SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED
SEPTEMBER 30, 1998
COMMISSION FILE NO.: 333-36709
WATERSIDE CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1694665
(State of incorporation) (I.R.S. Employer Identification Number)
300 EAST MAIN STREET, SUITE 1380, NORFOLK, VIRGINIA 23510
(Address of principal executive office) (Zip Code)
(757) 626-1111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant 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 has been subject to the
filing requirements for the past 90 days. Yes [X] No [ ]
As of September 30, 1998, the registrant had issued and outstanding
1,420,900 shares of Common Stock, $1.00 par value.
<PAGE>
WATERSIDE CAPITAL CORPORATION
FORM 10-Q
Table of Contents
Page
Number
PART I. FINANCIAL INFORMATION:
ITEM 1. Balance Sheets as of
June 30, 1998 and September 30, 1998 (unaudited)
Statements of Operations for the Three Months
Ended September 30, 1997 and 1998 (unaudited)
Statement of Changes in Stockholders' Equity for the
Three Months Ended September 30, 1998 (unaudited)
Statements of Cash Flows for the
Three Months Ended September 30, 1997 and 1998 (unaudited)
Notes to Financial Statements (unaudited)
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
PART II. OTHER INFORMATION
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION:
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
WATERSIDE CAPITAL CORPORATION
Balance Sheets
June 30, 1998 and September 30, 1998
- -----------------------------------------------------------------------------------------------------------------
June 30, September 30,
1998 1998
-------------- ------------------
(Unaudited)
Assets:
Investments in portfolio companies, at fair value (note 3):
<S> <C> <C>
Loans $ 1,575,264 $ 3,100,000
Equity securities 6,724,337 10,015,436
Warrants 206,624 163,800
-------------- ------------------
Total investments, cost of $7,640,893 and $13,040,889 at
June 30, 1998 and September 30, 1998, respectively 8,506,225 13,279,236
-------------- ------------------
Cash and cash equivalents 4,393,501 199,926
Dividends receivable 172,842 300,485
Interest receivable 21,272 47,937
Prepaid expenses 45,137 38,542
-------------- ------------------
Total current assets 4,632,752 586,890
Property and equipment, net 112,002 118,630
Other assets, net 123,750 123,750
-------------- ------------------
Total assets $ 13,374,729 $ 14,108,506
============== ==================
Liabilities and Stockholders' Equity:
Liabilities:
Current Liabilities:
Line of credit (note 6) $ - $ 700,000
Accounts payable 15,616 52,787
Accrued expenses 66,825 102,893
Deferred revenue (note 5) - 91,028
Income taxes payable - 102,700
-------------- ------------------
Total current liabilities 82,441 1,049,408
Deferred income taxes 258,000 20,000
-------------- ------------------
Total liabilities 340,441 1,069,408
-------------- ------------------
Stockholders' Equity:
Common stock, $1 par value, 10,000,000 shares authorized,
1,420,900 issued and outstanding at June 30, 1998 and
September 30, 1998 1,420,900 1,420,900
Preferred stock, $1 par value, 25,000 shares authorized,
no shares issued and outstanding - -
Additional paid-in capital 12,272,636 12,272,636
Net unrealized appreciation on investments 536,810 147,826
Undistributed accumulated earnings 258,942 652,736
Stockholders' notes receivable (1,455,000) (1,455,000)
-------------- ------------------
Total stockholders' equity 13,034,288 13,039,098
Commitments, contingencies, and subsequent event (notes 5 and 8)
-------------- ------------------
Total liabilities and stockholders' equity $ 13,374,729 $ 14,108,506
============== ==================
Net asset value per common share $ 9.17 9.18
============== ==================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
WATERSIDE CAPITAL CORPORATION
Statements of Operations
For the three months Ended September 30, 1997 and 1998 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended
September 30,
1997 1998
------------ ------------
(Unaudited)
Operating income:
<S> <C> <C>
Interest on loans $ 1,301 $ 104,043
Dividends 22,863 225,768
Interest on cash equivalents 24,043 26,823
Fee income 5,350 321,634
------------ ------------
Total operating income 53,557 678,268
------------ ------------
Operating expenses:
Management fees 13,500 -
Salary and benefits 12,691 226,177
Legal and accounting 21,095 14,595
Other operating expenses 16,078 81,515
------------ ------------
Total operating expenses 63,364 322,287
------------ ------------
Net operating income (loss) before income taxes (9,807) 355,981
Income tax expense (benefit) (8,612) 49,400
------------ ------------
Net operating income (loss) (1,195) 306,581
Realized appreciation on investments, net of income taxes of $53,301 - 87,213
