<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------
[ ] 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 0-19949
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THE SOUTHSHORE CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1153522
----------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10750 East Briarwood Avenue, Englewood, Colorado 80112
---------------------------------------------------------
(Address of principal executive offices)
(303) 649-9875
--------------------------------------------------
(Registrant's telephone number, including area code)
________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
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___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
The registrant had 2,610,470 shares of its $.001 par value common stock
outstanding as of September 30, 1997.
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PART I -FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
THE SOUTHSHORE CORPORATION
<TABLE>
<CAPTION>
BALANCE SHEET (Unaudited)
March 31 Sept 30
1997 1997
-------- --------
CURRENT ASSETS
<S> <C> <C>
Cash 3,035 (3,341)
Acounts Receivable2,81529,109
Notes Receivable 0 0
Inventory 0 3,767
_________ ________
Total Current Assets 5,850 29,535
OTHER ASSETS
Land435,173435,173
Property and Equipment,
-net of accum depr. of
$2,520,572 and $2,800,210 Respect. 1,975,101 1,699,780
Deposits 17,245 17,485
Prepaids 6,223 26,920
Debt Offering Costs,
-net of accum amort 8,347 0
________ ________
Total Assets 2,447,939 2,208,893
CURRENT LIABILITIES
Notes Payable -Current1, 432,071 1,058,700
Notes Payable -Related Parties 97,400 97,400
Payroll Taxes Payable 4,868 7,943
Property Taxes Payable 483,651 529,132
Accrued Interest 89,390 116,845
Accounts Payable -Trade 30,276 14,012
Deferred Income 39,156 10,610
Accrued Payroll 0 0
Other Accrued Expenses 2,360 0
________ ________
Total Current Liabilities 2,179,172 1,834,642
Notes Payable
-net of current portion 65,377 49,996
Notes Payable -Related Parties
-net of current portion 0 95,000
_________ ________
Total Liabilities 2,244,548 1,979,638
STCOCKHOLDERS' EQUITY
Preferred Stock, $.01 Par Value
25,000,000 Shares Authorized
None Issued and Outstanding
Common Stock, $.001 Par Value
100,000,000 Shares Authorized;
2,610,470 issued and outstanding
respectively 2,611 2,611
Additional Paid-In Capital 4,377,574 4,377,574
Retained Earnings (4,176,794) (4,150,930)
_________ _________
Total Stockholders' Equity 203,391 229,255
Total Liabilities and
Stockholders' Equity 2,447,939 2,208,893
</TABLE>
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THE SOUTHSHORE CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Sept 30, Ended Sept 30,
1997 1996
<S> <C> <C>
Revenue
Sales -Admissions 567,259 625,196
Sales -Food, Merchandise 154,403 166,641
Sales -Other 2,946 2,440
Corporate Sponsorships 7,500 1,800
________ _________
Total Sales 732,108 796,077
Cost of Sales 17,268 15,224
_________ _________
Gross Profit 714,840 780,853
Operating Expenses
Salaries 115,921 135,807
Payroll Taxes 20,855 25,033
Operating Supplies 3,630 6,429
Chemicals 4,032 6,224
Repairs & Maintenance 3,761 8,542
Advertising 39,581 29,796
Outside Services 10,403 6,645
Utilities 46,888 57,411
Insurance 10,202 9,335
Depreciation & Amort 139,846 140,001
Property Taxes 28,254 30,154
Other (547) 10,985
________ ________
Total Operating Exp 422,826 466,361
Excess of Expense Over
Revenue (Before Other
Income/Expense) 292,015 314,492
Other Income 2,751 7,786
Interest Expense (Net) (48,569) (49,857)
Amort. of Debt Offering (3,084) (5,263)
________ ________
Net Profit(Loss) 243,113 267,158
Net Profit (Loss) Per Share 0.09 0.10
</TABLE>
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THE SOUTHSHORE CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Sept 30, Ended Sept 30,
1997 1996
-------------- --------------
<S> <C> <C>
Revenue
Sales -Admissions 765,535 820,760
Sales -Food, Merchandise 205,666 221,734
Sales -Other 2,946 4,766
Corporate Sponsorships 17,750 25,050
________ ________
Total Sales 991,898 1,072,310
Cost of Sales 22,889 23,429
_________ _________
Gross Profit 969,009 1,048,881
Operating Expenses
Salaries 199,175 221,153
Payroll Taxes 27,419 36,730
