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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File No.
June 30, 2002 0-2040
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THE ST. LAWRENCE SEAWAY CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
INDIANA 35-1038443
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
818 Chamber of Commerce Building
320 N. Meridian Street
Indianapolis, Indiana 46204
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (317) 639-5292
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the
latest practicable date.
Class Outstanding at August 12, 2002
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Common Stock, $1.00 par value 393,735
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THE ST. LAWRENCE SEAWAY CORPORATION
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION PAGE
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Balance Sheets - June 30, 2002 and March 31, 2002...................................... 3
Statements of Income - Three months ended June 30, 2002 and 2001........................4
Statements of Cash Flows - Three months ended June 30, 2002 and 2001 ...................5
Notes to Financial Statements - June 30, 2002...........................................6-8
Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................................9-10
PART II. OTHER INFORMATION.............................................................11
Signatures..............................................................................12
2
THE ST. LAWRENCE SEAWAY CORPORATION
BALANCE SHEETS
JUNE 30, 2002 AND MARCH 31, 2002
At June 30, 2002 At March 31, 2002
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(unaudited)
ASSETS
Current assets:
Cash and cash equivalents............................ $ 599,826 $1,359,417
Interest and other receivables....................... 468 797
Note receivable...................................... -- 40,000
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Total current assets............................ 600,294 1,400,214
Research investment...................................... 950,000 200,000
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Total assets.................................... $ 1,550,294 $ 1,600,214
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable & other............................. $ 53,215 $ 40,024
Federal & state taxes payable........................ 494 449
Research investment funding.......................... 100,000 100,000
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Total current liabilities....................... 153,709 140,473
Long term liabilities:
Research investment funding.......................... 50,000 75,000
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Total liabilities............................... 203,709 215,473
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Shareholders' equity:
Common stock, par value $1, 4,000,000 authorized,
393,735 issued and outstanding at the respective
dates............................................. 393,735 393,735
Additional paid-in capital........................... 377,252 377,252
Retained earnings.................................... 575,598 613,754
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Total shareholders' equity........................... 1,346,585 1,384,741
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Total liabilities and shareholders' equity...... $ 1,550,294 $1,600,214
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3
THE ST. LAWRENCE SEAWAY CORPORATION
STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED
JUNE 30, 2002 AND 2001
(UNAUDITED)
For the Three Months Ended
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June 30, 2002 June 30, 2001
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Revenues:
Interest and dividends............................... $ 4,174 $ 15,257
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Total revenues........................................... 4,174 15,257
Operating costs and expenses:
General and administrative........................... 42,285 18,990
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Total operating expenses................................. 42,285 18,990
Income (loss) before tax provision....................... (38,111) (3,733)
Provision for income taxes........................... 45 191
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Net income (loss)........................................ $ (38,156) $ (3,924)
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Per share data:
Weighted average number of common shares outstanding.
393,735 393,735
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Primary earnings per share:
Income (loss) per share.............................. $ (0.10) $ (0.01)
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4
THE ST. LAWRENCE SEAWAY CORPORATION
STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
JUNE 30, 2002 AND 2001
(UNAUDITED)
For the Three Months Ended
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June 30, 2002 June 30, 2001
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Cash flows from operating activities:
Net income (loss) $ (38,156) $ (3,924)
Adjustments to reconcile net income to
Net cash from operating activities
(Increase) Decrease in current assets:
Interest and other receivables 40,329 1,624
Prepaid items -- 8,167
(Decrease) Increase in current liabilities:
Accounts payable 13,191 (3,500)
Income taxes payable 45 (7,976)
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Net cash from operating activities 15,409 (5,069)
Cash flows from investing activities:
Research investment (750,000) --
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Net cash from investing activities (750,000) --
Cash flows from financing activities:
Research investment funding (25,000) --
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Net cash from financing activities (25,000) --
Net (decrease) increase in cash and
cash equivalents (759,591) (5,609)
Cash and cash equivalents, beginning 1,359,417 1,479,010
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Cash and cash equivalents, ending $ 599,826 $1,473,401
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Supplemental disclosures of cash flow
information:
Cash paid for income taxes -- --
Cash paid for interest expense -- --
5
THE ST. LAWRENCE SEAWAY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2002
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and the instructions for Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required for generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the three month period
ending June 30, 2002 are not necessarily indicative of the results that may be expected for the
fiscal year ending March 31, 2003. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the fiscal year ended
March 31, 2002.
