ST LAWRENCE SEAWAY CORP - 10-K Annual Report

Back to GetFilings.com

=====================================================================================================

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
- -

FOR THE FISCAL YEAR ENDED MARCH 31, 2002

_ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _____________ to ____________

Commission file number: 0-2040

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

Indiana 35-1038443
--------------------------- ------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)

320 N. Meridian St., Suite 818 46204
Indianapolis, Indiana ----------
(Address of Principal Executive Offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

Title of class
--------------
Common Stock, par value $1.00 per share

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. Yes [X] No [ ]

The aggregate market value of common stock held by non-affiliates of the registrant as of June
4, 2002 was approximately $812,000.

The number of shares of common stock of the registrant outstanding as of June 24, 2002 was
393,735.

=====================================================================================================

THE ST. LAWRENCE SEAWAY CORPORATION

PART I

ITEM 1 - BUSINESS

The St. Lawrence Seaway Corporation (the "Company") is an Indiana corporation organized on
March 31, 1959. Prior to 1998, the Company principally engaged in farming, timber, harvesting and
other traditional agricultural activities. The Company is currently engaged in investing in drug
development programs and in evaluating other alternatives to its former business, including
continuing its evaluation of operating companies for acquisition, merger or investment. Pending any
such transaction, the Company will continue its practice of maintaining its cash assets in
relatively liquid interest/dividend bearing money market investments. Eventually such assets may be
used for an acquisition or for a partial payment of an acquisition or for the commencement of a new
business.

RESEARCH FUNDING. In the last two years, the Company has examined several investment and
acquisition opportunities in technology and Internet-related fields, but ultimately determined that
they were not suitable for the Company. The Company has broadened its search to opportunities to
participate in funding the development of pharmaceuticals and health-related products. The following
is a summary of two ventures the Company has finalized.

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 is highly speculative and subject to numerous
scientific, financial, practical and commercial uncertainties. There can be no assurances that the
Company will receive any license revenues as a result of its investment.

In a separate matter, the Company has also entered into a joint venture agreement as of June
25, 2002 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 will be 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 agreement calls for
the Company to acquire, subject to adjustment, a 12.5% ownership stake in the Development Company,
in exchange for its commitment to provide 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 the
Development Company to a pharmaceutical partner, the Company would be entitled to a portion of the
Development Company's resulting royalties and progress payments. The amount of ownership to be
received by the Company is subject to adjustment, based upon (i) ownership and license arrangements
that the Development Company makes with laboratories that provide research and formulation expertise
and products, (ii) development or licensing transactions or (iii) other sources of financing. The
Company loaned the Development Company $40,000 in connection with entering into the letter of intent
relating to the joint venture agreement; the $40,000 note was cancelled and has been credited toward
the Company's initial $750,000 investment. Development and commercialization of the treatment
protocols is highly speculative and subject to numerous scientific, practical, financial and
commercial uncertainties. There can be no assurances that the Company will receive any royalties or
progress payments, or that the value of its ownership stake in the Development Company will increase
or even maintain its current value.

ACTIVITIES DURING FISCAL YEAR 2001. During part of the fiscal year ended March 31, 2001, the
Company was still the record owner of one parcel of agricultural real estate in Northern Indiana
comprising approximately 195 acres. This real estate, known as Schleman Farm, was primarily devoted
to farming activities under the cash lease method of operation. The cash lease method of operation
involves the leasing of the property to farmers who are directly responsible for the operation of
the farm and who paid the Company a rental fee covering a ten-month period for the use of the
property for farming and related activities. The Company generally received these rental payments at
one time or in semi-annual installments. Real estate taxes and other minor expenses, such as
insurance, were the responsibility of the Company in some instances.

The Company engaged the services of a farm management company, Halderman Farm Management
Service, Inc., of Wabash, Indiana ("Halderman"). Under the contract, Halderman managed, and was
responsible for the negotiation of all leases, tenant contracts, and general operations and programs
of the Schleman Farm. Halderman was compensated on a quarterly per-acre fee basis. It had managed
the current and former farm properties of the Company for more than ten years.

On February 23, 2000, the Company conducted a real estate auction and entered into definitive
purchase and sale agreements with seven non-affiliated, individual purchasers for the sale of all of
the Company's remaining agricultural real estate in Northern Indiana. The real estate was sold at
auction for an aggregate gross sales price of $567,500. Halderman assisted the Company with the
auction of the Schleman Farm and received a 5% commission on the sale thereof, as well as a
co-broker's fee on the sale of one parcel. Advertising expenses for the auction paid by Halderman
were reimbursed thereto by the Company from the proceeds of the sale of the property. At closing, an
aggregate $13,225 price reduction was made due to acreage corrections revealed by the survey
delivered at closing and due to deletion from the sale property of an electrical substation not
owned by the Company. All sales were closed as of June 14, 2000, and net proceeds of $506,510 were
delivered to the Company as of that date.

CANCELLATION OF SHARES OF PARAGON ACQUISITION COMPANY, INC. 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. 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-held corporation. However, because Paragon did not have a
specific operating business, in accordance with Rule 419 promulgated under the Securities Act of
1933, as amended (the "Securities Act"), the shares and subscription rights were held in escrow and
were non-transferable by the holder thereof. There was no public trading market for the shares and
none was expected to develop until after the consummation of a business combination and the release
of shares from escrow.