Operating Supplies 9,101 14,832
Chemicals 10,784 13,106
Repairs & Maintenance 15,521 21,510
Advertising 118,653 90,963
Outside Services 18,502 20,384
Utilities 85,061 87,493
Equipment Rental 0 0
Insurance 20,045 18,951
Depreciation & Amort 279,638 279,756
Property Taxes 56,507 60,307
Other 3,154 12,793
________ ________
Total Operating Exp 843,560 877,980
Excess of Revenue over Expense
(Before Other Income/Expense) 125,450 170,901
Other Income 5,668 11,351
Interest Expense (Net) (96,873) (97,377)
Amort. of Debt Offering (8,347) (10,525)
________ _________
Net Profit(Loss) 25,898 74,350
Gain (Loss) Per Share 0.01 0.03
</TABLE>
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THE SOUTHSHORE CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From March 31, through Sept 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Retained
Number of Common Additional Earnings
Date Shares Stock Paid-In (Deficit) Total
Capital
<S> <C> <C> <C> <C> <C>
Balance at March
31, 1997 2,610,470 2,611 4,377,574 (4,176,828) 203,357
Net Profit 6 Months
Ended September 30,
1997 25,898 25,898
Balance at Sept
30, 1997 2,610,470 2,611 4,377,574 (4,150,930) 229,255
</TABLE>
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THE SOUTHSHORE CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ending Sept 30 Ending Sept 30
1997 1996
<S> <C> <C>
Cash flows from Operating Activities
Net Profit(Loss) 25,898 74,350
Adjustments to Reconcile Net(Loss)
to Net Cash (Used In) Operating
Activities
Amortization and Depreciation 287,985 290,281
(Increase) in Accounts Receivable (26,294) (55,888)
(Increase) in Inventory (3,767) (250)
Increase in Accounts Payable
and Accrued Expenses 28,808 (17,847)
Other, net (20,697) (23,719)
________ ______
Net Cash (Used In) Operating
Activities 291,934 266,927
Cash flows from Investing Activities
Deposits (240) 31,300
Land, Property, Equipment (4,317) (26,340)
________ ________
Net Cash (Used In) Investing
Activities (4,557) 4,961
Cash flows from Financing
Activities
Increase(Decrease) Debt (293,753) (273,114)
Issuance of Stock, Net of Offering
Costs 0 0
________ _______
Net Cash Provided by Financing
Activities (293,753) (273,114)
_________ ________
Increase(Decrease) in Cash (6,376) (1,226)
Cash, Beginning of Period 3,035 1,625
Cash, End of Period (3,341) 399
_________ _______
Income Taxes Paid 0 0
Interest Paid 71,255 68,802
</TABLE>
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THE SOUTHSHORE CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
(1) Summary of Accounting Policies
------------------------------
A summary of significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
(a) General
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The Southshore Corporation ("Company") was incorporated under the
laws of Colorado on March 26, 1990 for the purpose of engaging in any lawful
business. The company operates a waterpark in southeast Denver metro area.
(b) Unaudited Financial Statements
------------------------------
The accompanying financial statements have been prepared by the
registrant without audit and are the responsibility of the Company's
management. Management is of the opinion that all adjustments that
should be made to the accompanying financial statements in order for
them to present fairly the financial position, results of operations and cash
flows for the periods presented have been made.
Management has elected to omit substantially all the footnote
disclosures required by generally accepted accounting principles.
The accompanying financial statements should be read in conjunction with
the Company's audited financial statements as of March 31, 1997. The results
of operation for the period ended September 30, 1997 are not indicative
of the operating results for the full year.
(c) Property and Equipment
----------------------
Property and equipment are stated at cost. The original park water
features are depreciated using a straight line method based on a 7 year
estimated useful life. A 20 year estimated useful life on a straight line
basis is utilized on the buildings. Park improvements since 1994 have been
depreciated using a modified accelerated cost recovery method over 31.5 years
for buildings and 7 years for equipment.
