====================================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
-----------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File No.
September 30, 2003 0-2040
- -------------------------- -------------------
THE ST. LAWRENCE SEAWAY CORPORATION
------------------------------------------------------
(Exact Name of Registrant 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)
Registrant's telephone number, including area code (317) 639-5292
-----------------------------------------
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--------- ---------
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes No X
---------- ---------
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 November 13, 2003
----- --------------------------------
Common Stock, $1.00 par value 393,735
====================================================================================================
EXPLANATORY NOTE
This Amendment on Form 10-Q/A amends the Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 2003, as filed by the Registrant on November 13, 2003, and is being filed
to reflect the restatement of the Registrant's financial statements. The restatement reflects the
expensing of certain research and development costs that had previously been accounted for as an
investment. See Note G of the Notes to the financial statements.
THE ST. LAWRENCE SEAWAY CORPORATION
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION PAGE
Balance Sheets - September 30, 2003 (restated) and March 31, 2003 (restated)....................3
Statements of Income - Three months ended September 30, 2003 and 2002...........................4
Statements of Income - Six months ended September 30, 2003 and 2002.............................5
Statements of Cash Flows - Six months ended September 30, 2003 and 2002 ........................6
Notes to Financial Statements - September 30, 2003..............................................7-9
Management's Discussion and Analysis of Financial Condition and
Results of Operations .....................................................................10-13
PART II. OTHER INFORMATION.....................................................................13
Signatures......................................................................................14
2
THE ST. LAWRENCE SEAWAY CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 2003 (RESTATED) AND MARCH 31, 2003 (RESTATED)
At September 30 At March 31,
2003 2003
--------------- --------------
(unaudited) (restated)
(restated)
ASSETS
Current assets:
Cash and cash equivalents............................ $ 333,668 $ 454,754
Interest and other receivables....................... 79 124
------------ ------------
Total current assets............................ 333,747 454,878
Other investments (Note F)............................... 750,000 750,000
------------ ------------
Total assets.................................... $ 1,083,747 $ 1,204,878
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable & other............................. $ 26,250 $ 27,475
Research investment funding.......................... 25,000 100,000
------------ ------------
Total current liabilities....................... 51,250 127,475
------------ ------------
Total liabilities............................... 51,250 127,475
------------ ------------
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.................................... 261,510 306,416
------------ ------------
Total shareholders' equity........................... 1,032,497 1,077,403
------------ ------------
Total liabilities and shareholders' equity...... $ 1,083,747 $1,204,878
============ ============
3
THE ST. LAWRENCE SEAWAY CORPORATION
STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
For the Three Months Ended
-------------------------------------------
September 30, September 30,
2003 2002
--------------------- -------------------
Revenues:
Interest and dividends............................... $ 730 $ 2,109
----------- -----------
Total revenues........................................... 730 2,109
Operating costs and expenses:
General and administrative........................... 21,784 19,018
----------- -----------
Total operating expenses................................. 21,784 19,018
Income (loss) before tax provision....................... (21,054) (16,909)
Provision for income taxes........................... 124 25
----------- -----------
Net income (loss)........................................ $ (21,178) $ (16,934)
============ ============
Per share data:
Weighted average number of common shares outstanding.
393,735 393,735
------- -------
Primary earnings per share:
Income (loss) per share.............................. $ (0.05) $ (0.04)
============ ============
4
THE ST. LAWRENCE SEAWAY CORPORATION
STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
For the Six Months Ended
-------------------------------------------
September 30, September 30,
2003 2002
--------------------- -------------------
Revenues:
Interest and dividends............................... $ 1,766 $ 6,283
----------- -----------
Total revenues........................................... 1,766 6,283
Operating costs and expenses:
General and administrative........................... 46,548 61,303
----------- -----------
Total operating expenses................................. 46,548 61,303
Income (loss) before tax provision....................... (44,782) (55,020)
Provision for income taxes........................... 124 70
----------- -----------
Net income (loss)........................................ $ (44,906) $ (55,090)
============ ============
Per share data:
Weighted average number of common shares outstanding.
