------------------------------------------------------- -continued- The accompanying notes are an integral part of these financial statements. L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York STATEMENTS OF CASH FLOWS - continued ----------------------------------------------------------------------------- Years ended December 31, 2002 2001 ----------------------------------------------------------------------------- Cash Flows from Financing Activities Proceeds from Issuance of Common Stock 75,000 -- Proceeds from Convertible Notes 700,000 -- Proceeds from Exercise of Stock Options 1,750,490 112,450 Proceeds from Sale of Shares Under the Equity Line of Credit Agreement 487,364 483,636 Issuance of Loan Receivable - Officer, Net -- (640,000) Repayment of Convertible Notes -- (108,500) Advances from Stockholders 433 -- ------------------------------------------------------------------------------ Net Cash Flows from Financing Activities 3,978,993 (152,414) ------------------------------------------------------------------------------ Net Change in Cash and Cash Equivalents 198,930 (1,891,658) Cash and Cash Equivalents - Beginning of Period 11,284 1,902,942 ------------------------------------------------------------------------------ Cash and Cash Equivalents - End of Period $ 210,214 $ 11,284 ------------------------------------------------------------------------------ NON-CASH INVESTING AND FINANCING ACTIVITIES ----------------------------------------------------------------------- Offsetting of Stockholders Receivable and Payable $ 728,000 $ -- Short-Swing Profit on Insider Trading - Offset Against Loan Payable to Shareholder $ -- $ 408,078 $ -- $1,489,750 Debentures Converted to Common Stock Exercise of Stock Options $ 835,700 $ -- ------------------------------------------------------------------------------ SUPPLEMENTAL DISCLOSURE ------------------------------------------------------------------------------ Interest Paid $ -- $ -- Income Taxes Paid $ -- $ -- ------------------------------------------------------------------------------ The accompanying notes are an integral part of these financial statements. L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ Note A - Summary of Transaction L.A.M. Pharmaceutical, Corp. (the Company) was initially formed as L.A.M. Pharmaceutical, LLC (the LLC) on February 4, 1997. From February 1, 1994 to February 4, 1997 the Company conducted its activities under the name RDN. In September 1998, the members of L.A.M. Pharmaceuticals LLC, a Florida Limited liability company, exchanged all of their interests in the LLC for 6,000,000 shares of the Company's common stock. The stock exchange between the Company and the members of the LLC is considered a recapitalization or reverse acquisition. Under reverse acquisition accounting, the LLC was considered the acquirer for accounting and financial reporting purposes, and acquired the assets and assumed the liabilities of the Company. The accompanying financial statements include the historical accounts of the Company, the LLC and RDN since February 1, 1994. All intercompany accounts and transactions have been eliminated. Note B - Nature of Operations and Summary of Significant Accounting Policies L.A.M. Pharmaceutical, Corp. was incorporated on July 24, 1998 under the laws of the State of Delaware. The Company has the authority to issue 50,000,000 shares of common stock, $.0001 par value. The Company's corporate objective is to develop, market andn license wound healing and transdermally delivered drugs, both prescription and over-the-counter, using the Company's patented L.A.M. Ionic Polymer Matrix TM technology. The Company currently serves the healthcare market in the USA. Development Stage 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. Royalty revenue on the exclusive world-wide license agreement (the License Agreement) with Ixora Bio-Medical Company Inc. (Ixora) will be recorded when received. Method of Accounting The Company maintains its books and prepares its financial statements on the accrual basis of accounting. - continued - L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ Note B -Nature of Operations and Summary of Significant Accounting Policies - continued Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results can differ from those estimates. Concentrations of Credit Risk Financial instruments which potentially expose the Company to significant concentrations of credit risk consist principally of bank deposits. Cash is placed primarily in high quality short-term interest bearing financial instruments. Cash and Cash Equivalents Cash and cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less. The Company maintains cash and cash equivalents at financial institutions that periodically may exceed federally insured amounts. Inventory Inventory is comprised of finished goods and raw materials and is stated at the lower of cost or market. Cost is determined by the first-in, first-out method and market is based on the lower of replacement cost or net realizable value. Property, Equipment and Depreciation Property and equipment are stated at cost, less accumulated depreciation