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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended March 31, 1998 or
--------------
[ ] 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
10750 East Briarwood, Englewood, Colorado 80112
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 649-9875
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
None None
---------------- -----------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $.001 Par Value
- -----------------------------------------------------------------------------
(Title of class)
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 No X
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of June 20, 1998 was approximately $546,000.
The number of shares outstanding of the Registrant's $.001 par value
common stock as of June 20, 1998 was 2,610,475 shares.
PART I
ITEM 1. BUSINESS
- -----------------
General
The Company was incorporated under the laws of Colorado on
March 26, 1990. It has broad corporate powers; however, since
inception the Company has been engaged in the development,
construction and operation of a water park to be located in the
Southeast Denver Metropolitan Area. The park was completed in
1992 and it operates from Memorial Day Weekend through Labor Day
Weekend annually.
Southshore Water Park - Arapahoe County, Colorado
The 16-acre park, located near I-25 and East Arapahoe Road
in Southeast Metro Denver, includes a Children's Pool, Wave Pool,
and various Water Slides. The Wave Pool covers approximately
23,000 square feet and the six water slides are up to 350 feet
long. The park also contains a volleyball area, miniature golf
course, covered group pavilion areas, picnic areas, gift shop,
video arcade and food service facilities. Free parking for
approximately 700 cars is provided. The Company uses local radio
and direct mail for advertisement and also makes use of coupons
for reduced admission charges.
General Park Policy for Operations
Management stresses park safety and cleanliness. The
Company utilized the latest design engineering with respect to
construction of rides and attractions with safety as a prime
consideration. The park is operated with trained certified
lifeguards and park security personnel in adequate numbers to
keep accidents, disruptive activity and similar incidents at a
minimum. The park maintains a first aid station for treatment of
minor injuries. The Company has not experienced circumstances
which have materially adversely impacted it concerning these
matters.
Proposed Sale of the Company's Water Park
On June 16, 1998 the Company entered into a contract to sell
its water ark property to three individual joint buyers for $2
million. Each of the buyers is non-affiliated with the Company.
The contract is subject to certain conditions including the
buyers' obtaining financing of at least $1,400,000, title
considerations, inspection of the property and approval of the
sale by the Company's shareholders. South Suburban Park and
Recreation District, which operates in three suburban counties in
the south portion of the Denver Metro area, has also indicated an
interest in purchasing the property, has held public hearings
2
before its board of directors and is in favor of acquiring the
property. Arapahoe County, Jefferson County and Douglas County,
through their respective commissioners, must any purchase by the
District. Because of the protracted approval process the Company
elected to proceed with the private buyers. However, the
District has indicated by letter it still has an interest in
purchasing the Property for $2 million if the current contract
does not close.
Adverse Current Ratio
At March 31, 1998, the Company's current liabilities
exceeded its current assets by $1,904,228. At March 31, 1998,
the Company was partially delinquent in paying its property
taxes, which were $566,762. The Company's auditors state in
their report at May 11, 1998 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
During the quarter ended September 30, 1992, the Company
sold $975,000 in 10% secured promissory notes to 27 persons
pursuant to an indenture of trust. Subject to the first lien on
a portion of the Company's water park property securing a $72,841
note to the person from whom the Company acquired the property,
the water park property is collateral under the indenture of
trust to secure payment of the 10% promissory notes. The Company
is in default on the indenture of trust 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.
The Company currently is engaged in efforts to obtain funds
to retire this obligation through sale of its water park
property; however, there is no assurance such funds will be
available or, if available, on terms that are economically
feasible. Failure to retire this debt could result in
foreclosure proceedings on the property.
Delinquent Property Taxes
At March 31, 1998, $566,762 was due to Arapahoe County,
Colorado for property taxes, most of which is delinquent. It is
expected that during mid-1998 the holder of a tax lien
certificate sold on the Company's property will begin the process
to attempt to acquire the property by requesting an Arapahoe
County Treasurer's deed. The Company is engaged in efforts to
sell the property to obtain funds to pay property taxes prior to
the issuance of a Treasurer's deed; however, there is no
assurance that such funding will be available, of if available,
on terms that are economically feasible.