NOTE B--RECLASSIFICATION
The 2001 financial statements have been reclassified, where necessary, to conform to the
presentation of the 2002 financial statements.
NOTE C--EARNINGS PER SHARE
Primary earnings per share are computed using the weighted average number of shares of common
stock and common stock equivalents outstanding under the treasury stock method. Common stock
equivalents include all common stock options and warrants outstanding during each of the periods
presented.
NOTE D--STOCK PURCHASE AND DIVIDEND
On March 19, 1997, the Board of Directors of the Company declared a dividend distribution of
514,191 shares of common stock, $.01 par value (the "Shares") of Paragon Acquisition Company, Inc.
("Paragon"), and 514,191 non-transferable rights (the "Subscription Right") to purchase two (2)
additional Shares of Paragon. Paragon's business purpose is to seek to acquire or merge with an
operating business, and thereafter to operate as a publicly-traded company. The Company purchased
the Paragon shares on March 6, 1997, for $5,141, or $.01 per share, and distributed one Paragon
share and one subscription right for each share of the Company's common stock owned or subject to
exercisable options and warrants as of March 21, 1997 (the "Record Date"). Neither the Company nor
Paragon received any cash or other proceeds from the distribution, and the Company's stockholders
did not make any payment for the share and subscription rights. The distribution to the Company's
stockholders was made by the Company for the purpose of providing the Company's stockholders with an
equity interest in Paragon without such stockholders being required to contribute any cash or other
capital in exchange for such equity interest.
On March 21, 1997, the Securities and Exchange Commission declared effective a Registration
Statement on Form S-1 filed by Paragon, registering the Distribution of Shares and Subscription
Rights to the Company's stockholders. The cost of organizing Paragon and registering the
distribution have been borne by the founders of Paragon.
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Paragon is an independent publicly-owned corporation. However, because Paragon did not have a
specific operating business at the time of the distribution, the distribution of the shares was
conducted in accordance with Rule 419 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). As a result, the shares, subscription rights, and any shares issueable upon
exercise of subscription rights, were put into escrow. While held in escrow, the shares could not be
traded or transferred.
In April and June, 2001, Paragon's Board of Directors voted to discontinue the search for a
Target Business, withdraw its S-1 Registration Statement and dissolve as soon as possible. A
Post-Effective Amendment terminating the Registration Statement and de-registering the securities
described therein was filed with the SEC on June 22, 2001. The dissolution of Paragon was completed
effective June 29, 2001. As a result, subscription rights held by the Company's stockholders have
been effectively cancelled.
NOTE E--DISPOSITION OF ASSETS
On February 23, 2000, the Company conducted a real estate auction and entered into definitive
sales and purchase agreements with seven non-affiliated individual purchasers to sell all of the
land owned by the Company. The real estate was sold at auction for an aggregate gross sales price of
$567,500. At closing, an aggregate $13,225 price reduction was made due to acreage corrections
revealed by the survey delivered at closing and due to deletion from the sale property of an
electrical substation not owned by the Company. All sales were closed as of June 14, 2000, and net
proceeds of $506,510 were delivered to the Company as of that date. In the fiscal year ending March
31, 2001, the Company was subject to tax on the net gain, after related selling expenses, from the
sale that exceeds the existing net operating losses of approximately $375,000, plus any additional
net operating losses incurred in fiscal year 2001.
The Company devoted the property to farming activities under a cash lease method. The property
was leased to farmers who were directly responsible for the operation thereof and who paid the
Company a rental fee covering a ten-month period of use of the property. The Company generally
received these rental payments at the beginning of the planting season. The Company was responsible
for real estate taxes, insurance, and minor expenses. As a result of the sale of the property and
termination of the farm tenant agreement prior to the calendar year 2000 planting season, the
Company did not realize any farm rental income in the fiscal year ending March 31, 2001.
