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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
 FORM 10-QSB þ
    
    Quarterly Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2004
or o
    
    Transition Report under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
 Commission file No. 000-30641 L.A.M. PHARMACEUTICAL, CORP.   Delaware
    
    52-2278236(State of incorporation)
    
    (I.R.S. Employer Identification Number)
 800 Sheppard Avenue West,
Commercial Unit 1
Toronto, Ontario, Canada M3H 6B4   (877) 526-7717   Check whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes   x   No   
o As of August 10, 2004, we had 58,690,713 issued and outstanding shares of
common stock.




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INDEX PART I FINANCIAL INFORMATIONItem 1 Financial StatementsBalance Sheets at June 30, 2004 (Unaudited) and December 31, 2003
    
    
    4Statements of Changes in Stockholders Equity (Deficit) for the Six Months Ended June 30, 2004 and 2003 (Unaudited)
    
    
    5Statements of Operations for the Three Months Ended June 30, 2004 and 2003 (Unaudited)
    
    
    6Statements of Operations for the Six Months Ended June 30, 2004 and 2003 (Unaudited)
    
    
    7Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 (Unaudited)
    
    
    8Notes to Financial Statements
    
    
    10Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    12Item 3 Controls and Procedures
    
    
    17PART II OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    18Item 2 Changes in Securities
    
    
    18Item 6 Exhibits and Reports on Form 8-K
    
    
    18Section 302 CertificationsSection 906 Certifications
 2




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PART I
FINANCIAL INFORMATION 
 Item. 1 Financial Statements L.A.M. PHARMACEUTICAL, CORP. (A DELAWARE CORPORATION)
Lewiston, New York   
  3




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L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York 
 BALANCE SHEETS (Unaudited)June 30,
    
    December 31,2004
    
    2003ASSETSCurrent AssetsCash and Cash Equivalents
    
    $
    399,504
    
    
    $
    25,132Accounts Receivable, net
    
    
    8,109
    
    
    
    8,936Inventory
    
    
    463,207
    
    
    
    482,667Prepaid Expenses
    
    
    100,607
    
    
    
    73,560Total Current Assets
    
    
    971,427
    
    
    
    590,295Property and Equipment  Net of Accumulated Depreciation
    
    
    86,803
    
    
    
    100,020Other AssetsPatents and Trademarks  Net of Accumulated Amortization
    
    
    641,702
    
    
    
    591,543Total Assets
    
    $
    1,699,932
    
    
    $
    1,281,858LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current LiabilitiesAccounts Payable and Accrued Expenses
    
    $
    716,204
    
    
    $
    1,027,561Current Portion of Deferred Royalty Revenue
    
    
    93,750
    
    
    
    Total Current Liabilities
    
    
    809,954
    
    
    
    1,027,561Other LiabilitiesDue to Stockholders
    
    
    149,545
    
    
    
    149,545Deferred Royalty Revenue
    
    
    94,860
    
    
    
    207,360Total Liabilities
    
    
    1,054,359
    
    
    
    1,384,466Stockholders Equity (Deficit)Common Stock  $.0001 Par; 150,000,000 and 50,000,000 Shares
Authorized, Respectively; 50,724,473 and 45,809,364
Shares Issued and Outstanding, Respectively
    
    
    5,072
    
    
    
    4,581Additional Paid-In Capital
    
    
    29,194,761
    
    
    
    26,605,165Accumulated Deficit
    
    
    (28,554,260
    )
    
    
    (26,712,354
    )Total Stockholders Equity (Deficit)
    
    
    645,573
    
    
    
    (102,608
    )Total Liabilities and Stockholders Equity (Deficit)
    
    $
    1,699,932
    
    
    $
    1,281,858
 The accompanying notes are an integral part of these financial statements. 4




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L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York 
 STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT) Additional
    
    
    
    
    
    TotalNumber
    
    Common
    
    Paid-In
    
    Accumulated
    
    Stockholders'of Shares
    
    Stock
    
    Capital
    
    Deficit
    
    Equity (Deficit)Balance  December 31, 2002
    
    
    27,511,412
    
    
    $
    2,751
    
    
    $
    24,054,187
    
    
    $
    (24,513,282
    )
    
    $
    (456,344
    )Capital Contribution  Interest Expense
    
    
    
    
    
    
    
    
    
    
    4,306
    
    
    
    
    
    
    
    4,306Stock Options Granted -
Compensation for Services Rendered
    
    
    
    
    
    
    
    
    
    
    22,360
    
    
    
    
    
    
    
    22,360Common Shares Issued -
Compensation for Services Rendered
    
    
    335,000
    
    
    
    33
    
    
    
    94,541
    
    
    
