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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                     FOR THE FISCAL YEAR ENDED JUNE 30, 1999

                         COMMISSION FILE NO.: 333-36709


                          WATERSIDE CAPITAL CORPORATION
             (Exact name of registrant as specified in its charter)

        VIRGINIA                                        54-1694665
(State or other jurisdiction of                (IRS Employer Identification No.)
 incorporation or organization)

                              300 EAST MAIN STREET
                                   SUITE 1380
                             NORFOLK, VIRGINIA 23510
               (Address of principal executive office) (Zip code)

      Registrant's telephone number, including area code: - (757) 626-1111

           Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:
                    COMMON STOCK, $ 1.00 PAR VALUE PER SHARE

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.   Yes [ X ]    No  [  ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [  ]

         The aggregate market value of voting stock held by non-affiliates of
the registrant as of August 24, 1999: Common Stock - $7,645,000.

         The number of shares outstanding of the registrant's common stock as of
August 24, 1999: 1,491,937.


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<PAGE>
                          WATERSIDE CAPITAL CORPORATION
                                 1999 FORM 10-K
                                TABLE OF CONTENTS

<TABLE>
<S>     <C>
PART I............................................................................................................1
   Item 1.   Business.............................................................................................1
   Item 2.   Properties..........................................................................................16
   Item 3.   Legal Proceedings...................................................................................17
   Item 4.   Submission of Matters to a Vote of Security Holders.................................................17
PART II..........................................................................................................17
   Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters...............................17
   Item 6.   Selected Financial Data.............................................................................17
   Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations...............17
   Item 7A.  Quantitative and Qualitative Disclosure About Market Risk...........................................17
   Item 8.   Financial Statements and Supplementary Data.........................................................18
   Item 9.   Changes in and Disagreements with Accountants.......................................................18
PART III.........................................................................................................18
   Item 10.  Directors and Executive Officers of the Registrant; Section 16(a) Beneficial Ownership Reporting
             Compliance..........................................................................................18
   Item 11.  Executive Compensation..............................................................................19
   Item 12.  Security Ownership of Certain Beneficial Owners and Management......................................19
   Item 13.  Certain Relationships and Related Transactions......................................................19
PART IV..........................................................................................................19
   Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................................19
</TABLE>
<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the registrant's Annual Report to Shareholders (the "Annual
Report") are incorporated by reference in Part II of this Form 10-K and portions
of the definitive Proxy Statement (the "1999 Proxy Statement") to be used in
connection with the 1999 Annual Meeting of Shareholders are incorporated by
reference in Part III of this Form 10-K.

                                     PART I

         This Report contains "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Any statements contained in
this Report that are not statements of historical fact are forward-looking
statements. Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects" and similar expressions are intended to identify
forward-looking statements. The important factors discussed below in "Risk
Factors," among others, could cause actual results to differ materially from
those indicated by forward-looking statements made in this Report and those
presented elsewhere by management from time to time. Please refer to the
cautionary statement that appears at the end of "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Annual Report
for more information.

ITEM 1.  BUSINESS

THE COMPANY

         Waterside Capital Corporation (the "Company") is a closed-end
investment company licensed by the Small Business Administration (the "SBA") as
a small business investment company (an "SBIC") under the Small Business
Investment Act of 1958, as amended (the "SBA Act"). The Company invests in
equity and debt securities of small businesses to finance their growth,
expansion and modernization. Its equity investments have generally been in the
form of preferred stock bearing current-pay dividends. The weighted average
dividend on its preferred stock investments is currently 12.48%. The Company
also provides long-term loans at similar rates. The weighted average annual
interest rates on its loans is currently 13.31%. To date, the Company has made
most of its investments in preferred stock because, as an SBIC, its dividend
income is non-taxable. Its equity and debt financings are generally coupled with
warrants to acquire common stock representing a minority interest in its
portfolio companies. The Company seeks to achieve current income from
origination fees, preferred stock dividends and interest on loans, as well as
long-term growth in the value of its net assets through the appreciation of its
common stock positions in portfolio companies.

         The Company began business operations in July 1996 after receiving its
SBA license and closing its initial private placement of Common Stock. The
Company made its first portfolio investment in October 1996 and, as of the date
of this Report, has approximately $23.9 million in investments in 20 portfolio
companies.

         The Company targets potential portfolio companies that meet certain
investment criteria including potential for significant growth, product, market
size, experienced management teams and financial history with significant
ownership. The Company believes that the market for financing small businesses,
either through equity or debt, is underserved by traditional sources of capital
and that many of its potential competitors are burdened with overhead,
administrative and regulatory structures that hinder them from competing more
effectively in this market.

         The Company expects to make future investments ranging from $500,000 to
$2,500,000 in equity and debt securities of small businesses, although under
special circumstances, its investments may be less than or exceed this range.
The Company believes that investments of this size will be appropriate given the
size of its Private Capital (defined as eligible capital paid for capital stock
and additional paid-in capital) base and that non-traditional lenders and
investors often focus on larger investments and reject attractive companies with
funding needs in this range.

                                      -1-
<PAGE>
         To expand its investment opportunities, the Company is also
investigating the possibility of restructuring its operations to enable it to
pursue investment opportunities not available to SBICs because of regulatory
constraints, as well as seeking to acquire SBIC-eligible investments from other
investment funds.

         The Company raised its Private Capital through private investments by
individuals, businesses, financial institutions and governmental entities
located primarily in eastern Virginia and through its January 1998 public
offering. Its Private Capital includes approximately $1.5 million invested by
certain "accredited" investors in the form of recourse promissory notes
representing the balance of the unpaid purchase price of Common Stock, payable
on or before December 31, 1999.

         To fund its equity investments and debt financings, the Company has
used the cash portion of its Private Capital as well as borrowed funds from the
SBA ("SBA Debentures") which are available to the Company for up to 10 years. At
June 30, 1999, the Company had drawn down debentures totaling $12,300,000
payable to the SBA. The $6,000,000 drawn during the second quarter of 1999 bears
interest at a fixed interest rate of 7.240% including an annual servicing fee of
1.0%, and matures March 1, 2009. Interest on the $6,300,000 drawn down in the
fourth quarter of 1999 is payable at an interim interest rate of 6.535%,
including an annual servicing fee of 1.0%, which is expected to be fixed in
September 1999, and matures on September 1, 2009. The debentures require
semi-annual payments of interest only, with all principal due upon maturity. The
SBA Debentures are subject to a prepayment penalty. In addition to the periodic
interest rate described above, the Company pays a 1.0% one-time fee on all SBA
Debentures at the time of approval by the SBA and a 2.5% one-time fee on amounts
actually drawn by the Company.

         In June 1999, the Company was granted approval for additional SBA
Debentures totaling up to $16,100,000. In conjunction with this approval, the
Company paid a $161,000 fee. The debentures will accrue interest at an interim
rate to be set at the time of each draw against the facility. The interest rate
on any outstanding amounts is fixed in the March or September following each
draw. At June 30, 1999, none of these debentures had been drawn upon. In
addition to the $28.4 million that the Company has drawn, or has obtained
approval to draw, the Company has an additional tier of leverage representing
approximately $15.0 million that it may draw from the SBA based on its current
regulatory capital position.

         Incorporated in Virginia on July 13, 1993, the Company is registered
under the Investment Company Act of 1940 (the "Investment Act"). Its main office
is located at 300 East Main Street, Suite 1380, Norfolk, Virginia 23510, and its
telephone number is (757) 626-1111). The Company also maintains an office at 707
E. Main Street, Suite 700, Richmond, Virginia 23219.

