ITEM 1. BUSINESS - ----------------- General
The Company was incorporated under the laws of Colorado on March 26, 1990. It has broad corporate powers; however, since 1992 through April 21, 1999, the Company had been engaged in the operation of a water park located in the Southeast Denver Metropolitan Area. The park operated from Memorial Day Weekend through Labor Day Weekend annually. The park property was sold on April 21, 1999 for $1,983,000. Currently the Company is engaged in removal of certain improvements from the property as required by the purchase agreement, and for which $150,000 of the sale price was withheld pending completion. The Company estimates it will have the removal completed in July 1999.
Adverse Current Ratio
At March 31, 1999, the Company's current liabilities exceeded its current assets by $1,858,254. At March 31, 1999, the Company was partially delinquent in paying its property taxes, which were $644,963. The Company's auditors state in their report at June 16, 1999 that the working capital deficiency raises substantial doubt as to the Company's ability to continue as a going concern.
Default on Indenture of Trust
At March 31, 1999 the Company was in default on an indenture of trust secured by the water park property and the 10% promissory notes because it has not repaid the principal outstanding amount of $955,000 which was due September 1997 nor paid interest since September 1997. This obligation was paid in April 1999 pursuant to agreements with the noteholders whereby they agreed to accept 75% of the face amount of their respective notes.
Delinquent Property Taxes
At March 31, 1999, $879,064 was due to Arapahoe County, Colorado for property taxes, most of which was delinquent. This obligation was paid in April 1999.
Personnel
At March 31, 1999, the Company had one part-time employee, the Company's in-house accountant. The Company's President serves in a part-time, as needed position. Following the sale of the water park property all employment was terminated.
ITEM 2.
ITEM 2. PROPERTIES - ------------------- At March 31, 1999 the Company owned 16 acres of real estate at approximately East Arapahoe Road and South Havana in the Southeast Denver metro area. The Company's water park, adjacent parking area and administrative offices were located on this property. On April 21, 1999 the property was sold to Bedford Property Investors of Lafayette, California.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS - -------------------------- Currently there are no material legal proceedings pending or threatened against the Company or its assets.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ On April 16, 1999 the shareholders of the Company, at a meeting called for the purpose of approving the sale of the water park property, approved that proposal with approximately 73% of the outstanding shares voting in favor of the sale.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------------------------ The Company's common stock has been included on the NASD's Electronic Bulletin Board since December 1995. The prices included below have been obtained from sources believed to be reliable.
Low High Quarters Ended Bid Bid -------------- --- --- June 30, 1997 .37 .50 September 30, 1997 .37 .50 December 31, 1997 .25 .25 March 31, 1998 .12 .21 June 30, 1998 .12 .21 September 30, 1998 .06 .37 December 31, 1998 .03 .03 March 31, 1999 .03 .03
On June 28, 1999, the bid price of the Company's common stock was $.06.
Prices may not be an indication of actual transactions and do not necessarily include mark-ups, mark-downs or interdealer discounts. The Company is informed that there has been very little volume in trading of its common stock during the past year.
As of June 20, 1999, the Company had 165 shareholders of record, and management estimates there are an additional approximate 200 beneficial holders of Company shares.
Dividend Policy
The Company has never paid dividends on its common stock, and the Company's Board of Directors plans on distributing no dividends in the foreseeable future.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA - -------------------------------- Following is a summary of selected financial data. See the financial statements included herein for more complete information.