    
    
    
    
    94,574Conversion of Convertible Notes
    
    
    1,736,734
    
    
    
    174
    
    
    
    510,426
    
    
    
    
    
    
    
    510,600Receivable on Option Exercise
    
    
    
    
    
    
    
    
    
    
    15,708
    
    
    
    
    
    
    
    15,708Net Loss for the Period (Unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,429,175
    )
    
    
    (1,429,175
    )Balance  June 30, 2003 (Unaudited)
    
    
    29,583,146
    
    
    $
    2,958
    
    
    $
    24,701,528
    
    
    $
    (25,942,457
    )
    
    $
    (1,237,971
    )Balance  December 31, 2003
    
    
    45,809,364
    
    
    $
    4,581
    
    
    $
    26,605,165
    
    
    $
    (26,712,354
    )
    
    $
    (102,608
    )Capital Contribution  Interest Expense
    
    
    
    
    
    
    
    
    
    
    3,738
    
    
    
    
    
    
    
    3,738Stock Options Granted -
Compensation for Services Rendered
    
    
    
    
    
    
    
    
    
    
    8,908
    
    
    
    
    
    
    
    8,908Common Shares Issued -
Compensation for Services Rendered
    
    
    481,560
    
    
    
    48
    
    
    
    416,189
    
    
    
    
    
    
    
    416,237Sale of Shares Under the Stock Subscription Agreements
    
    
    300,000
    
    
    
    30
    
    
    
    1,221,980
    
    
    
    
    
    
    
    1,222,010Premium on the Issuance of Warrants
    
    
    
    
    
    
    
    
    
    
    25,241
    
    
    
    
    
    
    
    25,241Warrant Exercise
    
    
    2,133,549
    
    
    
    213
    
    
    
    259,160
    
    
    
    
    
    
    
    259,373Receivable on Option Exercise
    
    
    
    
    
    
    
    
    
    
    580
    
    
    
    
    
    
    
    580Receivable on Sale of Stock Subscription Agreements
    
    
    
    
    
    
    
    
    
    
    94,000
    
    
    
    
    
    
    
    94,000Common Stock Issued in Settlement of Lawsuit
    
    
    2,000,000
    
    
    
    200
    
    
    
    559,800
    
    
    
    
    
    
    
    560,000Net Loss for the Period (Unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,841,906
    )
    
    
    (1,841,906
    )Balance  June 30, 2004 (Unaudited)
    
    
    50,724,473
    
    
    $
    5,072
    
    
    $
    29,194,761
    
    
    $
    (28,554,260
    )
    
    $
    645,573
 The accompanying notes are an integral part of these financial statements. 5




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L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York 
 STATEMENTS OF OPERATIONS (UNAUDITED) Three Months EndedJune 30,2004
    
    2003RevenuesLicensing Revenue
    
    $
    37,500
    
    
    $
    Net Sales
    
    
    17,266
    
    
    
    22,77754,766
    
    
    
    22,777ExpensesCost of Sales
    
    
    4,259
    
    
    
    6,497General and Administrative
    
    
    440,995
    
    
    
    176,891Marketing and Business Development
    
    
    422,173
    
    
    
    283,981Research and Development
    
    
    32,895
    
    
    
    44,559Depreciation and Amortization
    
    
    17,901
    
    
    
    17,032Total Expenses
    
    
    918,223
    
    
    
    528,960Loss Before Other Expenses
    
    
    (863,457
    )
    
    
    (506,183
    )Other ExpensesInterest Expense
    
    
    (1,869
    )
    
    
    (2,153
    )Provision for Arbitration Settlement
    
    
    
    
    
    
    (3,132
    )Total Other Expenses
    
    
    (1,869
    )
    
    
    (5,285
    )Net Loss for the Period
    
    $
    (865,326
    )
    
    $
    (511,468
    )Net Loss per Common Share  Basic and Diluted
    
    $
    (0.02
    )
    
    $
    (0.02
    )Weighted Average Number of Common Shares
Outstanding  Basic and Diluted
    
    
    50,403,814
    
    
    
    29,583,146
 The accompanying notes are an integral part of these financial statements. 6




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L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York 
 STATEMENTS OF OPERATIONS (UNAUDITED) Six Months EndedJune 30,2004
    
    2003RevenuesLicensing Revenue
    
    $
    37,500
    
    
    $
    Net Sales
    
    
    35,902
    
    
    
    53,62173,402
    
    
    
    53,621ExpensesCost of Sales
    
    
    8,222
    
    
    
    13,285General and Administrative
    
    
    631,148
    
    
    
    350,939Marketing and Business Development
    
    
    587,755
    
    
    
