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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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.
December 31, 2003 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
- -------------------------------------------------- ----------
(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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes No X
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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 February 13, 2004
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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
----
Balance Sheets - December 31, 2003 and March 31, 2003.......................................3
Statements of Income - Three months ended December 31, 2003 and 2002........................4
Statements of Income - Nine months ended December 31, 2003 and 2002.........................5
Statements of Cash Flows - Nine months ended December 31, 2003 and 2002 ....................6
Notes to Financial Statements - December 31, 2003.........................................7-8
Management's Discussion and Analysis of Financial Condition and
Results of Operations ..............................................................9-12
PART II. OTHER INFORMATION................................................................13
Signatures.................................................................................14
2
THE ST. LAWRENCE SEAWAY CORPORATION
BALANCE SHEETS
DECEMBER 31, 2003 AND MARCH 31, 2003
At December 31, At March 31,
2003 2003
--------------- ---------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents............................ $ 264,211 $ 454,754
Interest and other receivables....................... -- 124
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Total current assets............................ 264,211 454,878
Research investment...................................... 950,000 950,000
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Total assets.................................... $ 1,214,211 $ 1,404,878
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable & other............................. $ 5,547 $ 27,475
Research investment funding.......................... -- 100,000
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Total current liabilities....................... 5,547 127,475
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Total liabilities............................... 5,547 127,475
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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.................................... 437,677 506,416
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Total shareholders' equity........................... 1,208,664 1,277,403
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Total liabilities and shareholders' equity...... $1,214,211 $1,404,878
============= =============
3
THE ST. LAWRENCE SEAWAY CORPORATION
STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED
DECEMBER 31, 2003 AND 2002
(UNAUDITED)
For the Three Months Ended
--------------------------------------
December 31, December 31,
2003 2002
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Revenues:
Interest and dividends............................... $ 502 $ 1,733
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Total revenues........................................... 502 1,733
Operating costs and expenses:
General and administrative........................... 24,334 23,019
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Total operating expenses................................. 24,334 23,019
Income (loss) before tax provision....................... (23,832) (21,286)
Provision for income taxes........................... -- 24
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Net income (loss)........................................ $ (23,832) $ (21,310)
============ ============
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.............................. $ (0.06) $ (0.05)
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4
THE ST. LAWRENCE SEAWAY CORPORATION
STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED
DECEMBER 31, 2003 AND 2002
(UNAUDITED)
For the Nine Months Ended
--------------------------------
December 31, December 31,
2003 2002
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Revenues:
Interest and dividends............................... $ 2,268 $ 8,016
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Total revenues........................................... 2,268 8,016
Operating costs and expenses:
General and administrative........................... 70,883 84,322
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Total operating expenses................................. 70,883 84,322
Income (loss) before tax provision....................... (68,615) (76,306)
Provision for income taxes........................... 124 94
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Net income (loss)........................................ $ (68,739) $ (76,400)
============ ============
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.............................. $ (0.17) $ (0.19)
============ ============
5
THE ST. LAWRENCE SEAWAY CORPORATION
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
DECEMBER 31, 2003 AND 2002
(UNAUDITED)
For the Nine Months Ended
--------------------------------
December 31, December 31,
2003 2002
------------ ------------
Cash flows from operating activities:
Net income (loss) $(68,739) $(76,400)
Adjustments to reconcile net income to
Net cash from operating activities
(Increase) Decrease in current assets:
Interest and other receivables 124 40,797
(Decrease) Increase in current liabilities:
Other liabilities (100,000) --
Accounts payable (21,928) (28,804)
Income taxes payable -- (425)
----------- -----------
Net cash from operating activities (190,543) (64,832)
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 -- (75,000)
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Net cash from financing activities -- (75,000)
Net (decrease) increase in cash and
cash equivalents (190,543) (889,832)
Cash and cash equivalents, beginning 454,754 1,359,417
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Cash and cash equivalents, ending $ 264,211 $ 469,585
=========== ===========
Supplemental disclosures of cash flow
information:
Cash paid for income taxes $ 124 $ 449
Cash paid for interest expense -- --
6
THE ST. LAWRENCE SEAWAY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
(UNAUDITED)
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 and nine
month periods ending December 31, 2003 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2004. 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, 2003.
