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United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended March 31, 2004 or ____________
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _____________ to ____________
Commission file number: 0-2040
THE ST. LAWRENCE SEAWAY CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Indiana 35-1038443
- --------------------------------- ------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
320 N. Meridian St., Suite 818
Indianapolis, Indiana 46204
- --------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(317) 639-5292
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of class
---------------------------------------
Common Stock, par value $1.00 per share
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 (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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2). Yes [ ] No [X]
The aggregate market value of common stock held by non-affiliates of the registrant as of
September 30, 2003 was approximately $507,419.
The number of shares of common stock of the registrant outstanding as of June 28, 2004 was
393,735.
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THE ST. LAWRENCE SEAWAY CORPORATION
PART I
ITEM 1 - BUSINESS
The St. Lawrence Seaway Corporation (the "Company") is an Indiana corporation organized on March
31, 1959. Prior to 1998, the Company principally engaged in farming, timber, harvesting and other
traditional agricultural activities. The Company is currently engaged in investing in drug
development programs and in evaluating other alternatives to its former business, including
continuing its evaluation of operating companies for acquisition, merger or investment. Pending any
such transaction, the Company will continue its practice of maintaining any cash assets in
relatively liquid interest/dividend bearing money market investments. Eventually such assets may be
used for an acquisition or for a partial payment of an acquisition or for the commencement of a new
business. In the event the follow-on contribution of $750,000 in T3 Therapeutics LLC 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.
RESEARCH FUNDING. In recent years, the Company has examined several investment and acquisition
opportunities in technology and Internet-related fields, but ultimately determined that they were
not suitable for the Company. The Company has broadened its search to opportunities to participate
in funding the development of pharmaceuticals and health-related products. The following is a
summary of the two ventures the Company has entered into.
In January 2002, the Company entered into a Research Funding Agreement with New York University
School of Medicine, New York, New York, under which the Company provided funding for the further
development of certain NYU medical discoveries and technology, in return for which the Company is
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 agreed to provide research funding of $25,000 for each of eight calendar quarters, in
exchange for which the Company is 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 had 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%. The
Company did not exercise this option. Development and commercialization of the patents is 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 this
Research Funding Agreement.
In a separate matter, the Company entered into a joint venture agreement as of June 25, 2002
under which it has provided 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. Under the agreement, 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 contribution 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 the Development Company to a
pharmaceutical partner, the Company will be entitled to a portion of the 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 into 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. There can be no assurances that the Company will receive any royalties or progress
payments, or that the value of its ownership stake in the Development Company will increase or even
maintain its current value.
2
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. Large animal trials as proof of concept are expected to begin late summer 2004 and
conclude in the fall of 2004. Discussions between the Development Company and a large biotechnology
company concluded unsuccessfully with no minority investment agreement being reached. However, the
Development Company continues to search for and have discussions with pharmaceutical companies that
through a licensing agreement would provide manufacturing, marketing and distribution services for
the Development Company's thyroid and cardiovascular protocols.
ACTIVITIES DURING FISCAL YEAR 2001. During part of the fiscal year ended March 31, 2001, the
Company was still the record owner of one parcel of agricultural real estate in Northern Indiana
comprising approximately 195 acres. This real estate, known as Schleman Farm, was primarily devoted
to farming activities under the cash lease method of operation. The cash lease method of operation
involves the leasing of the property to farmers who are directly responsible for the operation of
the farm and who paid the Company a rental fee covering a ten-month period for the use of the
property for farming and related activities. The Company generally received these rental payments at
one time or in semi-annual installments. Real estate taxes and other minor expenses, such as
insurance, were the responsibility of the Company in some instances.
The Company engaged the services of a farm management company, Halderman Farm Management
Service, Inc., of Wabash, Indiana ("Halderman"). Under the contract, Halderman managed, and was
responsible for the negotiation of all leases, tenant contracts, and general operations and programs
of the Schleman Farm. Halderman was compensated on a quarterly per-acre fee basis. It had managed
the current and former farm properties of the Company for more than ten years.
On February 23, 2000, the Company conducted a real estate auction and entered into definitive
purchase and sale agreements with seven non-affiliated, individual purchasers for the sale of all of
the Company's remaining agricultural real estate in Northern Indiana. The real estate was sold at
auction for an aggregate gross sales price of $567,500. Halderman assisted the Company with the
auction of the Schleman Farm and received a 5% commission on the sale thereof, as well as a
co-broker's fee on the sale of one parcel. Advertising expenses for the auction paid by Halderman
were reimbursed thereto by the Company from the proceeds of the sale of the property. 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.
FINANCING ARRANGEMENTS. The Company currently has no debt for borrowed funds or similar
obligations or contingencies. The Company may incur debt of an undetermined amount to effect an
acquisition or commence a new business. The Company does not have a formal arrangement with any bank
or financial institution with respect to the availability of financing in the future. 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.
3
LICENSES AND TRADEMARKS, ETC. The business of the Company is not currently dependent upon any
patent, trademark, franchise or license.
GOVERNMENTAL REGULATION. The Company believes it is in compliance with all federal, state and
local regulations.
EMPLOYEES. The Company has no employees at this time. Mr. Jack C. Brown, a Director and
Secretary of the Company receives a monthly fee of $500 for administrative services that he renders
to the Company. Such fee is paid pursuant to a month to month arrangement. Part-time secretarial and
bookkeeping services are provided to the Company by an employee of a management company with whom
the Company shares office space.
ITEM 2 - PROPERTIES.
At March 31, 2004, the Company did not own any real estate.
