UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| |X| | | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period endedJune 30, 2009 |
| |_| | | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT for the
transition period from ____________ to ____________ |
Commission File Number000-02040
| ST. LAWRENCE SEAWAY CORPORATION |
| (Exact Name of Small Business Issuer as Specified in its Charter) |
| |
| DELAWARE | | 26-0818050 |
(State or Other Jurisdiction of
Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
| | 200 Connecticut Avenue
Fifth Floor
Norwalk, Connecticut 06854
(Address of principal executive offices) | |
| | (203) 853-8700 | |
| | (Issuer's Telephone Number, Including Area Code) | |
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
State the number of shares outstanding of the issuer's common stock.
| Class | Outstanding at July 31, 2009 |
| Common Stock, $0.01 par value | 518,736 |
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
ST. LAWRENCE SEAWAY CORPORATION
FORM 10-Q INDEX
| | | PAGE |
| PART I. RECENT DEVELOPMENTS AND FINANCIAL INFORMATION | |
| Recent Developments | 1-2 |
| Item 1. Financial Statements | |
| Balance Sheets - June 30, 2009 (unaudited) and March 31, 2009 (audited) | 3 |
| Statements of Operations - Three months ended June 30, 2009 (unaudited) and
three months ended June 30, 2008 (unaudited) | 4 |
| Statements of Cash Flows - Three months ended June 30, 2009 (unaudited) and
Three months ended June 30, 2008 (unaudited) | 5 |
| Statement of Changes in Stockholders' Equity for the three months ended
June 30, 2009 (unaudited) | 6 |
| Notes to Financial Statements - June 30, 2009 (unaudited) | 7-12 |
| Item 2. Management's Discussion and Analysis of Operations / Plan of Operation | 12-13 |
| FORWARD LOOKING STATEMENTS | 13 |
| Item 3. Controls and Procedures | 14 |
| PART II. OTHER INFORMATION | 14 |
| Exhibit Index | 15 |
| Signature Page | 16 |
| Exhibits | |
PART I. RECENT DEVELOPMENTS AND FINANCIAL INFORMATION
RECENT DEVELOPMENTS
The Company entered into a Stock and Warrant Purchase Agreement (the “Purchase Agreement”) as of January 10, 2007, as amended on April 16, 2007 and April 18, 2007, with Bernard Zimmerman & Company, Inc., an investment and merchant banking organization (the “Investor”), pursuant to which the Investor agreed to purchase: (i) 75,000 shares of the Company’s common stock for a total purchase price of $75,000; and (ii) a ten year warrant for a total purchase price of $2,500 which permits the Investor to purchase up to 250,000 shares of the Company’s common stock at an exercise price of $1.00 per share (the “Warrant”). The Warrant is exercisable immediately. The common stock and the Warrant were sold to the Investor pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. The common stock that was sold to the Investor represented at the August 31, 2007 closing of this transaction, and continues to represent as of the date hereof, approximately 14.5% of the outstanding common stock of the Company, provided that no changes occur to the number of shares outstanding in subsequent periods.
