<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 December 31, 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 December 31, 1998.
<PAGE>
PART I -FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
THE SOUTHSHORE CORPORATION
BALANCE SHEET (Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
1998 1998
-------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash 1,841 92,196
Acounts Receivable 0 8,308
Notes Receivable 0 0
Inventory 0 0
___________ _____________
Total Current Assets 1,841 100,504
OTHER ASSETS
Land 435,173 435,173
Property and Equipment,
-net of accum depr. of
$3,076,217 and $3,497,511 Respect. 1,449,858 1,031,459
Deposits 17,245 17,045
Prepaids 6,607 11,723
Other Assets 0 0
Debt Offering Costs,
-net of accum amort 0 0
___________ _____________
Total Assets 1,910,724 1,595,904
CURRENT LIABILITIES
Notes Payable -Current 1,068,852 988,323
Notes Payable -Related Parties 233,990 97,400
Payroll Taxes Payable 1,649 76
Property Taxes Payable 566,762 630,032
Accrued Interest 151,176 191,509
Accounts Payable -Trade 17,048 41,534
Deferred Income 31,845 1,000
Accrued Payroll 227 167,841
Other Accrued Expenses 0 12,540
__________ ______________
Total Current Liabilities 2,071,550 2,130,254
Notes Payable
-net of current portion 33,989 8,750
Notes Payable -Related Parties
-net of current portion 0 0
___________ _____________
Total Liabilities 2,105,539 2,139,004
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) (4,923,285)
_____________ _____________
Total Stockholders' Equity (194,815) (543,100)
Total Liabilities and
Stockholders' Equity 1,910,724 1,595,904
</TABLE>
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THE SOUTHSHORE CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Dec 31, Ended Dec 31,
1998 1997
------------- -------------
<S> <C> <C>
Revenue
Sales -Admissions 1,540 1,973
Sales -Food, Merchandise 0 0
Sales -Other 0 0
Corporate Sponsorships 0 0
__________ ____________
Total Sales 1,540 1,973
Cost of Sales 0 0
__________ ____________
Gross Profit 1,540 1,973
Operating Expenses
Salaries & Bonuses 7,833 18,804
Payroll Taxes 6,649 1,514
Operating Supplies 343 698
Chemicals 0 0
Repairs & Maintenance 162 627
Advertising 0 2,346
Outside Services 2,367 2,961
Utilities 5,314 4,947
Insurance 8,244 10,156
Depreciation & Amort 140,539 139,847
Property Taxes 24,374 13,151
Other 6,288 2,912
__________ ____________
Total Operating Exp 202,113 197,964
Excess of Expense Over
Revenue (Before Other
Income/Expense) (200,573) (195,991)
Other Income 0 0
Interest Expense (Net) (18,034) (46,456)
Amort. of Debt Offering 0 (1,462)
----------- ----------
Net Profit(Loss) (218,607) (243,909)
Net Profit (Loss) Per Share (0.08) (0.09)
</TABLE>
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THE SOUTHSHORE CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Dec 31, Ended Dec 31,
1998 1997
------------ ------------
<S> <C> <C>
Revenue
Sales -Admissions 777,847 767,508
Sales -Food, Merchandise 207,778 203,882
Sales -Other 4,195 4,730
Corporate Sponsorships 10,500 17,750
____________ __________
Total Sales 1,000,320 993,870
Cost of Sales 24,284 22,889
____________ __________
Gross Profit 976,036 970,982
Operating Expenses
Salaries & Bonuses 464,158 217,979
Payroll Taxes 40,565 28,932
Operating Supplies 9,771 9,798
Chemicals 12,229 10,784
Repairs & Maintenance 18,560 16,148
Advertising 65,803 120,999
Outside Services 33,289 21,463
Utilities 85,047 90,008
Insurance 28,121 30,201
Depreciation & Amort 421,294 419,486
Property Taxes 73,017 69,658
Other 26,558 6,066
___________ ___________
Total Operating Exp 1,278,411 1,041,523
Excess of Revenue over Expense
(Before Other Income/Expense) (302,375) (70,542)
Other Income 9,257 5,668
Interest Expense (Net) (55,167) (143,329)
Amort. of Debt Offering 0 (9,809)
____________ __________
Net Profit(Loss) (348,285) (218,011)
Gain (Loss) Per Share (0.13) (0.09)
</TABLE>
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THE SOUTHSHORE CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From March 31, through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Number Additional Retained
of Common Paid-In Earnings
Date Shares Stock 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) 9 Months
Ended December 31, 1998 (348,285) (348,285)
Balance at Sept. 30, 1998 2,610,470 2,611 4,377,574 (4,923,285) (543,100)
</TABLE>
<PAGE>
THE SOUTHSHORE CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
Nine Months Nine Months
Ending Dec 31 Ending Dec 31
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from Operating Activities
Net Profit(Loss) (348,285) (218,011)
Adjustments to Reconcile Net(Loss)
to Net Cash (Used In) Operating Activities
Amortization and Depreciation 421,294 429,295
(Increase) in Accounts Receivable (8,308) 2,815
(Increase) in Inventory 0 (3,767)
Increase in Accounts Payable
and Accrued Expenses 275,825 99,511
Other, net (5,116) (33,103)
__________ __________
Net Cash (Used In) Operating Activities 335,409 276,738
Cash flows from Investing Activities
Deposits 200 (240)
Land, Property, Equipment (2,895) (5,779)
__________ __________
Net Cash (Used In) Investing Activities (2,695) (6,019)
Cash flows from Financing Activities
Increase(Decrease) Debt (242,359) (273,908)
Issuance of Stock, Net of Offering Costs 0 0
_________ ___________
Net Cash Provided by Financing Activities (242,359) (273,908)
__________ __________
Increase(Decrease) in Cash 90,355 (3,188)
Cash, Beginning of Period 1,841 3,035
Cash, End of Period 92,196 (153)
_________ ___________
Income Taxes Paid 0 0
Interest Paid 6,069 72,175
</TABLE>
<PAGE>
THE SOUTHSHORE CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 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
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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, 1998. The results
of operation for the period ended December 31, 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.