On June 1, 2001, Paragon notified the Board of Directors of the Company that the Paragon Board
had determined that due to the lack of suitable business combinations available to Paragon, Paragon
would be liquidated and dissolved. All outstanding shares of Paragon (including all escrowed shares)
were cancelled effective June 29, 2001. No distributions or payments were made to the Company's
stockholders in connection with the liquidation of Paragon.

FINANCING ARRANGEMENTS. The Company currently has no debt for borrowed funds or similar
obligations or contingencies. The Company may incur debt of an undetermined amount to effect an
acquisition or commence a new business. The Company does not have a formal arrangement with any bank
or financial institution with respect to the availability of financing in the future.

LICENSES AND TRADEMARKS, ETC. The business of the Company is not currently dependent upon any
patent, trademark, franchise or license.

GOVERNMENTAL REGULATION. The Company believes it is in compliance with all federal, state and
local regulations including all applicable environmental matters.

EMPLOYEES. The Company has no employees at this time. Mr. Jack C. Brown, Secretary of the
Company receives a monthly fee of $500 for administrative services that he renders to the Company.
Such fee is paid pursuant to a month to month arrangement. Part-time secretarial and bookkeeping
services are provided to the Company by an employee of a management company with whom the Company
shares office space.

ITEM 2 - PROPERTIES.

At March 31, 2002, the Company did not own any real estate.

ITEM 3 - LEGAL PROCEEDINGS.

The Company is not a party to, nor is any of its property the subject of, any material pending
legal proceedings.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

PART II

ITEM 5 - MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION. The Company's common stock is not currently listed for trading on any
exchange. The following table sets forth the high and low sales price for each quarterly period
during the fiscal years 2002 and 2001, as reported by Commodity Systems, Inc. from the pink sheets
and the OTC Bulletin Board. The common stock is quoted under the ticker symbol "STLS." Such price
data reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.

FISCAL YEAR QUARTER HIGH LOW
- ----------------------------------------------------------------------------------------------------
2001 First $2.13 $2.00
- ----------------------------------------------------------------------------------------------------
Second $3.25 $2.06
- ----------------------------------------------------------------------------------------------------
Third $3.50 $2.00
- ----------------------------------------------------------------------------------------------------
Fourth $2.75 $2.00
- ----------------------------------------------------------------------------------------------------
2002 First $2.60 $2.13
- ----------------------------------------------------------------------------------------------------
Second $2.90 $2.15
- ----------------------------------------------------------------------------------------------------
Third $2.50 $2.25
- ----------------------------------------------------------------------------------------------------
Fourth $2.50 $2.35
- ----------------------------------------------------------------------------------------------------

DIVIDENDS. It is the present policy of the Board of Directors of the Company to retain
earnings, if any, to finance the future expansion of the Company. No cash dividends were paid this
year and no cash dividends are expected to be paid in the future.

NUMBER OF STOCKHOLDERS. As of June 24, 2002, there were approximately 1,221 holders of record
of the Company's common stock.

ITEM 6 - SELECTED FINANCIAL DATA

The following table sets forth selected financial information with respect to the Company at or
for the five fiscal years ended March 31, 2002. All information set forth in the following table
should be read in connection with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and in conjunction with the Company's audited Financial Statements and Notes
thereto appearing elsewhere in this Report.

FOR THE FISCAL YEAR ENDED MARCH 31,
-----------------------------------------------------------------------
2002 2001 2000 1999 1998
----------- ------------- ------------- ------------- -------------
REVENUES:
Farm rentals.................... $ -- $ -- $ 8,208 $ 9,120 $ 9,120
Interest & dividends............ 39,227 79,540 49,244 51,069 56,704
Sales of land................... -- 392,235 -- -- --
-------- -------- -------- -------- --------
-- 392,235 -- -- --
-------- -------- -------- -------- --------
Total revenues............... 39,227 471,775 57,452 60,189 65,824
-------- -------- -------- -------- --------
COSTS & EXPENSES:
Farm related operating costs.... -- -- 833 1,613 1,734
Depreciation.................... -- -- 1,111 1,568 1,568
Consulting fees................. 6,000 6,000 6,000 6,000 6,000
General and administrative...... 124,888 85,585 88,034 102,102 112,092
------- ------- ------- ------- -------
Total operating expenses..... 130,888 91,585 95,978 111,283 121,394
Income (loss) before income
taxes........................ (91,661) 380,190 (38,526) (51,094) (55,570)
Income tax expense (benefit).... 449 7,594 573 690 787
-------- -------- -------- -------- --------
Net income (loss)............ $(92,110) $ 372,596 $ (39,099) $ (51,784) $ (56,357)
========= ========= ========== ========== ==========
Income (loss) per common share.. $ (0.23) $ 0.95 $ (0.10) (0.13) $ (0.14)
======== ======== ======== ====== ========
Weighted average number of
common shares outstanding.... 393,735 393,735 393,735 393,735 393,735

AT MARCH 31,
-----------------------------------------------------------------------
2002 2001 2000 1999 1998
----------- ------------- ------------- ------------- -------------
BALANCE SHEET DATA:
Total assets.................... $1,600,214 $1,491,692 $1,123,040 $1,165,360 $1,231,852
Total liabilities............... 215,473 14,841 18,785 22,006 36,714
Shareholders' equity............ 1,384,741 1,476,851 1,104,255 1,143,354 1,195,138

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

RECENT ACTIVITIES. Please see "Item 1 - Business - Research Funding" for a description of
recent funding agreements that the Company has entered into in the fourth quarter of fiscal 2002 and
the first quarter of fiscal 2003.

RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED MARCH 31, 2002 as Compared to the Fiscal Year
Ended March 31, 2001. Interest and dividend income decreased by $40,313, or 50.7%, from $79,540 for
the fiscal year ended March 31, 2001 to $39,227 for the fiscal year ended March 31, 2002. The
decrease is a result of lower rates of interest earned on invested funds.

There were no revenues from sales of land in the fiscal year ended March 31, 2002, as compared
to revenues of $392,235 from sales of land in the fiscal year ended March 31, 2001, due to the sale
of the Schleman Farm. As of March 31, 2002, the Company did not own any real estate.

General and administrative expenses increased by $39,303, or 45.9%, from $85,585 for the fiscal
year ended March 31, 2001 to $124,888 for the fiscal year ended March 31, 2002. The increase is
primarily the result of increased professional fees related to the negotiation of the research
funding arrangement with NYU and the letter of intent and joint venture agreement for the
Development Company.

The following table summarizes the significant components of these expenses, and presents a
comparison of such components for the years ended March 31, 2001 and March 31, 2000:

FOR THE FISCAL YEAR ENDED MARCH 31,
-----------------------------------
2002 2001
------------- --------------
Executive compensation,
management fees, salaries and
employee benefits.............. $ 11,086 $ 10,757
Office rent and operations......... 15,322 15,669
Stock services, proxy, annual
meeting and SEC report
compliance..................... 19,010 16,905
Professional fees (accounting &
legal)......................... 79,470 42,254
------ ------
Total..................... $124,888 $ 85,585
======== ========

As a result of the above items, the Company had a loss of $91,661 before provision for income
taxes for the fiscal year ended March 31, 2002, as compared to a gain of $380,190 before provision
for income taxes for the fiscal year ended March 31, 2001.

Income tax paid for the fiscal year ended March 31, 2002 was $449, as compared to income tax
paid for the fiscal year ended March 31, 2001 of $7,594.

RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED MARCH 31, 2001, AS COMPARED TO THE FISCAL YEAR
ENDED MARCH 31, 2000. Interest and dividend income increased to $79,540 in the year ended March 31,
2001, from $49,244 in the previous year. The increase is a result of greater dollars invested in the
year ended March 31, 2001.

There were no farm rental revenues in the fiscal year ended March 31, 2001, as compared to
$8,208 in such revenues in the previous year. The decrease is due solely to the termination during
the previous fiscal year of the existing farm tenant agreement as a result of the sale of the
Schleman Farm.

General and administrative expenses decreased to $85,585 in the year ended March 31, 2001, from
$85,034 in the year ended March 31, 2000. The following table summarizes the significant components
of these expenses, and presents a comparison of such components for the years ended March 31, 2001
and March 31, 2000:

FOR THE FISCAL YEAR ENDED MARCH 31,
-----------------------------------
2001 2000
------------- --------------
Executive compensation,
management fees, salaries and
employee benefits........... $ 10,757 $ 14,762
Office rent and operations...... 15,669 16,665
Stock services, proxy, annual
meeting and SEC report
compliance.................. 16,905 17,609
Professional fees (accounting &
legal)...................... 42,254 37,866
Payroll, excise and other taxes.
-- 1,132
-------- --------
Total.................. $ 85,585 $ 88,034
======== ========

The Company had $380,190 of income before taxes in the year ended March 31, 2001, as compared
to a loss of $38,526 before taxes in the year ended March 31, 2000.

The income tax paid in the current year was $7,594. An income tax of $573 was paid in the year
ended March 31, 2000.

LIQUIDITY AND CAPITAL RESOURCES. At March 31, 2002, the Company had net working capital of
$1,259,741 the major portion of which was in cash and money market funds. The Company believes it
has sufficient capital resources to continue its current business. In the event the follow-on
investment of $750,000 in the Development Company is required to be made following preliminary FDA
approval, the Company may 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 report contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which reflect the
Company's current views with respect to future events and financial performance. The words
"believe," "expect," "anticipate," and similar expressions identify forward-looking statements.
Investors should not rely on forward-looking statements because they are subject to a variety of
risks, uncertainties, and other factors that could cause actual results to differ materially from
those expressed in any such forward-looking statements, including those mentioned below and those
detailed from time to time in the Company's filings with the Securities and Exchange Commission.
These factors include, but are not limited to:

- the ability to successfully complete development and commercialization of products, including
the cost, timing, scope and results of pre-clinical and clinical testing;

- the ability to successfully complete product research and further development, including
animal, pre-clinical and clinical studies;

- the ability of the developers to manage multiple late stage clinical trials for a variety of
product candidates;

- significant uncertainties and requirements to attain government testing and sales approvals
and licenses;

- the volume and profitability of product sales;

- changes in existing and potential relationships with financing, corporate or laboratory
collaborators;

- the cost, delivery and quality of clinical and commercial grade materials supplied by
contract manufacturers or laboratories;

- the timing, cost and uncertainty of obtaining regulatory approvals;

- the ability to obtain substantial additional funding or to enter into development or
licensing arrangements with well-funded partners or licensees;

- the ability to attract manufacturing, sales, distribution and marketing partners and other
strategic alliances;

- the ability to develop and commercialize products before competitors; and

- the dependence on certain founders and key management members of the developer, or physicians
with expertise in the field.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As of March 31, 2002, the Company had cash and cash equivalents of $1,359,417 consisting of
relatively liquid interest/dividend bearing money market investments. Decreases in interest rates
over time will reduce the Company's interest income from short-term investments.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Annexed hereto starting on Page 17.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Set forth in the following table are the names and ages of all persons who were members of the
Board of Directors of the Company at March 31, 2002, all positions and offices with the Company held
by such persons, their business experience, the period during which they have served as members of
the board of directors and other directorships held by them.