STRATEGY

         The Company seeks to provide growth capital financing to small
businesses. Primarily through their experience in business and with financial
institutions, management and members of the Executive Committee have developed a
level of expertise in identifying and developing new investment opportunities in
this market. The Company targets portfolio companies that meet certain criteria,
including potential for significant growth, experienced management teams and
financial history with a significant ownership interest. The Company believes
the market for small commercial loans is underserved by traditional lending
sources. Traditionally, small businesses have relied on commercial banks and the
savings and loan industry to provide debt financing to fund growth. In the
latter half of the 1980's and the early 1990's, funds from these traditional
lending sources diminished as commercial banks consolidated market share and
sought to limit both credit exposure and administrative expense associated with
monitoring numerous small company loans. Concurrently, the savings and loan
industry experienced significant structural and regulatory changes that greatly
reduced the funds previously available as debt financing for small, privately
owned businesses. The Company also believes that many of its competitors are
also burdened with overhead, regulatory and administrative structures that
hinder them from competing more effectively in this market. As a result of these
fundamental changes, a significant opportunity has developed for nontraditional
lenders to provide not only debt financing to, but also equity infusions in,
small companies, creating the potential for attractive risk-adjusted returns.
                                      -2-
<PAGE>

         To expand its investment opportunities, the Company is also
investigating the possibility of restructuring its operations to enable it to
pursue investment opportunities not available to SBICs because of regulatory
constraints, as well as seeking to acquire SBIC-eligible investments from other
investment funds.

INVESTMENT OBJECTIVES

         The investing formats of SBIC's can range from making long-term secured
and unsecured loans to providing equity capital. The Company has utilized, and
anticipates continuing to utilize, both types of investments to achieve a
balanced portfolio of both equity and debt investments structured to meet the
individual needs of, and the investment opportunities associated with, its
portfolio companies.

         The Company seeks to achieve current income through origination fees,
preferred stock dividends and loan interest and long-term growth in the value of
its assets through appreciation of its common stock interests in portfolio
companies. The Company prefers to invest in preferred stock of portfolio
companies, as opposed to debt instruments, because, as an SBIC, it receives a
100% deduction for dividends received from taxable domestic corporations. The
Company attempts to structure its asset portfolio for relative safety and
soundness, while, at the same time, provide for equity features that will permit
it to achieve returns commensurate with its risks.

         Management believes that an attractive return can be obtained on
investments in small businesses, provided that their principals contribute the
requisite skill and dedication and the investment is appropriately structured.

SELECTION OF INVESTMENT OPPORTUNITIES

         The Company has invested, and expects to continue investing, in a wide
range of businesses -- from technology companies to manufacturing and service
firms. Since making its first investment in late 1996, the Company has
identified certain key elements for investing in emerging growth small
businesses. The Company initiates its investment decisions by analyzing
traditional criteria for making any equity investment or granting any credit:
character, collateral, growth potential, capacity to repay, financial and credit
history and other factors. After an initial screening based on these factors,
management recommends to the Executive Committee investments in those small
businesses it believes will succeed and contribute to the profitability of the
Company. In general, although obviously involving substantially more risk,
providing growth capital to small businesses can generate a higher return on
investment because these companies often have higher growth rates of revenues
and profits than larger, more established firms. The Company generally avoids
loans to or investments in start-up and early stage companies that may have
difficulty making current dividends or interest payments although under certain
limited circumstances, it has invested in early stage companies.

         Traditional lenders require certain standards before affirmatively
considering a loan. Among others, these standards include debt service coverage
ratios, profit history, adequate working capital and collateral security. The
Company includes these factors in its decision-making process, but also
attributes significant weight to product, market size, growth potential,
capability of management and exit strategies for the equity portion of its
investment. To identify an exit strategy, management carefully studies the
portfolio company's growth potential, as well as historical financial
performance.

REALIZATIONS OF GAIN ON EQUITY INVESTMENTS AND REPAYMENT OF LOANS

         The Company makes its equity investments with the intention of
liquidating for cash within five to seven years, although situations may arise
in which it may hold equity securities for a longer period. Its loans are made
for a minimum of five years as required by SBA regulations. The Company expects
that a successful investment will result in the redemption of preferred stock
with dividends or the repayment of a loan with interest, and a gain on the sale
of the portfolio company's common stock, generally through the exercise of
warrants acquired in connection with the investment.

         Preferred stock purchased by the Company generally bears a "put
option," exercisable after five years, requiring the portfolio company to

                                      -3-
<PAGE>

repurchase the shares at par, together with any unpaid dividends. The warrants
it acquires often carry a similar put option, also exercisable generally after
five years, requiring a repurchase of the underlying common stock at fair market
value. The warrants also contain anti-dilution provisions and are detachable and
transferable.

         Before making any investment, the Company analyzes the potential for
the portfolio company to experience a liquidity event that will allow the
Company to recover the purchase price of its preferred stock investments or to
have its loan repaid and to realize appreciation in its common stock positions.
Liquidity events include, not only the exercise of put options or loan maturity,
but an initial public offering or the sale, merger or recapitalization of the
portfolio company.

ASSET/RISK MANAGEMENT

         Investment in a small business, whether by debt or equity, necessarily
involves the risk that the debt will not be repaid or that the equity component
will remain illiquid even if the portfolio company performs and underlying value
is present. The Company expects that losses will occur in its investments.
Management attempts to minimize any such losses through several strategies.

         LIMITATION ON INVESTMENTS IN ONE BORROWER. Except with prior SBA
approval, SBA regulations allow only up to 20% of an SBIC's Regulatory Capital
(defined as Private Capital less certain non-cash assets) to be committed to one
portfolio company. Currently, this would allow the Company to only invest $2.85
million in one portfolio company. The Company has adopted a policy allowing an
investment to approach this outside limit only in rare circumstances. The
Company's largest investment in any one portfolio company is currently $2.5
million.

         APPROPRIATE UNDERWRITING STANDARDS. Management analyzes each proposed
transaction. If analysis does not reveal an investment meeting the Company's
underwriting standards, management promptly notifies the applicant business of
the denial of its funding request. Management examines numerous applications for
every one recommended to the Executive Committee.

         EXECUTIVE  COMMITTEE  APPROVAL. If the investment appears to management
to meet Company underwriting standards, it must be presented to the Executive
Committee for additional evaluation and approval. The Executive Committee
rejected a number of investments in 1999.

         BOARD REPRESENTATION. The Company generally requires portfolio
companies to have a majority of the members of its boards of directors who are
not shareholders or employees. The Company also requires that it have the right
to designate one or more members.

         MONITORING. Management closely and frequently monitors the performance
of each portfolio company through its board representation and otherwise. The
Company requires the submission of financial statements on a periodic basis, but
it understands that such submission alone does not provide the timely
information necessary to evaluate current performance. The Company believes
that, by the time financial statements are submitted and analyzed, many problems
may be out of control and beyond solution. Accordingly, it attempts to stay in
contact with its portfolio companies on a regular basis.

         DEFAULT COVENANTS. Typically, the Company's investment documents
contain covenants allowing the Company to acquire control of the board of
directors of the portfolio company and replace its management, if necessary, in
the event certain financial standards are not met or maintained.

PORTFOLIO COMPANIES

         As of the date of this  Report,  the Company has  approximately $23.9
million  invested in 20  portfolio companies.

                                      -4-
<PAGE>

SBA LEVERAGE

         The SBA raises capital to enable it to provide funds to SBICs by
guaranteeing certificates or bonds that are pooled and sold to purchasers of
government-guaranteed securities. The amount of funds that SBA may lend is
determined by annual Congressional appropriations of amounts necessary to cover
anticipated losses in the program (the "Subsidy Rate"). If the Subsidy Rate is
reduced, the same level of Congressional appropriations will support higher
levels of SBA Leverage available to SBICs. Congress authorizes appropriations to
the extent it determines to fund SBIC borrowings from the SBA.

         To be eligible to use funds provided by the SBA, an SBIC must obtain a
license and satisfy other requirements. The need for SBA Leverage must be
established. To establish need, an SBIC must invest 50% of its Leverageable
Capital (defined as Regulatory Capital less unfunded commitments and federal
funds) and any outstanding SBA Leverage. Other requirements include compliance
with SBA regulations, adequacy of capital and meeting liquidity standards. An
SBIC's license entitles an SBIC to apply for SBA Leverage, but does not assure
it will be available. Availability depends on the SBIC's continued regulatory
compliance and sufficient SBA Leverage being available when the SBIC applies to
draw down SBA Leverage.