ITEM 3 - LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal proceedings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5 - MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information. The Company's common stock is not currently listed for trading on any exchange. The
following table sets forth the high and low sales price for each quarterly period during the fiscal years 2004 and
2003, as reported by the OTC Bulletin Board. The common stock is quoted under the ticker symbol "STLS." Such
price data reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
- ----------------------- --------------------- --------------------- -----------------------
Fiscal Year Quarter High Low
- ----------------------- --------------------- --------------------- -----------------------
2004 First $2.00 $1.20
- ----------------------- --------------------- --------------------- -----------------------
Second $1.60 $1.25
- ----------------------- --------------------- --------------------- -----------------------
Third $3.80 $1.30
- ----------------------- --------------------- --------------------- -----------------------
Fourth $2.75 $2.05
- ----------------------- --------------------- --------------------- -----------------------
2003 First $4.50 $2.40
- ----------------------- --------------------- --------------------- -----------------------
Second $2.75 $2.30
- ----------------------- --------------------- --------------------- -----------------------
Third $2.95 $2.00
- ----------------------- --------------------- --------------------- -----------------------
Fourth $2.75 $2.00
- ----------------------- --------------------- --------------------- -----------------------
4
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN
Number of securities
remaining available for
Number of Securities to be Weighted-average future issuance under
issued upon exercise of exercise price of equity compensation plans
outstanding options, outstanding options, (excluding securities
warrants and rights warrants and rights referenced in column (a))
Plan Category (a) (b) (c)
------------- --- --- ---
Equity compensation plans approved by
security holders.................... 15,000 $3.00 --
Equity compensation plans not approved
by security holders................. -- -- --
DIVIDENDS. It is the present policy of the Board of Directors of the Company to retain earnings,
if any, to finance the future expansion of the Company. No cash dividends were paid this year and no
cash dividends are expected to be paid in the future.
NUMBER OF STOCKHOLDERS. As of June 25, 2004, there were approximately 1,200 holders of record of
the Company's common stock.
5
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth selected financial information with respect to the Company at or
for the five fiscal years ended March 31, 2004. All information set forth in the following table
should be read in connection with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and in conjunction with the Company's audited Financial Statements and Notes
thereto appearing elsewhere in this Report.
For the Fiscal Year Ended March 31,
-----------------------------------------------------------------------
2004 2003 2002 2001 2000
------------ ------------- ------------- ------------- -------------
Revenues: (restated)
Farm rentals.................... $ -- $ -- $ -- $ -- $ 8,208
Interest & dividends............ 2,531 9,205 39,227 79,540 49,244
Sales of land................... -- -- -- 392,235 --
---------- ---------- ---------- ---------- ----------
Total revenues............... 2,531 9,205 39,227 471,775 57,452
---------- ---------- ---------- ---------- ----------
Costs & Expenses:
Farm related operating costs.... -- -- -- -- 833
Depreciation.................... -- -- -- -- 1,111
Research investment-NYU -- -- 200,000 -- --
Consulting fees................. 6,000 17,000 6,000 6,000 6,000
General and administrative...... 95,055 99,543 124,888 85,585 88,034
---------- ---------- ---------- ---------- ----------
Total operating expenses..... 101,055 116,543 330,888 91,585 95,978
Income (loss) before income
taxes........................ (98,524) (107,338) (291,661) 380,190 (38,526)
Income tax expense (benefit).... 124 -- 449 7,594 573
---------- ---------- ---------- ---------- ----------
Net income (loss)............ $(98,648) $(107,338) $(292,110) $ 372,596 $ (39,099)
=========== ========== ========== ========== ==========
Income (loss) per common share.. $ (0.25) $ (0.27) $ (0.74) $ 0.95 $ (0.10)
=========== ========== ========== ========== ===========
Weighted average number of
common shares outstanding.... 393,735 393,735 393,735 393,735 393,735
At March 31,
------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ------------- ------------- ------------- -------------
Balance Sheet Data: (restated) (restated)
Total assets.................... $996,302 $1,204,878 $1,400,214 $1,491,692 $1,123,040
Total liabilities............... 17,547 127,475 215,473 14,841 18,785
Shareholders' equity............ 978,755 1,077,403 1,184,741 1,476,851 1,104,255
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS TOGETHER WITH THE COMPANY'S FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED
ELSEWHERE IN THIS REPORT. THE NOTES TO THE FINANCIAL STATEMENTS SET FORTH THE COMPANY'S CRITICAL
ACCOUNTING POLICIES, INCLUDING POLICIES RELATED TO ASSET VALUATION. THESE POLICIES ARE SUMMARIZED
BELOW UNDER "CRITICAL ACCOUNTING POLICIES."
RESTATEMENT. The Company is restating its financial statements for the first, second and third
quarters of fiscal 2004 and for the year ended March 31, 2003. The restatement is reported in this
Annual Report on Form 10-K and will be reported in amendments to the Company's Quarterly Reports on
Form 10-Q for the quarterly periods ended June 30, 2003, September 30, 2003 and December 31, 2003.
The Company is restating its financial statements as it has determined that the Research Funding
Agreement with the New York University School of Medicine, originally accounted for as an
investment, should be treated as research and development costs and expensed accordingly, pursuant
to paragraph 12 of SFAS No. 2, "Accounting for Research and Development Costs." Therefore, a
$200,000 charge has been included in the statements of income for the year ended March 31, 2002.
6
FUNDING AGREEMENTS. Please see "Item 1 - Business - Research Funding" for a description of
developments relating to funding agreements that the Company entered into in the fourth quarter of
fiscal 2002 and the first quarter of fiscal 2003.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED MARCH 31, 2004 AS COMPARED TO THE FISCAL YEAR
ENDED MARCH 31, 2003
Interest and dividend income decreased by $6,674, or 72.5%, from $9,205 for the fiscal year
ended March 31, 2003 to $2,531 for the fiscal year ended March 31, 2004. This decrease is a
primarily a result of lower cash balances and funding the NYU investment.
Consulting fees decreased by $11,000, or 64.7%, from $17,000 for the fiscal year ended March 31,
2003 to $6,000 for the fiscal year ended March 31, 2004. Consulting fees were higher in fiscal 2003
as a result of the engagement of a consultant to evaluate the prospects of the drug treatment
protocols underlying the Development Company venture.