Summary Balance Sheet Data:
As of As of As of As of As of 3/31/99 3/31/98 3/31/97 3/31/96 3/31/95
Total Assets.$ 1,427,656 $ 1,910,724 $ 2,478,613 $ 3,028,190 $ 3,649,607 Total Liabilities. $ 1,942,591 $ 2,105,540 $ 2,244,548 $ 2,322,158 $ 2,724,957 Long Term Obligations. $ 0 $ 37,864 $ 65,377 $ 953,098 $ 145,632 Working Capital..... $(1,858,254) $(2,059,228) $(2,167,098) $(1,362,589) $(2,556,580) Stock- holders' Equity...... $ (514,915) $ (194,816) $ 203,391 $ 706,032 $ 924,650
Summary Operating Data:
Year Year Year Year Year Ended Ended Ended Ended Ended 3/31/99 3/31/98 3/31/97 3/31/96 3/31/95 ---------- ----------- ---------- ---------- ----------- Sales....... $1,010,418 $ 999,710 $1,085,465 $ 855,618 $ 1,021,747 Net Loss.... $ (320,099) $ (428,881) $ (502,641) $ (693,474) $(1,023,077) Net loss Per Share... $ (.12) $ (.16) $ (.19) $ (.28) $ (.57) Net Loss Before Extra- ordinary Items...... $ (320,099) $ (428,881) $ (502,641) $ (751,014) Net Loss Per Share Before Extra- ordinary Items...... $ (.12) $ (.16) $ (.19) $ (.32)
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ----------------------------------------------------------- Financial Condition
At March 31, 1999, working capital was a negative $1,858,254 as compared to a negative $2,059,225 at March 31, 1998, a decrease of approximately $200,974.
The principal items contributing to the working capital shortfall are operating losses, currently due promissory notes and currently due property taxes.
At March 31, 1999, the Company's shareholders' equity was a negative $(514,915), down from $(194,816) at March 31, 1998, due primarily to operating losses for fiscal 1999.
Results of Operations - Fiscal 1999 Compared to Fiscal 1998
Revenues for 1999 were up slightly over 1998. Expenses for 1999 were $216,581 higher (18%) than in 1998. The most significant increase in expenses related to salaries which were up $232,672 from 1998 or 98% and included bonuses totaling $241,262 for the Company's President, the wife of the President, the Principal Accounting Officer and the Park Manager. Ken Dalton worked for the Company for the past three years at an annual salary of $18,000 and his wife worked for no compensation. Chief Accounting Officer, Eric Nelson, and Park Manager, John Jannes, worked nearly every day during the Company's operating season, often 10 or more hours per day, all without extra compensation and without a raise over the past five years. The bonuses were approved by the Board of Directors conditioned upon the sale of the park property.
Advertising expense of $65,803 was only 54% of the amount spent for this item last year as the Company found less expensive ways to attract potential customers. Interest expense was lower by $41,374 as the Company's debt was reduced during fiscal 1999.
Net loss for the year was $108,782 less than 1998 and includes a non-cash expense item of $561,832. An extraordinary item contributed $274,866 to the Company's operating results due to renegotiation of debt and debt forgiveness. Absent this item, losses for 1999 would have been $594,965.
Results of Operations - Fiscal 1998 Compared to Fiscal 1997
Revenues for 1998 were down slightly over 1997 with decreases in both gate admissions and food and beverage due primarily to the affect of an
unseasonably cold June 1997 on park attendance. The Company contracts out its food and beverage service for a percentage of the sales. Expense amounts for 1998 by items were slightly less than in 1997. Elimination of depreciation of $558,672, a non-cash item, would result in profitable operations for fiscal 1998. As a percentage of gross profit, operating expenses, exclusive of depreciation and interest, declined from 98% in fiscal 1996 to 74% in fiscal 1997 to 72% in fiscal 1998.
Interest expense for fiscal 1998 was $58,266 less than fiscal 1997 due to reduction in outstanding indebtedness of approximately $340,000 and lower interest rates on one note to the Company's president. Amortization of debt offering costs was only $9,809 for fiscal 1998 because it was the last period in which such expense was allocable and the $9,809 was all that remained.