3
Government Regulation and Approvals
The Tri-County Health Department administers extensive
regulations relating to safety and sanitation aspects of
operating the water parks public swimming areas (i.e.,
chlorinated water testing, pool personnel and bather controls).
The Company's water facilities as well as its food concession
areas are subject to inspection by Tri-County Health Department
officials. Such regulations are often complex, subject to
differing interpretations and expensive to comply with; however,
the Company is committed to operating a clean, safe park and thus
intends to fully comply with these requirements.
Competition and Marketing Plans
In general, the Company will be in competition for
entertainment dollars in the Denver Metro Area. There are
various broad forms of such entertainment, at various costs,
appealing to a broad mass of the some 2,200,000 people who live
in the area and tens of thousands of summer visitors. These
include warm weather activities such as amusement parks, Lakeside
and Elitch's, water recreation areas such as Cherry Creek
Reservoir and Chatfield Recreation Area, many local swimming
pools, golf, tennis and similar activities. However, the most
significant direct competition is expected to be from Water
World, a 60-acre water park located in the north part of the
Denver Metro Area approximately 21 miles from the Company's park.
Water World is owned and operated by Hyland Hills
Metropolitan Parks and Recreation District. It typically
operates from Memorial Day Weekend through Labor Day Weekend, and
reported average attendance in the past five summers through 1997
of approximately 400,000, with 1997 attendance at approximately
420,000. For the 1998 season it is charging $18.95 for children
ages 4 to 12 years, $19.95 for adults and admits free of charge
children under 4 years of age and senior citizens. It also
offers family and individual season passes. Residents of the
Hyland Hills Park and Recreation District and the cities of
Westminster and Federal Heights may obtain admission to Water
World at discounted prices, $9.00 for children and $10.00 for
adults. Water World advertises through television, radio and
newspaper media in the Denver area and offers a variety of group
discount programs. Thus the Company faces competition from a
larger water facility which has more attractions than those
offered by the Company.
Notwithstanding the foregoing the Company believes it can
find a niche in this competitive arena. It utilizes admission
charges of $12.95 for adults and $10.95 for children 3 years to
48 inches tall, which are less than those of Water World. In
addition, it has various discount programs, including half day
rates of $6.00, group sales and season passes. In addition the
4
Company intends to operate a first rate park in terms of safety,
maintenance of rides, park cleanliness, friendliness and
competence of park staff. The Company also offers quality food
and beverages at competitive prices. Further, an assortment of
beach items such as swim wear, towels, suntan lotion, sunglasses,
hats, t-shirts and souvenirs are offered to patrons. Management
believes that the foregoing in addition to convenience of
location to residents of the southern Denver Metro Area will be
sufficient to permit the Company to generate sufficient revenues
for profitable operations, however there is no assurance that
such will be the case.
Personnel
At March 31, 1998, the Company had one part-time employee
and one full-time employee, the Company's in-house accountant and
the general manager, respectively. The Company's President
serves in a part-time, as needed position. Approximately one
hundred full and part-time seasonal personnel, depending upon
attendance, including maintenance personnel, lifeguards, guest
relations, groundskeepers, cash control and emergency medical
personnel, are employed. The Company does not expect there to be
a shortage of the required labor force. Seasonal personnel are
expected to come largely from the ranks of college and high
school students on summer break from school. It is not expected
that any employees will be covered by a collective bargaining
agreement.
Liability Insurance
The Company maintains a liability insurance policy with
coverage in the amount of $1,000,000 per incident to cover
possible claims for injury and damages from accidents.
