The St. Lawrence Seaway Corporation "Form 10-Q"

10QSB 1 stlawrenceseaway10q20830.htm QUARTERLY REPORT FORM 10-QSB The St. Lawrence Seaway Corporation "Form 10-Q"

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                                 SECURITIES AND EXCHANGE COMMISSION

                                       WASHINGTON, D.C. 20549




                                             FORM 10-QSB
                                             -----------

                             QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                               OF THE SECURITIES EXCHANGE ACT OF 1934


For Quarterly Period Ended                                                    Commission File No.
     June 30, 2004                                                                    0-2040
    ---------------                                                                 ------------


                                 THE ST. LAWRENCE SEAWAY CORPORATION
                  -----------------------------------------------------------------
                  (Exact Name of Small Business Issuer as Specified in its Charter)



             INDIANA                                                          35-1038443
--------------------------------                                ------------------------------------
(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)


Issuer's telephone number, including area code               (317) 639-5292
                                                -----------------------------------------


Check whether the issuer:  (1) filed all reports  required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter  period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

         Yes     X                  No
             ---------                ---------

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the
latest practicable date.


          Class                                                       Outstanding at August 12, 2004
          -----                                                       ------------------------------
Common Stock, $1.00 par value                                                     393,735


Transitional Small Business Disclosure Format (check one):             Yes      No   X
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                                 THE ST. LAWRENCE SEAWAY CORPORATION
                                          FORM 10-QSB INDEX




PART I.  FINANCIAL INFORMATION                                                                 PAGE
                                                                                               ----

Balance Sheets - June 30, 2004 (unaudited) and March 31, 2004......................................3

Statements of Income - Three months ended June 30, 2004 and 2003...................................4

Statements of Cash Flows - Three months ended June 30, 2004 and 2003 ..............................5

Notes to Financial Statements - June 30, 2004....................................................6-7

Management's Discussion and Analysis of Financial Condition and
   Results of Operations   .....................................................................8-10

PART II.  OTHER INFORMATION.......................................................................11

Signatures........................................................................................12



                                 THE ST. LAWRENCE SEAWAY CORPORATION
                                           BALANCE SHEETS

                            JUNE 30, 2004 (UNAUDITED) AND MARCH 31, 2004



                                                                At June 30,          At March 31,
                                                                   2004                  2004
                                                               ------------          ------------
                                                               (unaudited)

                                               ASSETS
Current assets:
    Cash and cash equivalents............................         $  240,087           $  246,271
    Interest and other receivables.......................                 39                   31
                                                                ------------         ------------
         Total current assets............................            240,121              246,302

Other investments (Note E)...............................            750,000              750,000
                                                                     -------              -------
         Total assets....................................         $  990,126           $  996,302
                                                                ============         ============

                                LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Accounts payable & other.............................     $   25,047               17,547
                                                                ------------         ------------
         Total current liabilities.......................             25,047               17,547
                                                                ------------         ------------
         Total liabilities...............................             25,047               17,547

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....................................            194,092              207,768
                                                                ------------         ------------
    Total shareholders' equity...........................            965,079              978,755
                                                                ------------         ------------
         Total liabilities and shareholders' equity......         $  990,126            $ 996,302
                                                                ============         ============


                                                 3



                                 THE ST. LAWRENCE SEAWAY CORPORATION
                           STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED
                                       JUNE 30, 2004 AND 2003
                                             (UNAUDITED)


                                                                    For the Three Months Ended
                                                                   ----------------------------
                                                               June 30, 2004         June 30, 2003
                                                              ---------------       ---------------
Revenues:
    Interest and dividends...............................       $       267            $     1,036
                                                                -----------            -----------
Total revenues...........................................               267                  1,036

Operating costs and expenses:
    General and administrative...........................            13,943                 24,764
                                                                -----------            -----------
Total operating expenses.................................            13,943                 24,764
                                                                -----------            -----------
Net income (loss)........................................       $  (13,676)            $  (23,728)
                                                                ===========            ===========

Per share data:
    Weighted average number of common shares outstanding.
                                                                    393,735                393,735
                                                                -----------            -----------
Primary earnings per share:
    Income (loss) per share..............................       $    (0.03)             $   (0.06)
                                                                ===========            ===========


                                                 4



                                 THE ST. LAWRENCE SEAWAY CORPORATION
                         STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
                                       JUNE 30, 2004 AND 2003
                                             (UNAUDITED)



                                                             For the Three Months Ended
                                                            ----------------------------
                                                        June 30, 2004         June 30, 2003
                                                       ---------------       ---------------

Cash flows from operating activities:
Net income (loss)                                         $  (13,676)           $  (23,728)
Adjustments to reconcile net income to
   Net cash from operating activities

(Increase) Decrease in current assets:
Interest and other receivables                                    (8)                   25

(Decrease) Increase in current liabilities:
Other liabilities                                                 --               (50,000)
Accounts payable                                               7,500                 4,358
Income taxes payable                                              --                    --
                                                         -----------           -----------
   Net cash from operating activities                         (6,184)              (69,345)

Cash flows from investing activities:
   Research investment                                            --                    --
                                                         -----------           -----------
   Net cash from investing activities                             --                    --