NOTE B--RECLASSIFICATION
The 2002 financial statements have been reclassified, where necessary, to conform to the
presentation of the 2003 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 was 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.
7
Paragon was 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.
On June 1, 2001, Paragon notified the Board of Directors of the Company that the Paragon Board
had determined that due to a lack of suitable business combinations available to Paragon, Paragon
would be liquidated and dissolved. 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--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.
NOTE F--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 is being 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 Company acquired, subject to adjustment, a 12.5% ownership stake in
the Development Company, in exchange for 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 was credited toward the
Company's initial $750,000 contribution. Development and commercialization of the treatment
protocols is highly speculative and subject to numerous scientific, practical, financial and
commercial uncertainties.
8
THE ST. LAWRENCE SEAWAY CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESEARCH FUNDING.
Please see "Note F--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 nine months ended December 31, 2002.
In March 2003, the Development Company entered into a development and worldwide licensing
agreement with West Pharmaceutical Services, Inc. for the development and commercialization of an
oral sustained release formulation of liothyronine. Under the terms of the agreement, West will
receive milestone payments for the successful completion of various development activities
throughout the program. West will also receive royalty payments based on commercial sales if the
product is granted regulatory approval. The Development Company will receive certain licenses
necessary to develop and sell products incorporating West's sustained release delivery technology.
The Development Company paid an up-front license fee of $150,000 in addition to the milestone and
royalty payments that may become payable depending on the success of the project. The Development
Company will pay all costs associated with the development program, which are currently estimated to
total $600,000 over the life of the development program, which is expected to be at least two years.
The initial formulation research conducted by West Pharmaceuticals for the Development
Company has been completed and two prototype formulations have been developed. Initial prototype
stability studies have been completed, but the prototypes exhibited some instability at high
temperatures and high humidity. Consequently, further analysis and formulation studies must be
completed before large animal trials can begin. Discussions between the Development Company and a
large biotechnology company concluded unsuccessfully with no minority investment agreement being
reached.
In the event the follow-on contribution of $750,000 in the Development Company is required
to be made following preliminary FDA approval, the Company will need to raise additional funds to
meet its obligation, either through borrowings or the issuance of additional equity interests in the
Company.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED DECEMBER 31, 2003 AS COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 2002.
Interest and dividend income decreased to $502 for the three months ended December 31,
2003, from $1,733 for the three months ended December 31, 2002, a decrease of $1,231. This decrease
is a primarily a result of lower cash balances during the period due to research funding
investments. Interest and dividend income is expected to continue to be lower in the future as
available cash is used for operating expenses.
9
General and administrative expenses were $24,334 for the three months ended December 31,
2003, comparable to the general and administrative expenses of $23,019 for the three months ended
December 31, 2002. An increase in stock transfer services, proxy, annual meeting and SEC report
compliance costs was offset by a decrease in professional fees. The following table provides further
detail on general and administrative expenses:
THREE MONTHS ENDED DECEMBER 31,
2003 2002
---- ----
Executive compensation, management fees, salaries and employee
benefits.................................................. $ 4,945 $ 2,648
Office rent and company operations............................. 3,900 2,901
Stock transfer services, proxy, annual meeting and SEC report
compliance................................................ 9,036 9,955
Professional fees (accounting & legal)......................... 6,453 7,515
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Total........................................ $24,334 $23,019
========= =========
As a result of the above items, the Company had a loss of $23,832 before provision of
income taxes in the three months ended December 31, 2003, as compared to a loss of $21,286 before
provision of income taxes in the three months ended December 31, 2002.