         SBIC's may obtain up to $90 million in SBA Leverage in the following
ratios:
<TABLE>
<S>     <C>
         LEVERAGEABLE CAPITAL                       MATCHING RATIO                          SBA LEVERAGE
         First $15 million                                3:1                                $45 million
         Second $15 million                               2:1                                $30 million
         Third $15 million                                1:1                                $15 million
</TABLE>

         SBA Debentures are issued with 10-year maturities. Interest only is
payable semi-annually until maturity. Ten-year SBA Debentures may be prepaid
with a penalty during the first 5 years, and then are prepayable without
penalty.

TEMPORARY INVESTMENTS

         Pending investment in portfolio company securities, the Company will
invest its otherwise uninvested cash in (i) federal governmental or agency
issued or guaranteed securities that mature in 15 months or less, (ii)
repurchase agreements with banks, deposits of which are insured by the Federal
Deposit Insurance Corporation (the "FDIC") (an "insured bank"), with maturities
of seven days or less, the underlying instruments of which are securities issued
or guaranteed by the federal government, (iii) certificates of deposit in an
insured bank with maturities of one year or less, up to the amount of the
deposit insurance, (iv) deposit accounts in an insured bank subject to
withdrawal restrictions of one year or less, up to the amount of deposit
insurance or (v) certificates of deposit or deposit accounts in an insured bank
in amounts in excess of the insured amount if the insured bank is deemed
"well-capitalized" by the FDIC.

INVESTMENT ADVISER

         The Company has no investment adviser.

COMPETITION

         The Company competes with so-called "angel" investors, venture capital
investment firms, other SBICs and non-traditional investors that, like the
Company, take equity positions in small businesses. Some of its competitors
invest in earlier stage companies that typically cannot pay dividends and
interest on a current basis. These types of investments do not generally fit
within the Company's investment guidelines, but can offer attractive investment
returns to the Company's competitors who provide this type of financing. The
Company also competes, to a limited extent, with commercial banks and commercial
finance companies. Most of its competitors have substantially greater assets,
capital and personnel resources. The Company believes that because of its size
and structure it can tailor equity investment or loan terms to a portfolio
company's needs and circumstances better than many of its larger competitors.

                                      -5-
<PAGE>

The Company also believes that it competes effectively on the basis of its
reputation, responsiveness and the quality of its service in its timely analysis
and decision-making processes.

EMPLOYEES

         The Company has 8 full-time employees. The Company has maintained, and
intends to continue to maintain, low personnel overhead by extensively
utilizing, in particular, the members of the Executive Committee and the members
of its Board of Directors, for business referrals, marketing, investment
analysis and due diligence reviews.

INVESTMENT POLICIES

         The following policies of the Company with respect to the activities
described below are matters of fundamental policy in accordance with Sections
8(b) and 13(a) of the Investment Act. These policies may not be changed without
the approval of the lesser of (i) 67% of the Company's shares present or
represented at a shareholders' meeting at which the holders of more than 50% of
such shares are present or represented or (ii) more than 50% of the outstanding
shares of the Company.

         (a) The Company is permitted to issue the maximum amount of SBA
Debentures permitted by the SBA Act and SBA regulations.

         (b) The Company is permitted to borrow money only for the purpose of
investing in, and making loans to, Small Business Concerns, as defined below. It
is, however, permitted to finance the acquisition of capital assets used in its
ordinary business operations.

         (c) The Company is not permitted to engage in the business of
underwriting the securities of other issuers. It anticipates that substantially
all of its investments in Small Business Concerns will be in securities that may
not be sold to the public without registration, or an exemption from
registration, under the Securities Act. The vast majority of the Company's
current equity investments in Small Business Concerns are so restricted.

         (d) The Company is prohibited from concentrating more than 25% of the
value of its assets, determined at the time an investment is made, exclusive of
U.S. government securities, in securities issued by companies engaged primarily
in the same industry.

         (e) The Company is prohibited from engaging in the business of
purchasing or selling real estate. The Company may bring mortgage foreclosure
actions and take title to and possession of property with respect to which it is
the mortgagee in accordance with applicable mortgage foreclosure laws.
Additionally, the Company may purchase office facilities, although, at present,
it leases its office facilities.

         (f) The Company is not permitted to engage in the purchase or sale of
commodities or commodity contracts.

         (g) The Company is permitted to make loans and loans with equity
features to, as well as equity investments in, Small Business Concerns to the
extent allowed by the SBA Act and SBA regulations. The Company is also permitted
to extend credit to shareholders to finance the purchase of its or their capital
stock.

         (h) So long as the Company is licensed as an SBIC, it may only conduct
those activities permitted by the SBA Act and SBA regulations and policies.

         The Company's policies with respect to the following matters are not
fundamental policies and may be changed, subject to the SBA Act and SBA
regulations, by the Company's Executive Committee without shareholder approval.

         (a) The Company may make investments in equity and debt securities of
Small Business Concerns as approved by the Executive Committee.

                                      -6-
<PAGE>

         (b) The Company has no strict policy regarding the percentage of its
assets that may be invested in any specific type of security. The Company
follows SBA regulations prohibiting investment in any single Small Business
Concern and its affiliates exceeding 20% of the Company's Regulatory Capital
except with prior SBA approval.

         (c) The Company does not invest in companies for the purpose of
exercising control of management and does not intend to do so in the future.
Except where necessary to protect an investment, where there has been a breach
of the financing agreements, where there has been a substantial change in the
Small Business Concerns' operation or when financing a start-up company, SBA
regulations prohibit SBICs from controlling a Small Business Concern.

         (d) The Company does not invest in securities of other investment
companies and does not intend to do so in the future.

         (e) The Company intends to hold its portfolio debt securities for a
minimum of five years, to the extent required by SBA regulations or until
maturity. It anticipates retaining its equity investments from five to seven
years.

DETERMINATION OF NET ASSET VALUE

         The Board of Directors has delegated to the Executive Committee the
sole responsibility for determining the asset value of each of the Company's
equity investments and loans and of its portfolio in the aggregate. The
Executive Committee determines the value of its portfolio companies quarterly,
as soon as practicable after and as of the end of each calendar quarter.
Investments are carried at fair value, as determined by the Executive Committee
of the Board of Directors. The Company, through its Board of Directors, has
adopted the Model Valuation Policy, as published by the SBA, in Appendix III to
Part 107 of Title 12 of the Code of Federal Regulations (the "Policy"). The
Policy, among other things, presumes that loans and investments are acquired
with the intent that they are to be held until maturity or disposed of in the
ordinary course of business. Except for interest-bearing securities which are
convertible into common stock, interest-bearing securities are valued at an
amount not greater than cost, with unrealized depreciation being recognized when
value is impaired. Equity securities of private companies are presumed to
represent cost unless the performance of the portfolio company, positive or
negative, indicates otherwise in accordance with the Policy guidelines. The fair
value of equity securities of publicly traded companies are generally valued at
their quoted market price discounted due to the investment size or market
liquidity concerns and for the effect of restrictions on the sale of such
securities. Discounts range from 0% to 40% for investment size and market
liquidity concerns. Discounts for restriction on the sale of the investments are
15% in accordance with the provisions of the Policy. The Company maintains
custody of its investments as permitted by the Investment Company Act of 1940.
Pursuant to SBA regulations, investments are deemed to be "fair value" if such
values are determined by the Executive Committee in accordance with SBA
valuation policy. This requirement is consistent with the procedure for
determining fair value contained in the Investment Act. The Company's policy is
that equity investments be held for five to seven years and loans for a minimum
of five years (as required by SBA regulations) or until maturity.