Directors/
Position in Company Age Director Since Business Experience During Last Five Years Other Directorships
- ------------------- --- -------------- ------------------------------------------ -------------------
Jack C. Brown 83 1959 Attorney at Law Indianapolis, Indiana since None
Secretary 1945.

Joel M. Greenblatt 44 1993 Managing Partner of Gotham Capital III L.P. None
Chairman of the Board ("Gotham") and its predecessors since 1985.
Gotham is a private investment partnership
which owns securities, equity interests,
distressed debt, trade claims and bonds,
derivatives and options and warrants of
issuers engaged in a variety of businesses.

Daniel L. Nir 41 1993 Manager of Gracie Capital, L.P. since None
President and Treasurer December, 1998; Manager of Sargeant Capital
Ventures, LLC since December 1997; Managing
Partner of Gotham, prior thereto.

Edward B. Grier 44 1993 Partner of Gracie Capital, L.P. since January None
Vice President 1999; Vice President of Gotham from 1992-1994
and a limited partner of Gotham from January
1, 1995 through December 31, 1998.

Directors of the Company are elected by a plurality of the votes cast at the Annual Meeting of
Shareholders. Each Director's current term of office will expire at the next annual meeting of
Shareholders or when a successor is duly elected and qualified. Executive officers of the Company
are elected annually for a term of office expiring at the Board of Directors meeting immediately
following the next succeeding Annual Meeting of Shareholders, or until their successors are duly
elected and qualified.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. Based solely on a review of Forms 3 and 4
and amendments thereto, furnished to the Company during the fiscal year ended March 31, 2002 and
Forms 5 and amendments thereto furnished to the Company with respect to the fiscal year ended March
31, 2002, no director, officer or beneficial owner of more than 10% of the Company's equity
securities failed to file on a timely basis reports required by Section 16(a) of the Exchange Act
during the fiscal year ended March 31, 2002.

ITEM 11 - EXECUTIVE COMPENSATION.

Except as noted below, neither the Company's Chief Executive Officer nor any other executive
officers of the Company (collectively the "Named Executives") received salary, bonus or other annual
compensation for rendering services to the Company during the fiscal years ended March 31, 2002,
2001 and 2000.

During each of the three fiscal years ended March 31, 2002, 2001 and 2000, the Company paid to
Jack C. Brown, Secretary and a Director, a monthly fee of $500 for administrative services that he
renders to the Company. Such fee is on a month to month arrangement.

SUMMARY COMPENSATION TABLE. As permitted by Item 402 of Regulation S-K, the Summary
Compensation Table has been omitted as there was no compensation awarded to, earned by or paid to
any executive officer which is required to be reported in such Table for any fiscal year covered
thereby. In addition, no transactions between the Company and a third party where the primary
purpose of the transaction was to furnish compensation to any executive officer were entered into
for any fiscal year covered thereby.

OPTION/SAR GRANTS IN FISCAL YEAR ENDED MARCH 31, 2002. No options or stock appreciation rights
were granted in the fiscal year ended March 31, 2002.

AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR ENDED MARCH 31, 2002 AND FISCAL YEAR-END
OPTION/SAR VALUES. The Company has a stock option plan originally adopted by the shareholders on
June 12, 1978, and revised and approved by the shareholders on June 13, 1983, September 21, 1987 and
August 28, 1992. The Company currently has one outstanding Stock Option Agreement entered into
pursuant to the Plan. The options granted thereunder expire on September 21, 2002. The following
table summarizes options exercised during fiscal year 2002 and presents the value of unexercised
options held by Jack C. Brown at fiscal year end. There are currently no outstanding stock
appreciation rights.

Value of Unexercised in the
Number of Options/SAR's at Money Options/SAR's at Fiscal
Fiscal Year End Year End
(#)
Shares
Acquired ($) (#) (#) ($) ($)
Name on Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------------- ----------- ------------- ----------- -------------
Joel M. Greenblatt 0 0 0 0 0 0
Daniel L. Nir 0 0 0 0 0 0
Edward B. Grier, III 0 0 0 0 0 0
Jack C. Brown 0 0 15,000 0 0(1) 0

(1) Based on the closing sale price of $2.45 on April 3, 2002, the date closest to the fiscal year
end on which a trade occurred. The options have an exercise price of $3.00 per share.

LONG-TERM INCENTIVE PLANS - AWARDS IN FISCAL YEAR ENDED MARCH 31, 2002. Not applicable.

COMPENSATION OF DIRECTORS. The By-laws of the Company provide for Directors to receive a fee of
$100 for each meeting of the Board of Directors which they attend plus reimbursement for reasonable
travel expense. No fees were paid to Directors for meetings in fiscal year 2002.

As discussed above, during the fiscal year ended March 31, 2002, the Company paid Jack C.
Brown, Secretary and a Director, a monthly fee of $500 for administrative services that he renders
to the Company.

COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION. The Board of Directors does not
have any standing audit, nominating or compensation committees or any other committees performing
similar functions. Therefore, there are no relationships or transactions involving members of the
Compensation Committee during the fiscal year ended March 31, 2002 required to be reported pursuant
to Item 402(j) of Regulation S-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table sets forth as of June 24, 2002 the beneficial share ownership of all
beneficial owners of 5% or more of the Company's common stock, all directors and executive officers
of the Company owning securities, and of all officers and directors as a group.

Amount and
Nature of
Beneficial Beneficial Percent
Owner Ownership of Class
- ---------- ------------- --------

The Windward Group, L.L.C. 150,000(1) 29.5%
100 Jericho Quadrangle
Suite 212
Jericho, NY 11753

Joel M. Greenblatt 150,000(2) 29.5
100 Jericho Quadrangle
Suite 212
Jericho, NY 11753

Daniel L. Nir 150,000(2) 29.5
100 Jericho Quadrangle
Suite 212
Jericho, NY 11753

Jack C. Brown 20,456(3) 4.02
320 N. Meridian St.
Suite 818
Indianapolis, IN 46204

Edward B. Grier III 0 *
100 Jericho Quadrangle
Suite 212
Jericho, NY 11753

Kevin J. and Dianne M. Bay 20,500(4) 5.2
W288 S290 Elmhurst Drive
Waukesha, WI 53188

All directors and
officers as a group 170,456 33.5
(4 persons)

- ---------------------
*Less than 1%

(1) Includes 100,000 shares subject to a currently exercisable Stock Warrant issued to the
Windward Group L.L.C. pursuant to a Warrant Agreement dated September 24, 1986, and amended on July
6, 1992, August 28, 1992 and September 15, 1997.

(2) Includes 100,000 shares subject to a currently exercisable Stock Warrant issued to the
Windward Group L.L.C. pursuant to a Warrant Agreement dated September 24, 1986, and amended on July
6, 1992, August 28, 1992 and September 15, 1997. Ownership of Mr. Nir and Mr. Greenblatt is indirect
as a result of their membership interest in The Windward Group, L.L.C. Mr. Nir and Mr. Greenblatt
disclaim individual beneficial ownership of any common stock of the Company.

(3) Includes 15,000 shares subject to currently exercisable stock options granted on June 11,
1983, as amended, and expiring on September 21, 2002, with a per share exercise price of $3.00.

(4) Kevin J. Bay and Dianne M. Bay are husband and wife. The Bays own 18,000 shares of common
stock of the Company, in a joint account. Each of Mr. and Mrs. Bay also own 600 and 1,900 additional
shares, respectively, in individual accounts, as reported in a Schedule 13D filed with the SEC and
the Company on January 19, 2000.

No other person or group has reported that it is the beneficial owner of more than 5% of the
outstanding common stock of the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Not applicable.

PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) FINANCIAL STATEMENTS: Page No.

Independent Auditor's Report 17
Balance Sheets 18
Statements of Income 19
Statement of Shareholders' Equity 20
Statements of Cash Flow 21

Notes to Financial Statements 22

FINANCIAL SCHEDULES:

None required.

Schedules other than those listed above are omitted for the reason that they are not required or not
appropriate or the required information is shown in the financial statements or notes thereto.

(b) Reports on Form 8-K

A current report with respect to Item 5 of Form 8-K was filed by the Company on February 8,
2002.

(3) (i) Articles of Incorporation of The St. Lawrence Seaway Corporation, as amended. (Incorporated
by reference to Exhibit (C) (3) (i) to the Annual Report of The St. Lawrence Seaway Corporation
for the fiscal year ended March 31, 1991.)

(ii) By-Laws of The St. Lawrence Seaway Corporation (Incorporated by reference to Exhibit (C)
(3) (ii) to the Annual Report of The St. Lawrence Seaway Corporation on Form 10-K for the
fiscal year ended March 31, 1987.)

(10) (i) Stock Option Agreements, each dated September 21, 1987, between The St. Lawrence Seaway
Corporation and each of Jack C. Brown, Philip I. Berman, and Albert Friedman. (Incorporated by
reference to Exhibit (C) (10) (i) to the Annual Report of The St. Lawrence Seaway Corporation
on Form 10K for the fiscal year ended March 31, 1988.)

(ii) Agreement, dated July 31, 1986 by and between The St. Lawrence Seaway Corporation and
Bernard Zimmerman & Company, Inc. (Incorporated by reference to Exhibit 2 to the 10-Q of The
St. Lawrence Seaway Corporation for the 6 months ended June 30, 1986.)

(iii) St. Clair Farm Property Option and Sale Agreement, dated March 31, 1992. (Incorporated by
reference to the Exhibit (C) (10) (iii) to the Annual Report of The St. Lawrence Seaway
Corporation on Form 10K for the fiscal year ended March 31, 1992.)

(iv) Airport Farm Property Option and Sale Agreement, dated March 25, 1993. (Incorporated by
reference to Form 10-K for the Fiscal Year ended March 31, 1993 ("the 1993 10-K").

(v) Amendment No. 1 to Stock Option Agreement between The St. Lawrence Seaway Corporation and
Jack C. Brown dated August 28, 1992. (Incorporated by reference to the 1993 10-K.))

