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, 1998
[ ] 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
-------
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, 1998.
-1-
<PAGE>
PART I -FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
THE SOUTHSHORE CORPORATION
BALANCE SHEET (Unaudited)
<TABLE>
<CAPTION>
March 31 Sept 30
1998 1998
CURRENT ASSETS
<S> <C> <C>
Cash 1,841 227,593
Acounts Receivable 0 39,954
Notes Receivable 0 0
Inventory 0 0
______ ________
Total Current Assets 1,8412 67,547
OTHER ASSETS
Land 435,173 435,173
Property and Equipment,
-net of accum depr. of
$3,076,217 and $3,356,972 Respect. 1,449,858 1,171,998
Deposits 17,245 17,045
Prepaids 6,607 17,949
Other Assets 0 1,617
Debt Offering Costs,
-net of accum amort 0 0
_______ ________
Total Assets 1,910,724 1,911,329
CURRENT LIABILITIES
Notes Payable -Current 1,068,852 987,665
Notes Payable -Related Parties 233,990 101,008
Payroll Taxes Payable 1,649 4,519
Property Taxes Payable 566,762 605,658
Accrued Interest 151,176 174,422
Accounts Payable -Trade 17,048 56,159
Deferred Income 31,845 1,000
Accrued Payroll 227 273,207
Other Accrued Expenses 0 14,852
________ __________
Total Current Liabilities 2,071,550 2,218,490
Notes Payable
-net of current portion 33,989 17,331
Notes Payable -Related Parties
-net of current portion 0 0
________ ________
Total Liabilities 2,105,539 2,235,822
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 (4,575,000) (4,704,678)
_________ _________
Total Stockholders' Equity (194,815) (324,493)
Total Liabilities and
Stockholders' Equity 1,910,724 1,911,329
</TABLE>
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<PAGE>
THE SOUTHSHORE CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Sept 30, Ended Sept 30,
1998 1997
<S> <C> <C>
Revenue
Sales -Admissions 597,904 567,259
Sales -Food, Merchandise 161,213 154,403
Sales -Other 1,680 2,946
Corporate Sponsorships 4,750 7,500
__________ _________
Total Sales 765,547 732,108
Cost of Sales 18,581 17,268
__________ _________
Gross Profit 746,966 714,840
Operating Expenses
Salaries & Bonuses 384,700 115,921
Payroll Taxes 25,773 20,855
Operating Supplies 2,940 3,630
Chemicals 5,792 4,032
Repairs & Maintenance 6,998 3,761
Advertising 21,177 39,581
Outside Services 19,134 10,403
Utilities 65,558 46,888
Insurance 9,776 10,202
Depreciation & Amort 140,539 139,846
Property Taxes 24,374 28,254
Other 17,988 (547)
_________ _________
Total Operating Exp 724,747 422,826
Excess of Expense Over
Revenue (Before Other
Income/Expense) 22,219 292,015
Other Income 2,604 2,751
Interest Expense (Net) (13,047) (48,569)
Amort. of Debt Offering 0 (3,084)
________ __________
Net Profit(Loss) 11,776 243,113
Net Profit (Loss) Per Share 0.00 0.09
</TABLE>
-3-
<PAGE>
THE SOUTHSHORE CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Sept 30, Ended Sept 30,
1998 1997
Revenue
<S> <C> <C>
Sales -Admissions 777,617 765,535
Sales -Food, Merchandise 207,595 205,666
Sales -Other 4,195 2,946
Corporate Sponsorships 10,500 17,750
_________ _________
Total Sales 999,907 991,898
Cost of Sales 24,284 22,889
_________ ________
Gross Profit 975,624 969,009
Operating Expenses
Salaries & Bonuses 456,324 199,175
Payroll Taxes 33,916 27,419
Operating Supplies 9,428 9,101
Chemicals1 2,229 10,784
Repairs & Maintenance 18,398 15,521
Advertising 65,803 118,653
Outside Services 30,922 18,502
Utilities 79,732 85,061
Insurance 19,877 20,045
Depreciation & Amort 280,755 279,638
Property Taxes 48,643 56,507
Other 20,270 3,154
_________ ___________
Total Operating Exp 1,076,298 843,560
Excess of Revenue over Expense
(Before Other Income/Expense) (100,674) 125,450
Other Income 8,129 5,668
Interest Expense (Net) (37,133) (96,873)
Amort. of Debt Offering 0 (8,347)
_______ ________
Net Profit(Loss) (129,678) 25,898
Gain (Loss) Per Share (0.05) 0.01
</TABLE>
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<PAGE>
THE SOUTHSHORE CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From March 31, through September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Retained
Number ofCommon Additional Earnings
Date Shares Stock Paid-In Capital (Deficit) Total