Change in unrealized appreciation on investments, net of provision for
income taxes of $76,702 and $238,000 for 1997
and 1998, respectively (119,939) (388,984)
------------ ------------
Net increase (decrease) in stockholders' equity resulting from operations $ (121,134) $ 4,810
============ ============
Net increase (decrease) in stockholders' equity resulting from operations per share -
basic and diluted $ (0.21) $ -
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WATERSIDE CAPITAL CORPORATION
Statements of Changes in Stockholders' Equity
For the three months Ended September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Net unrealized
Common Stock Additional appreciation
------------------------- paid-in on
Shares Amount capital investments
----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, June 30, 1998 1,420,900 $1,420,900 $12,272,636 $ 536,810
Net operating income - - - -
Realized appreciation
on investment - - - -
Decrease in net unrealized
appreciation on investments - - - (388,984)
----------- ------------ -------------- ---------------
Balance, September 30, 1998
(Unaudited) 1,420,900 $1,420,900 $ 12,272,636 $147,826
=========== ============ ============== ===============
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Undistributed
accumulated Stockholders' Total
earnings notes stockholders'
(deficit) receivable equity
---------------------------------------------------
<S> <C> <C> <C>
Balance, June 30, 1998 $ 258,942 $(1,455,000) $13,034,288
Net operating income 306,581 - 306,581
Realized appreciation
on investment 87,213 87,213
Decrease in net unrealized
appreciation on investments - - (388,984)
-------------- -------------- --------------
Balance, September 30, 1998
(Unaudited) $ 652,736 $(1,455,000) $13,039,098
============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WATERSIDE CAPITAL CORPORATION
Statements of Cash Flows
For the three months Ended September 30, 1997 and 1998 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Three Months Ended
September 30,
1997 1998
-------------- ---------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net increase (decrease) in stockholders' equity resulting from operations $ (121,134) $ 4,810
Adjustments to reconcile net income to net cash used in operating activities:
Decrease in unrealized appreciation on investments 196,641 626,984
Depreciation and amortization 1,759 4,159
Deferred income tax expense (76,702) (238,000)
Changes in assets and liabilities increasing (decreasing) cash flows
from operating activities:
Dividends receivable (13,441) (127,643)
Interest receivable (5,929) (26,665)
Refundable income taxes (14,874) -
Prepaid expenses (10,738) 6,595
Accounts payable and accrued expenses 99,582 73,239
Deferred revenue - 91,028
Income taxes payable - 102,700
-------------- ---------------
Net cash provided by operating activities 55,164 517,207
-------------- ---------------
Cash flows from investing activities:
Investments made (424,900) (4,500,400)
Loans made - (1,775,000)
Proceeds from investment liquidation - 875,405
Acquisition of property and equipment (225) (10,787)
-------------- ---------------
Net cash used in investing activities (425,125) (5,410,782)
-------------- ---------------
Cash flows from financing activities:
Proceeds from short term debt - 700,000
Payment of deferred financing costs (88,868) -
-------------- ---------------
Net cash provided by (used in) financing activities (88,868) 700,000
-------------- ---------------
Net decrease in cash and cash equivalents (458,829) (4,193,575)
Cash and cash equivalents, beginning of year 2,329,148 4,393,501
-------------- ---------------
Cash and cash equivalents, end of period $ 1,870,319 $ 199,926
============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WATERSIDE CAPITAL CORPORATION
Statements of Income (unaudited)
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Condition
o General
Waterside Capital Corporation ("Waterside" or the "Company") is a
specialty finance company headquartered in Norfolk, Virginia. The
Company invests in equity and debt securities to finance the
growth, expansion and modernization of small private businesses,
primarily in the Mid-Atlantic Region. The Company was formed in
1993 as the Eastern Virginia Small Business Investment
Corporation. Through June 30, 1996 the Company operated as a
development stage company focused primarily on preparation to
commence operations. The Company was licensed in 1996 by the
Small Business Administration (SBA) as a Small Business
Investment Company (SBIC) under the Small Business Investment Act
of 1958. In October 1996 the Company made its first portfolio
investment. In January 1998 the Company completed its Initial
Public Offering (IPO) to raise additional equity to support its
growth strategy.