computed using the straight-line method over the estimated useful lives as follows: Furniture and Fixtures 5 - 7 Years Computer Equipment 5 - 7 Years Leasehold Improvements 5 Years Maintenance and repairs are charged to expense as incurred. The cost of the assets retired or otherwise disposed of and the related accumulated depreciation are removed from the accounts. Patents and Trademarks Patents are carried at cost and are amortized using the straight-line method over their estimated useful lives, not to exceed 17 years from the date of issuance of the patent. Amortization expense for the years ended December 31, 2002 and 2001 was $37,860 and $16,236, respectively. Accumulated amortization associated with patents and trademarks at December 31, 2002 and 2001 amounted to $89,767 and $51,908, respectively. - continued - L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ Note B - Nature of Operations and Summary of Significant Accounting Policies - continued Impairment of Assets Effective January 1, 2002, the Company adopted the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets." This standard superceded SFAS No. 121, "Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed of," but also retained its basic provision requiring (i) recognition of an impairment loss of the carrying amount of a long-lived asset if it is not recoverable from its undiscounted cash flows and (ii) measurement of an impairment loss as the difference between the carrying amount and fair value of the asset unless an asset is held for sale, in which case it would be stated at the lower of carrying amount or fair value less costs to dispose. However, SFAS No. 144 also describes a probability-weighted cash flow estimation approach to deal with situations which alternative courses of action to recover the carrying amount of a long-lived asset are under consideration or a range is estimated. The determination of undiscounted cash flows requires significant estimates made by management and considers the expected course of action at the balance sheet date. Subsequent changes in estimated undiscounted cash flows arising from changes in anticipated actions could impact the determination of whether an impairment exists. Management reviews its long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates an impairment in value. An asset is considered impaired when the undiscounted future cash flows are not sufficient to recover the asset's carrying value. If such impairment is present, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value Research and Development Costs Research and development expenditures are expensed as incurred. Net Income (Loss) Per Common Share Net income (loss) per common share is computed in accordance with SFAS No. 128, "Earnings Per Share". Basic earnings per common share is calculated by dividing income available to common shareholders by the weighted-average number of common shares outstanding for each period. Diluted earnings per common share is calculated by adjusting the weighted-average shares outstanding assuming conversion of all potentially dilutive stock options, warrants and convertible securities. Diluted earnings per share is the same as basic earnings per share for all of the periods presented since the effect of the conversion of debentures, stock options and warrants granted would have an anti-dilutive effect on earnings per share. Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," using the asset and liability approach, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of such assets and liabilities. This method utilizes enacted statutory tax rates in effect for the year in which the temporary differences are expected to reverse and gives immediate effect to changes in income tax rates upon enactment. Deferred tax assets are recognized, net of any valuation allowance, for temporary differences and net operating loss and tax credit carryforwards. Deferred income tax expense represents the change in net deferred assets and liability balances. - continued - L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ Note B - Nature of Operations and Summary of Significant Accounting Policies - continued Share and Option Grants As described in Note K, the Company has elected to follow the accounting provisions of Accounting Principles Board Opinion (APBO) No. 25 "Accounting for Stock Issued to Employees", for stock-based compensation and awards made to employees - the intrinsic value method. Pro forma disclosures required under SFAS No. 123, "Accounting for Stock-Based Compensation" has been furnished in Note K. Stock options granted to investors and consultants are subject to the provisions of SFAS No. 123 and are recorded at the fair value of the option at the date of grant Financial Instruments The Company's financial instruments consist of cash, accounts receivable and accounts payable. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying value, unless otherwise noted. The fair value of due to stockholders and loan receivable - officer could not be obtained without incurring excessive costs as they have no readily determinable market place. New Pronouncements In April 2002, the Financial Accounting Standards Board issued FASB Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS 145). SFAS 145 requires that gains and losses from extinguishment of debt be classified as extraordinary items only if they meet the criteria in Opinion 30. Applying the provisions of Opinion 30 will distinguish transactions that are part of an entity's recurring operations from those that are unusual and infrequent and therefore meet the criteria for classification as an extraordinary item. SFAS 145 also requires that modifications to a capital lease that make it an operating lease be accounted for, as applicable, in accordance with FASB Statement No. 98, Accounting for Leases, or FASB Statement No. 28, Accounting for Sales with Leasebacks. SFAS 145 is required to be applied in fiscal years beginning after May 15, 2002 and to provisions relating to modifications of a capital lease that make it an operating lease as of May 15, 2002. Upon adoption of SFAS 145, gains and losses on debt extinguishment that have been shown on the income statement as extraordinary items in prior periods should be reclassified, unless they meet the criteria for extraordinary status per Opinion 30. Management does not anticipate that the adoption of SFAS 145 will have any material impact on the financial statements. In June 2002, the Financial Accounting Standards Board issued FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they incurred rather than at the date of a commitment to an exit or disposal plan. Costs covered by SFAS 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS 146 applies to all exit or disposal activities initiated after December 31, 2002. Management does not anticipate that the adoption of SFAS 146 will have any material impact on the financial statement. L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ Note C - Licensing Agreement The Company has an exclusive license agreement (the License Agreement) with Ixora Bio-Medical Company, Inc. (Ixora). Under the License Agreement, Ixora has paid the Company $500,000 for the exclusive rights of the Company's male and female sexual dysfunction product technology. Ixora has also agreed to pay all costs for the development, registration and protection of intellectual property, including but not limited to patent costs, raw material costs, clinical development costs and compensation of all Company personnel involved in the sexual dysfunction product technology. Note D -Inventory Inventories at December 31 consisted of the following: ------------------------------------------------------------------------ 2002 2001 ------------------------------------------------------------------------ IPM Wound Gel(TM) $ 539,460 $ -- Raw Materials 10,625 97,750 ------------------------------------------------------------------------ Inventories $ 550,085 $ 97,750 ------------------------------------------------------------------------ Note E -Property and Equipment Property and equipment are recorded at cost and consisted of the following: ------------------------------------------------------------------------ December 31, 2002 2001 ------------------------------------------------------------------------ Furniture and Fixtures $ 127,493 $ 122,101 Computer Equipment 43,544 22,095 Leasehold Improvements 30,692 30,692 ------------------------------------------------------------------------ $ 201,729 $ 174,888 Less: Accumulated Depreciation (76,771) (53,703) ------------------------------------------------------------------------ Net Property and Equipment $124,958 $ 121,185 ------------------------------------------------------------------------ Depreciation expense for the years ended December 31, 2002 and 2001 was $23,068 and $10,923, respectively. Note F - Due to Stockholders The Company has a liability for cash advances and salaries and other expenses incurred in earlier years due to its stockholders totaling $164,037 and $848,037 at December 31, 2002 and 2001, respectively. The Company has agreements with these stockholders, which provides for payment of this obligation without interest, not to exceed 25% of the profits realized by the Company in any year. The Company has imputed interest at 5.75% in 2002 and 8.5% in 2001 and charged operations for each of the periods presented with an offsetting credit to additional paid-in capital. Note G - Deferred Royalty Revenue Deferred Royalty Revenue represents amounts due to the Company from Ixora Biomedical pursuant to the worldwide license agreement. The $207,360 of Deferred Royalty Revenue approximated the value of the Company's original investment in the affiliate. The balance will be amortized to income upon commencement of Ixora's sale of the Company's products. L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ Note H - Loan Receivable - Director Between February and April 2001, Alan Drizen, the Company's former 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 had agreed to repay 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. Although Mr. Drizen agreed to secure the repayment of this note, the Company's Board of Directors, in view of the fact that proceeds from the sale of Mr. Drizen's shares of the Company's common stock would be the primary source of funds which would be used to repay the note, did not require Mr. Drizen to secure the repayment of the note. Accordingly, the note from Mr. Drizen was unsecured. 