NOTE F--RESEARCH INVESTMENT
The Company has entered into a Research Funding Agreement with New York University School of
Medicine, New York, New York, under which the Company will provide funding for the further
development of certain NYU medical discoveries and technology, in return for which the Company will
be entitled to receive license fees from the future commercial uses of such discoveries. Such
technology is subject to pending NYU patent applications and generally relates to treatment of
certain prostate enlargements and prostate cancers. Under the Research Funding Agreement, the
Company has agreed to provide research funding of $25,000 for each of eight calendar quarters, in
exchange for which the Company would be entitled to receive 1.5% of future license revenues from the
sale, license or other commercialization of the patents. The first payment was made in connection
with the execution of the Research Funding Agreement in January, 2002. The Company has the option to
provide additional funds for up to three additional years of development, in exchange for which the
Company's share of license revenue from the patents would increase to a maximum of 3.75%.
Development and commercialization of the patents are highly speculative and subject to numerous
scientific, financial, practical and commercial uncertainties. There can be no assurances that the
Company will receive any license revenues as a result of its investment.
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NOTE G--T3 THERAPEUTICS INVESTMENT
The Company has entered into a joint venture agreement under which it will provide development
funding to a newly-formed private limited liability company, T3 Therapeutics, LLC (the "Development
Company") for specified drug treatment protocols for thyroid and cardiovascular disease in exchange
for an equity interest in the Development Company. Such treatments are in early stage development
and involve the use of novel formulations of hormones, delivered in controlled release formulations.
Funding provided by the Company will be used for the purpose of financing development of new
formulations of such hormones, and to conduct animal and human clinical trials. Research has been
initiated by the Development Company, which has been founded by physicians at a major metropolitan
New York City area hospital. The agreement calls for the Company to acquire, subject to adjustment,
a 12.5% ownership stake in the Development Company, in exchange for its commitment to provide
development funding of $750,000, for use over an approximately two-year period. The agreement
provides for a follow-on investment of an additional $750,000 if certain preliminary FDA testing
approvals are secured with a corresponding increase in the Company's ownership stake to 25% of the
Development Company. If the product is licensed by Development Company to a pharmaceutical partner
the Company would be entitled to a portion of Development Company's resulting royalties and progress
payments. The amount of ownership to be received by the Company is subject to adjustment based upon
(i) ownership and license arrangements that the Development Company makes with laboratories that
provide research and formulation expertise and products, (ii) development or licensing transactions,
or (iii) other sources of financing. The Company loaned the Development Company $40,000 in
connection with entering the letter of intent relating to the joint venture agreement; the $40,000
note was cancelled and has been credited toward the Company's initial $750,000 investment.
Development and commercialization of the treatment protocols is highly speculative and subject to
numerous scientific, practical, financial and commercial uncertainties.
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THE ST. LAWRENCE SEAWAY CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESEARCH FUNDING - Please see "Note G--T3 Therapeutics" in the Notes to the Financial Statement
contained under Item 1 of this Form 10-Q for a description of a research funding agreement the
Company entered into during the three months ended June 30, 2002.
RESULTS OF OPERATIONS -- Three months ended June 30, 2002 as compared to three months ended June 30,
2001.
Interest and dividend income decreased to $4,174 for the three months ended June 30, 2002, from
$15,257 for the three months ended June 30, 2001, a decrease of $11,086, or 72.7%. This decrease is
a result of lower cash balances during the period due to research funding investments, as well as
due to lower rates of interest earned on invested funds. Interest and dividend income is expected to
be significantly lower in future periods as a result of the investment of a significant amount of
the Company's cash in the T3 Therapeutics joint venture and in the NYU Research Funding Agreement.