<S> <C> <C> <C> <C> <C>
Balance
at March
31, 1998 2,610,470 2,611 4,377,574 (4,575,000) (194,815)
Net Profit
(Loss) 6
Months
Ended
September
30, 1998 (129,678) (129,678)
Balance
at Sept-
ember 30,
1998 2,610,470 2,611 4,377,574 (4,704,678) (324,493)
</TABLE>
-5-
<PAGE>
THE SOUTHSHORE CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ending Sept 30 Ending Sept 30
1998 1997
Cash flows from Operating Activities
<S> <C> <C>
Net Profit(Loss) (129,678) 25,898
Adjustments to Reconcile Net(Loss)
to Net Cash (Used In) Operating
Activities
Amortization and Depreciation 280,755 287,985
(Increase) in Accounts Receivable (39,954) (26,294)
(Increase) in Inventory 0 (3,767)
Increase in Accounts Payable
and Accrued Expenses 391,955 28,808
Other, net (43,804) (20,697)
_______ _______
Net Cash (Used In) Operating Activities 459,275 291,934
Cash flows from Investing Activities
Deposits 200 (240)
Land, Property, Equipment(2,895)(4,317)
______ _______
Net Cash (Used In) Investing Activities (2,695) (4,557)
Cash flows from Financing Activities
Increase(Decrease) Debt (230,827) (293,753)
Issuance of Stock, Net of Offering Costs 0 0
______ _______
Net Cash Provided by Financing Activities (230,827) (293,753)
_______ _______
Increase(Decrease) in Cash 225,752 (6,376)
Cash, Beginning of Period 1,841 3,035
Cash, End of Period 227,593 (3,341)
_______ _______
Income Taxes Paid 0 0
Interest Paid 6,069 71,255
</TABLE>
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<PAGE>
THE SOUTHSHORE CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(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
-------
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, 1998. The
results of operation for the period ended September 30, 1998 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.
-7-
<PAGE>
(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 and six
month period ended September 30, 1998 and 1997 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,
1998, the balance was $3608.
(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 $605,658 plus interest of
$173,413, at September 30, 1998, 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 $779,071 at September 30,
1998). As of the date of this report First Union had not requested Arapahoe
County to issue a tax deed.
-8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Financial Condition
At September 30, 1998, working capital was a negative $1,950,943 as
compared to a negative $2,069,709 at March 31, 1998. The principal reasons
for the working capital shortfalls are unpaid and accrued property taxes of
$605,658, accrued interest on property taxes, trade payables, and $955,000 in
notes currently in default. See "Liquidity and Capital Resources" below.
At September 30, 1998, the Company's shareholders' equity was negative
$324,493, down from a negative $194,815 at March 31, 1998, due entirely to
operating losses.
Results of Operations -Three Months Ended September 30, 1998 Compared to Three
Months Ended September 30, 1997.
Revenues for the current three months were up 4.5% as compared to the
same period in 1997. This increase is accounted for by favorable weather
patterns and strong group sales toward the end of the summer season which
overcame monsoon like conditions during most of the summer.
Total operating expenses were up 71% as compared to the comparable
period in 1997. This increase in expenses is primarily due to accrued
performance and severance bonuses for key-personnel in Southshore's last
anticipated season of operation.. Other operating expenses are consistent
with previous experience. Depreciation and amortization remained basically
the same for the two periods. The interest expense for the current period
reflects suspension of interest payments to some of its creditors as a buyer
of its water park property is sought.
Results of Operations -Six Months Ended September 30, 1998 Compared to Six
Months Ended September 30, 1997.
Revenues for the current six months were up slightly as compared to the
same period in 1997. The weather for both summers were comparable as
monsoonal trends resulting in rain and thunderstorms were prevalent.