    353,213Research and Development
    
    
    64,134
    
    
    
    123,882Depreciation and Amortization
    
    
    35,070
    
    
    
    33,899Warrant Premium
    
    
    25,241
    
    
    
    Total Expenses
    
    
    1,351,570
    
    
    
    875,218Loss Before Other Expenses
    
    
    (1,278,168
    )
    
    
    (821,597
    )Other ExpensesInterest Expense
    
    
    (3,738
    )
    
    
    (4,446
    )Lawsuit Settlement
    
    
    (560,000
    )
    
    
    Provision for Arbitration Settlement
    
    
    
    
    
    
    (603,132
    )Total Other Expenses
    
    
    (563,738
    )
    
    
    (607,578
    )Net Loss for the Period
    
    $
    (1,841,906
    )
    
    $
    (1,429,175
    )Net Loss per Common Share  Basic and Diluted
    
    $
    (0.04
    )
    
    $
    (0.05
    )Weighted Average Number of Common Shares
Outstanding  Basic and Diluted
    
    
    49,145,124
    
    
    
    29,426,131
 7




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L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York 
 STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months EndedJune 30,2004
    
    2003Cash Flows from Operating ActivitiesNet Loss for the Period
    
    $
    (1,841,906
    )
    
    $
    (1,429,175
    )Adjustments to Reconcile Net Loss for the Period
to Net Cash Flows from Operating Activities:Depreciation and Amortization
    
    
    35,070
    
    
    
    33,899Capital Contributions:Premium on the Issuance of Warrants
    
    
    25,241
    
    
    
    Deemed Interest Expense on
Loans from Stockholders
    
    
    3,738
    
    
    
    4,306Deferred Royalty Revenue
    
    
    (18,750
    )
    
    
    Share and Option Grants to Consultants
    
    
    362,040
    
    
    
    116,934Share Issuance for Lawsuit Settlement
    
    
    560,000
    
    
    
    Provision for Arbitration Settlement
    
    
    
    
    
    
    603,132Changes in Assets and Liabilities:Accounts Receivable
    
    
    827
    
    
    
    3,324Inventory
    
    
    19,460
    
    
    
    31,426Prepaid Expenses
    
    
    (27,047
    )
    
    
    (62,571
    )Accounts Payable and Accrued Expenses
    
    
    (248,252
    )
    
    
    451,023Net Cash Flows from Operating Activities
    
    
    (1,129,579
    )
    
    
    (247,702
    )Cash Flows from Investing ActivitiesPurchase of Property and Equipment
    
    
    
    
    
    
    (1,495
    )Investment in Patents and Trademarks  Net
    
    
    (72,012
    )
    
    
    (24,934
    )Net Cash Flows from Investing Activities
    
    
    (72,012
    )
    
    
    (26,429
    )Cash Flows from Financing ActivitiesProceeds from Exercise of Stock Options
    
    
    580
    
    
    
    15,708Proceeds from the Sale of Shares Under
Share Subscription Agreements
    
    
    1,316,010
    
    
    
    Proceeds from Exercise of Warrants
    
    
    259,373
    
    
    
    Advances from Stockholders
    
    
    
    
    
    
    163,898Repayments to Stockholders
    
    
    
    
    
    
    (103,390
    )Net Cash Flows from Financing Activities
    
    
    1,575,963
    
    
    
    76,216Net Change in Cash and Cash Equivalents
    
    
    374,372
    
    
    
    (197,915
    )Cash and Cash Equivalents  Beginning of Period
    
    
    25,132
    
    
    
    210,214Cash and Cash Equivalents  End of Period
    
    $
    399,504
    
    
    $
    12,299
 The accompanying notes are an integral part of these financial statements. -continued- 8




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L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York STATEMENTS OF CASH FLOWS (UNAUDITED)  continued Six Months EndedJune 30,2004
    
    2003Non-Cash Investing and Financing ActivitiesDebentures Converted to Common Stock
    
    $
    
    
    
    $
    510,600SUPPLEMENTAL DISCLOSUREInterest Paid
    
    $
    
    
    
    $
    Income Taxes Paid
    
    $
    
    
    