         The Executive Committee determines the value of its portfolio companies
quarterly, as soon as practicable after and as of the end of each calendar
quarter. In making its valuation determination, the Executive Committee adheres
to the valuation policy of the SBA. In calculating the value of the Company's
total assets, securities traded in the over-the-counter market or on a stock
exchange are valued at the average bid at close or closing price, as the case
may be, for the valuation date and the preceding two days, unless the investment
is subject to a restriction that requires a discount from such price, as
determined by the Executive Committee. Discounts typically range from 10% to
40%, but may be more or less, depending on resale restrictions under securities

                                      -7-
<PAGE>

laws or contractual agreements. In valuing equity securities for which there
exists no public trading market, investment cost is presumed to represent fair
value except when the valuation policy provides that the Executive Committee may
determine fair value on the basis of financings by unaffiliated investors or
when a company has been self-financing and has had positive cash flow from
operations for at least the past two fiscal years. Asset value may be increased
based on price/earnings ratios, cash flow multiples and other appropriate
financial measures of any similar publicly-traded companies, discounted for
illiquidity. If the chosen valuation ceases to be meaningful, it may be restored
to a cost basis or, in the event of significant deterioration in performance or
potential, to a valuation below cost to reflect impairment. With respect to
portfolio companies likely to face bankruptcy or discontinue operations for some
other reason, liquidating value may be employed. This value is determined by
estimating the realizable value (often through professional appraisals or firm
offers to purchase) of all assets and then subtracting all liabilities and all
associated liquidation costs.

         All other investments are valued at fair value as determined in good
faith by the Executive Committee. In making its determination, the Executive
Committee values loans and nonconvertible debt securities for which there exists
no public trading market at cost plus amortized original issue discount, if any,
unless adverse factors lead to a determination of a lesser value when unrealized
depreciation is recognized. The valuation of loans and associated interest
receivables on interest-bearing securities reflects the portfolio company's
current and projected financial condition and operating results, its payment
history and its ability to generate sufficient cash flow to make payments when
due.

         When a valuation relies more heavily on assets than earnings,
additional criteria are considered, including, the value of the collateral, the
priority of the Company's security interest, if any, the net liquidation value
of collateral and the personal integrity and overall financial condition of the
owners of the business. An appropriate writedown is recognized when collection
is doubtful. A write-down for impairment is considered when one or both of the
following conditions occur (i) interest or dividend payments are more than 120
days past due or (ii) the portfolio company is in bankruptcy, is insolvent or
substantial doubt exists about its ability to continue as a going concern. The
carrying value of interest-bearing securities is not adjusted for changes in
interest rates. The valuation of convertible debt may be adjusted to reflect the
value of the underlying equity security net of the conversion price. Convertible
debt securities and warrants are valued to reflect the value of the underlying
equity security less the conversion or exercise price.

         Valuation is reduced if a portfolio company's performance has
significantly deteriorated. If the factors that led to the reduction in
valuation are overcome, the valuation may be restored. Warrants are valued at
the excess of the value of the underlying security over the exercise price. The
Executive Committee may also consider recent operating results of a portfolio
company or offers to purchase its securities when valuing a warrant.


MANAGEMENT

         POWERS OF THE EXECUTIVE COMMITTEE. The Company's Articles of
Incorporation provide for the appointment by the Board of Directors of an
Executive Committee comprised of not less than five nor more than nine members,
all of whom must be a member of the Board of Directors. The Executive Committee
was constituted by the Board of Directors in December 1993 and, under Virginia
law, may exercise all the authority of the Board of Directors except that it may
not (i) approve or recommend to shareholders action that Virginia law requires
to be approved by shareholders, (ii) fill vacancies on the Board of Directors or
any committee, (iii) amend the Articles of Incorporation, (iv) adopt, amend or
repeal the Bylaws, (v) approve a plan of merger, (vi) authorize or approve a
distribution, except according to a general formula or method prescribed by the
Board of Directors or (vii) authorize or approve the issuance or sale or
contract for sale of shares, or determine the designation of relative rights,
preferences and limitations of a class or series of shares except within limits
specifically prescribed by the Board of Directors.

         MEMBERS OF THE EXECUTIVE COMMITTEE AND EXECUTIVE OFFICERS. The
following table sets forth the names, addresses, ages and positions with the
Company of all members of the Executive Committee (who also are directors of the
Company) and Executive Officers of the Company. Information concerning their
principal occupation and background follows.

                                      -8-
<PAGE>
<TABLE>
<CAPTION>
           Name and Address                            Age                   Position and Offices with the Company
<S>     <C>
J. W. Whiting Chisman, Jr.                             58                             Member of Executive
226 Creekview Lane                                                                  Committee and Director
Hampton, VA  23669

Ernest F. Hardee                                       59                             Member of Executive
100 E. 15th Street                                                                  Committee and Director
Norfolk, VA  23510

J. Alan Lindauer                                       60                            Chairman of Executive
300 East Main Street                                                          Committee, Director, President And
Suite 1380                                                                          Chief Executive Officer
Norfolk, VA  23510

Robert P. Louthan                                      39                               Vice President
300 East Main Street
Suite 1380
Norfolk, VA 23510

Robert I. Low                                          62                             Member of Executive
P. O. Box 3297                                                                      committee and Director
Norfolk, VA 23514

Gerald T. McDonald                                     52                           Chief Financial Officer
1501 Layden Cove Way                                                                And Assistant Secretary
Virginia Beach, VA  23454

Peter M. Meredith, Jr.                                 47                        Member of Executive Committee
P. O. Box 11265                                                               Chairman of the Board of Directors
Norfolk, VA  23517

Charles H. Merriman, III                               65                 Member of Executive Committee and Director
5507 Cary Street Road
Richmond, VA 23226

R. Scott Morgan                                        54                             Member of Executive
316 Court Street                                                                    Committee and Director
Portsmouth, VA  23704

Richard G. Ornstein                                    57                             Member of Executive
524 Fisherman's Bend                                                                Committee And Director
Virginia Beach, VA 23451

Martin N. Speroni                                      34                            Director of Research
300 East Main Street
Suite 1380
Norfolk, VA 23510

Lex W. Troutman                                        46                               Vice President
300 East Main Street
Suite 1380
Norfolk, VA 23510
</TABLE>
                                      -9-
<PAGE>

         J. W. Whiting  Chisman,  Jr. has served as a director of the Company
since February 1994. Since 1988, he has been President of Dare Investment
Company, a land developer and investor in equities.

         Ernest F. Hardee has served as a director of the Company since
September 1997. Since 1963, he has been President and Chief Executive Officer of
Hardee Realty Corporation, a real estate brokerage firm. He has also served as a
director of Branch Bank & Trust Corp. since 1995.

         J. Alan Lindauer has served as a director since July 1993 and as
Chairman of the Executive Committee of the Company since December 1993 and since
March 1994 as its President and Chief Executive Officer. Since 1986, Mr.
Lindauer has been President of JTL, Inc., a business consulting firm. Mr.
Lindauer is a Certified Management Consultant.

         Robert P. Louthan has served as Vice President of the Company since
January 1998. From February 1990 through November 1994, he was Operation
Services Manager of American Filtrona Company, a manufacturer of bonded fiber
products. From December 1994 through November 1997, he was a Vice President with
affiliates of VEDCORP, a venture capital fund.

         Robert I. Low has served as a director of the Company  since July 1993.
Mr. Low is a senior  partner of Goodman & Company, a firm of Certified Public
Accountants. He has been with that firm since 1969.

         Gerald T. McDonald serves as Assistant  Secretary,  Treasurer and Chief
Financial Officer of the Company effective February 1, 1998. During 1997, Mr.
McDonald was Virginia Financial Manager of Branch Bank & Trust Corp. From 1987
through July 1996, Mr. McDonald was Chief Financial Officer of Commerce Bank.

         Peter M.  Meredith,  Jr. has served as a director of the Company and as
Chairman of the Board of Directors since May 1994. Since 1978, he has served in
various executive capacities with Meredith Construction Company, Inc. Since
1995, he has been the Chairman of the Board of Directors of Heritage Bank.