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. 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 the year ended December 31, 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. Pursuant to the terms of an agreement, signed in January 2003, with Mr. Drizen, the Company forgave the $627,000 owed by Mr. Drizen and has charged the amount to expense Note I - Income Taxes The components of the deferred tax asset (liability) at December 31 are as follows: ------------------------------------------------------------------------ December 31, 2002 2001 ------------------------------------------------------------------------ Net Operating Loss $2,188,479 $1,347,713 Stock Options 610,769 456,497 Patents 80,547 160,630 ------------------------------------------------------------------------ Gross Deferred Tax Assets 2,879,795 1,347,713 ------------------------------------------------------------------------ Property, Plant and Equipment (2,155) (1,367) ------------------------------------------------------------------------ Gross Deferred Tax Liabilities (2,155) (1,367) ------------------------------------------------------------------------ Net Deferred Tax Assets 2,877,640 1,963,473 ------------------------------------------------------------------------ Valuation Allowance (2,877,640) (1,963,473) Net Deferred Taxes $ -- $ -- ------------------------------------------------------------------------ -continued- - ------------------------------------------------------------------------------ L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ Note I - Income Taxes - continued The net operating loss carryforwards expire in varying amounts from 2013 to 2017. The Company has fully reserved for any future tax benefits from the net operating loss carryforwards and net deferred tax assets since it has not generated any revenues to date. Note J - Convertible Notes During 2002, L.A.M. sold convertible notes, plus Series A, B, C and D warrants, to a group of private investors for $700,000. 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. 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 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. The Series A warrants allow the holders to purchase 596,590 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. -continued - L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ Note J - Convertible Notes - continued The Series B warrants allow the holders to purchase 1,312,500 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 875,000 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 656,250 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 conversion premium on the convertible notes at the date of issuance and the number of common share equivalents outstanding are as follows: ----------------------------------------------------------------------------- Number of Excess of Fair Value Common Share Conversion of Common Stock Conversion Equivalents Price Over Debentures Premium ----------------------------------------------------------------------------- Issued in 2002 2,380,952 $ 0.294 $ 204,762 $204,762 ----------------------------------------------------------------------------- Converted in 2002 (98,640) $ 0.294 ----------------------------------------------- Outstanding at December 31, 2002 2,282,312 $ 0.294 -----------------------------------------------
- continued - L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ Note J - Convertible Notes - continued The excess fair value of the common stock into which the notes can convert at the conversion date over the proceeds is recorded as conversion premium and is limited to the amount of the proceeds of the debentures. Accordingly, 204,762 was recorded in 2002 as a charge to conversion premium and a credit to additional paid-in capital in the accompanying financial statements. The Company issued convertible debentures during 1999 and 2000 having an aggregate principal balance of $1,252,000 and $2,406,333, respectively. These debentures were unsecured obligations of the Company that matured over twelve months and bore interest at an annualized rate of 9.5% payable at maturity. The debentures were convertible into common shares of the Company at rates from $.50 to $3.00 per share (2 shares to .33 shares for each $1 of principal) at any time, at the option of the holder. The common shares issued on conversion had a restriction as to resale for a period of one year from the date that the original debenture was issued. The Company could also redeem the debentures at any time upon written notice and payment to the holder of all unpaid principal and interest. The debentures were not subject to any sinking fund requirements. Debentures in the amount of $2,060,083 were converted during 2000 into 3,319,430 shares of the Company's common stock. On August 9, 2001, the conversion terms for all debentures then outstanding were revised. The number of shares to be issued upon conversion