    $
    
 The accompanying notes are an integral part of these financial statements. 9




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L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York 
 NOTES TO FINANCIAL STATEMENTS Note A  Basis of Presentation  The condensed financial statements of L.A.M. Pharmaceutical,
Corp. (the Company) included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the SEC). Certain
information and footnote disclosures normally included in
financial statements prepared in conjunction with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the
information presented not misleading. These condensed financial
statements should be read in conjunction with the annual audited
financial statements and the notes thereto included in the
Companys Form 10-KSB and other reports filed with the SEC.  The accompanying unaudited interim financial statements reflect
all adjustments of a normal and recurring nature, which are, in
the opinion of management, necessary to present fairly the
financial position, results of operations and cash flows of the
Company for the interim periods presented. The results of
operations for these periods are not necessarily comparable to,
or indicative of, results of any other interim period or for the
fiscal year as a whole. Factors that affect the comparability of
financial data from year to year and for comparable interim
periods include non-recurring expenses associated with market
launch of new products, costs incurred to raise capital,
acquisitions of patents and trademarks, and stock options and
awards. Note B  Accounting Policies  Revenue Recognition  Licensing Revenue Recognition  The Company recognizes royalty revenue based on royalty reports or
related information received from the licensee and when collectibility
is reasonably assured.  Sales Revenue Recognition  The Company recognizes sales revenue when it is realized or realizable
and earned. The Company considers revenue realized or realizable when
the product has been shipped to the customer, the sales price is fixed
or determinable and collectibility is reasonably assured. The Company
reduces revenue for estimated customer returns.  Method of Accounting  The Company maintains its books and prepares its financial statements on
the accrual basis of accounting. Note C  Inventory  Inventory at period end consisted of the following: June 30,
    
    December 31,2004
    
    2003IPM Wound Gel
    
    $
    461,082
    
    
    $
    480,542Raw Materials
    
    
    2,125
    
    
    
    2,125Inventory
    
    $
    463,207
    
    
    $
    482,667
 10




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L.A.M. PHARMACEUTICAL, CORP.
(A DELAWARE CORPORATION)
Lewiston, New York NOTES TO FINANCIAL STATEMENTS Note D  Share and Option Grants  The Company has stock option plans under which employees, non-employee
directors, consultants and investors may be granted options to
purchase shares of the Companys common stock. Options have varying vesting and
expiration dates.  The Company has elected to follow Accounting Principles Board Opinion
(APB) No. 25 and related interpretations in accounting for its
stock-based compensation made to its employees. APB No. 25 requires no
recognition of compensation expense for most of the stock-based
compensation arrangements provided by the Company, namely, broad-based
employee stock purchase plans and option grants where the exercise price
is equal to or less than the market value at the date of grant. However,
APB No. 25 requires recognition of compensation expense for variable
award plans over the vesting periods of such plans, based upon the
then-current market values of the underlying stock. In contrast,
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure  an amendment of
FASB Statement No. 123, requires recognition of compensation expense for
grants of stock, stock options, and other equity instruments, over the
vesting periods of such grants, based on the estimated grant-date fair
values of those grants. The Company generally uses the straight-line
method of amortization for stock based compensation.  Had compensation cost for these plans been determined consistent with
SFAS No. 123, the Companys net loss and net loss per share would have
been adjusted to the following pro forma amounts (in thousands, except
per share amounts): For the three months ended
    
    For the six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net lossAs reported
    
    $
    865,326
    
    
    $
    511,468
    
    
    $
    1,841,906
    
    
    $
    1,429,175Pro forma
    
    $
    865,326
    
    
    $
    506,987
    
    
    $
    1,841,906
    
    
    $
    1,432,693Net Loss per shareAs reported
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.04
    
    
    $
    0.05Pro forma
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.04
    
    
    $
    0.05
 11




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Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operation The following sets forth certain financial data with respect to us and is
qualified in its entirety by reference to the more detailed financial
statements and notes included elsewhere in this quarterly report on form
10-QSB. The following contains statements that constitute forward looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934. In some cases, you can also identify forward-looking statements by
terminology such as may, should, could, would, predicts, potential,
continue, expects, anticipates, future, intends, plans, believes,
estimates and similar expressions. All forward-looking statements are based
on assumptions that we have made based on our experience and perception of
historical trends, current conditions, expected future developments and other
factors that we believe are appropriate. These statements are subject to
numerous risks and uncertainties, many of which are beyond our control. No
forward-looking statement can be guaranteed, and actual results may differ
materially from those projected. We undertake no obligation to publicly update
any forward-looking statement, whether as a result of new information, future
events or otherwise. 12