         Charles H. Merriman, III, has served as a director of the Company since
March 1998. He is currently a Managing Director with Scott & Stringfellow, an
investment banking firm, where he has served in various capacities since 1972.

         R. Scott Morgan, Sr. has served as a director of the Company since
September 1997. Since 1995, Mr. Morgan has been Executive Vice President and
Corporate Banking Manager with the Corporate Banking Group of Branch Bank &
Trust Corp. Between 1992 and 1995, he was employed in various capacities with
Commerce Bank.

         Richard G. Ornstein has served as a director of the Company and a
member of the Executive Committee since September 1997. Since 1964, Mr. Ornstein
has been privately engaged in real estate management and development.

         Martin N.  Speroni has served as Director of Research  since  November,
1998. Between 1993 and 1997 Mr. Speroni traded fixed income securities for
Raymond James & Associates. Before that he was a financial analyst with
Continental Grain Company, a New York based international conglomerate. Mr.
Speroni holds an MBA from Columbia University and an M.A. from the University of
South Florida.

         Lex W.  Troutman  has served as a  Business  Development  Officer since
May 1998. From 1981 to 1992, he served as a Senior Vice President of Crestar
Bank. From July 1992 to May 1998, he served as Principal of Meridian Investment
Company, Inc., a business consulting firm. Mr. Troutman is a Certified Public
Accountant.

         OTHER MEMBERS OF THE BOARD OF DIRECTORS. The Company's existing Board
of Directors has 22 members of which 21 will be nominated for re-election at the
Company's 1999 Annual Meeting. Directors hold office until expiration of their

                                      -10-
<PAGE>

respective terms and until their successors are elected, or until death,
resignation or removal. Officers of the Company serve at the discretion of the
Board of Directors, subject to any employment contract rights. The following
table sets forth the names, addresses and ages of all directors of the Company
who are not members of the Executive Committee. Information concerning their
principal occupation and background follows.

<TABLE>
<CAPTION>
           Name and Address                            Age                   Position and Offices With the Company
<S>     <C>
James E. Andrews                                        61                                  Director
109 East 40th Street
Norfolk, VA  23504

Donna C. Bennett                                        38                                  Director
500 East Plume Street
Norfolk, VA  23510

Jeffrey R. Ellis                                        55                                  Director
513 Kerry Lane
Virginia Beach, VA  23451

Eric L. Fox                                             52                                  Director
1412 Whittier Road
Virginia Beach, VA  23454

Marvin S. Friedberg                                     56                                  Director
8204 Ocean Front
Virginia Beach, VA 23451

Roger L. Frost                                          67                                  Director
1700 Grove Court
Norfolk, VA  23503

Henry U. Harris, III                                    46                                  Director
500 E. Main Street, Suite 1500
Norfolk, VA  23510

Harold J. Marioneaux, Jr.                               43                                  Director
504 Mill Stone Road
Chesapeake, VA  23320

Augustus C. Miller                                      65                                  Director
1000 E. City Hall Avenue
Norfolk, VA  23504

Paul F. Miller                                          67                                  Director
2400 Washington Avenue
Newport News, VA  23607

Juan M. Montero, II                                     57                                  Director
2147 Old Greenbrier Road
Chesapeake, VA  23320
</TABLE>
                                      -11-
<PAGE>

<TABLE>
<S>     <C>
James W. Noel, Jr.                                      43                                  Director
224 Ballard Street
P. O. Box 612
Yorktown, VA  23690

Richard A. Schreiber                                    57                                  Director
36076 Lankford Highway
P. O. Box 395
Belle Haven, VA  23306

Jordan E. Slone                                         37                                  Director
555 E. Main Street
Norfolk, VA 23510
</TABLE>

         James E. Andrews has served as a director of the Company since May
1997. Since 1974, Mr. Andrews has been the principal owner of Anzell Automotive,
Inc., an automotive repair firm and franchisor of automotive repair shops.

         Donna C. Bennett has served as a director of the Company since
September 1996. She is a Vice-President of First Union Bank and has been
employed since 1985 with First Union Bank, or its predecessors, in various
capacities.

         Jeffrey R. Ellis has served as a director of the Company  since August
1997. Between 1973 and 1986, Mr. Ellis was the President and Chief Executive
Officer of Ridgewell Caterers, Inc. Since 1986, he has been a private investor.

         Marvin S. Friedberg, has served as a director since May 1999. Since
1989, he has served as a chief executive officer of Virginia Commonwealth
Trading Company, a firm engaged in international trading.

          Roger L. Frost has served as a director of the Company since May 1997.
Between 1956 and 1997, he was an accountant with Goodman & Company, a firm of
Certified Public Accountants, from which he retired as a senior partner in 1997.

         Henry U. Harris, III has served as a director of the Company since
September 1997. Since 1980, he has been Portfolio Manager of Virginia Investment
Counselors, Inc., a financial consulting firm, of which he is now President.
Since 1991, he has been the vice-chairman of the Board of Directors of Heritage
Bank & Trust.

         Harold J.  Marioneaux,  Jr. has served as a director of the Company
since November 1994. Since 1990, he has practiced as a dental surgeon and since
1993 has acted as a certified financial planner.

         Augustus C. Miller has served as a director of the Company since August
1994. Since 1977, he has been President and Chief Executive Officer of Miller
Oil Co., Inc., a distributor of fuels.

         Paul F. Miller has served as a director of the Company since May 1994.
Since 1987, he has served as Director of Planning and Development for the City
of Newport News, Virginia.

         Juan M. Montero, II has served as a director of the Company since July
1995. Since 1972, he has engaged in the private practice of general and thoracic
surgery.

         James W. Noel, Jr. has served as a director of the Company since August
1994. Since 1993, Mr. Noel has been the Executive Director of the York County
Industrial Development Authority. Between 1991 and 1993, he served in various
capacities with the City of Portsmouth, Virginia.

                                      -12-
<PAGE>

         Richard A. Schreiber has served as a director of the Company since May
1995. Since 1994, he has been President and Chief Executive Officer of the
Virginia Eastern Shore Corporation, which is engaged in development of business
for the Eastern Shore of Virginia. Between 1980 and 1993, he was Vice President
and Chief Executive Officer of Colonial Williamsburg Hotel Properties, Inc. Mr.
Schreiber has informed the Company that he will resign from the Board effective
as of the Company's 1999 Annual Meeting.

         Jordan E. Slone has served as a director of the Company since July
1995. Since 1987, Mr. Slone has been Chairman and Chief Executive Officer of the
Harbor Group Companies, a diversified real estate and financial services firm.

         AUDIT  COMMITTEE  AND  COMPENSATION/STOCK  OPTION  COMMITTEE. The Board
of Directors has established a Compensation/Stock Option Committee and an Audit
Committee.

         The Members of the Compensation/Stock Option Committee are Messrs.
Meredith, Chisman and Hardee. The Compensation/Stock Option Committee reviews
compensation arrangements for management and key employees and makes
recommendations concerning compensation to the Executive Committee. It also
administers the Company's 1998 Employee Stock Option Plan (the "Stock Option
Plan"). It also grants options to officers and key employees and sets the
exercise price, terms and other provisions of the options granted.

         The  Members of the Audit  Committee  are Ms.  Bennett  and Messrs. Low
and Frost. The Audit Committee recommends selection of the Company's independent
accountants and reviews the scope of the annual audit and the results of the
audit with management and the independent accountants.

RISK FACTORS

         Prospective investors in the Company's Common Stock should consider
carefully the specific factors set forth below as well as the other information
included in this Report before deciding to invest in the Shares of Common Stock.
All statements and information in this Report, other than statements of
historical fact, are forward-looking statements based on a number of assumptions
concerning future conditions that ultimately may prove to be inaccurate. These
forward-looking statements may be identified by the use of words like "believe,"
"expect," "intend," "target" and "anticipate" and concern, among other things,
the Company's ability to identify profitable investments in small businesses,
manage payment defaults, value its portfolio accurately and realize value from
its investments in the securities of small businesses. Many phases of the
Company's operations are subject to influences outside its control. Any one or
any combination of factors could have a material adverse effect on the Company's
business, financial condition and results of operations. These factors include
competitive pressures, local, regional and national economic conditions,
governmental regulation and policies and other conditions affecting capital
markets. The following factors should be carefully considered, together with
other information in this Report.