On July 10, 2007, the shareholders of the Company approved the transaction outlined in the above paragraph. An integral part of the transaction were the following items:
| | | 1. | | The approval of a proposal to amend and restate, in its entirety, the Company’s by-laws. |
| | | 2. | | The approval of a proposal to reincorporate the Company in Delaware from Indiana. |
| | | 3. | | The approval of a proposal to amend and restate in its entirety the Company’s Restated Articles of Incorporation, as amended, to, among other things: |
| | (a) approve the increase in the number of authorized shares of the Company from 4,000,000 shares, all of which are Common Stock, to 50,010,000 shares, consisting of 48,500,000 shares of Common Stock, 510,000 shares of a “tracking stock” known as Class A Common Stock and 1,000,000 shares of preferred stock, and to decrease the par value of the Common Stock from One Dollar ($1.00) to One Cent ($0.01); |
| | (b) approve the authorization of 1,000,000 shares of a blank check preferred class of stock, par value $0.01; and |
| | (c) approve the authorization of a non-transferable, non-tradeable, non-voting and non-certificated “tracking stock” class of securities known as the Class A Common Stock; |
| | | 4. | | The issuance of the “tracking stock” known as the Class A Common Stock to the Record Holders in connection with, and upon consummation of the transaction described above, which closed after the distribution of the Class A Common Stock to existing shareholders, and, as such, the Investor received no “tracking stock”. |
Immediately prior to the August 31, 2007 closing under the Purchase Agreement, the Company reincorporated in Delaware via statutory merger and issued to all stockholders of record as of that date a tracking stock evidencing the Company’s medical investments. The tracking stock, designated as Class A Common Stock, is non-voting, non-saleable, non-transferable, non-certificated and held in book-entry form only. The Purchase Agreement contemplates no issuance of Class A Common Stock to the Investor in connection with the Investor’s acquisition of the Company’s common stock and the Warrant on August 31, 2007. No person who acquires common stock of the Company after August 31, 2007 shall be issued or be entitled to the benefits of the tracking stock. For additional terms and conditions of the Purchase Agreement (including the proposals to reincorporate in Delaware and to issue the tracking stock), please see the Company’s Form 8-K filed on January 10, 2007, the Company’s Form 8-K filed on April 19, 2007, and the Company’s proxy statement, filed on May 30, 2007 concerning the proposals that were voted upon and approved at the stockholders’ meeting held on July 10, 2007.
1
In connection with the closing under the Purchase Agreement, and in accordance with the vote of a majority of shareholders of the Company, the incorporator of the surviving Company named Mssrs. Bernard Zimmerman (the principal of the Investor), Ronald. A. Zlatniski, Duane L. Berlin and Edward B. Grier as members of the Company’s Board of Directors. Following the closing under the Purchase Agreement, Mr. Zimmerman was appointed by the Board of Directors as Chairman of the Board of Directors, President, Chief Financial Officer and Treasurer, and Mr. Berlin was appointed as Secretary.
2
Item 1. Financial Statements
ST. LAWRENCE SEAWAY CORPORATION
BALANCE SHEETS
| | | | | | | |
| | | At June 30, | | At March 31, |
| | | 2009 | | 2009 |
| | | |
| | | (unaudited) | | (audited) |
| ASSETS | | | | | | |
| | | | | | | |
| Current Assets: | | | | | | |
| Cash and cash equivalents | $ | | 74,424 | | $ | 83,916 |
| Accrued interest receivable | | | — | | | — |
| | | |
| Total Current Assets | $ | | 74,424 | | $ | 83,916 |
| | | |
| | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | |
| | | | | | | |
| Current Liabilities: | | | | | | |
| Accounts payable & accrued expenses | | | 3,000 | | | 6,000 |
| | | |
| Total Current Liabilities | $ | | 3,000 | | $ | 6,000 |
| | | |
| | | | | | | |
| Commitments and contingencies | | | — | | | — |
| | | | | | | |
| Shareholders' Equity: | | | | | | |
Preferred Stock, par value $0.01, 1,000,000 shares authorized,
none issued or outstanding | | | — | | | — |
| | | | | | | |
Common stock, par value $0.01 per share;
48,500,000 shares authorized;
518,736 shares at 6/30/09 and 3/31/09 issued and outstanding | | | 5,188 | | | 5,188 |
| | | | | | | |
Common stock, Class A (tracking), par value $0.01 per share;
510,000 shares authorized; 443,736 shares at 6/30/09 and
3/31/09 issued and outstanding | | | 4,437 | | | 4,437 |
| | | | | | | |
| Additional paid-in capital | | | 1,481,365 | | | 1,481,365 |
| Retained earnings (deficit) | | | (1,419,566) | | | (1,413,074) |
| | | |
| Total Shareholders' Equity | | | 71,424 | | | 77,916 |
| | | |
| Total Liabilities and Shareholders' Equity | $ | | 74,424 | | $ | 83,916 |
| | | |
See Notes to the Financial Statements
3
ST. LAWRENCE SEAWAY CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | For the Three Months Ended |
| | | |
| | | June 30,
2009 | | June 30,
2008 |
| | | |
| | | | | | | |
| Revenues: | | | | | | |