(v)(a) Amendment to Stock Option Agreement dated September 15, 1997 -- (Incorporated by
reference to Form 10-K for the fiscal year ended March 31, 1998 (the "1998 10-K."))

(vi) Amendment No. 1 to Stock Option Agreement between The St. Lawrence Seaway Corporation and
Albert Friedman dated August 28, 1992. (Incorporated by reference to the 1993 10-K.)

(vii) Amendment No. 1 to the Warrant issued to Bernard Zimmerman & Co. Inc. dated August 28,
1992. (Incorporated by reference to the 1993 10-K).

(vii)(a) Amendment No. 2 to Common Stock Purchase Warrant, dated September 15, 1997 --
(Incorporated by reference to the 1998 10-K.)

(viii) Stock Option Agreement, dated August 28, 1992 between The St. Lawrence Seaway
Corporation and Wayne J. Zimmerman. (Incorporated by reference to the 1993 10-K.)

(ix) Stock Sale Agreement, dated June 24, 1993 between Bernard Zimmerman & Co., Inc. and
Industrial Development Partners. (Incorporated by reference to Exhibit 7(a) to Current Report
on Form 8-K dated September 30, 1993).

(x) Assignment and Assumption Agreement dated as of July 30, 1993. (Incorporated by reference
to Exhibit 7(b) to Current Report on Form 8-K dated September 30, 1993.)

(xi) Agreement dated as of January 24, 2002 by and between New York University and St. Lawrence
Seaway Corporation (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K
filed February 8, 2002).

(xii) Limited Liability Agreement of T3 Therapeutics, LLC dated as of June 25, 2002
(Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed June 27,
2002).

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

THE ST. LAWRENCE SEAWAY CORPORATION

By: /s/ Daniel L. Nir
-----------------------------------------------
Daniel L. Nir President, Treasurer and Director

Date: June 28, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons (who included a majority of the Board of Directors) on behalf
of the registrant and in the capacities and on the dates indicated.

Signatures Title Date

/s/ Daniel L. Nir President, Treasurer June 28, 2002
- ---------------------------------- and Director
Daniel L. Nir
(Principal Financial
and Accounting Officer)

/s/ Joel M. Greenblatt Chairman of the Board, June 28, 2002
- ---------------------------------- and Director
Joel M. Greenblatt
(Principal Executive
Officer)

/s/ Jack C. Brown Secretary and Director June 28, 2002
- ---------------------------------
Jack C. Brown

/s/ Edward B. Grier III Director June 28, 2002
- -------------------------------
Edward B. Grier III

SALLEE & COMPANY, INC.
CERTIFIED PUBLIC ACCOUNTANTS
- -----------------------------------------------------------------------------------------------------

BOARD OF DIRECTORS
THE ST. LAWRENCE SEAWAY CORPORATION
INDIANAPOLIS, INDIANA

REPORT OF INDEPENDENT AUDITORS

We have audited the accompanying balance sheets of The St. Lawrence Seaway Corporation as of March
31, 2002 and 2001, and the related statements of income, shareholders equity, and cash flows for
each of the three years in the period ended March 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of The St. Lawrence Seaway Corporation as of March 31, 2002 and 2001, and the
results of its operations and its case flows for each of the three years in the period ended March
31, 2002 in conformity with generally accepted accounting principles.

June 19, 2002
/s/ Sallee & Company, Inc.
------------------------------------

1509 J STREET, P.O. BOX 1148, BEDFORD, INDIANA 47421, 812-275-4444 (FAX) 812-275-3300

THE ST. LAWRENCE SEAWAY CORPORATION
BALANCE SHEETS
MARCH 31, 2002 AND 2001

2002 2001
---- ----
ASSETS

Current assets:
Cash and cash equivalents........... $1,359,417 $ 1,479,010
Interest and other receivables...... 797 3,033
Note receivable.................... 40,000 0
Prepaid items...................... 0 9,649
----------- -----------
Total current assets............ 1,400,214 1,491,692

Research investment - Note 7........ 200,000 0
----------- -----------
Total assets................... $ 1,600,214 $ 1,491,692
=========== ===========

LIABILITIES AND SHAREHOLDERS'EQUITY

Current liabilities:
Accounts payable & other........... $ 40,024 $ 6,674
Federal and state taxes payable.... 449 8,167
Research investment funding........ 100,000 0
----------- -----------
Total current liabilities...... 140,473 14,841
Long term liabilities:
Research investment funding........ 75,000 0
----------- -----------
Total liabilities.............. 215,473 14,841
----------- -----------
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................. 613,754 705,864
----------- -----------
Total shareholders' equity........ 1,384,741 1,476,851
----------- -----------
Total Liabilities and Shareholders'
Equity............................ $ 1,600,214 $ 1,491,692
=========== ===========

The accompanying notes are an integral part of these financial statements.

THE ST. LAWRENCE SEAWAY CORPORATION
STATEMENTS OF INCOME

YEARS ENDED MARCH 31,
2002 2001 2000
---- ---- ----
Revenues:
Farm rentals........................ $ 0 $ 0 $ 8,208
Interest and dividends.............. 39,227 79,540 49,244
Sales of land....................... 0 392,235 0
--------- --------- ---------
Total revenues.................. 39,227 471,775 57,452

Operating costs and expenses:
Farm related operating costs........ 0 0 833
Depreciation........................ 0 0 1,111
Consulting fees..................... 6,000 6,000 6,000
General and administrative
expenses........................ 124,888 85,585 88,034
--------- --------- ---------
Total operating expenses........ 130,888 91,585 95,978
--------- --------- ---------

Income (loss) before income taxes........ (91,661) 380,190 (38,526)
Income taxes............................. 449 7,594 573
--------- --------- ---------
Net income (loss)................... $(92,110) $ 372,596 $(39,099)
========= ========= =========
Per Share Data:
Weighted average number of common
shares outstanding.................. 393,735 393,735 393,735
========= ======== =========
Basic earnings per common and common
equivalent shares..................... $ (0.23) $ 0.95 $ (0.10)
========= ======== =========

The accompanying notes are an integral part of these financial statements.