The majority of the Company's operating income is derived from
dividend and interest income on portfolio investments and
interest earned on cash equivalents. The remaining portion of the
Company's operating income comes from application and processing
fees related to investment originations. The Company's operating
expenses primarily consist of payroll and other expenses
incidental to operations. Waterside currently has 8 full time
employees and 3 offices from which it operates -- Norfolk and
Richmond, Virginia and Charlotte, North Carolina.
o Results of Operations
Due to the successful completion of its IPO in January 1998 and
the Company's initiation of its growth strategy using the
proceeds from its IPO, the three months ended September 30, 1998
do not offer a meaningful comparison with the performance for the
three months ended September 30, 1997.
For the three months ended September 30, 1998, total operating
income was $678 thousand compared to the $54 thousand generated
during the same period of 1997. The increase in operating income
is due to the growth in the Company's investment portfolio. The
1998 operating income consisted of dividends of $226 thousand,
fee income of $322 thousand, interest on loans of $104 thousand
and interest on cash equivalents of $27 thousand.
<PAGE>
Total operating expenses for the three months ended September 30,
1998 were $322 thousand, consisting primarily of salary and
benefits of $226 thousand, legal and accounting expenses of $15
thousand and other operating expenses of $81 thousand. These
total operating expenses compared to the $63 thousand expended
during the three months ended September 30, 1997. Net operating
income of $307 thousand for the quarter ended September 30, 1998
compared favorably to the $1 thousand loss during the same
quarter of 1997.
The Company recognized realized appreciation on investments of
$140,514 during the quarter ended September 30, 1998 due to
settlement of the sale of equity securities of Election Products,
Inc., one of the Company's portfolio investments.
The reduction in the change in unrealized appreciation on
investments, net of taxes of $389 thousand for the three months
ended September 30, 1998 and $120 thousand for the three months
ended September 30, 1997 was due to the decreased stock price of
a publicly traded portfolio company.
o Financial Condition, Liquidity and Capital Resources
During the quarter ended September 30, 1998, the Company
originated $6,275,000 in new investments including $4,500,000 in
preferred equity securities and $1,775,000 in loans. To fund
these originations the Company reduced its cash position from
$4.4 million at June 30, 1998 to $200 thousand outstanding at
September 30, 1998. In addition, the Company borrowed $700
thousand under a Line of Credit Agreement with its primary bank.
Borrowings under the Line of Credit were fully repaid on October
2, 1998. On October 2, 1998 the Company borrowed $6 million from
the SBA as its first draw on a leverage commitment previously
outstanding. The Company has additional approved leverage
available of $6.3 million, which it anticipates will be
sufficient to operate through approximately March 31, 1999. The
Company has an additional two tiers of leverage (or approximately
$26 million) that it may borrow from the SBA based on its current
regulatory capital position. These additional two tiers of
leverage are subject to approval by the SBA. Management believes
that these sources of capital will be sufficient to fund the
Company's operations and grow its portfolio in fiscal 1999.
During the quarter ended September 30, 1998 cash provided by
operating activities was $517 thousand as compared to the $55
thousand provided during the three months ended September 30,
1997, primarily due to the increase in net operating income
before taxes. The Company used $5.4 million in investing
activities during the quarter ended September 30, 1998 as
compared to the $425 thousand used in the comparable period of
1997. This increase is primarily attributable to the growth in
the investment portfolio described above, net of the $875
thousand in cash generated from the liquidation of the Company's
investment in Election Products, Inc. The Company generated $700
thousand in cash from financing activities in the quarter ended
September 30, 1998 representing the proceeds from the line of
credit described above.