| Interest and dividends | $ | | 280 | | $ | 681 |
| | | |
| Total revenues | | | 280 | | | 681 |
| | | | | | | |
| Operating costs and expenses: | | | | | | |
| General and administrative | | | 6,772 | | | 6,364 |
| | | |
| Total operating expenses | | | 6,772 | | | 6,364 |
| | | |
| (Loss) before tax provision | | | (6,492) | | | (5,683) |
| Provision for income taxes | | | — | | | — |
| | | |
| Net (loss) | $ | | (6,492) | | $ | (5,683) |
| | | |
| | | | | | | |
| Per share data: | | | | | | |
Weighted average number of common shares
outstanding - Basic and Diluted | | | 518,736 | | | 518,736 |
| | | |
| | | | | | | |
| Basic and Diluted: |
| (Loss) per share | | | ($0.01) | | | ($0.01) |
| | | |
See Notes to the Financial Statements
4
ST. LAWRENCE SEAWAY CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | | |
| | | | For the Three Months Ended |
| | | June 30, 2009 | | June 30, 2008 |
| | | |
| Cash flows from operating activities | | | | | | |
| Net (Loss) | $ | | (6,492) | | $ | (5,683) |
| | | | | | | |
Adjustments to reconcile net income to net cash from
operating activities | | | | | | |
| | | | | | | |
| Decrease in current liabilities: | | | | | | |
| Accounts payable | | | (3,000) | | | (4,000) |
| | | |
| Net cash used in operating activities | $ | | (9,492) | | $ | (9,683) |
| | | | | | | |
| Cash flows from investing and financing activities: | | | | | | |
| Net cash from investing activities | $ | | 0 | | $ | 0 |
| | | | | | | |
| Net cash from financing activities | $ | | 0 | | $ | 0 |
| | | | | | | |
| Net (decrease) in cash and cash equivalents | | | (9,492) | | | (9,683) |
| | | | | | | |
| Cash and cash equivalents, beginning | | | 83,916 | | | 116,617 |
| | | |
| Cash and cash equivalents, ending | $ | | 74,424 | | $ | 106,934 |
| | | |
| | | | | | | |
| Supplemental disclosures of cash flow information: | | | | | | |
| Cash paid for income taxes | $ | | 0 | | $ | 0 |
| Cash paid for interest expense | $ | | 0 | | $ | 0 |
| | | | | | | |
The Company issued 443,736 shares of Class A Common
Stock (tracking stock) in accordance with the Purchase
Agreement (see Note C) in a non-cash transaction. | | | | | | |
See Notes to the Financial Statements
5
ST. LAWRENCE SEAWAY CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
| | Class A | | Common Stock | | Paid-In | | Accumulated | | Total
Stockholders' |
| | Shares | | Shares | | Amount | | Capital | | Deficit | | Equity |
| |
| Balance March 31, 2007 (audited) | | | 427,069 | $ | 4,271 | $ | 866,718 | $ | (755,493) | $ | 115,496 |
| |
| Issuance of Class A Shares | 443,736 | | | $ | 4,437 | $ | (4,437) | | | | - |
| |
| Sale of Warrants | | | — | | — | $ | 2,500 | | | $ | 2,500 |
| |
| Sale of Common Shares | | | 75,000 | $ | 750 | $ | 74,250 | | | $ | 75,000 |
| |
| Exercise of Warrants | | | 16,667 | $ | 167 | $ | 49,834 | | | $ | 50,001 |
| |
| Fair Value of Warrant Issuance | | | | | | $ | 492,500 | | | $ | 492,500 |
| |
| Net loss for the year ended March 31, 2008 (Audited) | | | | | | | | $ | (626,880) | $ | (626,880) |
| |
| Balance March 31, 2008 (audited) | 443,736 | | 518,736 | $ | 9,625 | $ | 1,481,365 | $ | (1,382,373) | $ | 108,617 |
| |
| Net loss for the year ended March 31, 2009 (Audited) | | | | | | | | $ | (30,701) | $ | (30,701) |
| |
| Balance March 31,2009 (audited) | 443,736 | | 518,736 | $ | 9,625 | $ | 1,481,365 | $ | (1,413,074) | $ | 77,916 |
| |
| Net loss three months ended June 30, 2009 (unaudited) | | | | | | | | $ | (6,492) | $ | (6,492) |
| |
| Balance June 30, 2009 (unaudited) | 443,776 | | 518,736 | $ | 9,625 | $ | 1,481,365 | $ | (1,419,566) | $ | 71,424 |
| |
See Notes to Financial Statements
6
ST. LAWRENCE SEAWAY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2009
(UNAUDITED)
NOTE A — BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions for Form 10-Q. 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, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2010. 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, 2009 and all subsequent filings with the Securities and Exchange Commission.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
The financial statements have been prepared assuming the Company will continue as a going concern. Management believes that the Company has sufficient cash and understandings with various creditors to continue its efforts to seek merger (including reverse merger) acquisition and business combination opportunities for more than the next twelve months. However, the Company has no operations, and has experienced recurring quarterly and annual losses which have significantly weakened the Company’s financial condition and its ability to meet current operating expenses. The appropriateness of using the going concern basis is dependent on, among other things, the Company’s ability to raise additional capital to fund operating losses, and to further reduce operating expenses. The uncertainty of obtaining these goals raises doubt about the Company’s ability to continue as a going concern through June 30, 2009. The financial statements do not include any adjustments to the carrying value of the assets and liabilities that might be necessary as a consequence of these uncertainties.