Weather Patterns
The Company's business is significantly affected by Denver
Area weather patterns since park attendance is expected to be
reduced when temperatures do not exceed 75 degrees, there is
rainfall, cloudy skies prevail, or there is low relative
humidity. Other than offering discount tickets and other
promotions to enhance attendance and reducing personnel on rainy
or cloudy days, the Company can do little to offset the effect on
operations from such weather patterns.
ITEM 2. PROPERTIES
- -------------------
The Company owns 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 are located on this property.
5
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
Currently there are no material legal proceedings pending or
threatened against the Company or its assets other than a threat
of litigation by a holder of $150,000 in secured notes. Further,
there is a tax lien and a note holder lien on the Company's
principal asset which could result in proceedings involving title
to the property.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of shareholders during
the quarter ended March 31, 1998.
PART II
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, 1996 .25 .50
September 30, 1996 .50 .50
December 31, 1996 .50 .50
March 31, 1997 .50 .50
June 30, 1997 .37 .50
September 30, 1997 .37 .50
December 31, 1997 .25 .25
March 31, 1998 .12 .21
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, 1998, the Company had 193 shareholders of
record, and management estimates there are an additional
approximate 180 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.
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
3/31/98 3/31/97 3/31/96
----------- ----------- -----------
Total Assets......... $ 1,910,724 $ 2,447,939 $ 3,028,190
Total Liabilities.... $ 2,105,540 $ 2,244,548 $ 2,322,158
Working Capital...... $(2,059,228) $(2,167,098) $(1,362,589)
Stockholders' Equity. $ (194,816) $ 203,391 $ 706,032
As of As of
3/31/95 3/31/94
----------- -----------
Total Assets......... $ 3,649,607 $ 3,991,676
Total Liabilities.... $ 2,724,957 $ 2,545,949
Working Capital...... $(2,556,580) $(2,306,874
Stockholders' Equity. $ 924,650 $ 1,447,727
Summary Operating Data:
Year Year Year
Ended Ended Ended
3/31/98 3/31/97 3/31/96
---------- ----------- -----------
Sales................ $ 999,710 $1,085,465 $ 855,618
Net Loss............. $ (428,881) $ (502,641) $ (693,474)
Net loss Per Share... $ (.16) $ (.19) $ (.29)
Year Year
Ended Ended
3/31/95 3/31/94
----------- -----------
Sales................ $ 1,021,747 $ 838,098
Net Loss............. $(1,023,077) $(1,334,382)
Net loss Per Share... $ (.57) $ (.79)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------------------------------
Financial Condition
At March 31, 1998, working capital was a negative $2,059,228
as compared to a negative $2,167,098 at March 31, 1997, a
decrease of approximately $180,000.
The principal items contributing to the working capital
shortfall are operating losses, currently due promissory notes
and currently due property taxes.
At March 31, 1998, the Company's shareholders' equity was a
negative $(194,816), down from $234,065 at March 31, 1997, due
primarily to operating losses for fiscal 1997.
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
7
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.
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 arrangements with the Company's
creditors.
8
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, 1998, the Company had $2,067,676 in current
obligations and $8,448 in current assets. Obligations include
notes payable of $1,239,431 and property taxes of $566,762.
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.
Although the Company has made substantial inroads toward
establishing financial stability, it has not yet achieved it.
1998 was the second consecutive year the Company was able to
achieve positive cash flow. For fiscal 1998 its objectives were
to eliminate, restructure or reduce its debt, pay its property
taxes and strive to produce profitable operations. These
objectives were not achieved. The failure to pay its taxes or
restructure or pay its debt could result in loss of the Company's
water park property.
The Company's plan recently has been to sell its water park
property for sufficient funds to retire its debt. On June 16,
1998, the Company signed a contract for sale of the property for
$2 million. The Company believes the sale proceeds would be
sufficient to pay all of the Company's obligations. The Company
also has engaged in lengthy negotiations with a local recreation
district which has interest in acquiring the property in event
the current contract does not close. See Item 1. Business and
Proposed Sale of the Company's Water Park. See also Note 7 to
financial statements.