General and administrative expenses decreased by $25,345, or 4.5%, from $99,543 for the fiscal
year ended March 31, 2003 to $95,055 for the fiscal year ended March 31, 2004. The higher amount of
general and administrative expenses in the fiscal year ended March 31, 2003 is due primarily to
increased professional fees related to the negotiation of the joint venture agreement with the
Development Company, with the decrease in professional fees partially offset by an increase in
transfer agent fees, annual meeting expenses and higher office rent and operations costs in 2004.
The following table summarizes the significant component of these expenses, and presents a
comparison of such components for the fiscal years ended March 31, 2004 and March 31, 2003:
For the Fiscal Year Ended March 31,
-----------------------------------------
2004 2003
--------------- ---------------
Executive compensation,
management fees, salaries and
employee benefits........... $10,771 $ 11,116
Office rent and operations...... 18,068 15,921
Stock services, proxy, annual
meeting and SEC report
compliance.................. 22,585 14,491
Professional fees (accounting &
legal)...................... 43,631 58,015
------ ------
Total.................. $95,055 $ 99,543
======== ========
As a result of the above items, the Company had a loss of $98,524 before provision for income
taxes for the fiscal year ended March 31, 2004, as compared to a loss of $107,338 before provision
for income taxes for the fiscal year ended March 31, 2003.
Income tax paid for the fiscal year ended March 31, 2004 was $124, as compared to no income tax
paid for the fiscal year ended March 31, 2003.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED MARCH 31, 2003 AS COMPARED TO THE FISCAL YEAR
ENDED MARCH 31, 2002 (restated).
7
Interest and dividend income decreased by $30,022, or 76.5%, from $39,227 for the fiscal year
ended March 31, 2002 to $9,205 for the fiscal year ended March 31, 2003. This decrease is a
primarily 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, as well as a result of lower rates of interest earned on cash and cash equivalents.
Consulting fees increased by $11,000, or 183%, from $6,000 for the fiscal year ended March 31,
2002 to $17,000 for the fiscal year ended March 31, 2003, as a result of the engagement of a
consultant to evaluate the prospects of the drug treatment protocols underlying the Development
Company venture. The consultant's fee was $11,000, and no further expenses relating to that
consultant are expected to be incurred.
Expenses relating to the NYU Research Funding Agreement were $200,000 for the fiscal year ended
March 31, 2002, with no expenses relating to that agreement for the fiscal year ended March 31,
2003. See "Item 1 - Business - Research Funding" for a description of the terms of the NYU Research
Funding Agreement.
General and administrative expenses decreased by $25,345, or 20.3%, from $124,888 for the fiscal
year ended March 31, 2002 to $99,543 for the fiscal year ended March 31, 2003. The higher amount of
general and administrative expenses in the fiscal year ended March 31, 2002 is due primarily to
increased professional fees related to the negotiation of the research funding arrangement with NYU
and the letter of intent and joint venture agreement with the Development Company, as well as higher
stock services, proxy, annual meeting and SEC report compliance costs.
The following table summarizes the significant component of these expenses, and presents a
comparison of such components for the fiscal years ended March 31, 2003 and March 31, 2002:
For the Fiscal Year Ended March 31,
-----------------------------------------
2003 2002
--------------- ---------------
Executive compensation,
management fees, salaries and
employee benefits........... $ 11,116 $ 11,086
Office rent and operations...... 15,921 15,322
Stock services, proxy, annual
meeting and SEC report
compliance.................. 14,491 19,010
Professional fees (accounting &
legal)...................... 58,015 79,470
------ ------
Total.................. $ 99,543 $ 124,888
========== =========
As a result of the above items, the Company had a loss of $107,338 before provision for income
taxes for the fiscal year ended March 31, 2003, as compared to a loss of $291,661 before provision
for income taxes for the fiscal year ended March 31, 2002.
No income tax was paid for the fiscal year ended March 31, 2003, as compared to income tax paid
for the fiscal year ended March 31, 2002 of $449.
LIQUIDITY AND CAPITAL RESOURCES. At March 31, 2004, the Company had net working capital of
$228,728, the major portion 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
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.
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.
8
The Company does not have a formal arrangement with any bank or financial institution with
respect to the availability of financing in the future.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES. Management's Discussion and Analysis of Financial
Conditions and Results of Operations discusses, among other things, the Company's financial
statements, which have been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires the Company to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments, including those relating to investments,
liabilities and operating expenses. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. Management believes the following critical
account policy, among others, affect its more significant judgments and estimates used in the
preparation of the financial statements.
VALUATION OF OTHER INVESTMENTS: The Company reviews for impairment investments made in the
Development Company on an on-going basis or whenever events or changes in circumstances indicate
that the carrying amount of any asset may not be recoverable. In the event of impairment, the asset
is written down to its fair market value.
"Safe harbor" statement under the Private Securities Litigation Reform Act of 1995
This report contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which reflect the
Company's current views with respect to future events and financial performance. The words
"believe," "expect," "anticipate," and similar expressions identify forward-looking statements.
Investors should not rely on forward-looking statements because they are subject to a variety of
risks, uncertainties, and other factors that could cause actual results to differ materially from
those expressed in any such forward-looking statements, including those mentioned below and those
detailed from time to time in the Company's filings with the Securities and Exchange Commission.