Cash flows from financing activities:
   Research investment funding                                    --                    --
                                                         -----------           -----------
   Net cash from financing activities                             --                    --

Net (decrease) increase in cash and
cash equivalents                                              (6,184)              (69,345)

Cash and cash equivalents, beginning                         246,271               454,754
                                                         -----------           -----------
Cash and cash equivalents, ending                         $  240,087            $  385,409
                                                         ===========           ===========

Supplemental disclosures of cash flow
   information:
   Cash paid for income taxes                                     --                    --
   Cash paid for interest expense                                 --                    --



                                                 5

THE ST. LAWRENCE SEAWAY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004
(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-QSB. Accordingly, they do not include all of the information and footnotes required for generally
accepted accounting principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three month period ending June 30, 2004 are not
necessarily indicative of the results that may be expected for the fiscal year ending March 31,
2005. 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, 2004.

NOTE B--RECLASSIFICATION

The 2003 financial statements have been reclassified, where necessary, to conform to the
presentation of the 2004 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--RESEARCH INVESTMENT

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 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 E--T3 THERAPEUTICS INVESTMENT

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 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.

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.


NOTE F - 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."


                                                 7

THE ST. LAWRENCE SEAWAY CORPORATION

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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."

RESEARCH FUNDING - Please see "Note E--T3 Therapeutics" in the Notes to the Financial Statement
contained under Item 1 of this Form 10-QSB for a description of a research funding agreement the
Company entered into during the three months ended June 30, 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. Large animal trials as proof of concept began in the summer of 2004 and are expected
to 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.

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 June 30, 2004 as compared to three months ended June 30,
2003.

Interest and dividend income decreased to $267 for the three months ended June 30, 2004, from $1,036
for the three months ended June 30, 2003, a decrease of $769, or 74.2%. This decrease is 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 future periods due to the prior use of a significant
amount of the Company's cash in the T3 Therapeutics joint venture and in the NYU Research Funding
Agreement.

THE ST. LAWRENCE SEAWAY CORPORATION

General and administrative expenses decreased $10,821, or 43.7%, to $13,943 for the three months
ended June 30, 2004 from $24,764 for the three months ended June 30, 2003. The decrease in general
and administrative expenses is primarily due to the reduction of office rent payments and related
operating costs as a result of the planned closing of the Company's office at 320 North Meridian
Street in Indianapolis, Indiana. Additionally, stock transfer and annual meeting fees were higher in
the three months ended June 30, 2003 due to certain annual meeting fees being incurred during that
quarter of 2003 that were not incurred in the three months ended June 30, 2004. The following table
provides further detail on general and administrative expenses:

THREE MONTHS ENDED JUNE 30,

2004 2003
---- ----

Executive compensation, management fees, salaries and employee
benefits.................................................. $3,051 $4,757
Office rent and company operations............................. 308 4,013
Stock transfer services, proxy, annual meeting and SEC report
compliance................................................ 1,776 5,994
Professional fees (accounting & legal)......................... 8,808 10,000

As a result of the above items, the Company had a loss of $13,676 before provision of income taxes
in the three months ended June 30, 2004, as compared to a loss of $23,728 before provision of income
taxes in the three months ended June 30, 2003.

No Indiana gross tax was provided for in the three months ended June 30, 2004 or 2003. No federal
tax provision is applicable in the three month periods ended June 30, 2004 and 2003.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2004, the Company had net working capital of $215,079, substantially all of which was in
cash and money market funds. The Company believes it has sufficient capital resources to continue
its current business. In the event the follow-on investment of $750,000 in the Development Company
is required to be made following preliminary FDA approval, the Company 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.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Form 10-QSB 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-QSB. 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:



                                 THE ST. LAWRENCE SEAWAY CORPORATION


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 - 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 the end of the period  covered by 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.

         (b) CHANGES IN INTERNAL CONTROLS.  During the period covered by the Quarterly Report, there
has not been any  change  in the  Company's  internal  control  over  financial  reporting  that has
materially affected, or is reasonably likely to materially affect, such controls.



                                                 10



                                 THE ST. LAWRENCE SEAWAY CORPORATION



PART II.  OTHER INFORMATION

            Item 1.        Legal Proceeding - Not Applicable

            Item 2.        Changes in Securities and Small Business Issuer Purchases of Equity
                           Securities - Not Applicable

            Item 3.        Defaults upon Senior Securities - Not Applicable

            Item 4.        Submission of Matters to a Vote of Security Holders. - Not Applicable

            Item 5.        Other Information - Not Applicable

            Item 6.        Exhibits and Reports on Form 8-K

            Item 6(a) Exhibits:

            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

            Item 6(b) Reports on Form 8-K - None






                                                 11




                                              SIGNATURE



Pursuant to the requirements of the Securities  Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.



                                                        THE ST. LAWRENCE SEAWAY CORPORATION
                                                        Registrant


                                                        /s/Daniel L. Nir
                                                        --------------------------------------------
Date:  August 12, 2004                                  Daniel L. Nir
                                                        President and Treasurer
                                                        (Chief Financial Officer)





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