The Company has implemented all new accounting pronouncements that are in effect and that may impact our financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial statements.
NOTE B — SHAREHOLDERS’ EQUITY AND EARNINGS PER SHARE
All share amounts have been retrospectively restated to reflect the reduction in par value from $1.00 to $0.01 based upon authorization by the Company’s shareholders (see Note C). Basic and diluted 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. Earnings per share information associated with the Class A shares has not been presented as there were no earnings or losses associated with these shares; accordingly, such per share amounts are nil.
7
NOTE C — PURCHASE AGREEMENT
The Company entered into a Stock and Warrant Purchase Agreement (the “Purchase Agreement”) as of January 10, 2007, as amended on April 16, 2007 and April 18, 2007, with Bernard Zimmerman & Company, Inc., an investment and merchant banking organization (the “Investor”), pursuant to which the Investor agreed to purchase: (i) 75,000 shares of the Company’s common stock for a total purchase price of $75,000; and (ii) a ten year warrant for a total purchase price of $2,500 which permits the Investor to purchase up to 250,000 shares of the Company’s common stock at an exercise price of $1.00 per share (the “Warrant”). The Warrant is exercisable immediately. The common stock and the Warrant were sold to the Investor pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. The common stock that was sold to the Investor represented at the August 31, 2007 closing of this transaction, and continues to represent as of the date hereof, approximately 14.5% of the outstanding common stock of the Company, provided that no changes occur to the number of shares outstanding in subsequent periods.
On July 10, 2007, the shareholders of the Company approved the transaction outlined in the above paragraph. Integral parts of the transaction were the following items:
| | | 1. | | The approval of a proposal to amend and restate, in its entirety, the Company’s by-laws. |
| | | 2. | | The approval of a proposal to reincorporate the Company in Delaware from Indiana. |
| | | 3. | | The approval of a proposal to amend and restate in its entirety the Company’s Restated Articles of Incorporation, as amended, to, among other things: |
| | (a) approve the increase in the number of authorized shares of the Company from 4,000,000 shares, all of which are Common Stock, to 50,010,000 shares, consisting of 48,500,000 shares of Common Stock, 510,000 shares of a “tracking stock” known as Class A Common Stock and 1,000,000 shares of preferred stock, and to decrease the par value of the Common Stock from One Dollar ($1.00) to One Cent ($0.01); |
| | (b) approve the authorization of 1,000,000 shares of a blank check preferred class of stock, par value $0.01; and |
| | (c) approve the authorization of a non-transferable, non-tradable, non-voting and non-certificated “tracking stock” class of securities known as the Class A Common Stock; |
| | | 4. | | The issuance of the “tracking stock” known as the Class A Common Stock to the Record Holders in connection with, and upon consummation of the transaction described above, which closed after the distribution of the Class A Common Stock to existing shareholders, and, as such, the Investor received no “tracking stock”. |
Immediately prior to the August 31, 2007 closing under the Purchase Agreement, the Company reincorporated in Delaware via statutory merger and issued to all stockholders of record as of that date a tracking stock evidencing the Company’s medical investments. The tracking stock, designated as Class A Common Stock, is non-voting, non-saleable, non-transferable, non-certificated and held in book-entry form only. The Purchase Agreement contemplates no issuance of Class A Common Stock to the Investor in connection with the Investor’s acquisition of the Company’s common stock and the Warrant on August 31, 2007. No person who acquires common stock of the Company after August 31, 2007 shall be issued or be entitled to the benefits of the tracking stock.