         INVESTMENTS IN SMALL, PRIVATELY OWNED COMPANIES. The Company's
portfolio consists of equity and debt securities issued by small, privately
owned businesses that, under SBA regulations, must have a tangible net worth of
less than $18 million and average net income after federal income tax for the
preceding two years of $6 million or less (computed without benefit of any
carryover loss). Furthermore, 20% of the Company's portfolio must consist of
investments in smaller enterprises with a net worth of not more than $6 million
and average net income after federal income tax for the preceding two years of
$2 million or less (computed without benefit of any carryover loss). See
"Regulation." The Company's equity investments in these small businesses have
primarily been in the form of preferred stock, coupled with warrants to acquire
shares of common stock. There is generally no publicly available information
about such companies, so the Company must rely on the diligence of its employees
and agents to obtain information in connection with the Company's investment
decisions. Typically, small businesses depend for their success on the
management talents and efforts of one person or a small group of persons, and
the death, disability or resignation of one or more of these persons could have
a material adverse impact on the Company's business, financial condition and
results of operations. Moreover, small businesses frequently have smaller
product lines and market shares than their competitors, may be more vulnerable
to economic downturns and often need substantial additional capital to expand or
compete. Such companies may also experience substantial variations in operating

                                      -13-
<PAGE>

results. Investment in small businesses therefore involves a high degree of
business and financial risk, can result in substantial losses and should be
considered highly speculative. See "Investment Policies."

         PAYMENT DEFAULTS. Generally, the Company makes current-pay,
dividend-bearing preferred stock investments in, and nonamortizing, five-year
term loans with fixed or variable rates of interest to, small businesses that
have limited financial resources and are able to obtain only limited financing
from traditional sources. Its loans may or may not be secured by the assets of
the borrower. A portfolio company's ability to pay preferred stock dividends or
to repay its loan may be adversely affected by numerous factors, including the
failure to meet its business plan, the death, disability or resignation of
senior management, a downturn in its industry or negative economic conditions. A
deterioration in a portfolio company's financial condition and prospects usually
will be accompanied by a deterioration in the value of its preferred stock or
any collateral for a loan. As a holder of preferred stock, the Company is always
subordinate to any indebtedness of the portfolio company and, when the Company
is not the senior lender, any collateral for a loan will be subordinate to
another lender's security interest.

         LIMITED OPERATING HISTORY. The Company obtained its license from the
SBA in May 1996 and made its first portfolio investment in October 1996. The
vast majority of its investments have been made since the closing of its initial
public offering in February 1998. Accordingly, its operating history is
extremely limited. Since that time, it has made only 10 loans and 14 equity
investments. The Company continues to hold its equity positions, and anticipates
holding them for an extended period of time. See "Investment Policies." The
Company has a very limited history of realized profits in its investments. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Determination of Net Asset Value." The Company has not operated
in recessionary economic periods when the operating results of small business
companies like those in the Company's portfolio often are adversely affected.

         FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company has
experienced, and expects to continue experiencing, quarterly variations in net
operating income as a result of many factors. Accordingly, it is possible that
the Company's results of operations, including quarter to quarter results, will
be below the expectations of public market analysts and investors. In addition,
the Company plans its operating expenditures based on operating income
forecasts, and an operating income shortfall below its forecasts in any quarter
would likely adversely affect the Company's business, financial condition and
results of operations for the year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."


         VALUATION OF PORTFOLIO. Typically, no public market exists for the
equity or debt securities of small, privately owned companies. As a result, in
the absence of readily ascertainable market values, the valuation of securities
in the Company's portfolio is made by the good faith determination of the
Company's Executive Committee in accordance with the SBA's model valuation
policy, which the Company has adopted. The estimated values may differ
significantly from the values that would have been established had a ready
market for the securities existed, and the differences could be material. Unlike
commercial lending institutions, the Company does not establish reserves for
investment losses, but revalues its portfolio on a quarterly basis to reflect
the Company's estimate of the current fair value of the investment portfolio.
There can be no assurance that this estimate is accurate and that the Company
will not ultimately suffer losses on its investments. See "Determination of Net
Asset Value."

         ILLIQUIDITY OF PORTFOLIO INVESTMENTS. Most of the Company's investments
are, and will continue to be, securities acquired directly from small, privately
owned companies. The Company's portfolio securities are, and will continue to
be, subject to restrictions on resale or otherwise have no established trading
market. The illiquidity of most of the Company's portfolio securities may
adversely affect its ability to dispose of such securities in a timely manner
and at a fair price when necessary or advantageous.

         LIMITED PUBLIC MARKET; VOLATILITY OF STOCK PRICE. The Company's Common
Stock is listed on The Nasdaq SmallCap Market under the symbol "WSCC." Continued
inclusion requires that the Company satisfy a minimum tangible net worth or net
income standard and that the Common Stock satisfy minimum standards of public
float, bid price and market makers.

                                      -14-
<PAGE>

         The Common Stock has been, and is expected to continue to be thinly
traded with a significant differential between the bid and ask price and a
highly volatile trading price that will be subject to wide fluctuations in
response to factors, many of which are beyond the Company's control. These may
include fluctuations in the operating results of its portfolio companies, sales
of the Common Stock in the marketplace, shortfalls in revenues, earnings or
other operating results of the Company, general financial conditions and other
factors. There can be no assurance that the market price of the Common Stock
will not experience significant fluctuations that are material, adverse and
unrelated to the Company's performance.

         In addition, the stock market has from time to time experienced extreme
price and volume fluctuations that often have been unrelated to the operating
performance of particular companies. Changes in earnings estimates by analysts
and economic and other external factors and period-to-period fluctuations in
financial results of the Company may have a significant impact on the market
price of the Common Stock. Fluctuations or decreases in its trading price may
adversely affect the liquidity of the trading market for the Common Stock.

         RELIANCE ON MANAGEMENT. Management is a key factor in the successful
development and operation of an SBIC. The Company depends for the selection,
structuring, closing and monitoring of its loans and investments on the
diligence and skill of management and members of the Executive Committee,
particularly J. Alan Lindauer, the loss of whose services could have a material
adverse effect on the operations of the Company. Mr. Lindauer serves as
President and Chief Executive Officer, and as a Director and Chairman of the
Executive Committee of the Company. Although Mr. Lindauer is a Certified
Management Consultant and has experience in business evaluation and small
business investing, until his election as President of the Company in March
1994, he had never served as an executive officer of an SBIC prior to joining
the Company. See "Management." The Company does not maintain key man life
insurance on Mr. Lindauer.

         EXPANSION. The Company intends to expand substantially its small
business investment activities, both in size, and geographic scope. In addition,
it is investigating the possibility of restructuring its operations to enable it
to pursue investment opportunities not available to SBICs because of regulatory
constraints, as well as seeking to acquire SBIC-eligible investments from other
investment funds. No assurance can be given that the Company will restructure
its operations in this manner, or that if it does, that the restructuring will
benefit shareholders. If the Company accomplishes these objectives, no assurance
can be given that it will be able to develop sufficient administrative
personnel, management and operating systems to manage its expansion effectively.

         COMPETITION. A large number of institutions and individuals compete to
make the types of investments made by the Company. There can be no assurance
that the Company will be able to identify and make investments that satisfy its
investment objectives or that it will be able to invest fully its available
capital. The Company competes with other SBICs, other non-bank financial
companies and, to a limited extent, commercial banks and venture capital
investors and venture capital investment firms. Most of its competitors have
greater resources and significantly more operating history.