393,735 393,735
----------- -----------
Primary earnings per share:
Income (loss) per share.............................. $ (0.11) $ (0.14)
============ ===========
5
THE ST. LAWRENCE SEAWAY CORPORATION
STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
For the Six Months Ended
-------------------------------------------
September 30, September 30,
2003 2002
--------------------- -------------------
Cash flows from operating activities:
Net income (loss) $(44,906) $(55,090)
Adjustments to reconcile net income to
net cash from operating activities
(Increase) Decrease in current assets:
Interest and other receivables 45 40,582
(Decrease) Increase in current liabilities:
Other liabilities (75,000) --
Accounts payable (1,225) 1,558
Income taxes payable -- 70
------------- -------------
Net cash from operating activities (121,086) (12,880)
Cash flows from investing activities:
Research investment -- (750,000)
------------- -------------
Net cash from investing activities -- (750,000)
Cash flows from financing activities:
Research investment funding -- (50,000)
------------- -------------
Net cash from financing activities -- (50,000)
Net (decrease) increase in cash and
cash equivalents (121,086) (812,880)
Cash and cash equivalents, beginning 454,754 1,359,417
------------- -------------
Cash and cash equivalents, ending $333,668 $ 546,537
=============
Supplemental disclosures of cash flow
information:
Cash paid for income taxes 124 --
Cash paid for interest expense -- --
6
THE ST. LAWRENCE SEAWAY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and the instructions for Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required for generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the three month and six
month periods ending September 30, 2003 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2004. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form 10-K for the fiscal
year ended March 31, 2003.
NOTE B--RECLASSIFICATION
The 2002 financial statements have been reclassified, where necessary, to conform to the
presentation of the 2003 financial statements.
NOTE C--EARNINGS PER SHARE
Primary earnings per share are computed using the weighted average number of shares of common
stock and common stock equivalents outstanding under the treasury stock method. Common stock
equivalents include all common stock options and warrants outstanding during each of the periods
presented.
NOTE D--STOCK PURCHASE AND DIVIDEND
On March 19, 1997, the Board of Directors of the Company declared a dividend distribution of
514,191 shares of common stock, $.01 par value (the "Shares") of Paragon Acquisition Company, Inc.
("Paragon"), and 514,191 non-transferable rights (the "Subscription Right") to purchase two (2)
additional Shares of Paragon. Paragon's business purpose was to seek to acquire or merge with an
operating business, and thereafter to operate as a publicly-traded company. The Company purchased
the Paragon shares on March 6, 1997, for $5,141, or $.01 per share, and distributed one Paragon
share and one subscription right for each share of the Company's common stock owned or subject to
exercisable options and warrants as of March 21, 1997 (the "Record Date"). Neither the Company nor
Paragon received any cash or other proceeds from the distribution, and the Company's stockholders
did not make any payment for the share and subscription rights. The distribution to the Company's
stockholders was made by the Company for the purpose of providing the Company's stockholders with an
equity interest in Paragon without such stockholders being required to contribute any cash or other
capital in exchange for such equity interest.
Paragon was an independent publicly-owned corporation. However, because Paragon did not have a
specific operating business at the time of the distribution, the distribution of the shares was
conducted in accordance with Rule 419 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). As a result, the shares, subscription rights, and any shares issueable upon
exercise of subscription rights, were put into escrow. While held in escrow, the shares could not be
traded or transferred.
7
On June 1, 2001, Paragon notified the Board of Directors of the Company that the Paragon Board
had determined that due to a lack of suitable business combinations available to Paragon, Paragon
would be liquidated and dissolved. The dissolution of Paragon was completed effective June 29, 2001.
As a result, subscription rights held by the Company's stockholders have been effectively cancelled.
NOTE E--RESEARCH INVESTMENT
The Company has entered into a Research Funding Agreement with New York University School of
Medicine, New York, New York, under which the Company will provide funding for the further
development of certain NYU medical discoveries and technology, in return for which the Company will
be entitled to receive license fees from the future commercial uses of such discoveries. Such
technology is subject to pending NYU patent applications and generally relates to treatment of
certain prostate enlargements and prostate cancers. Under the Research Funding Agreement, the
Company has agreed to provide research funding of $25,000 for each of eight calendar quarters, in
exchange for which the Company would be entitled to receive 1.5% of future license revenues from the
sale, license or other commercialization of the patents. The first payment was made in connection
with the execution of the Research Funding Agreement in January, 2002. The Company has the option to
provide additional funds for up to three additional years of development, in exchange for which the
Company's share of license revenue from the patents would increase to a maximum of 3.75%.