These factors include, but are not limited to:
- the ability to successfully complete development and commercialization of products,
including the cost, timing, scope and results of pre-clinical and clinical testing;
- the ability to successfully complete product research and further development, including
animal, pre-clinical and clinical studies;
- the ability of the developers to manage multiple late stage clinical trials for a variety
of product candidates;
- significant uncertainties and requirements to attain government testing and sales
approvals and licenses;
- the volume and profitability of product sales;
- changes in existing and potential relationships with financing, corporate or laboratory
collaborators;
- the cost, delivery and quality of clinical and commercial grade materials supplied by
contract manufacturers or laboratories;
- the timing, cost and uncertainty of obtaining regulatory approvals;
- the ability to obtain substantial additional funding or to enter into development or
licensing arrangements with well-funded partners or licensees;
9
- the ability to attract manufacturing, sales, distribution and marketing partners and other
strategic alliances;
- the ability to develop and commercialize products before competitors; and
- the dependence on certain founders and key management members of the developer, or
physicians with expertise in the field.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of March 31, 2004, the Company had cash and cash equivalents of $246,271 consisting of
relatively liquid interest/dividend bearing money market investments. Decreases in interest rates
over time will reduce the Company's interest income from short-term investments.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Annexed hereto starting on Page 19.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A - 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 of this Annual 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.
(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 would significantly
affect such controls.
10
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth in the following table are the names and ages of all persons who were members of the
Board of Directors of the Company at March 31, 2004, all positions and offices with the Company held
by such persons, their business experience, the period during which they have served as members of
the board of directors and other directorships held by them.
Directors/
Position in Company Age Director Since Business Experience During Last Five Years Other Directorships
- ------------------- --- -------------- ------------------------------------------- -------------------
Jack C. Brown 85 1959 Attorney at Law, Indianapolis, Indiana since None
Secretary 1945.
Joel M. Greenblatt 46 1993 Managing Partner of Gotham Capital III L.P. None
Chairman of the Board ("Gotham") and its predecessors since 1985.
Gotham is a private investment partnership
which owns securities, equity interests,
distressed debt, trade claims and bonds,
derivatives and options and warrants of
issuers engaged in a variety of businesses.
Daniel L. Nir 43 1993 Managing Partner of Gracie Capital, L.P. None
President and Treasurer since December, 1998; Manager of Sargeant
Capital Ventures, LLC since December 1997;
Managing Partner of Gotham prior thereto.
Edward B. Grier III 46 1993 Limited Partner of Gracie Capital, L.P. since None
Vice President January 1999; Vice President of Gotham from
1992-1994 and a limited partner of Gotham
from January 1, 1995 through December 31,
1998.
Directors of the Company are elected by a plurality of the votes cast at the Annual Meeting of
Shareholders. Each Director's current term of office will expire at the next annual meeting of
Shareholders or when a successor is duly elected and qualified. Executive officers of the Company
are elected annually for a term of office expiring at the Board of Directors meeting immediately
following the next succeeding Annual Meeting of Shareholders, or until their successors are duly
elected and qualified.
While the Company does not have a formal audit committee, the Board of Directors has determined
that Mr. Grier meets the requirements adopted by the Securities and Exchange Commission (the "SEC")
for qualification as an "audit committee financial expert." Mr. Grier, as Vice President of the
Company, is not "independent" of the Company as that term is used in the SEC's proxy rules.
CODE OF ETHICS. The Board of Directors has adopted a Code of Ethics, as defined under the
federal securities laws, that applies to all directors and officers of the Company. A copy of the
Code of Ethics is being filed with this Annual Report on Form 10-K as Exhibit 14.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. Based solely on a review of Forms 3 and 4 and
amendments thereto, furnished to the Company during the fiscal year ended March 31, 2004 and Forms 5
and amendments thereto furnished to the Company with respect to the fiscal year ended March 31,
2004, no director, officer or beneficial owner of more than 10% of the Company's equity securities
failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the
fiscal year ended March 31, 2004.
11
ITEM 11 - EXECUTIVE COMPENSATION.
Except as noted below, neither the Company's Chief Executive Officer nor any other executive
officers of the Company (collectively the "Named Executives") received salary, bonus or other annual
compensation for rendering services to the Company during the fiscal years ended March 31, 2004,
2003, and 2002.
During each of the three fiscal years ended March 31, 2004, 2003 and 2002, the Company paid to
Jack C. Brown, Secretary and a Director, a monthly fee of $500 for administrative services that he
renders to the Company. Such fee is on a month to month arrangement.
SUMMARY COMPENSATION TABLE. As permitted by Item 402 of Regulation S-K, the Summary Compensation
Table has been omitted as there was no compensation awarded to, earned by or paid to any executive
officer which is required to be reported in such Table for any fiscal year covered thereby. In
addition, no transactions between the Company and a third party where the primary purpose of the
transaction was to furnish compensation to any executive officer were entered into for any fiscal
year covered thereby.
OPTION/SAR GRANTS IN FISCAL YEAR ENDED MARCH 31, 2004. No options or stock appreciation rights
were granted in the fiscal year ended March 31, 2004.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR ENDED MARCH 31, 2004 AND FISCAL YEAR-END
OPTION/SAR VALUES. The Company has a stock option plan originally adopted by the shareholders on
June 12, 1978, and revised and approved by the shareholders on June 13, 1983, September 21, 1987 and
August 28, 1992. The Company currently has one outstanding Stock Option Agreement entered into
pursuant to the Plan. The options granted thereunder expire on September 21, 2007. No options were
exercised during fiscal year 2004. The following table presents the value of unexercised options
held by Jack C. Brown at fiscal year end. There are currently no outstanding stock appreciation
rights.
Value of Unexercised in the
Number of Options/SARs at Money Options/SARs at Fiscal
Fiscal Year End Year End
(#)
Shares
Acquired ($) (#) (#) ($) ($)
Name on Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------------- ----------- ------------- ----------- -------------
Joel M. Greenblatt 0 0 0 0 0 0
Daniel L. Nir 0 0 0 0 0 0
Edward B. Grier, III 0 0 0 0 0 0
Jack C. Brown 0 0 15,000 0 0(1) 0
(1) Based on the closing sale price of $2.05 on March 26, 2004, the date closest to the fiscal year
end on which a trade occurred. The options have an exercise price of $3.00 per share.