In connection with the closing under the Purchase Agreement, and in accordance with the vote of a majority of shareholders of the Company, the incorporator of the surviving Company named Mssrs. Bernard Zimmerman (the principal of the Investor), Ronald. A. Zlatniski, Duane L. Berlin and Edward B. Grier as members of the Company’s Board of Directors. Following the closing under the Purchase Agreement, Mr. Zimmerman was appointed by the Board of Directors as Chairman of the Board of Directors, President, Chief Financial Officer and Treasurer, and Mr. Berlin was appointed as Secretary.
8
NOTE D — MEDICAL INVESTMENTS
In periods prior to March 31, 2007, the Company made certain investments in two medical research organizations. Reference is made to the Company’s 10-KSB for the fiscal year ending March 31, 2007 for a full description of the two medical investments. The investment in New York University Research was written off the Company’s books in the fiscal year ended March 31, 2005 as having no value. As a result of the Purchase Agreement (see Note C), the Company’s investment in T3 Therapeutics was written off in the nine months ended June 30, 2008. In accordance with the Purchase Agreement, a Class “A” common stock (a tracking stock) was issued to all Company stockholders of record except the Investor on August 31, 2007, the closing date of that transaction. All subsequent stockholders will not be entitled to receive any shares or benefits of the tracking stock, which is non-certificated, non-voting, non-transferable and non-saleable, and will be held only in book entry form in the records of the Company’s transfer agent. Any funds or other remuneration received from this investment will inure only to those persons who were stockholders of record, with the exception of the Investor, on August 31, 2007. Therefore, this investment is deemed to not have any current value and $83,400 was written off the Company’s financial statements as at the six months ended September 30, 2007. However, the Class A common stock (the “Tracking Stock”) that was allocated to the shareholders of the Company on August 31, 2007 will continue to be maintained on the books of the Company at the office of the Company’s registrar and transfer agent until such time as the Medical Investment is liquidated, permanently impaired or deemed worthless. At September 30, 2007, March 31, 2009, and June 30, 2009 there were 443,736 shares of Class A Common Stock issued and outstanding.
A reconciliation of the medical investment is as follows:
| Balance March 31, 2005 (as restated) | $ | 680,000 | |
| Add: Follow-on investment, November 16, 2005 | $ | 50,000 | |
| Subtotal | $ | 730,000 | |
| Less: | | | |
| Impairment loss | ($ | 630,000 | ) |
| Equity in Loss of T3 Therapeutics | ($ | 16,600 | ) |
| Balance, March 31, 2007 | $ | 83,400 | |
| Write off at September 30, 2007 | ($ | 83,400 | ) |
| | |
| Balance at March 31, 2009 and June 30, 2009 | $ | -0- | |
| | |
As of August 31, 2007, the date of the closing of the transactions contemplated by the Purchase Agreement, and through the date hereof, Mr. Edward B. Grier, a current member of the Company’s board of directors, was a 2.5% owner of T-3 Therapeutics and had an option to purchase an additional ownership interest of approximately 2.5%, both of which he continues to own.
NOTE E — RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
On July 1, 2009, the FASB issued SFAS No. 168,“The FASB Accounting Standards Codification ™ (Codification) and The Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB StatementNo. 162", which will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by non governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company is currently evaluating the impact of SFAS No. 168 on the Company’s financial statements.
9
In April 2009, the Financial Accounting Standard Board (“FASB”) issued FASB Staff Position (“FSP”) FAS 141(R)-1,“Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arises fromContingencies”. FAPFAS 141(R)-1 amends and clarifies FASB Statement No. 141(R), “Business Combination”, to address application issues raised by preparers, auditors and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting and disclosure of assets and liabilities arising from contingencies in a business combination. FAP FAS 141(R)- is effective for assets and liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of this FAS did not have a material effect on the Company’s financial condition results of operation or cash flows.