Development and commercialization of the patents are highly speculative and subject to numerous
scientific, financial, practical and commercial uncertainties. There can be no assurances that the
Company will receive any license revenues as a result of its investment.
NOTE F--T3 THERAPEUTICS INVESTMENT
The Company has entered into a joint venture agreement under which it will provide development
funding to a newly-formed private limited liability company, T3 Therapeutics, LLC (the "Development
Company") for specified drug treatment protocols for thyroid and cardiovascular disease in exchange
for an equity interest in the Development Company. Such treatments are in early stage development
and involve the use of novel formulations of hormones, delivered in controlled release formulations.
Funding provided by the Company is being used for the purpose of financing development of new
formulations of such hormones, and to conduct animal and human clinical trials. Research has been
initiated by the Development Company, which has been founded by physicians at a major metropolitan
New York City area hospital. The Company acquired, subject to adjustment, a 12.5% ownership stake in
the Development Company, in exchange for development funding of $750,000, for use over an
approximately two-year period. The agreement provides for a follow-on investment of an additional
$750,000 if certain preliminary FDA testing approvals are secured with a corresponding increase in
the Company's ownership stake to 25% of the Development Company. If the product is licensed by
Development Company to a pharmaceutical partner the Company would be entitled to a portion of
Development Company's resulting royalties and progress payments. The amount of ownership to be
received by the Company is subject to adjustment based upon (i) ownership and license arrangements
that the Development Company makes with laboratories that provide research and formulation expertise
and products, (ii) development or licensing transactions, or (iii) other sources of financing. The
Company loaned the Development Company $40,000 in connection with entering the letter of intent
relating to the joint venture agreement; the $40,000 note was cancelled and was credited toward the
Company's initial $750,000 contribution. Development and commercialization of the treatment
protocols is highly speculative and subject to numerous scientific, practical, financial and
commercial uncertainties.
8
NOTE G - 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." On the September 30, 2003 and the March 31,
2003 balance sheets, the restatement had the effect of reducing other investments by $200,000, with
a corresponding $200,000 decrease in retained earnings.
9
THE ST. LAWRENCE SEAWAY CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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." On the September 30,
2003 and the March 31, 2003 balance sheets, the restatement had the effect of reducing other
investments by $200,000, with a corresponding $200,000 decrease in retained earnings.
RESEARCH FUNDING. Please see "Note F--T3 Therapeutics" in the Notes to the Financial
Statements contained under Item 1 of this Form 10-Q for a description of a research funding
agreement the Company entered into during the six months ended September 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. If current stability
and shelf life studies are successful, large animal trials conducted by West could begin by the end
of 2003. The Development Company has also begun discussions with an international biotechnology
company with respect to the possibility of it making a minority investment in the Development
Company to fund future research and clinical trials.
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 SEPTEMBER 30, 2003 AS COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2002.
Interest and dividend income decreased to $730 for the three months ended September 30,
2003, from $2,109 for the three months ended September 30, 2002, a decrease of $1,379, or 65.4%.
This decrease is a result of lower cash balances during the period due to research funding
investments, as well as due to lower rates of interest earned on invested funds. Interest and
dividend income is expected to continue to be lower in future periods as a result of the use of a
significant amount of the Company's cash in the T3 Therapeutics joint venture and in the NYU
Research Funding Agreement.
General and administrative expenses increased $2,766, or 14.5%, to $21,784 for the three
months ended September 30, 2003 from $19,018 for the three months ended September 30, 2002. This
increase is primarily the result of increased annual meeting expenses due to the timing of the
annual meeting of shareholders and an increase in accounting fees.