LONG-TERM INCENTIVE PLANS - AWARDS IN FISCAL YEAR ENDED MARCH 31, 2004. Not Applicable.
12
COMPENSATION OF DIRECTORS. The By-laws of the Company provide for Directors to receive a fee of $100
for each meeting of the Board of Directors which they attend plus reimbursement for reasonable
travel expense. No fees were paid to Directors for meetings in fiscal year 2004.
As discussed above, during the fiscal year ended March 31, 2004, the Company paid Jack C. Brown,
Secretary and a Director, a monthly fee of $500 for administrative services that he renders to the
Company.
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION. The Board of Directors does not have
any standing audit, nominating or compensation committees or any other committees performing similar
functions. Therefore, there are no relationships or transactions involving members of the
Compensation Committee during the fiscal year ended March 31, 2004 required to be reported pursuant
to Item 402(j) of Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
The following table sets forth as of June 26, 2004 the beneficial share ownership of all
beneficial owners of 5% or more of the Company's common stock, all directors and executive officers
of the Company owning securities, and of all officers and directors as a group.
Amount and
Nature of
Beneficial Beneficial Percent
Owner Ownership of Class
- ---------- ------------- --------
The Windward Group, L.L.C. 150,000(1) 30.4%
100 Jericho Quadrangle
Suite 212
Jericho, NY 11753
Joel M. Greenblatt 150,000(2) 30.4%
100 Jericho Quadrangle
Suite 212
Jericho, NY 11753
Daniel L. Nir 150,000(2) 30.4%
100 Jericho Quadrangle
Suite 212
Jericho, NY 11753
Jack C. Brown 20,456(3) 5.00
320 N. Meridian St.
Suite 818
Indianapolis, IN 46204
Edward B. Grier III 0 *
100 Jericho Quadrangle
Suite 212
Jericho, NY 11753
All directors and
officers as a group 170,456 33.5
(4 persons)
- ---------------------
*Less than 1%
13
(1)Includes 100,000 shares subject to a currently exercisable Stock Warrant issued to the
Windward Group L.L.C. pursuant to a Warrant Agreement dated September 24, 1986, and amended on July
6, 1992, August 28, 1992, September 15, 1997 and September 20, 2002.
(2)Includes 100,000 shares subject to a currently exercisable Stock Warrant issued to the
Windward Group L.L.C. pursuant to a Warrant Agreement dated September 24, 1986, and amended on July
6, 1992, August 28, 1992, September 15, 1997 and September 20, 2002. Ownership of Mr. Nir and Mr.
Greenblatt is indirect as a result of their membership interest in The Windward Group, L.L.C. Mr.
Nir and Mr. Greenblatt disclaim individual beneficial ownership of any common stock of the Company.
(3)Includes 15,000 shares subject to currently exercisable stock options granted on June
11, 1983, as amended, and expiring on September 21, 2007, with a per share exercise price of $3.00.
No other person or group has reported that it is the beneficial owner of more than 5% of the
outstanding common stock of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On June 25, 2002, the Company entered into a joint venture agreement under which the
Company provided development funding in an initial amount of $750,000 to a newly-formed private
limited liability company, T3 Therapeutics, LLC (the "Development Company") in exchange for a 12.5%
ownership interest in the Development Company. The agreement provides for a follow-on contribution
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. Edward
B. Grier, Vice President and a Director of the Company, has agreed to serve as the Company's
representative to the Development Company and has authority to act on the Company's behalf with
respect to the business and affairs of the Development Company. Mr. Grier has been granted an option
by the Development Company to purchase up to 25 Class B Units of the Development Company at a price
per unit of $6,000. The strike price of the option was calculated based on the price per unit paid
by the Company. Due to the nature of the investment and the uncertainties inherent in the
development and commercialization of the treatment protocols by the Development Company, no
meaningful value can be assigned to the option. The option was exercisable upon grant and expires,
to the extent it has not been exercised or sooner terminated, on June 25, 2012. If Mr. Grier resigns
voluntarily as the Company's representative or is removed by the Company from that position without
cause, the option shall remain exercisable for a period of one year from the date of resignation or
removal, and then shall terminate. If Mr. Grier ceases to be the Company's representative by reason
of death or disability, the option shall remain exercisable for a period of six months following his
death or disability, and then shall terminate. If Mr. Grier is removed as representative for cause,
the option shall immediately terminate. In addition, at the time of the Company's investment, Mr.
Grier purchased 25 Class A Units of the Development Company from existing unitholders for $150,000,
or $6,000 per Class A Unit.
On September 20, 2002, the Stock Warrant held by Windward Group L.L.C. for the purchase of
100,000 shares of common stock at $3.00 per share, which was to expire on September 21, 2002, was
extended by the Board of Directors for an additional five years, such that it now expires on
September 21, 2007. Mr. Nir and Mr. Greenblatt have membership interests in the Windward Group, and
therefore may be deemed to beneficially own the shares underlying the Stock Warrant. However, Mr.
Nir and Mr. Greenblatt disclaim individual beneficial ownership of the shares underlying the Stock
Warrant.
14
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The independent auditor for the Company is the firm of Sallee & Company, Inc., which has
been the accountants for the Company since its inception.
The following aggregate fees were billed to the Company for professional services rendered
by its independent auditor for the fiscal years ended March 31, 2004 and 2003:
2004 2003
---- ----
Audit Fees:..................................................... $18,221 $16,300
Audit-Related Fees:............................................. -- --
Tax Fees:....................................................... 4,615 5,600
All Other Fees:................................................. -- --
The Board of Directors, acting as Audit Committee, has not adopted pre-approval policies
and procedures with respect to services provided by the independent auditor, as all services are
approved by the Board prior to the services being provided.
PART IV
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS: PAGE NO.
Independent Auditor's Report 19
Balance Sheets 20
Statements of Income 21
Statement of Shareholders' Equity 22
Statements of Cash Flow 23
Notes to Financial Statements 24
Financial Schedules:
None required.