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Overview We are the owner of a proprietary wound healing and transdermal drug
delivery technology that involves the use of an original L.A.M. Ionic Polymer
Matrix technology that we developed for the purpose of delivering, enhancing
and sustaining the action of certain established therapeutic agents. Our
corporate objective is to develop, market and license wound healing and
transdermally delivered drugs, both prescription and over-the-counter, using
our patented L.A.M. Ionic Polymer Matrix technology. We intend to seek out
corporate alliances and co-marketing partnerships where other drugs and topical
products can be enhanced by our L.A.M. IPM technology. We intend to acquire
complementary products, technologies or companies by identifying and evaluating
potential products and technologies developed by third parties that we believe
fit within our overall objective. We received clearance of our L.A.M. IPM Wound Gel 510(k) pre-market
notification from the FDA in April 2002 and commenced limited commercial sales
in August of 2002. Since August 2002, we have continued efforts to develop
commercial sales in the United States market. In addition, we have pursued a
strategy of seeking regulatory approval to sell our L.A.M. IPM Wound Gel in
additional markets outside of the United States. In March 2004, we received regulatory approval to import and sell our
L.A.M. IPM Wound Gel in China. We also entered into an agreement with a
distributor in the Chinese market. Subsequent to the agreement entered into in
December 2003 with a distributor in the Latin America market, application for
our regulatory approval to market our product in a number of Latin American
countries have been filed by our distributor and approvals are expected in the
near future. By entering into agreements with companies in Latin America and
China we believe that our sales will increase based on information provided by
our distribution partners on the potential size of the markets available. As
our marketing and distribution approach is still evolving and we do not have an
established sales history, we cannot provide firm forecasts on the effect these
markets will have on future sales. In May 2004, Ixora Bio-Medical Co. (Ixora) announced that it had
commenced commercial sales of Ixora for Women, a product that stimulates
increased arousal, pleasure and sensation during sexual activity. Upon
commencement of commercial sales of this OTC product, Ixora is required to pay
us royalties of 6.5% of all net sales with a minimum royalty payment of $75,000
for the first year. In January 2004, we announced the veterinary application of our L.A.M. IPM
Wound gel targeting Pyotraumatic dermatitis, commonly known as hot spots
suffered by dogs. We are currently seeking licensing or partnership
opportunity with companies already well established in the veterinary field and
presently do not intend on marketing this application under our own brand. Our revenue in the first six months of 2004 increased to $73,000 compared
to $54,000 in the same period in the prior year. This increase in revenue is
primarily attributable to royalty revenue that did not occur in 2003. Our
operating expenses increased from $875,000 in 2003 to $1,326,000 in 2004
primarily as a result of investor relations expenditures and non-cash
consulting expenses relating to potential acquisitions and partnering
opportunities. Net loss for the six months increased to $1,842,000 in 2004
compared to $1,429,000 in 2003. Selected Financial Data The summary financial data set forth below with respect to the statements
of operations for the three months ended June 30, 2004 and 2003 and with
respect to the balance sheets as at June 30, 2004 and December 31, 2003, are
derived from, and should be read in conjunction with the financial statements
and the related notes. Income Statement Data For the Three Months Ended
    
    For the Six Months EndedJune 30, 2004
    
    June 30, 2003
    
    Percentage Change
    
    June 30, 2004
    
    June 30, 2003
    Percentage ChangeRevenue
    
    $
    54,766
    
    
    
    22,777
    
    
    
    140
    %
    
    $
    73,402
    
    
    $
    53,621
    
    
    
    37
    %Operating Expenses
    
    
    918,223
    
    
    
    528,960
    
    
    
    74
    %
    
    
    1,326,329
    
    
    
    875,218
    
    
    
    52
    %Other Expenses
    
    
    1,869
    
    
    
    2,153
    
    
    
    
    
    
    
    28,979
    
    
    
    4,446
    
    
    
    
    %Lawsuit Settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    560,000
    
    
    
    Provision for
Arbitration
Settlement
    
    
    
    
    
    
    3,132
    
    
    
    
    
    
    
    
    
    
    
    603,132Net Loss
    
    $
    (865,326
    )
    
    $
    (511,468
    )
    
    
    
    
    
    $
    (1,841,906
    )
    
    $
    (1,429,175
    )
 13




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##### Table of Contents



Balance Sheet Data: As atJune 30, 2004
    December 31, 2003Current Assets
    
    $
    971,427
    
    
    $
    590,295Total Assets
    
    
    1,699,932
    
    
    
    1,281,858Current Liabilities
    
    
    809,954
    
    
    
    1,027,561Total Liabilities
    
    
    1,054,359
    
    
    
    1,384,466Working Capital (Deficiency)
    
    
    161,473
    
    
    
    (437,266
    )Stockholders Equity (Deficit)
    
    
    645,573
    
    
    