10
The following table provides further detail on general and administrative expenses:
THREE MONTHS ENDED SEPTEMBER 30,
2003 2002
---- ----
Executive compensation, management fees, salaries and employee
benefits.................................................. $ 4,621 $ 5,143
Office rent and company operations............................. 3,825 4,765
Stock transfer services, proxy, annual meeting and SEC report
compliance................................................ 3,088 1,610
Professional fees (accounting & legal)......................... 10,250 7,500
-------- -------
Total........................................ $ 21,784 $19,018
======== =======
As a result of the above items, the Company had a loss of $21,054 before provision of
income taxes in the three months ended September 30, 2003, as compared to a loss of $16,909 before
provision of income taxes in the three months ended September 30, 2002.
Indiana gross tax of $124 was provided for in the three months ended September 30, 2003 as
compared to Indiana gross tax of $25 in the three months ended September 30, 2002. No federal tax
provision is applicable in the three month periods ended September 30, 2003 and 2002.
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 2003 AS COMPARED TO SEPTEMBER 30, 2002.
Interest and dividend income decreased to $1,766 for the six months ended September 30,
2003, from $6,283 for the six months ended September 30, 2002, a decrease of $4,517, or 71.9%. This
decrease is a result of lower cash balances during the period due to research funding investments,
as well as due to lower rates of interest earned on invested funds. Cash and cash equivalents
decreased $121,086, or 26.6%, to $333,668 at September 30, 2003 from $454,754 at March 31, 2003,
primarily as a result of the research funding investments and general and administrative expenses.
11
General and administrative expenses decreased $14,755, or 24.1%, to $46,548 for the six
months ended September 30, 2003 from $61,303 for the six months ended September 30, 2002. The higher
amount for the 2002 period is primarily attributable to increased legal fees incurred during the
negotiation of the T3 Therapeutics joint venture, partially offset by an increase in annual meeting
and stock transfer expenses for the six months ended September 30, 2003. The following table
provides further detail on general and administrative expenses:
SIX MONTHS ENDED SEPTEMBER 30,
2003 2002
---- ----
Executive compensation, management fees, salaries and employee
benefits.................................................. $ 9,378 $ 8,829
Office rent and company operations............................. 7,838 8,857
Stock transfer services, proxy, annual meeting and SEC report
compliance................................................ 9,082 3,117
Professional fees (accounting & legal)......................... 20,250 40,500
------- -------
Total........................................ $46,548 $61,303
======= =======
As a result of the above items, the Company had a loss of $44,782 before provision for
income taxes in the six months ended September 30, 2003, as compared to a loss of $55,020 before
provision for income taxes in the six months ended September 30, 2002.
Indiana gross tax of $124 was provided for in the six months ended September 30, 2003 as
compared to Indiana gross tax of $70 in the six months ended September 30, 2002. No federal tax
provision is applicable in the six month periods ended September 30, 2003 and 2002.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2003, the Company had net working capital of $282,497, 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-Q contains statements which are not historical facts, but are forward-looking
statements which are subject to risks, uncertainties and unforeseen factors that could affect the
Company's ability to accomplish its strategic objectives with respect to acquisitions and developing
new business opportunities, as well as its operations and actual results. All forward-looking
statements contained herein reflect Management's analysis only as of the date of the filing of this
Form 10-Q. Except as may be required by law, the Company undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise after the date
hereof. In addition to the disclosures contained herein, readers should carefully review risks,
uncertainties and other factors contained in other documents which the Company files from time to
time with the Securities and Exchange Commission. These factors include, but are not limited to:
12
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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K -
Item 6(a) Exhibits - 31.1 - Certification by Principal Executive Officer Pursuant to Rule 13-14(a).
31.2 - Certification by Principal Financial Officer Pursuant to Rule 13a-14(a).
32.1 - Certificate of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350.
32.2 - Certificate of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350.
Item 6(b) Reports on Form 8-K - No reports on Form 8-K were filed during the three months ended
September 30, 2003.
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this amended report to be signed on its behalf by the undersigned thereunto duly authorized.
THE ST. LAWRENCE SEAWAY CORPORATION
Registrant
/s/Daniel L. Nir
--------------------------------------------
Date: June 29, 2004 Daniel L. Nir
President and Treasurer
(Chief Financial Officer)
14