Trends
The industry in which the Company operates depends
considerably on disposable income of potential park patrons and
is thus more affected by the condition of the local and, to a
very limited extent the national economy. The economy in the
Denver area is currently relatively strong, which means that more
disposable monies would be available for recreational activities
such as those available at the Company's facilities. Based on
9
this economic indication, management is hopeful the local economy
will provide a good environment for the Company to operate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Attached hereto are financial statements responsive to this
Item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
- ------------------------------------------------------
None.
PART III
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 50. 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 49. 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 49. 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.
10
John Janness is the Company's general manager. 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. 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. 1998 18,000 -0- -0- -0- -0- -0-
Dalton 1997 18,000 -0- -0- -0- -0- -0-
President 1996 15,000 -0- -0- -0- 177,777 -0- -0-
(1) shares at
$2.25 per
share
61,250
shares at
$1.10 per
share
____________________
(1) Mr. Dalton became President of the Company in October, 1993.
The Company's Board of Directors has no compensation committee.
11
Stock Options Held by Executive Officers
and Value Thereof at June 1, 1998
Value of
Unexercised
Number of In-the-Money
Unexercised Options at
Shares Options 6/1/98
Acquired Value 6/1/98 All All
Name on Exercise (#) Realized($) Exercisable Exercisable(1)
- ----------- --------------- ---------- ----------- --------------
Kenneth M. Dalton, -0- -0- 279,027 -0-
President
_____________________
(1) Based on the average closing bid price of the Company's common stock
at June 20, 1998 of $.21 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, 1998.
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
12
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. 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, 1998:
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(1)(2) 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
13
Name of Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership of Class
- ---------------- -------------------- -----------
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
Officers and Directors 927,592(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 holds 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. Mr. Dalton also holds
an option to purchase 61,250 shares at $1.10 per share through
December 25, 1999.
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 note
is convertible into up to 177,777 shares of common stock of the
Company at $2.25 per share. At March 31, 1998, the balance on
the note was $136,590.
14
PART IV
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, 1998 and 1997
Statements of Operations for Years Ended March 31,
1998, 1997 and 1996
Statements of Shareholders' Equity
Statements of Cash Flows for Years Ended March 31,
1998, 1997 and 1996
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 Contract to Buy and Sell Real Estate -
Marc L. Logan, Robb MacMillan and
Jack Wasserman, m.D. a Professional Corporation
27.1 Financial Data Schedule
______________________
15
(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, 1994
(6) Incorporated by reference to form 8-K, SEC File No. 0-19949,
filed December 30, 1994
(c) Reports on Form 8-K:
Reports on Form 8-K were filed during the quarter ended
March 31, 1998 and subsequent thereto relating to a contract
for the purchase of the Company's water park by Hyland Hills
Park & Recreation District and the subsequent termination of
the contract.
16
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 22, 1998
BY(Signature) /s/ Kenneth M. Dalton
(Name and Title) Kenneth M. Dalton, President
and Principal Executive Officer
(Date) June 22, 1998
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 22, 1998
BY(Signature) /s/ Kenneth M. Dalton
(Name and Title) Kenneth M. Dalton, Director
(Date) June 22, 1998
BY(Signature) /s/Rod K. Barksdale
(Name and Title) Rod K. Barksdale, Director
(Date) June 22, 1998
BY(Signature) /s/ Ren Berggren
(Name and Title) Ren Berggren, Director
17
INDEX TO FINANCIAL STATEMENTS
THE SOUTHSHORE CORPORATION
FINANCIAL STATEMENTS
with
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
March 31, 1998 and 1997
Page
----
Report of Independent Certified Public Accountants F-2
Financial Statements:
Balance Sheets F-3
Statements of Operations F-4
Statement of Changes in Stockholders'
Equity (Deficit) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
1
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, 1998 and 1997, and the related
statements of operations, changes in stockholders' equity
(deficit) and cash flows for the three years ended March 31,
1998. 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, 1998 and 1997, and
the results of its operations, its cash flows and its changes in
stockholders' equity (deficit) for the three years ended March
31, 1998, 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 and has a working capital
deficiency that 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.