Results of Operations - Fiscal 1997 Compared to Fiscal 1996
Revenues for 1997 were up 27% over 1996 with increases in both gate admissions and food and beverage. The Company continued to contract out its food and beverage service for a percentage of the sales. Expense amounts for 1997 by items were approximately the same as 1996 except for professional and consulting fees which showed further reduction as the Company's requirements for legal and other services declined 76% and advertising expenses were 27% lower. Elimination of depreciation of $559,751, a non-cash item, would result in profitable operations for fiscal 1997. As a percentage of gross profit, operating expenses, exclusive of depreciation and interest, declined from 98% in fiscal 1996 to 74% in fiscal 1997.
Results of Operations - Fiscal 1996 Compared to Fiscal 1995
Revenues for fiscal 1996 were lower than fiscal 1995 by $166,129 largely because the Company contracted its food service for 1996 with an outside vendor and merely received a fee for the sale of food of $173,453, compared to $353,709 for food sales by the Company for 1995. However, substantial savings on the cost of sales ($11,078 for 1996 vs. $78,181 for 1995) and salaries ($270,938 for 1996 vs. $348,318 for 1995) justifies the decision which resulted in lower total revenues. Gross profits for 1996 were approximately $100,000 less than 1995 and total operating expenses for 1996 were nearly $300,000 less than 1995. Thus, net loss for 1996 was approximately $330,000 less than the loss for 1995. Of the loss of $693,474 for 1996, $560,511 represents a non-cash item, depreciation. Most of the Company's current park facilities will be fully depreciated in 1998.
The month of June, 1995, which is approximately one-third of the water park's operating period, was one of the coldest, rainiest Junes ever recorded for the Denver area. This was devastating to park revenues. For June, 1996, the Denver area experienced more typical June weather, with highs usually in the 80's and low 90's.
Consulting and professional fees have shown a steady decline from fiscal 1994 through fiscal 1996 as the Company's use of lawyers and other professionals has been reduced following the finalization of work-out arrangemen ts with the Company's creditors.
Interest expense reduction and interest expense forgiven for 1996 reflect results of settlements and pay-offs of construction creditors.
Liquidity and Capital Resources
At March 31, 1999, the Company had $1,942,571 in current obligations and $84,317 in current assets. Obligations include notes payable of $847,681 and property taxes of $644,963.
The Company has been able to continue, notwithstanding past financial difficulties, only as a result of sales of 920,000 shares of common stock at $1.00 and $482,000 in loans during fiscal 1995 and 1996. The Company's President purchased 500,000 shares of such stock and was the source of $400,000 in loans. Vancol Industries, Inc., a major shareholder, purchased 25,000 shares of stock and loaned the Company $82,400. Rod Barksdale, a director, purchased 25,000 shares of stock. Arthur T. Biddle, a former director, and a Biddle family partnership purchased 40,000 shares of common stock.
As indicated by the Statement of Cash Flows (page), the Company has not obtained funding in the past three years from the sale of its common stock. Rather it has relied primarily upon revenues from operations and a bank line of credit of its President to provide funds for operations. The Company has never been able to achieve profitable operations.
The Company's plan during the past year has been to sell its water park property for sufficient funds to retire its debt. On April 16, 1999 the Company sold its water park property for nearly $2 million. The sale proceeds and other proceeds from the sale of water park features and equipment were sufficient to pay all of the Company's obligations.
Year 2000
Since the Company sold its water park property and is attempting to locate another business opportunity, of which there is none under consideration, the Company is not able to meaningfully make any plans or disclosures about how Year 2000 issues may affect the Company or its operations, if any.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- Attached hereto are financial statements responsive to this Item.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ------------------------------------------------------ None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY - --------------------------------------------------------- Set forth below are all directors and executive officers of the Company. Officers serve at the pleasure of the Board of Directors.
Kenneth M. Dalton, age 51. President of the Company since October, 1993. Director of the Company since March 16, 1992. President of Meridian Medical Corp., an Englewood, Colorado distributor of medical products (1985-March 1994). In March 1994 the assets of Meridian were sold to Lincare, Inc. of Clearwater, Florida, which provides medical home health care and supplies.