         LEVERAGE. An important aspect of the Company's long term strategy in
achieving investment returns is the use of SBA Debentures. Obtaining a license
as an SBIC does not insure that the Company will be able to obtain funds from
the SBA ("SBA Leverage") in the amounts and at times required to optimize
investment returns. The amount of available SBA Leverage is determined by annual
Congressional appropriations. While the Company's management believes that
adequate SBA Leverage will be available, there can be no assurance that there
will be sufficient SBA Leverage available to satisfy the demands of the Company
and other SBICs.

         The Company has currently issued $12.3 million of SBA Debentures. This
issuance involves associated fixed costs. SBA Debentures require that interest
be paid on a current basis and the income from the Company's investments may not
be sufficient to make the required payments. Leverage increases the risk of loss
because increased operating revenues are needed to make required payments of
principal and interest on loans. As such, losses on a small percentage of the
Company's investments and loans can result in a much larger percentage reduction
in shareholders' equity. See "Business -- SBA Leverage."

                                      -15-
<PAGE>

         REGULATION AS AN SBIC. As an SBIC, the Company is subject to a variety
of regulations concerning, among other things, the size and nature of the
companies in which it may invest and the structure of those investments. SBA
regulations provide a variety of remedies if an SBIC fails to comply with these
regulations. These remedies are graduated in severity depending on the severity
of the SBIC's financial condition or misconduct. In certain circumstances, the
SBA may prohibit an SBIC from making new investments or distributions to
shareholders, require the removal of one or more officers or directors or obtain
the appointment of a receiver for the SBIC. It is likely that new regulations
governing SBICs will be adopted in the future and the Company cannot offer any
assurance that any such new regulations will not have a material adverse effect
on the Company's business and results of operations. Although the Company is not
aware of any pending legislation to eliminate the SBA or restrict or terminate
the specific program of the SBA in which the Company participates, any
significant restrictions on funds available to the Company from the SBA may
adversely affect the Company's plans for future operations and growth.

         SHARES ELIGIBLE FOR FUTURE SALE. 597,345 shares of Common Stock
currently outstanding were offered and sold by the Company in private
transactions in reliance on exemptions from registration under the Securities
Act of 1933 (the "Securities Act"). Accordingly, all of such shares are
"restricted securities," as defined by Rule 144 ("Rule 144") under the
Securities Act and cannot be resold without registration, except in reliance on
Rule 144 or another applicable exemption from registration. Certain shares of
Common Stock are eligible for resale under Rule 144, depending on their date of
issue (assuming the other requirements of Rule 144 are met).

         No prediction can be made as to the effect, if any, that future sales
of restricted shares of Common Stock, or the availability of such Common Stock
for sale, will have on the market price of the Shares prevailing from time to
time. Sales of substantial amounts of formerly restricted Common Stock in the
public market, or the perception that such sales may occur, could adversely
affect the then prevailing market price of the Common Stock.

         In addition, in the future the Company may issue additional shares of
Common Stock. No prediction can be made as to the effect, if any, that future
issuances of Common Stock may have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of such Common Stock,
or the perception that such sales may occur, could adversely affect the then
prevailing market price of the Common Stock.

         ABSENCE OF DIVIDENDS. The Company has not declared or paid any cash
dividends in the past and does not expect to pay cash dividends in the
foreseeable future. The Company currently intends to retain its future earnings,
if any, to finance the development and expansion of its business. Any future
dividend policy will be determined by the Board of Directors in light of
conditions then existing, including the Company's earnings and its financial
condition and requirements.

         POSSIBLE ISSUANCE OF PREFERRED SHARES; ANTI-TAKEOVER PROVISIONS. The
Company's Articles of Incorporation authorize the Board of Directors to issue,
without shareholder approval, 25,000 shares of preferred stock with voting,
conversion and other rights and preferences that could materially and adversely
affect the voting power or other rights of the holders of Common Stock. The
Company presently has no plans or commitments to issue any shares of preferred
stock. The issuance of preferred stock or of rights to purchase preferred stock,
as well as certain provisions of the Company's Articles of Incorporation and
Virginia law, could delay, discourage, hinder or preclude an unsolicited
acquisition of the Company, make it less likely that shareholders receive a
premium for their shares as a result of any such attempt and adversely affect
the market price, and voting and other rights of the holders of Common Stock.

ITEM 2.  PROPERTIES

         The Company believes that its Norfolk and Richmond offices are adequate
for its current and near-term future requirements.

                                      -16-
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

         The Company is a party to several legal actions which are ordinary,
routine litigation incidental to its business. The Company believes that none of
those actions, either individually or in the aggregate, will have a material
adverse effect on the results of operations or financial position of the
Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the year ended June 30, 1999.

                                     PART II

         The information required by Part II, Items 5, 6, 7 and 8 has been
incorporated herein by reference to the Waterside Capital Corporation 1999
Annual Report as set forth below, in accordance with General Instruction G(2) of
Form 10-K.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Since February 2, 1998, Waterside Capital Corporation Common Stock has
traded on the Nasdaq Market under the symbol "WSCC." Share price information
with respect to the Common Stock is set forth in the "Selected Quarterly Data"
table included in the Waterside Capital Corporation 1999 Annual Report, which is
incorporated herein by reference.

         As of August 1, 1999, there were approximately 650 holders of the
Common Stock, including approximately 120 holders of record. No cash dividends
have been paid with respect to the Common Stock since issuance. The Company has
no current plans to pay any cash dividends relating to the Common Stock in the
foreseeable future, although any dividends on the Common Stock will be at the
sole discretion of the Company's Board of Directors and will depend upon the
Company's profitability and financial condition, capital requirements, statutory
restrictions, requirements of the Small Business Administration, future
prospects and other factors deemed relevant by the Company's Board of Directors.
If any dividends are paid to the holders of Common Stock, all holders will share
equally on a per share basis.

         The Company has not issued any of its authorized preferred stock.

ITEM 6.  SELECTED FINANCIAL DATA

         Information included in the section entitled "Five-Year Summary of
Selected Financial Data" in the Waterside Capital Corporation 1999 Annual Report
is incorporated herein by reference.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         Information included in the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Waterside
Capital Corporation 1999 Annual Report is incorporated herein by reference.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The Company's business activities contain elements of risk. The Company
considers the principal types of market risk to be interest rate risk and
valuation risk. The Company considers the management of risk essential to
conducting its businesses and to maintaining profitability. Accordingly, the
Company's risk management systems and procedures are designed to identify and
analyze the Company's risks, to set appropriate policies and limits and to
continually monitor these risks and limits by means of reliable administrative
and information systems and other policies and programs.

                                      -17-
<PAGE>

         The Company manages its market risk by maintaining a portfolio of
equity interests that is diverse by industry, geographic area, property type,
size of individual investment and borrower. The Company is exposed to a degree
of risk of public market price fluctuations as three of the Company's 20
investments are in thinly traded, small public companies, whose stock prices
have been volatile. The other 17 investments are in private business
enterprises. Since there is typically no public market for the equity interests
of the small companies in which the Company invests, the valuation of the equity
interests in the Company's portfolio of private business enterprises is subject
to the estimate of the Company's Executive Committee. In the absence of a
readily ascertainable market value, the estimated value of the Company's
portfolio of equity interests may differ significantly from the values that
would be placed on the portfolio if a ready market for the equity interests
existed. Any changes in estimated value are recorded in the Company's statement
of operations as "Net unrealized gains (losses)." Each hypothetical 1% increase
or decrease in value of the Company's portfolio of equity interests of $23.9
million at June 30, 1999 would have resulted in unrealized gains or losses and
would have changed net increase in stockholders' equity resulting from
operations in 1999 by less than 15%.