Schedules other than those listed above are omitted for the reason that they are not required or not
appropriate or the required information is shown in the financial statements or notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
(3) (i) Articles of Incorporation of The St. Lawrence Seaway Corporation, as amended.
(Incorporated by reference to Exhibit (C) (3) (i) to the Annual Report of The St.
Lawrence Seaway Corporation for the fiscal year ended March 31, 1991.)
15
(ii) By-Laws of The St. Lawrence Seaway Corporation (Incorporated by reference to
Exhibit (C) (3) (ii) to the Annual Report of The St. Lawrence Seaway Corporation
on Form 10-K for the fiscal year ended March 31, 1987.)
(10) (i) Stock Option Agreements, each dated September 21, 1987, between The St.
Lawrence Seaway Corporation and each of Jack C. Brown, Philip I. Berman, and
Albert Friedman. (Incorporated by reference to Exhibit (C) (10) (i) to the Annual
Report of The St. Lawrence Seaway Corporation on Form 10K for the fiscal year
ended March 31, 1988.)
(ii) Agreement, dated July 31, 1986 by and between The St. Lawrence Seaway
Corporation and Bernard Zimmerman & Company, Inc. (Incorporated by reference to
Exhibit 2 to the 10-Q of The St. Lawrence Seaway Corporation for the 6 months
ended June 30, 1986.)
(iii) St. Clair Farm Property Option and Sale Agreement, dated March 31, 1992.
(Incorporated by reference to the Exhibit (C) (10) (iii) to the Annual Report of
The St. Lawrence Seaway Corporation on Form 10K for the fiscal year ended March
31, 1992.)
(iv) Airport Farm Property Option and Sale Agreement, dated March 25, 1993.
(Incorporated by reference to Form 10-K for the Fiscal Year ended March 31, 1993
("the 1993 10-K").
(v) Amendment No. 1 to Stock Option Agreement between The St. Lawrence Seaway
Corporation and Jack C. Brown dated August 28, 1992. (Incorporated by reference to
the 1993 10-K.))
(v)(a) Amendment to Stock Option Agreement dated September 15, 1997 --
(Incorporated by reference to Form 10-K for the fiscal year ended March
31, 1998 (the "1998 10-K."))
(v)(b) Amendment to Stock Option Agreement dated September 20, 2002
(Incorporated by reference to Exhibit 10(v)(b) to the Form 10-K for the
fiscal year ended March 31, 2003).
(vi) Amendment No. 1 to Stock Option Agreement between The St. Lawrence Seaway
Corporation and Albert Friedman dated August 28, 1992. (Incorporated by reference
to the 1993 10-K.)
(vii) Amendment No. 1 to the Warrant issued to Bernard Zimmerman & Co. Inc. dated
August 28, 1992. (Incorporated by reference to the 1993 10-K).
(vii)(a) Amendment No. 2 to Common Stock Purchase Warrant, dated
September 15, 1997 -- (Incorporated by reference to the 1998 10-K.)
(vii)(b) Amendment No. 3 to Common Stock Purchase Warrant, dated
September 20, 2002. (Incorporated by reference to Exhibit 10(vii)(b) to
the Form 10-K for the fiscal year ended March 31, 2003)
(viii) Stock Option Agreement, dated August 28, 1992 between The St. Lawrence
Seaway Corporation and Wayne J. Zimmerman. (Incorporated by reference to the 1993
10-K.)
(ix) Stock Sale Agreement, dated June 24, 1993 between Bernard Zimmerman & Co.,
Inc. and Industrial Development Partners. (Incorporated by reference to Exhibit
7(a) to Current Report on Form 8-K dated September 30, 1993).
(x) Assignment and Assumption Agreement dated as of July 30, 1993. (Incorporated
by reference to Exhibit 7(b) to Current Report on Form 8-K dated September 30,
1993.)
16
(xi) Agreement dated as of January 24, 2002 by and between New York University and
St. Lawrence Seaway Corporation (Incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K filed February 8, 2002).
(xii) Limited Liability Agreement of T3 Therapeutics, LLC dated as of June 25,
2002 (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K
filed June 27, 2002).
(14) Code of Ethics
(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) Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
(32.2) Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By:/s/ Daniel L. Nir
--------------------------------------------
Daniel L. Nir
President, Treasurer and Director
Date: June 29, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons (who included a majority of the Board of Directors) on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Daniel L. Nir President, Treasurer June 29, 2004
- ------------------------------- and Director
Daniel L. Nir
(Principal Financial
and Accounting Officer)
/s/ Joel M. Greenblatt Chairman of the Board, June 29, 2004
- ------------------------------- and Director
Joel M. Greenblatt
(Principal Executive
Officer)
/s/ Jack C. Brown Secretary and Director June 29, 2004
- -------------------------------
Jack C. Brown
/s/ Edward B. Grier III Director June 29, 2004
- -------------------------------
Edward B. Grier III
18
SALLEE & COMPANY, INC.
CERTIFIED PUBLIC ACCOUNTANTS
____________________________________________________________________________________________________
Board of Directors
The St. Lawrence Seaway Corporation
Indianapolis, Indiana
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying balance sheets of The ST. LAWRENCE SEAWAY CORPORATION as of March
31, 2004 and 2003, and the related statements of income, shareholders equity, and cash flows for
each of the three years in the period ended March 31, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of THE ST. LAWRENCE SEAWAY CORPORATION as of March 31, 2004 and 2003, and the
results of its operations and its cash flows for each of the three years in the period ended March
31, 2004 in conformity with accounting principles generally accepted in the United States of
America.
June 14, 2004
/s/ Sallee & Company, Inc.