Total operating expenses were up 28% as compared to the comparable
period in 1997. Salaries increased 129% as this category reflects bonuses,
totaling $273,207 accrued for key personnel, payable mostly upon sale of the
waterpark property. Absent these bonuses total operating expenses would be
$803,091 or approximately $40,000 less as compared to the 1997 comparable
period. Advertising expenditures decreased 45% as management of advertising
were brought in-house to save on agency fees and production costs for the
season. The cost of operating supplies, chemicals, utilities and repairs and
maintenance remained basically the same for the two periods. Outside services
expense increased 67% as the need for legal and accounting services has
increased due to the anticipated sale of the property. Depreciation and
amortization remained basically the same for the two periods. The interest
expense for current period reflects suspension of interest payments to some of
its creditors as work-out arrangements are made with debtors, subject to sale
-9-
<PAGE>
of the Company's waterpark property and satisfaction of these obligations.
(see Liquidity and Capital Resources)
Management expects the Company to experience minimal expense during the
remainder of its fiscal year end March 31, 1999, as the park General Manager's
employment has been terminated and the Company expects the President and
Accounting Officer to work only on an as needed basis to pursue the sale of
the waterpark property.
Liquidity and Capital Resources
At September 30, 1998, the Company had $2,218,490 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 issued to a banking
institution in New Jersey. 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.
Although the Company has made substantial inroads toward financial
stability, it has not yet achieved it. The Company recently has been
attempting to sell its water park property for sufficient funds to retire its
debt. The Company has signed contracts with two buyers representing interest
and financial ability to close on the property since the termination of the
initial contract for $2,000,000 on July 27, 1998. (see Form 10-Q, June 30,
1998) In each case the contracts were for $1,985,00 and were subsequently
terminated by the respective parties. The most recent agreement was
terminated October 19, 1998.
The Company has also engaged in lengthy negotiations with a local
recreation district which has interest in acquiring the property in event a
private buyer does not close on the property, which appears to be the case.
Management may also list the property with a real estate broker.
As of September 30, 1998, the company has accumulated losses aggregating
$4,704,678 and had a working capital deficiency of $1,950,943. The company is
attempting to sell substantially all of its assets to pay its current debt and
delinquent taxes. Management is hopeful such a sale will materialize and
allow the Company to continue as a going concern. The Company's ability to
continue as a going concern depends upon its success in obtaining additional
funding, increasing its debt financing and/or improving its operating results,
or the sale of its assets. There is no assurance that the Company will be
successful in these efforts. Thus, there is substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
A special meeting of the shareholders of the Company has been scheduled
for November 12, 1998 for the purpose of considering the sale of substantially
all the Company's assets for $1,985,000 and a sale to the recreation district
for $2 million in a back-up position. However, it may be adjourned and a new
meeting rescheduled if a new contract for sale is entered into, of which there
is no assurance.
-10-
<PAGE>
PART II -OTHER INFORMATION
ITEM 5 OTHER INFORMATION
- ----------------------------
On August 13, 1998, the Company entered into a contract to sell its
water park property for $1.985 million to an individual, subject to certain
conditions customary in real estate sales. On September 24, 1998 the Buyer
informed the Company that he will be unable to close on the contract due to
zoning concerns of the property by his major financing partner. On September
28, 1998, the company entered into a contract to sell its waterpark property
for $1.985 million to a office park developer, subject to certain
contingencies to be approved by the developer by October 19, 1998. As of
October 19, 1998, the contingency period has lapsed and the developer has not
remove the contingencies. The Company's position is that the contract is
terminated by its own terms.
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. Dayton(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
-11-
<PAGE>
(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
(6) Incorporated by reference to schedule 14A filed June 22, 1998,
File No. 0-19949
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
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) October 26, 1998
By:(Signature) /s/ Kenneth M. Dalton
(Name and Title) Kenneth M. Dalton, President
and Principal Executive Officer
(Date) October 26, 1998
By:(Signature) /s/ Eric L. Nelson
(Name and Title) Eric L. Nelson
Principal Accounting Officer
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 227,593
<SECURITIES> 0
<RECEIVABLES> 39,954
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 267,547
<PP&E> 4,528,970
<DEPRECIATION> 3,356,972
<TOTAL-ASSETS> 1,911,329
<CURRENT-LIABILITIES> 2,218,490
<BONDS> 0
0
0
<COMMON> 2,610,470
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,911,329
<SALES> 765,547
<TOTAL-REVENUES> 765,547
<CGS> 18,581
<TOTAL-COSTS> 724,747
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (13,047)
<INCOME-PRETAX> 11,776
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,776
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