    (102,608
    )
 Results of Operations Three months Ended June 30, 2004 compared with Three Months Ended June 30, 2003 Revenues In May 2004 Ixora Bio-Medical Co. (Ixora) announced that it had
commenced commercial sales of Ixora for Women, a product that stimulates
increased arousal, pleasure and sensation during sexual activity. Upon
commencement of commercial sales of this OTC product, Ixora is required to pay
us royalties of 6.5% of all net sales with a minimum royalty payment of $75,000
for the first year. In the second quarter of 2004 we received royalty payments
of $18,750 and have taken into income a portion of the deferred royalty revenue
equal to the royalty payments received. Although sales of our IPM Wound Gel during the three months ended June
30, 2004 decreased by $6,000 to $17,000 from sales in the same quarter of 2003
of $23,000, we believe that the concentration of our efforts in signing
distribution agreements in China and Latin America will lead to increased sales
as these markets become established. Cost of Goods Sold Cost of Goods Sold for the three months ended June 30, 2004 were $4,000,
representing a decrease of $2,000 from $6,000 in 2003. The gross profit
percentage of 75% for the second quarter of 2004 increased slightly when
compared to 71% for the second quarter of 2003. The increase in the gross
profit percentage resulted from special pricing offered to our customers on the
L.A.M. IPM Wound Gel during part of 2003 which did not occur in 2004. General and Administrative Expenses General and administrative expenses for the three months ended June 30,
2004 increased $264,000 to $441,000 from $177,000 for the three months ended
June 30, 2003. The increase is primarily related to investor relations
expenses that did not incur in the prior year and cash expenses and share
issuances related to our private placements and an increase in officers
salaries as a result of a bonus related to regulatory approval in China. The
increase was offset by the reduction in legal and auditing expenditures due to
decreased business activity in these areas. The primary components of general and administrative expenses for the
three months ended June 30, 2004 and 2003 were as follows: Three months endedJune 30,2004
    
    2003Officers salaries
    
    $
    26,875
    
    
    $
    6,250Employee salaries and benefits
    
    
    21,983
    
    
    
    28,245Investor relations
    
    
    246,679
    
    
    
    7,070Legal and auditing (including SEC filings)
    
    
    30,154
    
    
    
    67,486Insurance
    
    
    11,772
    
    
    
    13,691Shares issued to consultants
    
    
    58,698
    
    
    
    9,213Other expenses
    
    
    44,834
    
    
    
    44,936Total
    
    
    440,995
    
    
    
    176,891
 14




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##### Table of Contents



Marketing and Business Development Expense Marketing and business development expense for the three months ended June
30, 2004 increased $138,000 to $422,000 from $284,000 for the three months
ended June 30, 2003. The increase included a non-cash charge for the issuance
of shares to companies for services rendered regarding potential acquisitions
and partnership opportunities. Research and Development Expense Research and development expenses for the three months ended June 30, 2004
decreased $12,000 to $33,000 from $45,000 for the three months ended June 30,
2003. We have chosen to reduce our research and development expenditures in
order to focus on establishing our existing products in the market place.
Costs incurred during the quarter represent fixed costs of running our R&D
department. As our products obtains acceptance we will increase our research
and development expenditures and accelerate the development of additional
products. Six months Ended June 30, 2004 compared with Six Months Ended June 30, 2003 Revenues In May 2004 Ixora Bio-Medical Co. (Ixora) announced that it had
commenced commercial sales of Ixora for Women, a product that stimulates
increased arousal, pleasure and sensation during sexual activity. Upon
commercial sales of this OTC product, Ixora is required to pay us royalties of
6.5% of all net sales with a minimum royalty payment of $75,000 for the first
year. In the second quarter of 2004 we received royalty payments of $18,750
and have taken into income a portion of the deferred royalty revenue equal to
the royalty payments received. Although sales of our IPM Wound Gel during the six months ended June 30,
2004 amounted to $36,000, a decrease of $18,000 over sales in the same period
of 2003 of $54,000, we believe that the concentration of our efforts in the
signing of distribution agreements in China and Latin America we will lead to
increased sales as these markets become established. Cost of Goods Sold Cost of Goods Sold for the six months ended June 30, 2004 were $8,000,
representing a decrease of $5,000 from $13,000 in 2003. The gross profit
percentage of 77% for the first six months of 2004 increased slightly when
compared to 75% the first six months of 2003. The increase in the gross
profit percentage resulted from special pricing offered to our customers on the
L.A.M. IPM Wound Gel during part of 2003 which did not recur in 2004. General and Administrative Expenses General and administrative expenses for the six months ended June 30, 2004
increased $280,000 to $631,000 from $351,000 for the six months ended June 30,
2003. The increase included costs attributable to investor relation services
performed in the second quarter of 2004, cash expenses and shares issuances
relating to our private placement and increase in compensation relating to
bonuses paid for obtaining regulatory approval in China. The increase was
offset by the reduction in legal and auditing expenditures due to decreased
business activity in these areas and decrease in insurance as we reduced our
product liability coverage from $3,000,000 to $1,000,000. In May 2004 we
increased our product liability coverage to $3,000,000. The primary components of general and administrative expenses for the six
months ended June 30, 2004 and 2003 were as follows: Six months endedJune 30,2004
    