Rod K. Barksdale, age 50. Vice President of the Company since october, 1993. Director of the Company since March 16, 1992. Employed as an administrator for Public Service Company of Colorado, Glenwood, Springs, Colorado (1977-Present). Mr. Barksdale receives no salary from the Company and provides services on an as needed basis.
Ren Berggren, age 50. Secretary of the Company since October, 1993. Director of the Company since March 16, 1992. Employed as Vice President of Vancol Industries, Inc., Denver, Colorado, a distributor of beverages (1988-Present). Controller of Worldwide Corporate Services, a Denver,
Colorado company engaged in support services for automobile dealerships (1985-1988). Mr. Berggren receives no salary from the Company and provides services on an as needed basis.
Key Personnel
Eric Nelson is the Company's principal accounting and financial officer. He has been employed by the Company since 1994 and previously was employed in as controller with Meridian Medical Corp., Englewood, Colorado (1988-1994). He is a graduate of Colorado State University, with a degree in accounting.
John Janness was the Company's general manager until September 1998. He worked on the construction of the park in 1991 and was in charge of park maintenance from 1992 to 1995, when he was promoted to general manager.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- The following tabular information includes all plan and non-plan compensation paid to the Company's president and to all other executive officers whose total annual salary and bonus is $100,000 or more.
Summary Compensation Annual Compensation Long-Term Compensation Awards Payouts Other Name Annual Restricted All Other and Compen- Stock LTIP Compen- Principal Salary Bonus sation Award(s) Options/ Payouts sation Position Year ($) ($) ($) ($) SARs(#) ($) ($) - -------- ---- ------ ----- ------ -------- -------- ------- -------- Kenneth M. 1999 18,000 $80,421 -0- -0- 61,250 -0- -0- Dalton 1998 18,000 -0- -0- -0- shares a -0- -0- President 1997 18,000 -0- -0- -0- $1.10 per -0- -0- (1) share ____________________ (1) Mr. Dalton became President of the Company in October, 1993.
The Company's Board of Directors has no compensation committee.
Stock Options Held by Executive Officers and Value Thereof at June 1, 1999 Value of Unexercised Number of In-the-Money Unexercised Options at Shares Options 6/1/98 Acquired Value 6/1/99 All All Name on Exercise (#) Realized($) Exercisable Exercisable(1) - ---- --------------- ----------- ----------- -------------- Kenneth M. Dalton, -0- -0- 61,250 -0- President _____________________
(1) Based on the average closing bid price of the Company's common stock at June 20, 1999 of $.06 as reflected on the NASD's Electronic Bulletin Board.
Director's Fees
The Company has authorized director's fees of $100 per meeting for each director who is not a salaried officer of the Company, however no director's fees were paid during the year ended March 31, 1999.
Incentive Stock Option Plan
Effective January 7, 1991, the Company adopted an Incentive Stock Option Plan (the "Plan"). The purpose of the Plan is to secure and retain key employees of the Company. The Plan authorizes the granting of options to officers, directors and employees of the Company to purchase 200,000 shares of the Company's $.001 par value common stock subject to adjustment for various forms of recapitalization that may occur. No option may be granted after January 7, 2001, and the fair value of an option to each optionee cannot exceed $100,000 per year. An employee must have six months of continuous employment with the Company before he or she may exercise an option granted under the Plan. The option exercise price may not be less than 100% of the fair market value of the shares at the time of the granting of such options except in the case of an option granted to a stockholder who owns 10% or more of the Company's shares at the time of the grant in which case the option price must be at least 110% of the fair market value of the shares at the time of the grant of such option, and options must be exercised within five years after the date of grant. Options granted under the Plan are non-assignable and terminate three months after employment by the optionee ceases, except in the case of employment termination due to disability of the optionee, in which event the option expires twelve months from the date employment ceases. The Plan is to be administered by a committee selected by the Company's Board of Directors.