In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments(“FAS 107-1 and APB 28-1”), which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” and APB opinion No. 28, “Interim Financial Reporting,” to require disclosures about fair value of financial instruments in interim as well as in annual financial statements. FSP FAS 107-1 and ABP 28-1 is effective for interim reporting periods ending after June 15, 2009, which for the Company is the first quarter of fiscal 2010. It is not believed that, based on the Company’s current corporate structure, FSP FAS 107-1 and ABP 28-1 will have an impact on the Company’s financial position, results of operations or cash flows.
In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts”, an interpretation of FASB Statement No. 60. SFAS No. 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claims liabilities. This statement also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years. SFAS No. 163 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.
In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS No. 162 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. SFAS No. 162 will become effective 60 days after the SEC approves the PCAOB’s amendments to AU Section 411 of the AIPCA Professional Standards. SFAS No. 162 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.
In March 2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161, “Disclosuresabout Derivative Instruments and Hedging Activities”, an amendment of FASB Statement No. 133. This standard requires companies to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company has not yet adopted the provisions of SFAS No. 161, but does not expect it to have a material impact on its financial position, results of operations or cash flows.
In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110 regarding the use of a “simplified” method, as discussed in SAB No. 107 (SAB 107), in developing an estimate of expected term of “plain vanilla” share options in accordance with SFAS No. 123 (R), Share-Based Payment. In particular, the staff indicated in SAB 107 that it will accept a company’s election to use the simplified method, regardless of whether the company has sufficient information to make more refined estimates of expected term. At the time SAB 107 was issued, the staff believed that more detailed external information about employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies) would, over time, become readily available to companies. Therefore, the staff stated in SAB 107 that it would not expect a company to use the simplified method for share option grants after December 31, 2007. The staff understands that such detailed information about employee exercise behavior may not be widely available by December 31, 2007. Accordingly, the staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The Company has not yet adopted the simplified method for “plain vanilla” share options and warrants, but does not expect it to have a material impact on o the Company’s financial position, results of operations or cash flows.
10
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated FinancialStatement”, an amendment of ARB No. 51. This statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Before this statement was issued, limited guidance existed for reporting noncontrolling interests. As a result, considerable diversity in practice existed. So-called minority interests were reported in the consolidated statement of financial position as liabilities or in the mezzanine section between liabilities and equity. This statement improves comparability by eliminating that diversity. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 (that is, January 1, 2009, for entities with calendar year-ends). Earlier adoption is prohibited. The effective date of this statement is the same as that of the related Statement 141 (revised 2007). It is not believed that this will have an impact on the Company’s financial position, results of operations or cash flows.
In December 2007, the FASB issues SFAS No. 141(R), “Business Combinations”, which replaces SFAS No. 141,“Business Combinations”, which among other things, establishes principles and requirements for how an acquirer entity recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed (including intangibles) and any non-controlling interests in the acquired entity. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. It is not believed that this will have an impact on the Company’s financial position, results of operations or cash flows.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”-Including an amendment of FASB Statement No. 115 (SFAS 159), which permits entities to choose to measure many financial instruments and certain items at fair value. Unrealized gains and losses on items for which this option has been elected are reported in earnings. The provisions of SFAS No. 159 are effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS 159 on its financial statements.
In July 2002, the Public Company Accounting Reform and Investor Protection Act of 2002 (the Sarbanes-Oxley Act) was enacted. Section 404 stipulates that public companies must take responsibility for maintaining an effective system of internal control. Section 404(a) of the Act requires public companies to report on the effectiveness of their control over financial reporting and Section 404(b) requires public companies to obtain an attest report from their independent registered public accountant about management’s report. The Company is not required to comply with section 404(a) of the Act until the fiscal year ending March 31, 2010.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE F — CONCENTRATIONS OF CREDIT RISK:
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents.
NOTE G — FAIR VALUE OF COMMON STOCK AND COMMON STOCK WARRANTS
The transaction entered into by the Company and the Investor on August 31, 2007 (see Note C) required the Company to issue 250,000 Warrants to the Investor, exercisable immediately, with an exercise price of $1.00 per warrant. The Warrants were sold to the Investor for $0.01 per warrant.