/s/Schumacher & Associates, Inc.
Schumacher & Associates, Inc.
12835 East Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
May 11, 1998
F-2
THE SOUTHSHORE CORPORATION
BALANCE SHEETS
March 31,
1998 1997
---------------------------
Current Assets
Cash $ 1,841 $ 3,035
Accounts receivable - 2,815
Prepaid expenses 6,607 6,223
--------- ---------
Total Current Assets 8,448 12,073
--------- ---------
Other Assets
Property and equipment, net of
accumulated depreciation (Note 2) 1,885,031 2,440,948
Deposits 17,245 17,245
Debt and other offering costs, net
of accumulated amortization - 8,347
--------- ---------
Total Other Assets 1,902,276 2,466,540
--------- ---------
Total Assets $1,910,724 $2,478,613
--------- ---------
Current Liabilities
Notes payable, current portion (Note 3) $1,201,567 $1,432,071
Notes and advances payable,
officer 97,400 97,400
Property taxes payable (Note 8) 566,762 483,651
Accrued interest 151,176 89,390
Accounts payable and accrued expenses 18,926 37,503
Deferred income 31,845 39,156
--------- ---------
Total Current Liabilities 2,067,676 2,179,171
Notes payable, net of current portion (Note 3) 37,864 65,377
--------- ---------
Total Liabilities 2,105,540 2,244,548
--------- ---------
Commitments and contingencies (Notes 3, 4,
7, 8 and 9) - -
Stockholders' Equity (Deficit)
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 2,611 2,611
Additional paid-in capital 4,377,574 4,377,574
Accumulated (deficit) (4,575,001) (4,146,120)
--------- ---------
Total Stockholders' Equity (Deficit) (194,816) 234,065
--------- ---------
Total Liabilities and Stockholders'
Equity (Deficit) $1,910,724 $2,478,613
========== ==========
The accompanying notes are an integral part of the financial statements.
F-3
THE SOUTHSHORE CORPORATION
STATEMENTS OF OPERATIONS
Years Ended March 31,
1998 1997 1996
--------- --------- ---------
Revenue
Sales - gate admissions $ 767,508 $ 820,968 $ 682,165
Sales - food, beverages and
merchandise 232,202 264,497 173,453
------- --------- -------
Total sales 999,710 1,085,465 855,618
Cost of sales - food,
beverages and merchandise
(exclusive of depreciation
shown separately below) 22,889 23,713 11,078
------- --------- -------
Gross Profit 976,821 1,061,752 844,540
------- --------- -------
Operating Expenses
Salaries 237,229 263,272 270,938
Advertising 121,595 92,953 125,425
Depreciation 558,672 559,751 560,511
Other 347,976 428,680 432,379
--------- --------- ---------
Total Operating Expenses 1,265,472 1,344,656 1,389,253
--------- --------- ---------
Net (loss) before other income
(expense) and extraordinary items (288,651) (282,904) (544,713)
Interest (expense) (140,421) (198,687) (185,251)
Amortization of debt offering
costs (9,809) (21,050) (21,050)
Other 10,000 - -
-------- ------- ------
Net (loss) before extraordinary
items (428,881) (502,641) (751,014)
Renegotiated debt and interest
expense forgiven (Note 6) - - 88,214
--------- --------- ---------
Net (Loss) $(428,881) $(502,641) $(662,800)
========= ========= =========
Net (Loss) Per Share Excluding
extraordinary items $ (.16) $ (.19) $ (.32)
========= ========= =========
Net Income Per Share from
extraordinary item $ - $ - $ .04
========= ========= =========
Net (Loss) Per Share (.16) (.19) (.28)
========= ========= =========
Weighted Average Number of
Shares Outstanding 2,610,470 2,610,470 2,374,042
========= ========= =========
The accompanying notes are an integral part of the financial statements.