--------------------------------------
1509 J STREET, P.O. BOX 1148, BEDFORD, INDIANA 47421, 812-275-4444 (FAX) 812-275-3300
19
THE ST. LAWRENCE SEAWAY CORPORATION
BALANCE SHEETS
MARCH 31, 2004 AND 2003 (RESTATED)
2003
----
2004 (Restated)
----
ASSETS
Current assets:
Cash and cash equivalents........... $ 246,271 $ 454,754
Interest and other receivables...... 31 124
------------ ------------
Total current assets............ 246,302 454,878
Other investments - Note 6.......... 750,000 750,000
------------ ------------
Total assets................... $ 996,302 $ 1,204,878
============ ============
LIABILITIES AND SHAREHOLDERS'EQUITY
Current liabilities:
Accounts payable & other........... $ 17,574 $ 27,475
Investment funding payable......... -- 100,000
------------ ------------
Total current liabilities...... 17,574 127,475
------------ ------------
Total liabilities............... 17,574 127,475
------------ ------------
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................. 207,768 306,416
------------ ------------
Total shareholders' equity........ 978,755 1,077,403
------------ ------------
Total Liabilities and Shareholders'
Equity............................ $ 996,302 $ 1,204,878
============ ===========
The accompanying notes are an integral part of these financial statements.
20
THE ST. LAWRENCE SEAWAY CORPORATION
STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 2004, 2003 AND 2002 (RESTATED)
YEARS ENDED MARCH 31,
2004 2003 2002
---- ---- ----
(Restated)
Revenues:
Interest and dividends............. $ 2,531 $ 9,205 $ 39,227
---------- ---------- ----------
Total revenues................. 2,531 9,205 39,227
Operating costs and expenses:
Research Investment-NYU............ -- -- 200,000
Consulting fees-Note 3............. 6,000 17,000 6,000
General and administrative
expenses....................... 95,055 99,543 124,888
---------- ---------- ----------
Total operating expenses....... 101,055 116,543 330,888
---------- ---------- ----------
Income (loss) before income taxes....... (98,524) (107,338) (291,661)
Income taxes/(tax benefit).............. 124 -- 449
---------- ---------- ----------
Net income (loss).................. $ (98,648) $ (107,338) $ (292,110)
========== =========== ===========
Per Share Data:
Weighted average number of common
shares outstanding................. 393,735 393,735 393,735
======= ======= =======
Basic earnings per common and common
equivalent shares.................... $ (0.25) $ (0.27) $ (0.74)
========== ========= ==========
The accompanying notes are an integral part of these financial statements.
21
THE ST. LAWRENCE SEAWAY CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 2004, 2003 AND 2002 (RESTATED)
Accumulated
Other
Comprehensive
Common Stock Paid-in Capital Income Retained Earnings
-------------- ----------------- --------------- -------------------
Balances at March 31, 2001......... $393,735 $377,252 -- $705,864
Net loss for 2002 (Restated).. (292,110)
---------
Balances at March 31, 2002 393,735 377,252 -- 413,754
-------
(Restated)......................
Net loss for 2003............. (107,338)
---------
Balances at March 31, 2003 393,735 377,252 -- 306,416
-------
(Restated)......................
Net loss for 2004............. (98,648)
--------
Balances at March 31, 2004......... $393,735 $377,252 -- $ 207,768
=========
The accompanying notes are an integral part of these financial statements.
22
THE ST. LAWRENCE SEAWAY CORPORATION
STATEMENTS OF CASH FLOW
YEARS ENDED MARCH 31, 2004, 2003 AND 2002 (RESTATED)
YEARS ENDED MARCH 31,
2004 2003 2002
---- ---- ----
(Restated)
Cash flows from operating activities:
Net income (loss)................... $(98,648) $(107,338) $ (292,110)
Adjustments to reconcile net
income to net cash from
operating activities:
(Increase) decrease in current
assets:
Other receivables................ 93 40,673 (37,764)
Prepaid items.................... -- -- 9,649
(Decrease) increase in current
liabilities:
Accounts payable and other....... (9,928) (12,998) 125,632
Other liabilities................ (100,000) -- --
----------- ----------- -----------
Net cash from operating activities...... (208,483) (79,663) (194,593)
Cash flows from investing activities:
Research investment............. -- (750,000) --
----------- ----------- -----------
Net cash from investing
activities.................. -- (750,000) --
Cash flows from financing activities:
Research investment funding....... -- (75,000) 75,000
----------- ----------- -----------
Net cash from financing
activities.................. -- (75,000) 75,000
Net decrease in cash and cash
equivalents..................... (208,483) (904,663) (119,593)
Cash and cash equivalents, beginning... 454,754 1,359,417 1,479,010
----------- ----------- -----------
Cash and cash equivalents, ending...... $ 246,271 $ 454,754 $1,359,417
=========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid for income taxes........ $ 124 $ 449 $ --
Cash paid for interest expenses... -- -- --
The accompanying notes are an integral part of these financial statements.
23
THE ST. LAWRENCE SEAWAY CORPORATION
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accompanying policies observed in the preparation of
the financial statements for The St. Lawrence Seaway Corporation (the "Company").
BASIS OF PRESENTATION:
The accounts are maintained on the accrual method of accounting in accordance with generally
accepted accounting principles for financial statement purposes. Under this method, revenue is
recognized when earned and expenses are recognized when incurred.
EARNINGS PER SHARE:
Basic and diluted earnings per share is calculated in accordance with FASB Statement No. 128
"Earnings Per Share" ("SFAS 128"). In accordance with the provisions for this statement, basic
earnings per share is computed based on the weighted average number of common shares outstanding
during the period and excludes any potential dilution. Diluted earnings per share reflects potential
dilution from the exercise of options or warrants into common shares. Due to the antidilutive nature
of the Company's current stock option and warrant issued, no diluted earnings per share is presented
in these financial statements. The adoption of this statement had no effect on previously reported
earnings per share data.