THE ST. LAWRENCE SEAWAY CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY

Accumulated
Other
Comprehensive
Common Stock Paid-in Capital Income Retained Earnings
------------------- ------------------- ------------------ -------------------
Balances at March 31, 1999............ $ 393,735 $ 377,252 $ 0 $ 372,367
Net loss for 2000................ (39,099)
---------
Balances at March 31, 2000............ 393,735 377,252 0 333,268
Net income for 2001.............. 372,596
---------
Balances at March 31, 2001............ 393,735 377,252 0 705,864
Net loss for 2002................ (92,110)
---------
Balances at March 31, 2002............ 393,735 377,252 0 613,754
=========

The accompanying notes are an integral part of these financial statements.

THE ST. LAWRENCE SEAWAY CORPORATION
STATEMENTS OF CASH FLOW
YEARS ENDED MARCH 31, 2002, 2001 AND 2000

YEARS ENDED MARCH 31,
2002 2001 2000
---- ---- ----
Cash flows from operating activities:
Net income (loss)................... $ (92,110) $ 372,596 $(39,099)
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation.................... 0 0 1,111
Gain on sale of land............ 0 (392,235) 0
(Increase) decrease in current
assets:
Other receivables................ (37,764) (996) 8,694
Prepaid items.................... 9,649 (7,208) 775
(Decrease) increase in current
liabilities:
Other liabilities................ 125,632 0 0
Accounts payable and other....... 0 (3,944) (3,221)
---------- ---------- ----------
Net cash from operating activities...... 5,407 (31,787) (31,740)

Cash flows from investing activities:
Research investment............. (200,000) 0 0
Sales of land..................... 0 511,148 0
---------- ---------- ----------
Net cash from investing
activities.................. (200,000) 511,148 0

Cash flows from financing activities:

Research investment funding....... 75,000 0 0
---------- ---------- ----------
Net cash from financing
activities.................. 75,000 0 0
Net decrease in cash and cash
equivalents..................... (119,593) 479,361 (31,740)

Cash and cash equivalents, beginning... 1,479,010 999,649 1,031,389
---------- --------- ----------
Cash and cash equivalents, ending...... $1,359,417 $1,479,010 $ 999,649
========== ========== ==========

Supplemental disclosures of cash flow
information:
Cash paid for income taxes........ $ 0 $ 9,649 $ 500
Cash paid for interest expenses... $ 0 0 0

The accompanying notes are an integral part of these financial statements.

THE ST. LAWRENCE SEAWAY CORPORATION

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of the significant accompanying policies observed in the preparation of
the financial statement for The St. Lawrence Seaway Corporation (the "Company").

BASIS OF PRESENTATION:

The accounts are maintained on the accrual method or accounting in accordance with generally
accepted accounting principles for financial statement purposes. Under this method, revenue is
recognized when earned and expenses are recognized when incurred.

LAND:

Land was purchased in 1961 for agriculture related purposes and is recorded at the original
historical cost of $118,913. This property was subsequently sold in June, 2000.

EARNINGS PER SHARE:

Basic and diluted earnings per share is calculated in accordance with FASB Statement No. 128
"Earnings Per Share" ("SFAS 128"). In accordance with the provisions for this statement, basic
earnings per share is computed based on the weighted average number of common shares outstanding
during the period and excludes any potential dilution. Diluted earnings per share reflects potential
dilution from the exercise of options or warrants into common shares. Due to the antidilutive nature
of the Company's current stock option and warrant issued, no diluted earnings per share is presented
in these financial statements. The adoption of this statement had no effect on previously reported
earnings per share data.

INCOME TAXES:

Income taxes are provided for using the liability method, under which deferred tax assets and
liabilities are recorded based on differences between the financial accounting and tax bases of
assets and liabilities. Deferred tax assets and liabilities are measured based on the currently
enacted tax rate expected to apply to taxable income in the period in which the deferred tax asset
or liability is expected to be settled or realized. No material deferred tax benefits or liabilities
exist as of the dates of the balance sheets.

RECLASSIFICATION:

The 2001 and 2000 financial statements have been reclassified, where necessary, to conform to the
presentation of the 2002 financial statements.

CASH FLOWS:

For purposes of reporting cash flows, cash and cash equivalents include all cash in banks and cash
accumulation funds.

DEPRECIATION:

Property and equipment, consisting of small office equipment, has been fully depreciated.
Depreciation was computed using the straight-line method over a five-year estimated useful life.
Expenditures for maintenance and repairs that do not extend useful lives are charged to income as
incurred.

THE ST. LAWRENCE SEAWAY CORPORATION

USE OF ESTIMATES:

The preparation of financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

ADVERTISING EXPENSE:

Expenses associated with advertising are normally expensed as incurred.