<PAGE>
o The Year 2000
State of readiness:
The Company is in the process of identifying and addressing the
potential impact of the Year 2000 issue on its operations. This
process has identified three primary areas in which the Company
could be affected. First, the Company has assessed its financial
and administrative software programs. As part of this process,
the Company has contacted its software vendors, who have
indicated that their programs either are or will be Year 2000
compliant. The Company will continue to work with these vendors
to ensure that necessary upgrades and testing are completed by
mid 1999. Due to the nature of the Company's business, management
does not expect a significant impact associated with
non-information technology systems. Second, the Company is
assessing its key relationship with suppliers and other third
parties, including its principal bank, to determine the potential
impact of Year 2000 on these parties, and in turn on the Company.
The Company will continue to analyze this area in further detail
in 1999. Finally, the Company has begun an investigation of the
impact of Year 2000 issues on its portfolio companies. This
investigation is not complete, and as a result, the Company
cannot assess the potential exposure associated with the
readiness of its portfolio companies for Year 2000. Because of
the reverse nature and relatively small size of its portfolio
companies the readiness of its portfolio companies represents the
Company's most significant risk with regards to the Year 2000.
Although the Company is currently unaware of any significant Year
2000 issues related to its portfolio companies, the failure of
one or more of the portfolio companies to properly prepare for
the Year 2000 could have a material adverse impact on the
Company's business results of operations and financial condition.
The Company plans to complete its initial assessment of the
readiness of its portfolio companies by the end of 1998. Until
the Company completes its assessment, it cannot offer any
assurance that the Year 2000 issue will not adversely affect the
Company's business. Based upon its assessment, contingency plans
will be developed to mitigate the potential risks. Based on the
assessment performed to date, the Company does not believe that
the cost of its Year 2000 remediation activities will be material
to its results of operations or financial position.
<PAGE>
o Forward Looking Statements
Included in this Report and other written and oral information by
management from time to time, including reports to shareholders,
quarterly and semi-annual shareholder letters, filings with the
Commission, news releases and investor presentations, are
forward-looking statements about business objectives and
strategies, market potential, the Company 's ability to expand
the geographic scope of its investments, the quality of the
Company's due diligence efforts, its financing plans, the impact
of Year 2000 issues on itself, its vendors, suppliers, and
portfolio companies, future financial performance and other
matters that reflect management's expectations as of the date
made. Without limiting the foregoing, the words "believes",
"anticipates", "plans", "expects", "seeks" and similar
expressions are intended to identify forward-looking statements.
Future events and the Company's actual results could differ
materially from the results reflected in these forward-looking
statements. There are a number of important factors that could
cause the Company's actual results to differ materially from
those indicated by such forward-looking statements. Please refer
to a discussion of these and other factors in this Report and the
Company's other Commission filings. The Company disclaims any
intent or obligation to update these forward-looking statements,
whether as a result of new information, future events, or
otherwise.
<PAGE>
WATERSIDE CAPITAL CORPORATION
Notes to Financial Statements
June 30, 1998 and September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
(1) Unaudited Interim Financial Statements
In the opinion of management, the accompanying unaudited interim
financial statements of Waterside Capital Corporation (the "Company")
are prepared in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and pursuant to
the requirements for reporting on Form 10-Q and Article 10 of
Regulation S-X. Accordingly, certain disclosures accompanying annual
financial statements prepared in accordance with GAAP are omitted. In
the opinion of management, all adjustments, consisting of normal
recurring accruals, necessary for the fair presentation of financial
statements for the interim period, have been included. The current
period's results of operations are not necessarily indicative of
results that ultimately may be achieved for the year. The interim
financial statements and notes thereto should be read in conjunction
with the financial statements and notes thereto included in the
Company's Form N-30D, as filed with the Securities and Exchange
Commission.
(2) Description of Business
Waterside Capital Corporation was incorporated in the
Commonwealth of Virginia on July 13, 1993 and is a closed-end
investment company licensed by the Small Business Administration (the
"SBA") as a Small Business Investment Corporation ("SBIC"). The Company
makes equity investments in, and provides loans to, small business
concerns to finance their growth, expansion and development. Under
applicable SBA regulations, the Company is restricted to investing only
in qualified small business concerns as contemplated by the Small
Business Investment Act of 1958.