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(2) Liquidity and Capital Resources
-------------------------------
See Management's Discussion for disclosure related to liquidity and
capital and the related contingencies and commitments.
(3) Net Profit and Loss Per Common Share
------------------------------------
Net profit and loss per common share for the three month period ended
September 30, 1997 and 1996 has been computed based on the weighted number of
shares outstanding during the respective periods.
(4) Bank Line of Credit -Note to President
--------------------------------------
On April 25, 1994, the Company issued a five year promissory note in the
amount of $400,000 to its President. The note was issued pursuant to an
arrangement whereby the President became personally obligated and personally
secured a $400,000 bank line of credit, the proceeds of which were made
available to the Company. The Company is required to pay interest on the
line at the bank's prime rate. The Company's President has the right to
purchase common stock at $2.25 per share in an amount equal to what he is at
risk on the bank line of credit. On default of the note he may convert the
outstanding balance to common stock at $1.00 per share. At September 30,
1997, the balance was $95,000.
(5) 10% Secured Notes -$970,000
---------------------------
The Company was required to pay down the principal balance of its
outstanding 10% Secured Notes by 25% on September 30, 1994, June 30, 1995,
June 30, 1996 and June 30, 1997 respectively. The Company failed to make
most of these payments, however it has obtained deferrals from holders of
$735,000 in these notes as to payments of principal through September 30,
1997. The Company failed to make these payments due September 30, 1997.
Additionally, the trustee under the Indenture relating to these notes
resigned as trustee effective November 4, 1994.
(6) Property Tax Lien
-----------------
First Union National Bank (New Jersey) holds a property tax certificate
from Arapahoe County, Colorado in the amount of $477,672 plus interest of
$112,214, at October 16, 1997, on the Company's 16-acre water park property.
The tax certificate draws interest at 13% per annum and may be converted into
a tax deed at the request of First Union. The Company would have the right to
redeem the certificate for a period of approximately four months from the
time First Union requests a deed by paying the full amount of the property
tax certificate plus accrued interest (a total of $589,886 at October 16,
1997). As of the date of this report First Union had not requested Arapahoe
County to issue a tax deed.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Financial Condition
At September 30, 1997, working capital was a negative $1,864,177 as
compared to a negative $2,173,322 at March 31, 1997. The principal reasons
for the working capital shortfalls are unpaid and accrued property taxes of
$529,132, accrued interest on property taxes, trade payables, and $955,000
in notes currently in default. See "Liquidity and Capital Resources"
below.
At September 30, 1997, the Company's shareholders' equity was $229,255,
up from $203,391 at March 31, 1997, due entirely to operating profits from
the summer of 1997.
Results of Operations -Three Months Ended September 30, 1997 Compared to
Three Months Ended September 30, 1996.
Revenues for the current three months were down over 8% compared to the
same period in 1996. This decrease is accounted for almost entirely by the
monsoon rains that hit the Denver area during the prime attendance periods of
mid-July thru mid-August.
Total operating expenses were down over 9% as compared to the comparable
period in 1996. Salaries were down 14.6%. Payroll taxes decreased almost
17% due to the comparable salary reductions. Advertising expenditures were
up over 32% as management attempts to increase exposure of the park during
its prime summer months. The cost of chemicals and utilities was down almost
20% as the company continues to refine its need for these products and
services. Depreciation and amortization remained basically the same for the
two periods. The interest expense for the period is consistent with the debt.
Results of Operations -Six Months Ended September 30, 1997 Compared to Six
Months Ended September 30, 1996.
Revenues for the current six months were down 7.5 % compared to the same
period in 1996. This decrease is accounted for almost entirely by the monsoon
rains that hit the Denver area during the prime attendance periods of mid-July
thru mid-August.
Total operating expenses were down almost 4% as compared to the
comparable period in 1996. Salaries were down 10%. Payroll taxes decreased
over 25% due to the salary reductions and an adjustment made due to credits
issued by our workers compensation carrier. Advertising expenditures were up
over 30% as management attempts to increase exposure of the park. The
cost of operating supplies, chemicals and utilities was down 9% as the
company continues to refine its need for these products and services.