It may be expected that any option granted will be exercised only if it is advantageous to the option holder. It may also be expected that if any option granted is exercised, and the book value is below the exercise price, the book value of the Company's stock held by the Company's then shareholders will be minimally increased; however, the voting power of the then shareholders will be decreased. If the book value of the stock is above the exercise price, then exercise of the option will dilute the book value to other shareholders. One option for 61,250 shares exercisable at $1.10 per share has been granted under the Company's Incentive Stock Option Plan to the Company's President.
The Company has no other bonus, profit sharing, pension, retirement, stock option, stock purchase, deferred compensation or other incentive plans nor present plans with respect to these matters; however, it is possible that the Board of Directors will adopt such plans in the future.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - --------------------------------------------------------- Beneficial ownership of any person or persons means direct or indirect voting or investment power and does not include shares which may be acquired pursuant to warrants, stock options or similar rights. (See "Stock Options" below). The following table sets forth the name and business address of each officer and director and each person whose ownership of the Company's common stock exceeds 5% based on 2,610,475 shares outstanding at June 20, 1999:
Name of Amount and Nature of Percentage Beneficial Owner Beneficial Ownership of Class
Kenneth M. Dalton(1)(2) 668,419 25.6% 26 Tamarade Drive Littleton, CO 80127
Rod K. Barksdale 88,007 3.3% 2921 Sopris Avenue Glenwood Springs, CO 81601
Ren Berggren(1)(2)(3) 0 0% 1700 E. 68th Ave. Denver, CO 80229
James F. Silliman, M.D. 192,142 7.4% 7408 Greenbriar Dallas, TX 75225
Keith A. Lowery 144,734 5.5% 7477 Singing Hills Drive Boulder, CO 80301
Michael McCallum 244,879 9.8% 2200 Grand Avenue Glenwood Springs, CO 81601
Officers and Directors 812,592(4) 31.1% as a Group (5 Persons) ____________________
(1) Directors of the Company.
(2) Officers of the Company
(3)Mr. Berggren is an officer, director and shareholder of Vancol Industries, Inc. which company owns 56,166 shares of common stock of the Company. He disclaims personal beneficial ownership of the shares of common stock of the Company owned by Vancol Industries, Inc.
(4)For purposes hereof the shares held by Vancol Industries, Inc. are included in the calculation.
Stock Options
The control reflected in the foregoing table may be subject to further changes by reason of exercise of certain stock options. Mr. Dalton held a $400,000 convertible note of the Company whereby he can convert the note balance to up to 177,777 shares of common stock at $2.25 per share. This note was paid during fiscal 1999. Mr. Dalton holds an option to purchase 61,250 shares at $1.10 per share through December 25, 1999.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- In April, 1994, the Company issued a $400,000 convertible promissory note to Mr. Dalton pursuant to an arrangement whereby Mr. Dalton personally obtain a $400,000 bank line of credit, the proceeds of which were made available to the Company. The Company paid the interest on the bank line of credit which is the bank's prime rate. The bank line of credit was secured by assets owned by the president. The note was convertible into up to 177,777 shares of common stock of the Company at $2.25 per share. At March 31, 1999, the balance on the note had been paid in full.
THE SOUTHSHORE CORPORATION
FINANCIAL STATEMENTS
with
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
March 31, 1999 and 1998
Page
Report of Independent Certified Public Accountants
Financial Statements:
Balance Sheets
Statements of Operations
Statement of Changes in Stockholders' Equity (Deficit)
Statements of Cash Flows
Notes to Financial Statements
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -------------------------------------------------- The Board of Directors The Southshore Corporation Englewood, CO
We have audited the accompanying balance sheets of The Southshore Corporation as of March 31, 1999 and 1998, and the related statements of operations, changes in stockholders' equity (deficit) and cash flows for the three years ended March 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Southshore Corporation as of March 31, 1999 and 1998, and the results of its operations, its cash flows and its changes in stockholders' equity (deficit) for the three years ended March 31, 1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 7 to the financial statements, the Company has suffered recurring losses from operations, has a working capital deficiency and has subsequent to March 31, 1999 sold its assets, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 7. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Schumacher & Associates, Inc. 12835 East Arapahoe Road Tower II, Suite 110 Englewood, CO 80112 June 16, 1999
THE SOUTHSHORE CORPORATION
BALANCE SHEETS
The accompanying notes are an integral part of the financial statements.