Indiana gross tax of $24 was provided for in the three months ended December 31, 2002 as
compared to no Indiana gross tax in the three months ended December 31, 2003. No federal tax
provision is applicable in the three month periods ended December 31, 2003 and 2002.
RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 2003 AS COMPARED TO DECEMBER 31, 2002.
Interest and dividend income decreased to $2,268 for the nine months ended December 31,
2003, from $8,016 for the nine months ended December 31, 2002, a decrease of $5,748. This decrease
is a result of lower cash balances during the period due to the use of a significant amount of the
Company's cash in the T3 Therapeutics joint venture and in the NYU Research Funding Agreement. Cash
and cash equivalents decreased $190,543, or 41.9%, to $264,211 at December 31, 2003 from $454,754 at
March 31, 2003, primarily as a result of the funding of the NYU Research Agreement and general and
administrative expenses.
General and administrative expenses decreased $13,439, or 15.9%, to $70,883 for the nine
months ended December 31, 2003 from $84,322 for the nine months ended December 31, 2002. The higher
amount for the nine months ended December 31, 2002 was primarily the result of increased legal fees
incurred during the negotiation of the T3 Therapeutics joint venture, partially offset by increased
stock transfer service expenses and annual meeting expense.
10
The following table provides further detail on general and administrative expenses:
NINE MONTHS ENDED DECEMBER 31,
2003 2002
---- ----
Executive compensation, management fees, salaries and employee
benefits.................................................. $14,323 $11,477
Office rent and company operations............................. 11,739 11,758
Stock transfer services, proxy, annual meeting and SEC report
compliance................................................ 18,118 13,072
Professional fees (accounting & legal)......................... 26,703 48,015
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Total........................................ $70,883 $84,322
========= =========
As a result of the above items, the Company had a loss of $68,615 before provision for
income taxes in the nine months ended December 31, 2003, as compared to a loss of $76,306 before
provision for income taxes in the nine months ended December 31, 2002.
Indiana gross tax of $124 was provided for in the nine months ended December 31, 2003 as
compared to Indiana gross tax of $94 in the nine months ended December 31, 2002. No federal tax
provision is applicable in the nine month periods ended December 31, 2003 and 2002.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2003, the Company had net working capital of $258,664, 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 additional funding of $750,000 in the Development
Company is required to be made following preliminary FDA approval, the Company will need to raise
additional funds to meet its obligation, either through borrowings or the issuance of additional
equity interests in the Company.
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.
11
"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, 2003.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures. The Company's Chairman of the Board and President
and Treasurer have evaluated the effectiveness of the Company's disclosure controls and procedures (as such term
is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date").
Based upon such evaluation, such officers have concluded that, as of the Evaluation Date, the Company's disclosure
controls and procedures are effective in alerting them on a timely basis to material information relating to the
Company required to be included in the Company's reports filed or submitted under the Exchange Act.
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(b) Changes in Internal Controls. Since the Evaluation Date, there has not been any significant changes
in the Company's internal controls or in other factors that could significantly affect such controls.
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.
(a) The Company held its Annual Meeting of Stockholders on December 10, 2003.
(b) Not applicable.
(c) At the Annual Meeting, the Company's nominees for director were elected by
the following votes:
Nominee Votes in Favor Votes to Withhold Authority
------- -------------- ---------------------------
Joel M. Greenblatt 235,540 1,580
Daniel L. Nir 235,540 1,580
Jack C. Brown 235,540 1,580
Edward B. Grier, III 235,540 1,580
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on Form 8-K -
Item 6(a) Exhibits - 31.1 - Certification by Principal Executive Officer Pursuant to Rule
13a-14(a).
31.2 - Certification by Principal Financial Officer Pursuant to Rule
13a-14(a).
32.1 - Certificate of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
32.2 - Certificate of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
Item 6(b) Reports on Form 8-K - No reports on Form 8-K were filed during the three months
ended December 31, 2003.
13
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
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Date: February 17, 2004 Daniel L. Nir
President and Treasurer
(Chief Financial Officer)
14