==================================================================================================== 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 the Quarterly Period Ended Commission File Number September 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 --------- --------- State 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 1, 2004 - ----------------------------- ------------------------------- Common Stock, $1.00 par value 393,735 Transitional Small Business Disclosure Format (check one): Yes No X -------- --------- ====================================================================================================
THE ST. LAWRENCE SEAWAY CORPORATION FORM 10-QSB INDEX PART I. FINANCIAL INFORMATION PAGE ---- Balance Sheets - September 30, 2004 and March 31, 2004.............................................3 Statements of Income - Three months ended September 30, 2004 and 2003..............................4 Statements of Income - Six months ended September 30, 2004 and 2003................................5 Statements of Cash Flows - Six months ended September 30, 2004 and 2003............................6 Notes to Financial Statements - September 30, 2004...............................................7-8 Management's Discussion and Analysis or Plan of Operation.......................................9-12 PART II. OTHER INFORMATION.......................................................................13 - --------------------------- Signatures........................................................................................14
THE ST. LAWRENCE SEAWAY CORPORATION BALANCE SHEETS SEPTEMBER 30, 2004 AND MARCH 31, 2004 At September 30, At March 31, 2004 2004 ---------------- ---------------- (unaudited) ASSETS Current assets: Cash and cash equivalents............................ $ 229,399 $ 246,271 Interest and other receivables....................... 79 31 Prepaid items........................................ 500 -- ------------ ------------ Total current assets............................ 229,978 246,302 Other investments (Note E)............................... 750,000 750,000 ------------ ------------ Total assets.................................... $979,978 $ 996,302 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable & other............................. $ 25,492 $ 17,547 ------------ ------------ Total current liabilities....................... 25,492 17,547 ------------ ------------ Total liabilities............................... 25,492 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.................................... 183,499 207,768 ------------ ------------ Total shareholders' equity........................... 954,486 978,755 ------------ ------------ Total liabilities and shareholders' equity...... $ 979,978 $ 996,302 ============ ============ 3
THE ST. LAWRENCE SEAWAY CORPORATION STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (UNAUDITED) For the Three Months Ended ----------------------------------- September 30, September 30, 2004 2003 -------------- -------------- Revenues: Interest and dividends............................... $ 468 $ 730 ---------- ---------- Total revenues........................................... 468 730 Operating costs and expenses: General and administrative........................... 11,060 21,784 ---------- ---------- Total operating expenses................................. 11,060 21,784 Income (loss) before tax provision....................... (10,592) (21,054) Provision for income taxes........................... -- 124 ---------- ---------- Net income (loss)........................................ $ (10,592) $ (21,178) =========== ========== Per share data: Weighted average number of common shares outstanding. 393,735 393,735 ---------- ---------- Primary earnings per share: Income (loss) per share.............................. $ (0.03) $ (0.05) ========== ========== 4
THE ST. LAWRENCE SEAWAY CORPORATION STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (UNAUDITED) For the Six Months Ended ----------------------------------- September 30, September 30, 2004 2003 -------------- -------------- Revenues: Interest and dividends............................... $ 735 $ 1,766 ---------- ---------- Total revenues........................................... 735 1,766 Operating costs and expenses: General and administrative........................... 25,004 46,548 ---------- ---------- Total operating expenses................................. 25,004 46,548 Income (loss) before tax provision....................... (24,269) (44,782) Provision for income taxes........................... -- 124 ---------- ---------- Net income (loss)........................................ $ (24,269) $ (44,906) ============ ========== Per share data: Weighted average number of common shares outstanding. 393,735 393,735 ---------- ---------- Primary earnings per share: Income (loss) per share.............................. $ (0.06) $ (0.11) =========== ========== 5
THE ST. LAWRENCE SEAWAY CORPORATION STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (UNAUDITED) For the Six Months Ended ----------------------------------- September 30, September 30, 2004 2003 -------------- -------------- Cash flows from operating activities: Net income (loss) $(24,269) $(44,906) Adjustments to reconcile net income to net cash from operating activities (Increase) Decrease in current assets: Interest and other receivables (548) 45 (Decrease) Increase in current liabilities: Other liabilities -- (75,000) Accounts payable 7,945 (1,225) Income taxes payable -- -- ---------- ------------- Net cash from operating activities (16,872) (121,086) 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 (16,872) (121,086) Cash and cash equivalents, beginning 246,271 454,754 ---------- ---------- Cash and cash equivalents, ending $229,399 $333,668 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, 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 and six month periods ending September 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. 7