of the notes, plus any accrued interest would be determined by dividing the amount to be converted by $0.52. Note holders who agreed to convert on these revised terms were also granted options to purchase shares of the Company's common stock equal to 10% of the number of shares resulting from conversion. The options are exercisable immediately at $0.58 per share and expire in August 2002. During 2001, $1,489,750 of the remaining debentures were converted to 853,167 shares with such debenture holders receiving an additional 3,106,502 common shares and options to purchase 424,493 shares of the Company's common stock. An additional conversion premium of $1,057,844 was recognized in 2001 related to the revision of terms. During 2001, debentures with a principal amount of $108,500 were repaid. The excess fair value of the common stock into which the notes can convert at the conversion date over the proceeds is recorded as conversion premium and is limited to the amount of the proceeds of the debentures. Accordingly, $2,395,093 and $1,252,000 was recorded in 2000 and 1999, respectively, as a charge to conversion premium and a credit to additional paid-in capital in the accompanying financial statements. Note K - Share and Option Grants The Company has stock option plans under which employees, non-employee directors, consultants and investors may be granted options to purchase shares of the Company's common stock. Options have varying vesting and expiration dates. The Company has elected to follow APBO No. 25 and related Interpretations in accounting for its stock-based compensation made to its employees. APBO No. 25 requires no recognition of compensation expense for most of the stock-based compensation arrangements provided by the Company, namely, broad-based employee stock purchase plans and option grants where the exercise price is equal to or less than the market value at the date of grant. However, APBO No. 25 requires recognition of compensation expense for variable award plans over the vesting periods of such plans, based upon the then-current market values of the underlying stock. In contrast, SFAS No. 123 requires recognition of -continued- L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ Note K - Share and Option Grants - continued compensation expense for grants of stock, stock options, and other equity instruments, over the vesting periods of such grants, based on the estimated grant-date fair values of those grants. Stock options and awards made to investors and consultants are subject to the provisions of SFAS No. 123. Employees During 2002, the Company granted stock options for 485,000 shares of common stock to employees as compensation for services rendered at exercise prices that were below the fair value of the common stock at the date of grant. In accordance with APBO 25, the Company recognized compensation expense of $71,934 as a charge against operations during 2002 for the difference between the fair value and the exercise price of the common stock at the date of grant. Had the Company determined compensation based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net loss would have been increased to the pro forma amounts indicated below: For the year ended December 31, 2002 2001 ----------------------- Net loss As reported $6,299,217 $8,398,760 Pro forma $6,339,006 $8,398,760 Earnings per share As reported $ 0.26 $ 0.53 Pro forma $ 0.26 $ 0.53 Consultants During 2002 and 2001 the Company granted stock options for 1,517,000 and 1,710,000 shares, respectively, of common stock to consultants as compensation for services rendered. In accordance with SFAS 123, the Company recognized compensation expense during 2002 and 2001 of $358,612, and $100,125, respectively, for the fair value of the options at the date of grant using a Black Scholes option-pricing model. Directors During 2002 and 2001, the Company granted additional stock options for 2,000,000 and 4,275,000 shares, respectively, of common stock to directors as compensation for services rendered. In accordance with SFAS No. 123, the Company recognized compensation expense during 2002 and 2001 of $878,000 and $2,199,375, respectively, for the fair value of the options at the date of the grant using a Black Scholes option-pricing model. Investors During 2001, the Company granted stock options for 5,005,000 shares of common stock to investors. In accordance with SFAS No. 123, the Company recognized compensation expense during 2001 of $565,025 for the fair value of the options at the date of grant using a Black Scholes option-pricing model. -continued- L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ Note K - Share and Option Grants - continued The following assumptions were used: ------------------------------------------------------------------------ December 31, 2002 2001 ------------------------------------------------------------------------ Weighted Average Fair Value of $0.39 $ 0.26 Options Weighted Average Exercise Price $0.67 $ 0.78 Expected Market Volatility 9.4% 7.0% Risk Free Interest Rate 4.37% 4.76% Expected Life (Years) 5.0 5.0 Expected Dividend Yield 0% 0% ------------------------------------------------------------------------ Stock option transactions for the two years ending December 31, 2002 are summarized as follows: ------------------------------------------------------------------------ Weighted Average Outstanding Exercise Price ------------------------------------------------------------------------ At December 31, 2000 2,394,466 $ 2.84 Granted 11,616,993 $ 0.73 Exercised (173,000) $ 0.65 Forfeited/Expired (992,966) $ 2.26 ------------------------------------------------------------------------ At December 31, 2001 12,845,493 $ 0.80 Granted 4,002,000 $ 0.71 Exercised (5,083,975) $ 0.58 Forfeited/Expired (224,018) $ 1.72 ------------------------------------------------------------------------ At December 31, 2002 11,539,500 $ 0.80 ------------------------------------------------------------------------ The following table summarizes information about fixed stock options outstanding at December 31, 2002: ---------------------------------------------------------------------- Options Outstanding Options Exerciseable Weighted Weighted Weighted Shares Average Average Shares Average Range of Under Remaining Exercise Under Exercise Exercise Option Life Price Option Price Prices ---------------------------------------------------------------------- $ 0.58 - $1.00 10,789,500 5.02 $ 0.64 9,884,500 $ 0.62 $ 1.25 - $2.50 325,000 3.70 $ 2.19 325,000 $ 3.70 $ 2.75 - $4.00 400,000 2.32 $ 3.56 400,000 $ 2.32 $7.50 25,000 0.12 $ 7.50 25,000 $ 0.12 ------------------------------------------------------------------------- -continued- L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ Note K - Share and Option Grants - continued . During 2002 and 2001, the Board of Directors authorized the repricing of options to purchase shares of common stock at rates ranging from $0.58 and $2.00 and $0.58 to $0.90, respectively. Of the options repriced in 2002, 25,000 also had the expiration dated extended by 12 months. All options repriced in 2001 maintained the same expiration terms. Approximately 225,000 and 1,930,000 options, respectively were repriced under this program, which accounted for approximately 2% and 15%, respectively of options outstanding as of December 31, 2002 and 2001. In accordance with SFAS 123, the Company recognized compensation expense during 2002 and 2001 of $1,600 and $323,125, respectively for the fair value of the options at the date they were repriced using a Black Scholes option-pricing model. During 2002 and 2001, the Board of Directors authorized the extension of expiration dates of options to purchase shares of common stock. The extensions were for periods ranging from 12 months to 36 months and 12 months to 24 months, respectively. Approximately 3,090,000 and 452,500 options, respectively were extended under this program, which accounted for approximately 27% and 4%, respectively, of options outstanding as of December 31, 2002 and 2001. In accordance with SFAS 123, the Company recognized compensation expense during 2002 and 2001 of $70,980 and $30,813, respectively for the fair value of the options at the date their expiration date was extended using a Black Scholes option-pricing model. In 2002 and 2001, the Company granted awards of 2,346,500 and 1,213,900, respectively, of common stock as compensation to outside consultants. The Company has charged operations in 2002 and 2001 for the fair value of the common stock awarded on the date of the grants in the amount of $1,147,927 and $1,047,207, respectively. Note L - 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 established what is sometimes also referred to as an equity drawdown facility. The Company issued 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 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 operations for the year ended December 31, 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 M - Common and Preferred Stock Common Stock The Company is authorized to issue 50,000,000 shares of common stock. Holders of common stock are each entitled to cast one vote for each share held of record on all matters presented to shareholders. Cumulative voting is not allowed; hence, the holders of a majority of the outstanding common stock can elect all directors. Holders of common stock are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefore and, in the event of liquidation, to share pro rata in any distribution of the Company's assets after payment of liabilities. The Board of Directors is not obligated to declare a dividend and it is not anticipated that dividends will be paid until the Company is profitable. Holders of common stock do not have preemptive rights to subscribe to additional shares if issued by the Company. There are no conversion, redemption, sinking fund or similar provisions regarding the common stock. Preferred Stock The Company is authorized to issue up to 5,000,000 shares of preferred stock. The Company's Articles of Incorporation provide that the Board of Directors has the authority to divide the preferred stock into series and, within the limitations provided by Delaware statute, to fix by resolution the voting power, designations, preferences, and relative participation, special