THE SOUTHSHORE CORPORATION
STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of the financial statements.
THE SOUTHSHORE CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) From March 31, 1996 through March 31, 1999
The accompanying notes are an integral part of the financial statements.
THE SOUTHSHORE CORPORATION
STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of the financial statements.
THE SOUTHSHORE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------------------------ This summary of significant accounting policies of The Southshore Corporation (the Company) is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.
Organization ------------ The Southshore Corporation (the "Company") was incorporated under the laws of the state of Colorado on March 26, 1990. The Company as of March 31, 1999, owned 16 acres of land in Arapahoe County, Colorado, upon which it had constructed and was operating a water park. See Note 9 for a description of the disposition of assets. The Company has selected March 31 as its fiscal year end.
Property and Equipment and Related Depreciation ----------------------------------------------- Property and equipment are carried at cost. The cost of property and equipment is depreciated on a straight-line basis over the estimated useful lives of the related assets, which are 20 years for buildings and 7 years for the remaining assets which consist principally of equipment and facilities.
Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When property and equipment is sold or otherwise disposed of, the asset and related accumulated depreciation account is relieved, and any gain or loss is included in operations.
Concentrations of Credit Risk ----------------------------- The Company has no material amounts or concentrations of credit risks.
Debt Offering Costs ------------------- The Company incurred $105,250 in debt offering costs related to a successful private placement of secured notes. These offering costs were amortized on a straight-line basis over the five year term of the notes.
THE SOUTHSHORE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ------------------------------------------------------------ Continued --------- Per Share Information ---------------------- Per share information is computed based upon a weighted average number of shares outstanding.
Geographic Area of Operations and Interest Rates ------------------------------------------------ The Company operates a water park in Englewood, Colorado. The potential for severe financial impact can result from negative effects of economic conditions within the market or geographic area. Since the Company's business is in one area, this concentration of operations results in an associated risk and uncertainty.
Use of Estimates in the Preparation of Financial Statements ----------------------------------------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Advertising Costs ----------------- Advertising costs are expensed as incurred.
2. PROPERTY AND EQUIPMENT ---------------------- Property and equipment is summarized as follows: March 31, 1999 1998 Buildings $ 744,332 $ 744,332 Recreational park facilities 3,673,082 3,673,082 Office furniture and equipment 9,832 9,832 Equipment 101,724 98,829 Land 435,173 435,173 --------- -------- 4,964,143 4,961,248
Less accumulated depreciation 3,638,049 3,076,217 --------- --------- $ 1,326,094 $ 1,885,031 ========= =========
THE SOUTHSHORE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
3. NOTES PAYABLE
Notes payable are summarized as follows: March 31, 1999 1998 Note payable to individual, collateralized by 7 1/2 acres of real estate, $2,957 per month with interest at 8%, due March 20, 2000 $ 54,631 $ 72,841
Note payable, interest at prime, renewable annually (see below *). - 136,590
Note payable, interest at 12% per annum, collateralized by deed of trust, due September 30, 1997 - 75,000
Notes payable, private offering collateralized through an indenture of trust by all of the Company's real property and improvements subject to a second deed of trust on the 7 1/2 acres above, interest at 10% payable quarterly which commenced June 30, 1993 and four equal installments of principal which were scheduled to commence June 30, 1994 net of unamortized discount of $1,462 at March 31, 1997 (see below**) 716,250 955,000 -------- --------- 770,881 1,239,431 Less current portion (770,881) (1,201,567) ---------- ---------- Long-term portion $ - $ 37,864 ========== =========
THE SOUTHSHORE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
3. NOTES PAYABLE, Continued ------------------------- * In April, 1994, the Company issued a $400,000 convertible promissory note to the Company's President pursuant to an arrangement whereby the President personally obtained a bank line of credit, the proceeds of which were made available to the Company. The note was convertible into up to 177,777 shares of common stock of the Company at $2.25 per share. As of March 31, 1999, there was no balance payable on this note.