INCOME TAXES:
Income taxes are provided for using the liability method, under which deferred tax assets and
liabilities are recorded based on differences between the financial accounting and tax bases of
assets and liabilities. Deferred tax assets and liabilities are measured based on the currently
enacted tax rate expected to apply to taxable income in the period in which the deferred tax asset
or liability is expected to be settled or realized. No material deferred tax benefits or liabilities
exist as of the dates of the balance sheets.
RECLASSIFICATION:
The 2003 and 2002 financial statements have been reclassified, where necessary, to conform to the
presentation of the 2004 financial statements.
CASH FLOWS:
For purposes of reporting cash flows, cash and cash equivalents include all cash in banks and cash
accumulation funds.
DEPRECIATION:
Property and equipment, consisting of small office equipment, has been fully depreciated.
Depreciation was computed using the straight-line method over a five-year estimated useful life.
Expenditures for maintenance and repairs that do not extend useful lives are charged to income as
incurred.
USE OF ESTIMATES:
The preparation of financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
24
THE ST. LAWRENCE SEAWAY CORPORATION
RESTATEMENT:
The Company restated its financial statements for the year ended March 31, 2003, and for the first
three quarters of fiscal 2004, as it has determined that the Research Funding Agreement with the New
York University School of Medicine, originally accounted for as an investment, should be treated as
research and development costs and expensed accordingly, pursuant to paragraph 12 of SFAS No. 2,
"Accounting for Research and Development Costs." Therefore, a $200,000 charge has been included in
the statements of income for the year ended March 31, 2002. The impact of the restatement for the
year ended March 31, 2002 resulted in a decrease in net income (loss) of $200,000 or $0.51 per
share. On the March 31, 2003 balance sheet, the restatement had the effect of reducing other
investments by $200,000, with a corresponding $200,000 decrease in retained earnings.
NOTE 2. SHAREHOLDERS' EQUITY
The Company has a common stock warrant outstanding for the purchase of 100,000 shares of common
stock at $3.00 per share. The warrant was originally issued in connection with the sale by the
Company of 50,000 shares of common stock during 1986 to Bernard Zimmerman & Co. Inc. The warrant and
common stock were subsequently sold and transferred to The Windward Group, L.L.C. (formerly
Industrial Development Partners), pursuant to an agreement dated September 30, 1993. The warrant
expires on September 21, 2007.
The Company has a stock option plan originally adopted by the shareholders on June 12, 1978, and
revised and approved by the shareholders on June 13, 1983, September 21, 1987 and August 28, 1992.
The Company currently has one outstanding Stock Option Agreement entered into pursuant to the Plan.
On September 20, 2002, the options originally granted to Jack C. Brown on June 18, 1983 were amended
by extending the expiration date thereof from September 21, 2002 to September 21, 2007. No options
were granted in the fiscal years ended March 31, 2004 and 2003. The following table presents the
value of unexercised options held by Jack C. Brown at fiscal year end. There are currently no
outstanding stock appreciation rights.
Value of Unexercised in the
Number of Options/SARs at Money Options/SARs at Fiscal
Fiscal Year End Year End
(#)
Shares
Acquired ($) (#) (#) ($) ($)
Name on Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------------- ----------- ------------- ----------- -------------
Jack C. Brown 0 0 15,000 0 0(1) 0
(1) Based on the closing sale price of $2.05 on March 26, 2004, the date closest to the fiscal year
end on which a trade occurred. The options have an exercise price of $3.00 per share.
The Company has 4,000,000 authorized $1 par value common shares. As of March 31, 2004 and 2003,
there were 393,735 common shares issued and outstanding.
25
THE ST. LAWRENCE SEAWAY CORPORATION
NOTE 3. RELATED PARTIES
During the fiscal years ending March 31, 2004, 2003 and 2002, the Company paid to Jack C. Brown,
Secretary and a Director, an annual administrative fee of $6,000, which was paid monthly in the
amount of $500.
NOTE 4. INCOME TAXES
At March 31, 2004, the Company had approximately $500,000 in loss carryforwards. If not used, these
carryforwards will begin to expire in 2012. No tax benefits have been recognized in these financial
statements. Provisions for any deferred federal and state tax liabilities are immaterial to these
financial statements.
NOTE 5. 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. St. Lawrence 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 St. Lawrence Common Stock owned or subject to
exercisable options and warrants as of March 21, 1997 (the "Record Date"). Neither St. Lawrence nor
Paragon received any cash or other proceeds from the distribution, and St. Lawrence stockholders did
not make any payment for the share and subscription rights. The distribution to St. Lawrence
stockholders was made by St. Lawrence for the purpose of providing St. Lawrence 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.
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 issuable upon
exercise of subscription rights, are being held in escrow and are non-transferable by the holder
thereof until after the completion of a business combination with an operating company. While held
in escrow, the shares may not be traded or transferred, and the net proceeds from the exercise of
subscription rights will remain in escrow subject to release upon consummation of a business
combination. There is no current public trading market for the shares and none is expected to
develop, if at all, until after the consummation of a business combination and the release of shares
from escrow.
On June 1, 2001, Paragon notified the Board of Directors of St. Lawrence that the Paragon Board had
determined that due to the lack of suitable business contributions available to Paragon, Paragon
would be liquidated and dissolved. All outstanding shares thereof (including all escrowed shares)
were cancelled effective on June 29, 2001.
NOTE 6. RESEARCH INVESTMENTS
The Company entered into a Research Funding Agreement with New York University School of Medicine,
New York, New York, under which the Company provided funding for the further development of certain
NYU medical discoveries and technology, in return for which the Company is 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 agreed to provide research
funding of $25,000 for each of eight calendar quarters, in exchange for which the Company is
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 had 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%. The Company did not exercise
this option. Development and commercialization of the patents is 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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THE ST. LAWRENCE SEAWAY CORPORATION
The Company entered into a joint venture agreement as of June 25, 2002 under which it has provided
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. Under the agreement, the Company acquired, subject
to adjustment, a 12.5% ownership stake in the Development Company, in exchange for providing
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 is 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 into 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.
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