(3) Investments
Investments are carried at fair value, as determined by the Executive
Committee of the Board of Directors. The Company, through its Board of
Directors, has adopted the Model Valuation Policy, as published by the
Small Business Administration (SBA), in Appendix III to Part 107 of
Title 12 of the Code of Federal Regulations (the "Policy"). The Policy,
among other things, presumes that loans and investments are acquired
with the intent that they are to be held until maturity or disposed of
in the ordinary course of business. Except for interest-bearing
securities which are convertible into common stock, interest-bearing
securities are valued in an amount not greater than cost, with
unrealized depreciation being recognized when value is impaired. Equity
securities of private companies are presumed to represent cost unless
the performance of the portfolio company, positive or negative,
indicates otherwise in accordance with the Policy guidelines. The fair
value of equity securities of publicly traded companies are generally
valued at their quoted market price discounted for the effect of
restrictions on the sale of such securities. Discounts range from 0% to
40%. The Company maintains custody of its investments as permitted by
the Investment Company Act of 1940.
<PAGE>
WATERSIDE CAPITAL CORPORATION
Notes to Financial Statements
- -------------------------------------------------------------------------------
(3) Continued
Investments consist primarily of preferred stock obtained from and
loans made to portfolio companies under SBIC investment and loan
regulations. The financial statements include securities valued at
$8,506,225 and $13,279,236 at June 30, 1998 and September 30, 1998
(63.6% and 94.1% of assets) respectively. Investments are recorded at
fair value as determined by the Executive Committee of the Board of
Directors or by current market prices, if available, in accordance with
the Company's valuation policy. The valuation process completed by
management includes estimates made by management and the Executive
Committee in the absence of readily ascertainable market values. These
estimated values may differ significantly from the values that would
have been used had a ready market for the securities existed, and those
differences could be material.
(4) Net Increase (decrease) in Stockholders' Equity Resulting from
Operations per Share
The following table sets forth the calculation of basic and diluted net
increase (decrease) in stockholders' equity resulting from operations
per share for the three months ended September 30, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Basic net increase (decrease) in stockholders' equity resulting from
operations per share:
Net increase (decrease) in stockholders' equity
resulting from operations $ (121,134) 4,810
============ ============
Weighted average number of common
shares outstanding $ 568,900 1,420,900
=========== ============
Basic net increase (decrease) in stockholders'
equity resulting from operations per share $ (0.21) 0.00
============ =============
Diluted net increase (decrease) in stockholders' equity resulting from
operations per share:
Net increase (decrease) in stockholders' equity
resulting from operations $ (121,134) 4,810
========= ============
Weighted average number of common
shares outstanding 568,900 1,420,900
Dilutive effect of stock options (as determined
by using the treasury stock method) - 350
----------- ----------
Adjusted weighted average number of common
shares outstanding $ 568,900 1,421,250
=========== =========
Diluted net increase (decrease) in stockholders'
equity resulting from operations per share $ (0.21) 0.00
============ =============
</TABLE>
<PAGE>
(5) Financial Guarantee
As of September 30, 1998, the Company has issued a guarantee for
$800,000, through September 4, 1999, on borrowings by a company in
which it has invested. The Company earned a fee of $40,000 in
conjunction with the guarantee which will be recognized as fee income
over the life of the guarantee. The Company receives a maximum monthly
fee for providing the guarantee of 0.5% of the outstanding loan balance
at the end of each month.
(6) Line of Credit
On September 29, 1998, the Company borrowed $700,000 under a line of
credit agreement. The interest rate on the line was the bank's prime
rate. Borrowings under the line of credit were fully repaid on October
2, 1998 using the proceeds received from the SBA described in note 8.
(7) New Accounting Pronouncement
As of July 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income.
SFAS No. 130 established new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
statement had no material impact on the Company's net increase in
stockholders' equity resulting from operations per share or
stockholders' equity.
(8) Subsequent Event
On October 2, 1998, the Company borrowed $6,000,000 from the SBA under
10 year notes. The notes are due on October 2, 2008 and bear interest
at an interim rate of 5.716% plus a 1.35% fee on the outstanding
balance. The interest rate will be finalized on March 24, 1999. In
conjunction with the signing of the notes, the Company paid a 2.5%
origination fee in addition to the 1% commitment fee paid during fiscal
1998. The total amount of leverage approved by the SBA and available
for borrowing is $12,300,000, including the $6,000,000 drawn in October
1998 described above.