Maturities of notes payable after giving effect to the default provisions are summarized as follows:
1999 $ 770,881
** The provisions of indenture relating to the 10% secured notes contain various covenants pertaining to limitations on restricted payments (such as dividends, aggregate officers' compensation in excess of defined limits, etc.) based on maintenance of working capital and tangible stockholders' equity parameters. There are also limitations on total debt allowed. The Company failed to make required repayments on the notes payable outstanding. As of March 31, 1999, the entire balance of these notes payable have been shown as a current liability in the financial statements since the notes are in default. See Note 6.
4. STOCKHOLDERS' EQUITY -------------------- Common Stock Options -------------------- A shareholder of the Company has loaned $97,400 to the Company with interest rates ranging from prime to 12% per annum. As of March 31, 1999, the shareholders agreed to a $20,600 reduction in the amount of this obligation. The balance of the note payable of $76,800 is convertible at the shareholders option into common stock of the Company since the balance was not paid when due. The payable to the shareholders is uncollateralized.
The President was granted an option to acquire 61,250 shares at $1.10 through December 25, 1999.
THE SOUTHSHORE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
4. STOCKHOLDERS' EQUITY, Continued -------------------------------- Warrants Issued with 10% Secured Notes -------------------------------------- The Company sold 195 units of $5,000 each of 10% secured notes in a private placement. Each unit also included 625 warrants. Each warrant entitles the holder to purchase one restricted common share at $6.00 per share through June 30, 1997. The Company reserved 121,875 common shares for issuance for the exercise of these warrants. The warrants were deemed to have an aggregate value of $36,563 which was recorded upon their issuance as additional paid in capital and as a discount on the notes payable. As of March 31, 1999, 7,917 warrants have been exercised through the issuance of 27,146 shares of restricted common stock after adjustment for dilution.
Incentive Stock Option Plan --------------------------- During January of 1991, the Company adopted an incentive stock option plan for employees of the Company. The Company reserved 200,000 shares of its common stock for this plan. The option price shall be determined by the Company but shall not be less than fair market value on the date of grant. Options may be granted under the plan for terms up to January of 2001.
5. INCOME TAXES ------------- The Company uses the straight-line depreciation method for financial reporting purposes over 20 and 7 year estimated useful lives. The Company has elected to use the straight- line method over the Modified Accelerated Cost Recovery System ("MACRS") recovery periods of 31.5 and 7 years for income tax reporting purposes.
As of March 31, 1999, there are no current or deferred income taxes payable. As of March 31, 1999, the Company has total deferred tax assets of approximately $1,700,000 due to operating loss carryforwards and the depreciation timing differences described above. However, because of the uncertainty of potential realization of these tax assets, the Company has provided a valuation allowance for the entire $1,700,000. Thus, no tax assets have been recorded in the financial statements as of March 31, 1999.
THE SOUTHSHORE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
5. INCOME TAXES, CONTINUED ----------------------- The Company has available at March 31, 1999 certain unused net operating loss carryforwards which may be applied against future taxable income expiring in various years through 2014. The amount which may be carried forward varies resulting from past and possible future changes in stock ownership, including warrant and stock options outstanding. The Company estimates that it has carryforwards of approximately $2,500,000 currently available.
6. RENEGOTIATED DEBT AND INTEREST ------------------------------ During the year ended March 31, 1999 the Company renegotiated the balance of a debt and accrued interest to creditors downward by $274,866. This amounted to $.11 less loss per share.
7. CONTINGENCIES, GOING CONCERN ---------------------------- As of March 31, 1999, the Company had accumulated losses aggregating $4,895,100 and had a working capital deficiency of $1,858,254. As more fully described in Note 9, the Company sold its assets and is therefore no longer in the operation of a water park business. Since the Company no longer has any operating business and minimal assets, 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.