THE SOUTHSHORE CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
From March 31, 1995 through March 31, 1998
Additional
Number of Common Paid-in Deficit
Shares Stock Capital Accumulated Total
---------- ------- -------- ----------- -------
Balance at
March 31, 1995 2,137,613 $2,138 $3,903,191 $(2,980,679) $924,650
Stock issued 472,857 473 474,383 - 474,856
(Loss) for the year
ended March 31,
1996 - - - (662,800) (662,800)
--------- ----- --------- ----------- ---------
Balance at
March 31, 1996 2,610,470 2,611 4,377,574 (3,643,479) 736,706
(Loss) for the year
ended March 31,
1997 - - - (502,641) (502,641)
--------- ----- --------- ----------- ---------
Balance at
March 31, 1997 2,610,470 2,611 4,377,574 (4,146,120) 234,065
(Loss) for the year
ended March 31,
1998 - - - (428,881) (428,881)
Balance at
March 31, 1998 2,610,470 $2,611 $4,377,574 $(4,575,001) $(194,816)
========= ====== ========== ============ ==========
The accompanying notes are an integral part of the financial statements.
F-5
THE SOUTHSHORE CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended March 31,
1998 1997 1996
---- ---- ----
Cash Flows from Operating Activities:
Net (Loss) $ (428,881) $ (502,641) $ (662,800)
Adjustments to Reconcile Net (Loss)
to Net Cash Provided by Operating
Activities:
Depreciation 558,672 559,751 560,511
Amortization debt offering cost and
bond discount 9,809 21,050 21,050
(Increase) in other current assets (384) (4,192) -
Increase (decrease) in accounts
payable, accrued expenses and
other 107,335 48,851 (140,000)
------- ------ ---------
Net Cash Provided by (Used in)
Operating Activities 246,551 122,819 (221,239)
------- ------- ---------
Cash Flow from Investing Activities:
Deposits (paid) returned - 31,240 -
Land, property and equipment
acquired (disposed of) 272 (25,887) 9,941
(Decrease) in accounts payable,
construction - - (368,472)
------ ------ ---------
Net Cash (Used in) Investing
Activities 272 5,353 (358,531)
------ ------ ---------
Cash Flows from Financing Activities:
Advances and loans from related
parties - - 71,000
Proceeds from notes payable - 75,000 55,000
Payments made on notes payable (248,017) (201,762) (20,000)
Issuance of stock and warrants, net of
offering costs - - 474,856
--------- --------- -------
Net Cash Provided by Financing Activities (248,017) (126,762) 580,856
--------- --------- -------
Increase (Decrease) in Cash (1,194) 1,410 1,086
Cash, Beginning of Period 3,035 1,625 539
------- ------- -------
Cash, End of Period $ 1,841 $ 3,035 $ 1,625
======= ======== ========
Income Taxes Paid $ - $ - $ -
======= ======== ========
Interest Paid $78,635 $152,611 $113,101
======= ======== ========
The accompanying notes are an integral part of the financial statements.
F-6
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 owns 16 acres of land in Arapahoe County, Colorado,
upon which it has constructed and is operating a water park.
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.
Per Share Information
---------------------
Per share information is computed based upon a weighted
average number of shares outstanding.