General and administrative expenses increased $23,295, or 122.7%, to $42,285 for the three months
ended June 30, 2002 from $18,990 for the three months ended June 30, 2001. This increase is
primarily the result of increased legal fees incurred during the negotiation of the T3 Therapeutics
joint venture. The following table provides further detail on general and administrative expenses:
THREE MONTHS ENDED JUNE 30,
2002 2001
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Executive compensation, management fees, salaries and employee
benefits.................................................. $3,686 $4,299
Office rent and company operations............................. $4,092 $3,703
Stock transfer services, proxy, annual meeting and SEC report
compliance................................................ $1,507 $3,006
Professional fees (accounting & legal)......................... $33,000 $7,982
As a result of the above items, the Company had a loss of $38,111 before provision of income taxes
in the three months ended June 30, 2002, as compared to a loss of $3,733 before provision of income
taxes in the three months ended June 30, 2001.
Indiana gross tax of $45 was provided for in the three months ended June 30, 2002 as compared to
Indiana gross tax of $191 in the three months ended June 30, 2001. No federal tax provision is
applicable in the three month periods ended June 30, 2002 and 2001.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, the Company had net working capital of $446,585, substantially all of which was in
cash and money market funds. The Company believes it has sufficient capital resources to continue
its current business. In the event the follow-on investment of $750,000 in the Development Company
is required to be made following preliminary FDA approval, the Company may need to raise additional
funds to meet its obligation, either through borrowings or the issuance of additional equity
interests in the Company.
9
The Company may require the use of its assets for a purchase or partial payment for an acquisition
or in connection with another business opportunity. In addition, the Company may incur debt of an
undetermined amount to effect an acquisition or in connection with another business opportunity. It
may also issue its securities in connection with an acquisition or other business opportunity.
The Company does not have a formal arrangement with any bank or financial institution with respect
to the availability of financing in the future.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Form 10-Q contains statements which are not historical facts, but are forward-looking
statements which are subject to risks, uncertainties and unforeseen factors that could affect the
Company's ability to accomplish its strategic objectives with respect to acquisitions and developing
new business opportunities, as well as its operations and actual results. All forward-looking
statements contained herein reflect Management's analysis only as of the date of the filing of this
Form 10-Q. Except as may be required by law, the Company undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise after the date
hereof. In addition to the disclosures contained herein, readers should carefully review risks,
uncertainties and other factors contained in other documents which the Company files from time to
time with the Securities and Exchange Commission. These factors include, but are not limited to:
o the ability to successfully complete development and commercialization of products,
including the cost, timing, scope and results of pre-clinical and clinical testing;
o the ability to successfully complete product research and further development, including
animal, pre-clinical and clinical studies;
o the ability of the developers to manage multiple late stage clinical trials for a variety of
product candidates;
o significant uncertainties and requirements to attain government testing and sales approvals
and licenses;
o the volume and profitability of product sales;
o changes in existing and potential relationships with financing, corporate or laboratory
collaborators;
o the cost, delivery and quality of clinical and commercial grade materials supplied by
contract manufacturers or laboratories;
o the timing, cost and uncertainty of obtaining regulatory approvals;
o the ability to obtain substantial additional funding or to enter into development or
licensing arrangements with well-funded partners or licensees;
o the ability to attract manufacturing, sales, distribution and marketing partners and other
strategic alliances;
o the ability to develop and commercialize products before competitors; and
o the dependence on certain founders and key management members of the developer, or
physicians with expertise in the field.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There has been no material change in the Company's exposure to market risk since the information
disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2002.
10
THE ST. LAWRENCE SEAWAY CORPORATION
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDING - Not Applicable
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES - Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Not Applicable
Item 5. OTHER INFORMATION - Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K -
Item 6(a) Exhibits -
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
Item 6(b) Reports on Form 8-K -
A current report with respect to Item 5 of Form 8-K was filed by the Company on
June 27, 2002.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
THE ST. LAWRENCE SEAWAY CORPORATION
Registrant
/s/ Daniel L. Nir
Date: August 14, 2002 -------------------------------------------
Daniel L. Nir
President and Treasurer
(Chief Financial Officer)
Date: August 14, 2002 /s/Jack C. Brown
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Jack C. Brown
Secretary
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