8. DELINQUENT PROPERTY TAXES -------------------------- As of March 31, 1999 the Company had $644,963 property taxes payable, the majority of which are delinquent. In addition, included with other accrued interest in the financial statements is $234,100 of accrued interest on delinquent property taxes. On April 21, 1999, the delinquent property taxes and accrued interest were paid in full through the sale of the property.
THE SOUTHSHORE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
9. SUBSEQUENT EVENT ----------------- On April 21, 1999, the real property of the Company was sold for $1,972,680. The following schedule summarizes the balance sheet proforma effect of the sale transaction.
March 31, Sale of 1999 Assets Proforma --------- ------- -------- Current Assets $ 84,317 $ 63,630 $ 147,947 Property and Equipment 1,326,094 (1,326,094) - Escrow Account - 150,000 150,000 Other Assets 17,245 - 17,245 --------- --------- -------- $1,427,656 $(1,112,464) $ 315,192 ========= ========== ======== Current Liabilities $1,942,571 $(1,654,432) $ 288,139
Stockholders Equity (Deficit) (514,915) 541,968 27,053 --------- -------- -------- $1,427,656 $(1,112,464) $ 315,192 ========== ========== =========
The foregoing does not take into account the sale of equipment and water park features which occurred after April 21, 1999.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND -------------------------------------------- REPORTS ON FORM 8-K ------------------- (a) (1) Financial Statements:
Report of Independent Accountants:
Balance Sheets at March 31, 1999 and 1998
Statements of Operations for Years Ended March 31, 1999, 1998 and 1997
Statements of Shareholders' Equity
Statements of Cash Flows for Years Ended March 31, 1999, 1998 and 1997
Notes to Financial Statements
(b) Exhibits:
3.1 Articles of Incorporation(1)
3.2 Bylaws(1)
10.3 Incentive Stock Option Plan(1)
10.11 Warranty Deed and Deed of Trust - Park Site(2)
10.12 Indenture of Trust and 10% Secured Promissory Note(3)
10.25 Promissory Note - Vancol Industries, Inc.(4)
10.26 Convertible Promissory Note for $400,000 - Kenneth M. Dalton(5)
10.28 Convertible Promissory Note for $104,500 - Kenneth M. Dalton(6)
10.29 Stock Option for 61,250 shares - Kenneth M. Dalton(6)
10.30 Purchase Agreement and Escrow Instructions - Bedford Property Investors, Inc.(7)
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 the year ended March 31, 1992 filed June 29, 1992, SEC File No. 0-19949
(3)Incorporated by reference to Form 10-K for year ended March 31, 1993 filed July 16, 1993, File No. 0-19949
(4)Incorporated by reference to Form S-1, SEC File No. 33-73774, filed February 9, 1994
(5)Incorporated by reference to Form 8-K, SEC File No. 0-19949, filed May 6,
(6) Incorporated by reference to form 8-K, SEC File No. 0-19949, filed December 30, 1994
(7) Incorporated by reference to Proxy Statement of March 12, 1999
(c) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended March 31, 1999; however, on April 29, 1999 a Form 8-K was filed reporting the sale of the Company's water park property on April 21, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) THE SOUTHSHORE CORPORATION (Date) June 28, 1999 By:(Signature) /s/ Kenneth M. Dalton (Name and Title) Kenneth M. Dalton, President and Principal Executive Officer
(Date) June 28, 1999 By:(Signature) /s/ Eric L. Nelson (Name and Title) Eric L. Nelson, Principal Accounting Officer and Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date: June 28, 1999 By: /s/ Kenneth M. Dalton Kenneth M. Dalton, Director
Date: _______, 1999 By: _____________________________ Rod K. Barksdale, Director
Date: June 28, 1999 By: /s/ Ren Berggren Ren Berggren, Director