NOTE 2. SHAREHOLDERS' EQUITY

The Company has a common stock warrant outstanding for the purchase of 100,000 shares of common
stock at $3.00 per share. The warrant was originally issued in connection with the sale by the
Company of 50,000 shares of common stock during 1986 to Bernard Zimmerman & Co. Inc. The warrant and
common stock were subsequently sold and transferred to The Windward Group, L.L.C. (formerly
Industrial Development Partners), pursuant to an agreement dated September 30, 1993. The warrant
expires on September 21, 2002.

The Company has a stock option plan originally adopted by the shareholders on June 12, 1978, and
revised and approved by the shareholders on June 13, 1983, September 21, 1987, and August 28, 1992.
the revised plan provides that 15,000 shares of the Corporation's stock be set aside at an exercise
price of $3.00 per share for Mr. Jack C. Brown, a Director of the Company. Mr. Brown's option is
currently exercisable with respect to all 15,000 shares and, if not exercised, will expire on
September 21, 2002.

The Company has 4,000,000 authorized $1 par value common shares. As of March 31, 2002 and 2001,
there were 393,735 common shares issued and outstanding.

NOTE 3. RELATED PARTIES

During the fiscal years ending March 31, 2002, 2001 and 2000, the Company paid to Jack C. Brown,
Secretary and a Director, an annual administrative fee of $6,000, which was paid monthly in the
amount of $500.

NOTE 4. INCOME TAXES

At March 31, 2002, the Company had approximately $93,000 in loss carryforwards. If not used, these
carryforwards will begin to expire in 2012. No tax benefits have been recognized in these financial
statements. Provisions for any deferred federal and state tax liabilities are immaterial to these
financial statements.

THE ST. LAWRENCE SEAWAY CORPORATION

NOTE 5. STOCK PURCHASE AND DIVIDEND

On March 19, 1997, the Board of Directors of the Company declared a dividend distribution of 514,191
shares of common stock, $.01 par value (the "Shares") of Paragon Acquisition Company, Inc.
("Paragon"), and 514,191 non-transferable rights (the "Subscription Right") to purchase two (2)
additional Shares of Paragon. Paragon's business purpose is to seek to acquire or merge with an
operating business, and thereafter to operate as a publicly-traded company. St. Lawrence purchased
the Paragon shares on March 6, 1997, for $5,141, or $.01 per share, and distributed one Paragon
share and one subscription right for each share of St. Lawrence Common Stock owned or subject to
exercisable options and warrants as of March 21, 1997 (the "Record Date"). Neither St. Lawrence nor
Paragon received any cash or other proceeds from the distribution, and St. Lawrence stockholders did
not make any payment for the share and subscription rights. The distribution to St. Lawrence
stockholders was made by St. Lawrence for the purpose of providing St. Lawrence stockholders with an
equity interest in Paragon without such stockholders being required to contribute any cash or other
capital in exchange for such equity interest.

Paragon is an independent publicly-owned corporation. However, because Paragon did not have a
specific operating business at the time of the distribution, the distribution of the shares was
conducted in accordance with Rule 419 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). As a result, the shares, subscription rights, and any shares issuable upon
exercise of subscription rights, are being held in escrow and are non-transferable by the holder
thereof until after the completion of a business combination with an operating company. While held
in escrow, the shares may not be traded or transferred, and the net proceeds from the exercise of
subscription rights will remain in escrow subject to release upon consummation of a business
combination. There is no current public trading market for the shares and none is expected to
develop, if at all, until after the consummation of a business combination and the release of shares
from escrow.

On June 1, 2001, Paragon notified the Board of Directors of St. Lawrence that the Paragon Board had
determined that due to the lack of suitable business contributions available to Paragon, Paragon
would be liquidated and dissolved. All outstanding shares thereof (including all escrowed shares)
were cancelled effective on June 29, 2001.

NOTE 6. DISPOSITION OF ASSETS

On February 23, 2000, the Company conducted a real estate auction and entered into definitive sales
and purchase agreements with seven non-affiliated individual purchasers to sell all of the land
owned by the Company. Approximately 195 acres of agricultural real estate was sold at auction for an
aggregate gross sales price of $567,500. The net operating losses of the Company totally offset the
related gains from the aforesaid property sale and no federal tax liabilities are accrued.

The Company devoted the property to farming activities under a cash lease method. The property was
leased to farmers who were directly responsible for the operation thereof and who paid the Company a
rental fee covering a ten-month period of use of the property. The Company generally received these
rental payments at the beginning of the planting season. The Company was responsible for real estate
taxes, insurance, and minor expenses. As a result of the sale of the property and termination of the
farm tenant agreement prior to the calendar year 2000 planting season, the Company did not realize
any farm rental income in the fiscal year ending March 31, 2001.

THE ST. LAWRENCE SEAWAY CORPORATION

NOTE 7. RESEARCH INVESTMENT

NOTE 8. SUBSEQUENT EVENTS

The Company has entered into a joint venture agreement as of June 25, 2002 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 will be 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 agreement calls for
the Company to acquire, subject to adjustment, a 12.5% ownership stake in the Development Company,
in exchange for its commitment to provide 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 into the letter of intent
relating to the joint venture agreement; the $40,000 note was cancelled and has been credited toward
the Company's initial $750,000 investment. Development and commercialization of the treatment
protocols is highly speculative and subject to numerous scientific, practical, financial and
commercial uncertainties.