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." 8
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 Statements contained under Item 1 of this Form 10-QSB 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. Initial prototype stability studies have been completed, but the prototypes exhibited some instability at high temperatures and high humidity. The large animal (swine) trials recently concluded by the Development Company designed to test the absorption characteristics of tri-iodothyronine ("T-3") exhibited very limited T-3 absorption and extremely erratic results. Consequently, the Development Company is further refining its T-3 drug preparations in anticipation of additional trials in the first half of 2005. 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 a pharmaceutical company that would through a research and development agreement provide funding for further development of 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. 9
RESULTS OF OPERATIONS -- THREE MONTHS ENDED SEPTEMBER 30, 2004 AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2003. Interest and dividend income decreased to $468 for the three months ended September 30, 2004, from $730 for the three months ended September 30, 2002, a decrease of $262, or 35.9%. 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 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 decreased $10,724, or 49.2%, to $11,060 for the three months ended September 30, 2004 from $21,784 for the three months ended September 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, professional fees were approximately $6,600 lower in the three months ended September 30, 2004. The following table provides further detail on general and administrative expenses: THREE MONTHS ENDED SEPTEMBER 30, 2004 2003 ---- ---- Executive compensation, management fees, salaries and employee benefits.................................................. $2,758 $ 4,621 Office rent and company operations............................. 160 3,825 Stock transfer services, proxy, annual meeting and SEC report compliance................................................ 4,515 3,088 Professional fees (accounting & legal)......................... 3,628 10,250 -------- -------- Total........................................ $ 11,061 $ 21,784 ======== ======== As a result of the above items, the Company had a loss of $10,592 before provision of income taxes in the three months ended September 30, 2004, as compared to a loss of $21,054 before provision of income taxes in the three months ended September 30, 2003. No Indiana gross tax was provided for in the three months ended September 30, 2004 as compared to Indiana gross tax of $124 in the three months ended September 30, 2003. No federal tax provision is applicable in the three month periods ended September 30, 2004 and 2003. RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 2004 AS COMPARED TO SEPTEMBER 30, 2003. Interest and dividend income decreased to $735 for the six months ended September 30, 2004, from $1,766 for the six months ended September 30, 2003, a decrease of $1,031, or 58.4%. This decrease is a result of lower cash balances during the period due to research funding investments. Cash and cash equivalents decreased $16,872, or 6.9%, to $229,399 at September 30, 2004 from $246,271 at March 31, 2004, primarily due to the payment of general and administrative expenses. General and administrative expenses decreased $21,544, or 46.3%, to $25,004 for the six months ended September 30, 2004 from $46,548 for the six months ended September 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, professional fees were approximately $7,800 lower in the six months ended September 30, 2004. The following table provides further detail on general and administrative expenses: 10
SIX MONTHS ENDED SEPTEMBER 30, 2004 2003 ---- ---- Executive compensation, management fees, salaries and employee benefits.................................................. $5,809 $ 9,378 Office rent and company operations............................. 468 7,838 Stock transfer services, proxy, annual meeting and SEC report compliance................................................ 6,291 9,082 Professional fees (accounting & legal)......................... 12,436 20,250 -------- -------- Total........................................ $ 25,004 $46,548 ======== ======== As a result of the above items, the Company had a loss of $24,269 before provision for income taxes in the six months ended September 30, 2004, as compared to a loss of $44,782 before provision for income taxes in the six months ended September 30, 2003. No Indiana gross tax was provided for in the six months ended September 30, 2004 as compared to Indiana gross tax of $124 in the six months ended September 30, 2003. No federal tax provision is applicable in the six month periods ended September 30, 2004 and 2003. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2004, the Company had net working capital of $204,486, 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: 11
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 the 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. 12
PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDING - Not Applicable Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS - Not Applicable Item 3. DEFAULTS UPON SENIOR SECURITIES - Not Applicable Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Not Applicable Item 5. OTHER INFORMATION - Not Applicable Item 6. EXHIBITS - 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. 13
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE ST. LAWRENCE SEAWAY CORPORATION Registrant /s/Daniel L. Nir Date: November 2, 2004 -------------------------------------------- Daniel L. Nir President and Treasurer (Chief Financial Officer) 14