<PAGE>
WATERSIDE CAPITAL CORPORATION
Schedule of Portfolio Investments
June 30, 1998 and September 30, 1998
- -------------------------------------------------------------------------------
The Company's investment portfolio at June 30, 1998, consisted of the
following:
<TABLE>
<CAPTION>
Coupon Cost or
Interest Contributed Fair
Loans: Maturity Rate Value Value
------ -------- ---- ----- -----
<S> <C> <C> <C> <C>
Avery Communications,
Inc. 12/10/02 12% $ 350,000 $ 600,264
Divaris Consolidated
Investments, Inc. 6/26/04 18% 975,000 975,000
------------ ------------
Total loans 1,325,000 1,575,264
------------ ------------
<CAPTION>
Cost or Fair
Number Contributed Market
Equity Interests: of Shares Value Value
----------------- --------- ----- -----
<S> <C> <C> <C>
Publicly Traded Companies:
Avery Communications, Inc. Common
Stock 245,000 $ 249,900 $ 568,033
Equity Investments in Private Companies:
Real Time Data Management Services, Inc.
Preferred Stock 700 585,000 710,247
Mid-Atlantic Small Business Finance, Inc.
Preferred Stock 500 140,000 140,000
Coddle Roasted Meats, Inc. Preferred
Stock 125 125,000 93,750
Election Products, Inc. Preferred Stock 500 875,000 875,000
Election Products, Inc. Common Stock 223 4 140,518
NKL Industries, Inc. Preferred Stock 900 900,000 900,000
NKL Industries, Inc. Common Stock 989 989 989
Delta Education Systems, Inc. Preferred
Stock 425 398,600 398,600
Mead-Higgs Company, Inc. Preferred
Stock 1,500 1,500,000 1,500,000
Crispies, Inc. Preferred Stock 400 397,200 397,200
Triangle Biomedical Sciences Preferred
Stock 1,000 1,000,000 1,000,000
--------- ---------
Total equity investments 6,171,693 6,724,337
--------- ------------
</TABLE>
<PAGE>
WATERSIDE CAPITAL CORPORATION
Schedule of Portfolio Investments
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cost or Fair
Number of Percentage Contributed Market
Stock Warrants and Options: Shares Ownership Value Value
--------------------------- ------ --------- ----- -----
<S> <C> <C> <C> <C>
Publicly Traded Companies:
Avery Communications, Inc. 91,000 0% $ - $ 53,424
Private Companies:
Real Time Data Management
Services, Inc. 125 29.41 115,000 124,000
Coddle Roasted Meats, Inc. 1,177 15.00 - -
Delta Education Systems, Inc 176 15.00 26,400 26,400
Mead-Higgs Company, Inc. 3,611 10.74 - -
Crispies, Inc. 524 6.37 2,800 2,800
Triangle Biomedical Sciences 23,260 6.37 - -
------------- ------------
Total warrants and options 144,200 206,624
------------- ------------
Total investments $ 7,640,893 $ 8,506,225
============= ==-=========
</TABLE>
The Company's investment portfolio at September 30, 1998, (unaudited)
consisted of the following:
<TABLE>
<CAPTION>
Coupon Cost or
Interest Contributed Fair
Loans: Maturity Rate Value Value
------ -------- ---- ----- -----
<S> <C> <C> <C> <C>
Avery Communications,
Inc. 12/10/02 12% $ 350,000 $ 350,000
Divaris Consolidated
Investments, Inc. 6/29/04 18% 1,100,000 1,100,000
Extraction Technologies
of VA, LLC 7/22/03 14.5% 650,000 650,000
JMS North America, Inc. 7/24/03 13% 1,000,000 1,000,000
------------ -------------
Total loans 3,100,000 3,100,000
------------ -------------
</TABLE>
<PAGE>
WATERSIDE CAPITAL CORPORATION
Schedule of Portfolio Investments
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cost or Fair
Number Contributed Market
Equity Interests: of Shares Value Value
----------------- --------- ----- -----
<S> <C> <C> <C>
Publicly Traded Companies:
Avery Communications, Inc. Common Stock 245,000 $ 249,900 $ 350,000
Netplex Group, Inc. Preferred Stock 1,500,000 1,500,000 1,500,000
Equity Investments in Private Companies:
Real Time Data Management Services, Inc.