F-7
THE SOUTHSHORE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, Continued
--------------------------------------------------
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,
-------------------
1998 1997
---- ----
Buildings $ 744,332 $ 744,332
Recreational park facilities 3,673,082 3,669,486
Office furniture and equipment 9,832 9,832
Equipment 98,829 102,697
Land 435,173 435,173
--------- ---------
4,961,248 4,961,520
Less accumulated depreciation 3,076,217 2,520,572
----------- -----------
$ 1,885,031 $ 2,440,948
=========== ============
F-8
THE SOUTHSHORE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
3. NOTES PAYABLE
-------------
Notes payable are summarized as follows:
March 31,
1998 1997
---- ----
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 $ 72,841 $ 94,360
Note payable, interest at prime,
renewable annually (see below *). 136,590 356,000
Note payable, interest at 12% per
annum, collateralized by deed of
trust, due September 30, 1997 75,000 75,000
Notes payable, interest at 10%
payable semiannually, was due in
three installments, $10,000
due June 30, 1995 and 1996, and
$13,550 due June 30, 1997. - 13,550
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 commencing June 30, 1994
net of unamortized discount of
$1,462 at March 31, 1997
(see below**) 955,000 958,538
--------- ---------
1,239,431 1,497,448
Less current portion (1,201,567) (1,432,071)
------------ ------------
Long-term portion $ 37,864 $ 65,377
=========== ===========
F-9
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 is convertible into up
to 177,777 shares of common stock of the Company at $2.25
per share.
Maturities of notes payable after giving effect to the
default provisions are summarized as follows:
1998 $1,239,431
1999 37,864
** 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. Also, the Company
failed to make required 25% per year repayments of the
$955,000 of notes payable outstanding. A note holder with
a principal balance of $100,000 has threatened litigation
against the Company. As of March 31, 1998, the entire
balance of these notes payable have been shown as a current
liability in the financial statements since the notes are
in default.
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, 1998, none of the amounts loaned
has been repaid. $82,400 of the balance of the notes
payable of $97,400 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 President
also has an option to purchase 177,777 shares. See Note 3
above.
F-10
THE SOUTHSHORE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
4. STOCKHOLDERS' EQUITY, Continued
-------------------------------
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, 1998, there are no current or deferred
income taxes payable. As of March 31, 1998, the Company
has total deferred tax assets of approximately $1,600,000
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 $1,600,000. Thus, no tax assets have been
recorded in the financial statements as of March 31, 1998.
F-11
THE SOUTHSHORE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
5. INCOME TAXES, CONTINUED
-----------------------
The Company has available at March 31, 1998 certain unused
net operating loss carryforwards which may be applied
against future taxable income expiring in various years
through 2012. 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, 1996 the Company
renegotiated the balance of a debt and accrued interest to
a creditor downward from $278,214 to $190,000, an
adjustment of $88,214. Of this amount $30,674 was
principal and $57,540 of accrued interest. The $88,214
renegotiated debt and interest expense was accounted for as
an extraordinary item in the statement of operations and
amounted to a reduction of the net loss per share of $.04.
The source of the repayment of the renegotiated debt was
principally from proceeds of notes payable to shareholders
and others.
7. CONTINGENCIES, GOING CONCERN
----------------------------
As of March 31, 1998, the Company has accumulated losses
aggregating $4,575,001 and had a working capital deficiency
of $2,059,228. The Company is attempting to sell
substantially all of its assets to pay its current debt and
delinquent taxes. Management is hopeful such a sale will
materialize and allow the Company to continue as a going
concern. The Company's ability to continue as a going
concern depends upon its success in obtaining additional
funding, increasing its debt financing and/or improving its
operating results, or the sale of its assets. There is no
assurance that the Company will be successful in these
efforts. Thus, there is substantial doubt about the
Company's ability to continue as a going concern. The
financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
F-12
THE SOUTHSHORE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
8. DELINQUENT PROPERTY TAXES
-------------------------
As of March 31, 1998 the Company had $566,762 property
taxes payable, the majority of which are delinquent. In
addition, included with other accrued interest in the
financial statements is $140,120 of accrued interest on
delinquent property taxes. Failure to pay these taxes and
accrued interest could eventually result in loss of
ownership of the property.
9. SUBSEQUENT EVENT
----------------
A special meeting of the shareholders of the Company is
scheduled for August, 1998 for the purpose of considering
the sale of substantially all the Company's assets for
$2,000,000.
F-13