With regard to the sale and issuance of 75,000 common shares, the Company recorded such sale at fair value, which the Company believes to be $1.00 (the price paid by the Investor).
11
In accordance with FASB 123R, the Company calculated the estimated fair value of warrants utilizing a Black-Scholes model. The assumptions used in the Black-Scholes model are based on the date the warrants are granted. The risk-free rate is based on US Treasury securities with a remaining term which approximates the estimated life assumed at the date of grant. The expected life until exercise was based on management’s estimate and the warrants ten year life. The following table includes the assumptions used in estimating fair values and the resulting weighted average fair value of warrants issued as part of the Purchase Agreement:
| | Expected dividend rate | | none |
Based on the Black-Scholes valuation method, the warrants were determined to have an estimated fair value of $1.98 per warrant at issuance. Accordingly, the Company recorded the difference between the estimated fair value of the warrant $495,000 and the cost of the warrant $2,500 as compensation expense and a corresponding increase to accumulated paid-in capital.
NOTE H — FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, “Fair Value of Financial Instruments”, requires disclosure of the fair value of financial instruments for which the determination of fair value is practicable. SFAS No. 107 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of the Company’s financial instruments (cash and cash equivalents) approximate their fair value because of the short maturity of these instruments.
NOTE I — STOCK BASED COMPENSATION:
On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. SFAS 123(R) requires expense for all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. For the Company, this statement was effective as of April 1, 2006. The Company adopted the modified prospective method, under which compensation cost is recognized beginning with the effective date. The modified prospective method recognizes compensation cost based on the requirements of SFAS 123® for all share-based payments granted after the effective date and, based on the requirements of SFAS 123, for all awards granted to employees prior to the effective date that remain unvested on the effective date. The Company was not required to record any expenses under SFAS 123(R) for share based awards currently outstanding. However, the amount of expense recorded under SFAS 123(R) will depend upon the number of share based awards granted in the future and their valuation.
NOTE J — SHAREHOLDERS’ EQUITY
All share amounts have been retrospectively restated to reflect the reduction in par value from $1.00 to $0.01 based upon authorization by the Company’s shareholders (see Note C). Basic and diluted 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. Earnings per share information associated with the Class A shares has not been presented as there were no earnings or losses associated with these shares; accordingly, such per share amounts are nil.
Item 2. Management’s Discussion and Analysis of Operations / Plan of Operation
Please see “Note D — Medical Investment” in the Notes to the Financial Statements contained under Footnote D of this Form 10-Q for a description of the medical investments the Company made during 2002 and subsequent additional investments and the write-off of such investments in the year ended March 31, 2008 and its current status.
12
Results of Operations for the three months ended June 30, 2009 as compared to three months ended June 30, 2008.
Interest income decreased to $ 280 for the three months ended June 30, 2009, from $ 681 for the three months ended June 30, 2008, a decrease of $ 401. This decrease is a result of lower cash balances during 2009 as compared to 2008 as well as by lesser interest rates received.
General and administrative expenses increased to $ 6,772 for the three months ended June 30, 2009 from $6,364 for the three months ended June 30, 2008. The increase in general and administrative expenses is primarily due to an increase in professional fees, administrative items and stockholder expenses.
Liquidity and Capital Resources
Please see “Recent Developments”, pp. 1-2, and “Note C to the Financial Statements contained under Item 1 of this Form 10-Q for a description of the Purchase Agreement described therein.
Cash and cash equivalents increased from $53,175 at June 30, 2007 to $74,424 at June 30, 2009. At March 31, 2009 cash and cash equivalents was $83,916. The cash decrease was partially due to the loss incurred in the three months ended June 30, 2009 and payment of accrued expenses. Most significantly, cash increased from June 30, 2007 to June 30, 2009 in connection with the equity purchases made on August 31, 2007, which were made pursuant to the Purchase Agreement and in connection with the exercise of warrants to purchase 16,667 shares of the Company’s common stock at $3.00 per share made by Mr. Joel Greenblatt, the former Chairman of the Board, offset by expenses in connection with the transaction described herein as well as cash losses sustained in the Company’s operations in the three months ended June 30, 2009 and years ended March 31, 2009 and 2008. The Company does not have a formal arrangement with any bank or financial institution with respect to the availability of financing in the future.