    2003Officers salaries
    
    $
    39,625
    
    
    $
    15,625Employee salaries and benefits
    
    
    47,654
    
    
    
    56,577Investor relations
    
    
    267,545
    
    
    
    23,648Legal and auditing (including SEC filings)
    
    
    80,534
    
    
    
    113,494Insurance
    
    
    15,003
    
    
    
    29,170Shareholder special meeting expenses
    
    
    7,496
    
    
    
    Options and Shares issued to consultants
    
    
    73,699
    
    
    
    23,264Other expenses
    
    
    99,592
    
    
    
    89,161Total
    
    
    631,148
    
    
    
    350,939
 15




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##### Table of Contents



Marketing and Business Development Expense Marketing and business development expense for the six months ended June
30, 2004 increased $235,000 to $588,000 from $353,000 for the six months ended
June 30, 2003. The increase included a non-cash charge for the issuance of
shares to companies for services rendered regarding potential acquisitions and
partnership opportunities. Research and Development Expense Research and development expenses for the six months ended June 30, 2004
decreased $60,000 to $64,000 from $124,000 for the six months ended June 30,
2003. We have chosen to reduce our research and development expenditures in
order to focus on establishing our existing products in the market place.
Costs incurred during this period represent fixed costs of running our R&D
department. As our products obtain acceptance we will increase our research and
development expenditures and accelerate the development of additional products. Warrant Premium The expense of $25,000 for the six months ended June 30, 2004 represents
the fair value of the warrants issued to shareholders in connection with our
private placement. Legal Settlement In March 2004, a consultant filed a lawsuit against us and one of our
directors with the District Court of Montreal in Quebec, Canada in the amount
of $2.8 million alleging that we failed to issue shares of our common stock to
the individual for services rendered during the periods of 2001 and 2002. On
April 26, 2004 we reached an out of court settlement of the lawsuit with the
consultant which resulted in the issuance of two million shares of our common
stock. We have recorded $560,000, the effect of the settlement, in the
financial statements for the period ended June 30, 2004. Provision for Arbitration Settlement Capital Research Group, Inc. (CRG) an investor relations firm formerly
used by us filed a claim against us with the American Arbitration Association
alleging that we failed to pay Capital Research Group in accordance with the
terms of an agreement between the parties. On November 19, 2003 we reached an
agreement with Capital Research Group to settle all amounts owed by us to CRG
through the issuance of 3,059,363 shares of our common stock. In addition we
granted warrants to purchase 1,000,000 shares of our common stock at a price of
$0.22 per share and warrants to purchase 230,750 shares of our common stock at
a price of $0.01 per share. All warrants were exercised through a cashless
option that resulted in the issuance of 409,527 shares of our common stock Liquidity and Sources of Capital Six Months ended June 30, 2004 Our cash and cash equivalents as of June 30, 2004 was $400,000. Our
working capital improved by 598,000 from a deficiency of $(437,000) as of
December 31, 2003 to a surplus of $161,000 as of June 30, 2004. Our operations used approximately $1,130,000 in cash during the six months
ended June 30, 2004 compared to $248,000 used in the same period in the prior
year. This was primarily due to increased expenditures on investor relations
and costs related to the development of the Chinese and Latin American markets
and the reduction in accounts payable of $248,000. During this period we also invested $72,000 in patents and trademarks. During the six months ended June 30, 2004, funds were raised principally
from subscription agreements for the issuance of our common stock in the amount
of $1,316,000 and the exercise of warrants in the amount of $259,000. 16




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##### Table of Contents



During the six months ended June 30, 2004 we sold units of our common
stock in which each unit consists of 1,000 shares of our common stock plus 750
warrants. Through this private placement we sold 5,512,000 shares of our common
stock, plus warrants for the purchase of an additional 4,134,000 shares to 33
investors for proceeds amounting to $1,230,000 of which $1,222,000 was received
prior to June 30, 2004. As of June 30, 2004 we have not issued the common
stock in relation to the private placement. Each warrant will entitle the
holder to purchase one share of common stock as follows:  
    
    One third of warrants may be exercised at any time
prior to June 30, 2005 at prices ranging from $0.35 to $0.60 per
share;  
    
    One third of warrants may be exercised at any time
prior to December 31, 2005 at prices ranging from $0.35 to $0.75
per share; and  
    