Preferred Stock 700 585,000 711,247
Mid-Atlantic Small Business Finance, Inc.
Preferred Stock 500 140,000 140,000
Coddle Roasted Meats, Inc. Preferred
Stock 125 125,000 125,000
NKL Industries, Inc. Preferred Stock 900 900,000 900,000
NKL Industries, Inc. Common Stock 989 989 989
Delta Education Systems, Inc. Preferred
Stock 425 398,600 402,100
Mead-Higgs Company, Inc. Preferred
Stock 1,500 1,500,000 1,500,000
Crispies, Inc. Preferred Stock 400 397,200 397,300
Triangle Biomedical Sciences Preferred
Stock 1,000 1,000,000 1,000,000
JMS North America, Inc. Preferred
Stock 1,500 1,500,000 1,500,000
EPM Development Systems, Corp.
Preferred Stock 1,500 1,488,400 1,488,800
------------- -----------
Total equity investments 9,785,089 10,015,436
------------- -----------
</TABLE>
<PAGE>
WATERSIDE CAPITAL CORPORATION
Schedule of Portfolio Investments
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cost or Fair
Number of Percentage Contributed Market
Stock Warrants and Options: Shares Ownership Value Value
--------------------------- ------ --------- ----- -----
<S> <C> <C> <C> <C>
Publicly Traded Companies:
Avery Communications, Inc. 91,000 0% $ - $ -
Netplex Group, Inc. 150,000 0% - -
Private Companies:
Real Time Data Management
Services, Inc. 125 29.41 115,000 123,000
Coddle Roasted Meats, Inc. 1,177 15.00 - -
Delta Education Systems, Inc 176 15.00 26,400 26,400
Mead-Higgs Company, Inc. 3,611 10.74 - -
Crispies, Inc. 524 6.37 2,800 2,800
Triangle Biomedical Sciences 23,260 6.37 - -
Extraction Technologies of
VA, LLC - 15.00 - -
JMS North America, Inc. 199 5.00 - -
EPM Development Systems,
Corp. 87 8.00 11,600 11,600
------------- ---------------
Total warrants and options 155,800 163,800
------------- ---------------
Total investments $ 13,040,889 $ 13,279,236
============= ===============
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) Use of proceeds from registered securities. The effective date of the
Company's Securities Act registration statement on Form N-2 was January 29,
1998. The Commission file number is 333-36709. Between the effective date and
June 30, 1998, the expenses incurred in connection with the issuance and
distribution of the securities registered were as follows:
Expenses incurred to date as
of
Direct or indirect payments to others: September 30, 1998
- ------------------------------------- ----------------------------
Underwriting discounts and commissions $ 756,040.00
Other expenses 582,415.00
Total expenses $1,288,455.00
=============
Net offering proceeds after total expenses above $8,083,545.00
=============
Between the effective date and September 30, 1998, all of the net offering
proceeds were used for the following purpose:
Use of proceeds through
Direct or indirect payments to others: September 30, 1998
- -------------------------------------- -----------------------
Investments in equity and debt securities of
small businesses $8,083,545.00
Total Use of Proceeds $8,083,545.00
The use of proceeds does not represent a material change in the use of proceeds
described in the prospectus.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
(i) 27 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Norfolk, Commonwealth of
Virginia on the 16th day of November, 1998.
WATERSIDE CAPITAL CORPORATION
By /s/ J. Alan Lindauer
-------------------------------------
J. Alan Lindauer
President and Principal Executive Officer
By /s/ Gerald T. McDonald
-------------------------------------
Gerald T. McDonald
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WATERSIDE CAPITAL CORPORATION AS PRESENTED IN THE FORM
10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS' LEGEND.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 200
<SECURITIES> 13,279
<RECEIVABLES> 348
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 587
<PP&E> 119
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,109
<CURRENT-LIABILITIES> 1,049
<BONDS> 0
0
0
<COMMON> 1,421
<OTHER-SE> 11,618
<TOTAL-LIABILITY-AND-EQUITY> 14,109
<SALES> 0
<TOTAL-REVENUES> 678
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 322
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 356
<INCOME-TAX> 49
<INCOME-CONTINUING> 307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (302)
<NET-INCOME> 5
<EPS-PRIMARY> 0.0
<EPS-DILUTED> 0.0
</TABLE>