PLAN OF OPERATION
The Company currently has limited operations. The Company plans to continue as a public entity and continues to seek merger, reverse merger, acquisition and business combination opportunities with operating businesses or other appropriate financial transactions. Until such an acquisition or business combination is effectuated, the Company does not expect to have significant operations. Accordingly, during such period, the Company may not achieve sufficient income to offset its operating expenses, which would cause operating losses that may require the Company to use and thereby reduce its cash on hand.
FORWARD LOOKING STATEMENTS
Certain statements in this Report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform act of 1995. When used in this Report, words such as “may,” “should,” “seek,” “believe,” “expect,” “anticipate,” “estimate,” “project,” “plan,” “goal,” “intend,” “strategy,” and similar expressions are intended to identify the Company’s future plans, operations ,business strategies, operating results, and financial position. Forward-looking statements are subject to a number of known and unknown risks and uncertainties that could cause the Company’s actual results, performance or achievements to differ materially from those described or implied in the forward-looking statement and cause its goals and strategies to not be achieved.
These risks and uncertainties many of which are not within our control, include, but are not limited to:
| | • | | general economic and business conditions; |
| | • | | the Company’s ability to find a candidate for, enter into an agreement with respect to, and consummate, a merger, reverse merger, acquisition or business combination or other financial transaction that is acceptable, both as to a candidate and as to transaction terms and conditions; |
| | • | | competition for transactions of the nature the Company is seeking; |
13
| | • | | potential future regulatory restrictions that could limit or pose restrictions on, or make less advantageous to potential candidates, transactions of the nature the Company is seeking; and |
| | • | | the availability of additional financing on satisfactory terms if a delay is encountered in consummating a transaction that the Company is seeking. |
You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Report. We do not undertake any responsibility to publicly update or revise any forward-looking statement or report.
Item 3. Controls and Procedures.
As of the end of the period covered by this Report, the Company’s President, principal executive officer and principal financial officer, evaluated the effectiveness of the company’s “disclosure controls and procedures”, as defined in Rule 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, this officer concluded that, as of the date of his evaluation, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the Company’s periodic filings under the Securities Exchange Act of 1934 is accumulated and communicated to management, including that officer, to allow timely decisions regarding required disclosure. It should be noted that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.
During the period covered by this Report, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceeding –Not Applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Pursuant to the Purchase Agreement with the Investor, on August 31, 2007, the Company sold 75,000 unregistered shares of common stock, par value $0.01 (the “Common Stock”), for $1.00 per share (for a total of $75,000) and 250,000 warrants to purchase 250,000 shares of Common Stock for $0.01 per warrant (for a total of $2,500), as described in Form 8-K, filed by the Company on September 6, 2007. The warrants are exercisable immediately with an exercise price of $1.00 per share.
On August 31, 2007, Mr. Joel Greenblatt, the former Chairman of the board of directors of the Company, exercised warrants to purchase 16,667 shares of Common Stock at $3.00 per share (for a total of $50,001).
All outstanding options and warrants expired on September 21, 2007 (with the exception of the Warrants issued on August 31, 2007 to the Investor in connection with the transaction described under Recent Developments, pp. 1-2).
Item 3. Defaults upon Senior Securities – Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders – See Form 8-K, filed by the Company on September 6, 2007, for a description of the transaction outlined on pp. 3-4 of this Form 10-QSB. Also please refer to the notice of annual meeting and the proxy statement mailed to all shareholders on May 30, 2007 on Form DEF-14A for a description of all proposals submitted to the shareholders for a vote at the Annual Meeting of Shareholders held on July 10, 2007. All proposals were approved by a majority vote of the shareholders.
Item 5. Other Information – Not Applicable.
14
Item 6. Exhibits
| | | 31.1 – | | Certification by Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | 32.1 – | | Certificate of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
15
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.
| | ST. LAWRENCE SEAWAY CORPORATION
Registrant |
|  |
| | |
| Dated: August 12, 2009 | Bernard Zimmerman
Chairman, President, Principal Executive Officer
and Principal Financial Officer |
16