rights, and the qualifications, limitations or restrictions of the shares of any series so established. As the Board of Directors has authority to establish the terms of, and to issue, the preferred stock without shareholder approval, the preferred stock could be issued to defend against any attempted takeover of the Company. Note N - Lease Arrangements The Company leases office space and a research facility under operating leases which expire at various dates through 2004. The leases require the payment of property and business taxes, insurance and maintenance costs in addition to rental payments. Future minimum payments are as follows: 2003 2004 2005 2006 2007 Total ------------------------------------------------------------------------ $ 76,636 $ 37,400 $-- $-- $-- $ 114,036 ------------------------------------------------------------------------ Rent expense under operating leases was $63,811 and $66,965 for the years ended December 31, 2002 and 2001, respectively. L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION) Lewiston, New York NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ Note O - Contingencies An investor relations firm formerly used by the Company filed a claim against the Company with the American Arbitration Association. The claim alleges that the Company failed to pay the investor relations firm in accordance with the terms of an agreement between the parties. On March 26, 2003 a hearing was held before an arbitrator regarding this matter. At the hearing the investor relations firm claimed damages from the Company in the amount of approximately $600,000 as a result of the Company's breach of the agreement. In contrast, the Company contends that the investor relations firm did not provide the services required by the agreement and as a result no additional amounts are due to the investor relations firm. A decision by the arbitrator is expected by April 30, 2003. While management is not able at the present time to determine the outcome of these matters, based upon information currently available, management presently believes that the probability is remote that its resolution will have a material adverse effect on the Company's financial position or results of operations. Note P - Related Party Transactions A director and shareholder of the Company is a partner in the law firm that acts as counsel and patent attorneys to the Company. The Company incurred legal fees and expenses to the law firm in the amount of approximately $229,000 and $244,000 in 2002 and 2001, respectively. Note Q - Concentrations The Company recorded its first sales in August 2002. During 2002, the largest customer accounted for 60% of net sales. As the Company has just begun to sell its products, the Company does not believe that they are dependent on the current customer base for future sales. Note R - Subsequent Events On February 4, 2003 the Company signed a binding Letter of Intent to acquire selected assets of Actium Pharmaceuticals, Inc., a Delaware corporation. Upon further due diligence, both parties agreed not to move forward witht the transaction On January 10, 2003, L.A.M. issued 750,000 options at an exercise price of $0.58 to Mr. Drizen pursuant to an agreement signed on January 4, 2003. The 750,000 options have a vesting date of July 15, 2003 and expire on July 15, 2008. These options will have no impact on the statement of operations for the first quarter of 2003. SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 31, 2003. L.A.M. PHARMACEUTICAL, CORP. By: /s/ Joseph Slechta ------------------------------------ Joseph Slechta, President and Principal Financial Officer In accordance with the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Joseph Slechta - -------------------- Joseph Slechta Director March 31, 2003 /s/ Peter Rothbart - ------------------- Peter Rothbart Director March 31, 2003 /s/ Gary M. Nath - ------------------- Gary M. Nath Director March 31, 2003 CERTIFICATION In connection with the Annual Report of L.A.M. Pharmaceutical, Corp. (the "Company") on Form 10-KSB for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joseph Slechta, President and Principal 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: March 31, 2003 /s/ Joseph Slechta ------------------------------ Joseph Slechta President and Principal Financial Officer Certifications I, Joseph Slechta, President and Principal Financial Officer of L.A.M. Pharmaceutical, Corp., certify that: 1. I have reviewed this annual report on Form 10-KSB of L.A.M. Pharmaceutical, Corp.; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report; 4. The registrant's other certifying officers and I are 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 us by others within those entities, particularly during the period in which this annual 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 annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our 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. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 /s/ Joseph Slechta ------------------------------------------ Joseph Slechta, President and Principal Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----