    One third of warrants may be exercised at any time
prior to June 30, 2006 at prices ranging from $0.55 to $1.00 per
share Application of Critical Accounting Policies Our financial statements and accompanying notes are prepared in accordance
with generally accepted accounting principles in the United States. Preparing
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue, and expenses.
These estimates and assumptions are affected by managements application of
accounting policies. Critical accounting policies include revenue recognition,
inventory valuation and accounting for income taxes. We recognize revenue in accordance with Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements. We recognize revenue when it is
realized or realizable and earned. We consider revenue realized or realizable
when the product has been shipped to the customer, the sales price is fixed or
determinable and collectibility is reasonably assured. We reduce our revenue
for estimated customer returns. We recognize royalty revenue based on royalty
reports or related information received from the licensee and when
collectibility is reasonably assured. Inventory is comprised of finished goods and raw materials and is stated
at the lower of cost or market. Cost is determined by the first-in, first-out
method and market is based on the lower of replacement cost or net realizable
value. If the cost of the inventories exceeds their expected market value,
provisions are recorded currently for the difference between the cost and the
market value. These provisions are determined based on estimates. The valuation
of inventories also requires us to estimate excess inventories and inventories
that are not saleable. The determination of excess or non-saleable inventories
requires us to estimate the future demand for our product and consider the
shelf life of the inventory. If actual demand is less than our estimated
demand, we could be required to record inventory reserves, which would have an
adverse impact on our results of operations. Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes, establishes financial accounting and reporting standards for the
effect of income taxes. The objectives of accounting for income taxes are to
recognize the amount of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in an entitys financial statements or tax returns.
All deferred tax assets have been fully reserved against due to the uncertainty
as to when or whether the tax benefit will be realized. 
 Item 3.  Controls and Procedures Joseph T. Slechta, our President, Chief Executive Officer and Principal
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
report; and in his opinion our disclosure controls and procedures ensure that
material information relating us, is made know to him by others within our
entity, particularly during the period in which this report is being prepared,
so as to allow timely decisions regarding required disclosure. To the
knowledge of Mr. Slechta there have been no significant changes in our internal
controls or in other factors that could significantly affect our internal
controls subsequent to the date of their evaluation. As a result, no corrective actions
with regard to significant deficiencies or material weakness in our internal
controls were required. 17




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##### Table of Contents



PART II OTHER INFORMATION
 
 Item 1.  Legal Proceedings In March 2004, Tony Papa, a consultant who had formerly provided services
to us, filed a lawsuit with the District Court of Montreal in Quebec, Canada in
the amount of $2.8 million against us and one of our directors. The lawsuit
alleged that we failed to issue shares of our common stock to Mr. Papa for
services rendered during the periods of 2001 and 2002. On April 26, 2004 the
lawsuit was settled in full through the issuance of two million shares of our
common stock. We expensed $560,000, the effect of the settlement, in our
financial statements for the six month period ended June 30, 2004. 
 Item 2.  Changes in Securities During the six months ended June 30, 2004 we sold 5,512,000 shares of our
common stock to 33 investors, plus warrants for the purchase of an additional
4,134,000 shares for proceeds amounting to a total of $1,229,760. Each warrant
will entitle the holder to purchase one share of common stock as follows:  
    
    One third of warrants may be exercised at any time
prior to June 30, 2005 at prices ranging from $0.35 to $0.60 per
share;  
    
    One third of warrants may be exercised at any time
prior to December 31, 2005 at prices ranging from $0.35 to $0.75
per share; and  
    
    One third of warrants may be exercised at any time
prior to June 30, 2006 at prices ranging from $0.55 to $1.00 per
share On May 4, 2004 we filed a registration statement to register the common
shares issued to the investors as a result of the private placement with this
United States Securities and Exchange Commission (Commission File No.
333-115216). On July 28,2004 we filed an amendment no. 1 to our registration
statement. The sale and issuances of the common stock referred to above were
exempt transactions under Section 4(2) of the Securities Act of 1933 as
transactions by an issuer not involving a public offering. The shares are
restricted securities as defined in Rule 144 of the Securities and Exchange
Commission. No underwriters were involved with the sale of these shares. 
 Item 6.  Exhibits and Reports on Form 8-K (a) Exhibits Number
    
    Title31.1
    
    Certification by Joseph T. Slectha, President, Chief
Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley
Act of 200232.1
    
    Certification by Joseph T. Slectha, President, Chief
Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 (b) Reports on Form 8-K None 18




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##### Table of Contents



SIGNATURES In accordance with the requirements of the Securities Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized L.A.M. PHARMACEUTICAL, CORP.August 12, 2004
    By:
    /s/ Joseph T. SlechtaJoseph T. Slechta, President, Chief ExecutiveOfficer
and Principal Financial Officer 19