Depreciation and amortization remained basically the same for the two periods.
The interest expense for the period is consistent with the debt.
Management expects the Company to experience an additional approximate
$580,000 in operating expenses (including depreciation and amortization) and
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interest expenses during the remainder of the fiscal year ended March 31,
1998. A non-cash item, $280,000 in depreciation and amortization constitutes
approximately 48% of these operating expenses and interest expenses.
Property taxes of $56,000 and interest expense of $90,000 constitute
approximately 10% and 15% of such anticipated expenses.
Liquidity and Capital Resources
At September 30, 1997, the Company had $1,834,642 in current obligations,
primarily composed of notes payables and accrued and past due property taxes.
Notes payable of $220,000 due June 30, 1997 and $735,000 due September 30,
1997 are currently in default. These notes are secured by a first mortgage
on portions of the waterpark property. The Company's waterpark property is
subject to a property tax lien that was recently issued to a banking
institution in New Jersey. For details see Note 6 to the financial
statements. The Company could be in a position in the near future where it
would have to pay the full amount of this lien or loose title to the property.
The Company has appealed its property tax evaluations with Arapahoe
County, Colorado and the State of Colorado with only moderate success. The
Company will continue appeals in the future in hopes of reducing its annual
property tax assessment, however there is no assurance that it will be
successful.
Management is currently considering alternatives to relieve its debt
obligations. These include short-term debt financing, a sale/leaseback of
the property or a merger and/or acquisition of the waterpark property by
another company.
The Company anticipates that it will not have to seek additional outside
capital for off-season expenses and start up costs for the 1998 summer season.
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PART II -OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------
(a) Exhibits
3.1 Articles of Incorporation(1)
3.2 Bylaws(1)
10.3 Incentive Stock Option Plan(1)
10.12 Indenture of Trust and 10% Secured Promissory Note(2)
10.25 Promissory Note -Vancol Industries, Inc.(3)
10.26 Convertible Promissory Note -Kenneth M. Dalton(4)
10.27 Stock Option -Kenneth M. Dalton(4)
10.28 Convertible Promissory Note $104,500 -Kenneth M. Dalton(5)
10.29 Stock Option 61,250 shares -Kenneth M. Dalton(5)
27.1 Financial Data Schedule
___________________________
(1) Incorporated by reference to Form S-18 Registration Statement,
File No. 33-42730-D, filed September 11, 1991
(2) Incorporated by reference to Form 10-K for year ended March
31, 1993 filed July 16, 1993 File No. 0-19949
(3) Incorporated by reference to Amendment No. 1 to the Form S-1,
File No. 33-73774 filed February 9, 1994
(4) Incorporated by reference to Form 8-K filed May 5, 1994, File
No. 0-19949
(5) Incorporated by reference to Form 8-K filed December 30, 1994,
File No. 0-19949
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(b)Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended June 30,
1997.
SIGNATURES
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.
(Registrant) THE SOUTHSHORE CORPORATION
(Date) November 3, 1997
By:(Signature) /s/ Kenneth M. Dalton
(Name and Title) Kenneth M. Dalton, President
and Principal Executive Officer
(Date) November 3, 1997
By:(Signature) /s/ Eric L. Nelson
(Name and Title) Eric L. Nelson
Principal Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> (3,341)
<SECURITIES> 0
<RECEIVABLES> 29,109
<ALLOWANCES> 0
<INVENTORY> 3,767
<CURRENT-ASSETS> 29,535
<PP&E> 4,499,990
<DEPRECIATION> 2,800,210
<TOTAL-ASSETS> 2,208,893
<CURRENT-LIABILITIES> 1,834,642
<BONDS> 0
0
0
<COMMON> 2,610,470
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,208,893
<SALES> 732,840
<TOTAL-REVENUES> 732,840
<CGS> 17,268
<TOTAL-COSTS> 440,094
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,569
<INCOME-PRETAX> 243,113
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 243,113
<EPS-PRIMARY> $.09
<EPS-DILUTED> $.09
</TABLE>