         The Company's sensitivity to changes in interest rates is regularly
monitored and analyzed by measuring the characteristics of assets and
liabilities. The Company utilizes various methods to assess interest rate risk
in terms of the potential effect on interest income net of interest expense, the
market value of net assets and the value at risk in an effort to ensure that the
Company is insulated from any significant adverse effects from changes in
interest rates. Based on the model used for the sensitivity of interest income
net of interest expense, if the balance sheet were to remain constant and no
actions were taken to alter the existing interest rate sensitivity, a
hypothetical immediate 100 basis point change in interest rates would have
affected net increase in stockholders' equity resulting from operations by less
than 4% over a six month horizon. Although management believes that this measure
is indicative of the Company's sensitivity to interest rate changes, it does not
adjust for potential changes in credit quality, size and composition of the
balance sheet and other business developments that could affect net income.
Accordingly, no assurances can be given that actual results would not differ
materially from the potential outcome simulated by this estimate.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The Consolidated Financial Statements of Waterside Capital Corporation,
including notes thereto, are presented in the Waterside Capital Corporation 1999
Annual Report and are incorporated herein by reference.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

         None.
                                    PART III


         The information required by Part III, Items 10, 11, 12, and 13 has been
incorporated herein by reference to the Company's 1999 Proxy Statement as set
forth below, in accordance with General Instruction G(3) of Form 10-K.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; SECTION 16(A)
          BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Information relating to directors of the Company and compliance with
Section 16(a) of the Exchange Act is set forth in the sections entitled
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's 1999 Proxy Statement and is incorporated herein by
reference. Pursuant to General Instruction G(3) of Form 10-K, certain
information concerning the executive officers of the Company is set forth under
the caption entitled "Executive Officers of the Company" in Part I, Item 1, of
this Form 10-K.

                                      -18-
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

         Information regarding compensation of officers and directors of the
Company is set forth in the section entitled "Executive Compensation" in the
Company's 1999 Proxy Statement and is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information regarding ownership of certain of the Company's securities
is set forth in the section entitled "Security Ownership of Management and
Certain Beneficial Owners" in the Company's 1999 Proxy Statement and is
incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information regarding certain relationships and related transactions
with the Company is set forth in the section entitled "Certain Relationships and
Related Transactions" in Waterside's 1999 Proxy Statement and is incorporated
herein by reference.

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a)      Documents filed as part of this Report:

                  (1)      Financial Statements

                           The Consolidated Financial Statements of Waterside
         Capital Corporation and the Auditor's Report thereon, are incorporated
         herein by reference. Applicable pages in the Waterside Capital
         Corporation 1999 Annual Report are as follows:

                                                                     PAGE
Financial Statements:
Independent Auditors Report of KPMG LLP                                8
Balance Sheets at June 30, 1998 and 1999                               9
Statements of Operations for the Years ended
         June 30, 1997, 1998 and 1999                                 10
Statements of Changes in Stockholders' Equity for
         the Years ended June 30, 1997, 1998 and 1999                 11
Statements of Cash Flows for the Years ended
         June 30, 1997, 1998 and 1999                                 12
Notes to  Financial Statements                                        13

                  (2)      Financial Statement Schedule

                           This information required by Schedule I - Investments
         in Securities of Unaffiliated Issurers is included in the schedule of
         Portfolio Investments which is an integral part of the financial
         statements.

                           All other schedules for which provision is made in
         the applicable accounting regulations of the Securities and Exchange
         Commission are not required under the related instructions or are
         inapplicable and therefore have been omitted.

                                      -19-
<PAGE>

                  (3)      Exhibits

                           The exhibits listed on the accompanying Exhibit Index
         are filed or incorporated by reference as part of this Form 10-K and
         such Exhibit Index is incorporated herein by reference.

         (b) Reports on Form 8-K (filed during the fourth quarter of 1999):

                  None.

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                       WATERSIDE CAPITAL CORPORATION


                                       By: /s/ J. Alan Lindauer, Jr.
                                          -----------------------------------
                                           J. Alan Lindauer, Jr.
                                           President and Chief Executive Officer

Dated    September 24, 1999

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.
<TABLE>
<CAPTION>
Signature                                                     Title                           Date:
<S>     <C>
/s/ J. Alan Lindauer, Jr.                         Director, President                         September 24, 1999
------------------------------------              And Chief Executive Officer
J. Alan Lindauer, Jr.


/s/ James E. Andrews                              Director                                    September 24, 1999
------------------------------------
James E. Andrews


/s/ Donna C. Bennett                              Director                                    September 24, 1999
------------------------------------
Donna C. Bennett


/s/ J. W. Whiting Chisman, Jr.                    Director                                    September 24, 1999
------------------------------------
J. W. Whiting Chisman, Jr.


/s/ Jeffrey R. Ellis                              Director                                    September 24, 1999
------------------------------------
Jeffrey R. Ellis


/s/ Eric L. Fox                                   Director                                    September 24, 1999
------------------------------------
Eric L. Fox


/s/ Roger L. Frost                                Director                                    September 24, 1999
------------------------------------
Roger L. Frost
</TABLE>
                                      -20-
<PAGE>
<TABLE>
<S>     <C>
/s/ Marvin S. Friedberg                           Director                                    September 24, 1999
-----------------------------------
Marvin Friedberg


/s/ Ernest F. Hardee                              Director                                    September 24, 1999
-----------------------------------
Ernest F. Hardee


/s/ Henry U. Harris, III                          Director                                    September 24, 1999
-----------------------------------
Henry U. Harris, III


/s/ Robert L. Low                                 Director                                    September 24, 1999
-----------------------------------
Robert L. Low


/s/ Harold J. Marioneaux, Jr.                     Director                                    September 24, 1999
-----------------------------------
Harold J. Marioneaux, Jr.


/s/ Peter J. Meredith, Jr.                        Chairman of the Board and Director          September 24, 1999
-----------------------------------
Peter J. Meredith


/s/ Charles H. Merriman, III                      Director                                    September 24, 1999
-----------------------------------
Charles H. Merriman, III



/s/ Augustus C. Miller                            Director                                    September 24, 1999
-----------------------------------
Augustus C. Miller


/s/ Paul F. Miller                                Director                                    September 24, 1999
-----------------------------------
Paul F. Miller


/s/ Juan M. Montero, II                           Director                                    September 24, 1999
-----------------------------------
Juan M. Montero, II


/s/ R. Scott Morgan, Sr.                          Director                                    September 24, 1999
-----------------------------------
R. Scott Morgan, Sr.


/s/ James W. Noel, Jr.                            Director                                    September 24, 1999
-----------------------------------
James W. Noel, Jr.


/s/ Richard G. Ornstein                           Director                                    September 24, 1999
-----------------------------------
Richard G. Ornstein
</TABLE>

                                      -21-
<PAGE>
<TABLE>
<S>     <C>
/s/ Jordan E. Slone                               Director                                    September 24, 1999
------------------------------------
Jordan E. Slone


/s/ Gerald T. McDonald                            Chief Financial Officer                     September 24, 1999
------------------------------------              (Principal Accounting and Financial
Gerald T. McDonald                                Officer)

</TABLE>


                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
    EXHIBIT                                                                                               SEQUENTIAL
      NO.                                             DESCRIPTION                                          PAGE NO.
<S>     <C>
      * 1        Amended and Restated Articles of Incorporation of the Registrant
      * 2        Amended and Restated Bylaws of the Registrant
      * 8        The Registrant's License From the Small Business Administration
      * 9.1      Employment Agreement, dated as of December 1, 1997, between the Registrant
                 and J. Alan Lindauer, Jr.
      * 9.4      1998 Employee Stock Option Plan
      **13       Annual Report to Shareholders                                                                 23
      **27       Financial Data Schedule                                                                       31
      **99.1     The Financial Statements and notes thereto which appear on
                 pages 8 through 22 of Waterside Capital Corporation 1999
                 Annual Report to Shareholders (filed as Exhibit 13 to this Form
                 10-K) are incorporated herein by reference.

</TABLE>

*        (Not filed herewith. In accordance with Rule 12b-32 of the General
         Rules and Regulations under the Securities Exchange Act of 1934, the
         exhibit is incorporated by reference).

**       Filed herewith.

                                      -22-