Page 6
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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
December 31, 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 December 31,
1998, the balance was $0.00.
(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 $532,537 plus interest of
$189,687, at December 31, 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 three to five
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 $722,224
at December 31, 1998). As of the date of this report First Union has not
requested Arapahoe County to issue a tax deed.
Page 7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
At December 31, 1998, working capital was a negative $2,029,750 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
$630,032, accrued interest on property taxes, trade payables, and $955,000
in notes currently in default. See "Liquidity and Capital Resources"
below.
At December 31, 1998, the Company's shareholders' equity was negative
$543,100 down from a negative $194,815 at March 31, 1998, due entirely to
operating losses.
Results of Operations -Nine Months Ended December 31, 1998 Compared to
Nine Months Ended December 31, 1997.
Revenues for the current nine 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 23% as compared to the comparable
period in 1997. Salaries increased 113% as this category reflects
non-operational bonuses accrued for key personnel payable mostly upon sale
of the waterpark property. 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 55% as the need for legal
and accounting services has increased due to the pending 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 of the Company's
waterpark property and satisfaction of these obligations. (see Liquidity
and Capital Resources)
Results of Operations -Three Months Ended December 31, 1998 Compared to
Three Months Ended December 31, 1997.
Revenues for the current three months were basically the same for both
periods, as these revenue are residual from the previous summer season.
Total operating expenses were down 2% as compared to the comparable
period in 1997. This decrease in expenses is due to the layoff of the
Operations Manager and the President and CFO reduced to half salary in
anticipation of the permanent closing of the waterpark operations
and sale of the property. 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
Page 8
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work-out arrangements are made with debtors, subject to sale of the
Company's waterpark property and satisfaction of these obligations.
Liquidity and Capital Resources
At December 31, 1998, the Company had $2,130,254 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 lose title to the property.
Although the Company has made substantial inroads toward financial
stability, it has not yet achieved it. The Company has been attempting to
sell its water park property for sufficient funds to retire its debt. The
Company has signed contracts with several buyers representing interest and
financial ability to close on the property since July 1998. In each case
the contracts were subsequently terminated. Management is currently
pursuing buyers and has engaged a commercial real estate broker in the
Denver area in hopes of facilitating a sale transaction.
As of December 31, 1998, the company has accumulated losses aggregating
$4,923,285. 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 the sale of its assets and the successful merger of the corporation
with another entity. Management now believes that pending any new
developments the Company's waterpark will not open for the 1999 summer
season and the waterpark equipment will most likely be salvaged and sold
separate from the real property.
Therefore, 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.
Page 9
<PAGE>
PART II -OTHER INFORMATION
ITEM 5 OTHER INFORMATION
- ----------------------------
On February 8, 1999, the Company entered into a purchase agreement to
sell its waterpark property for $1,982,680 (less brokerage commissions) to a
group of property investors, subject to the meeting of due diligence and the
buyer's inspection period. The Company anticipates closing in 45-60 days
from this date.
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 -Vacole Industries, Inc.(3)
10.26 Convertible Promissory Note -Kenneth M. Dayton(4)
10.27 Stock Option -Kenneth M. Dayton(4)
10.28 Convertible Promissory Note $104,500 -Kenneth M. Dalton(5)
10.29 Stock Option 61,250 shares -Kenneth M. Dalton(5)
10.30 Contract to Buy and Sell Real Estate -
Marc L. Logan, Robb MacMillan and Jack Wasserman, M.D.
a professional Corporation (6)
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
Page 10
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(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) No reports on Form 8-K during the quarter ended December 31, 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) February 8, 1999
BY(Signature) /s/ Kenneth M. Dalton
(Name and Title) Kenneth M. Dalton, President
and Principal Executive Officer
(Date) February 8, 1998
BY(Signature) /s/ Eric L. Nelson
(Name and Title) Eric L. Nelson
Principal Accounting Officer
Page 11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 92,196
<SECURITIES> 0
<RECEIVABLES> 8,308
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100,504
<PP&E> 4,528,970
<DEPRECIATION> 3,497,511
<TOTAL-ASSETS> 1,595,904
<CURRENT-LIABILITIES> 2,130,254
<BONDS> 0
0
0
<COMMON> 2,610,470
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,595,904
<SALES> 1,540
<TOTAL-REVENUES> 1,540
<CGS> 0
<TOTAL-COSTS> 202,113
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,034
<INCOME-PRETAX> (218,607)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (218,607)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
