<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
-------------
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT
For the transition period from to
Commission file number 04863
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Southern Investors Service Company, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 74-1223691
- --------------------------------------- ----------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2727 North Loop West,
Suite 200, Houston, Texas 77008
- --------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
(713) 869-7800
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Issuer's telephone number
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes_____No_____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 3,168,929 as of August 10, 1995,
--------------------------------
Common Stock $1.00 Par Value
- ------------------------------------------------------------
Transitional Small Business Disclosure Format (Check One):
Yes No X
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The Consolidated Financial Statements included herein have been prepared by
Southern Investors Service Company, Inc., (the Company), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these Consolidated Financial
Statements be read in conjunction with the Consolidated Financial Statements and
notes thereto included in the Company's latest annual report on Form 10-KSB. In
the opinion of the management of the Company, all adjustments necessary to
present a fair statement of the results for the interim periods have been made.
<PAGE>
SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
---------------------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
JUNE 30, 1995
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(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
REAL ESTATE ASSETS:
Resort development, net $ 2,818
Real estate held for resale or development 325
Equity in real estate joint ventures, net 540
--------
Total real estate assets 3,683
CASH 251
ACCOUNTS RECEIVABLE 113
OTHER ASSETS 459
--------
Total assets $ 4,506
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
LIABILITIES:
Notes payable $ 5,563
Other long-term debt 712
Accounts payable and accrued expenses 2,684
Other liabilities 351
--------
Total liabilities 9,310
--------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, $1 par, 1,000,000
shares authorized, none issued --
Common stock, $1 par, 10,000,000 shares authorized,
3,281,331 shares issued 3,281
Additional paid-in capital 3,031
Retained deficit (10,990)
Less treasury stock, 112,402 shares, at cost (126)
---------
Total stockholders' deficit (4,804)
---------
$ 4,506
=========
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE>
SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
--------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
RESORT REVENUES $ 557 $ 553 $ 1,327 $ 1,226
REAL ESTATE REVENUES 429 238 675 503
---------- ---------- ---------- ----------
986 791 2,002 1,729
---------- ---------- ---------- ----------
RESORT OPERATING EXPENSES 565 585 1,147 1,154
OTHER OPERATING EXPENSES 224 315 505 556
---------- ---------- ---------- ----------
789 900 1,652 1,710
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) 197 (109) 350 19
INTEREST EXPENSE (116) (117) (228) (237)
LITIGATION SETTLEMENT -- 1,318 -- 1,318
---------- ---------- ---------- ----------
INCOME
BEFORE EXTRAORDINARY GAIN 81 1,092 122 1,100
EXTRAORDINARY GAIN ON DEBT
SETTLEMENTS -- 1,352 33 1,352
---------- ---------- ---------- ----------
NET INCOME $ 81 $ 2,444 $ 155 $ 2,452
========== ========== ========== ==========
NET INCOME PER COMMON SHARE:
Income before extraordinary gain $ .03 $ .34 $ .04 $ .35
========== ========== ========== ==========
Net income $ .03 $ .77 $ .05 $ .77
========== ========== ========== ==========
AVERAGE NUMBER OF
SHARES OUTSTANDING 3,168,929 3,168,929 3,168,929 3,168,929
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
---------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1995 1994
------- -------
<S> <C> <C>
Cash flows from operating activities:
Income before extraordinary gain $ 122 $1,100
Adjustments to reconcile income to net cash
provided by operating activities:
Equity in undistributed income of real
estate joint ventures (59) (100)
Distributions from real estate joint ventures 36 --
Depreciation and amortization 117 135
Change in assets and liabilities:
Investments in resort development (35) 7
Decrease in accounts receivable and other assets 81 8
Decrease in accounts payable, accrued
expenses and other (83) (474)
----- ------
Net cash provided by operating activities 179 676
----- ------
Cash flows from financing activities:
Payments on notes payable and other debt (21) (379)
----- ------
Net increase in cash 158 297
Beginning cash 93 249
----- ------
Ending cash $ 251 $ 546
===== ======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
(1) CURRENT BUSINESS CONDITIONS
Net income of Southern Investors Service Company, Inc. and subsidiaries
(the Company) was $155,000 for the six months ended June 30, 1995, as compared
to $2,452,000 for the six months ended June 30, 1994. Included in income for
the six months ended June 30, 1994, was a gain of $1,318,000 from the settlement
of litigation. In addition, during the six months ended June 30, 1994,
extraordinary gains from the settlement of outstanding liabilities totalled
$1,352,000. The Company has sustained losses from operations for each of the
past several years, and management anticipates that the Company will incur an
operating loss for the remainder of 1995. On an annual basis cash flow from
operations has not been and is not sufficient to meet liquidity needs.
The Company's operations are concentrated in Texas, which from 1986 to 1988
was adversely affected by the downturn in the energy and real estate markets.
During 1990, the Company reached its first agreement with certain of its
creditors to resolve defaults under various loans and to settle the outstanding
debt and remaining deficiencies. These settlements provided for the conveyance
to the creditors of a significant portion of the Company's assets. As a result
of the 1990 debt restructuring and various other settlements since 1990, the
Company's cash flow from operations has not been sufficient to meet the
Company's obligations for the past several years. The Company has sustained net
operating losses during the past several years and anticipates that it will
incur a net operating loss for 1995. Such losses have depleted the Company's
stockholders' equity. These factors raise substantial doubt about the Company's
ability to continue as a going concern.
Management believes that the debt settlements which have been consummated
in prior years have improved the Company's financial condition and its ability
to pursue and realize investment, development and management opportunities in
real estate properties. However, debt totaling $1,839,000 has matured and is
currently due and debt totaling $4,101,000 will mature later in 1995. The
ability of the Company to continue as a going concern is dependent upon its
ability to settle or restructure its remaining debt and other obligations and
generate positive cash flow to cover operating expenses and other cash
requirements. Management is currently reviewing possible options to increase
cash flow and settle the Company's existing liabilities with its limited
resources. These options include, but are not limited to, continued efforts to
procure management and consulting contracts for a fee, reduction of operating
expenses (including interest), attempts to increase revenues of the Company's
resort development, continued negotiations with various creditors to settle
their accounts for cash payments at substantially less than the amount due, the
settlement of liabilities through the transfer of assets to creditors in
satisfaction of their claims, and a possible plan of reorganization under
Chapter 11 of the U.S. Bankruptcy Code or liquidation of the Company. While
management believes that the assumptions relative to the options currently being
considered are reasonable, there is no assurance that actual events will occur
in accordance with such assumptions. Accordingly, management's assumptions may
need to be revised as actual events occur which differ from such assumptions.
The consolidated financial statements do not include any adjustments, which
could be significant, relating to the recoverability of asset carrying amounts
or the amount of liabilities that might be necessary if the Company is unable to
continue as a going concern.
5
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the significant accounting policies included in the
notes to the Company's latest annual report on Form 10-KSB. These consolidated
financial statements should be read in conjunction with those notes.
6
<PAGE>
(3) REAL ESTATE OPERATIONS
Real estate revenues include the following amounts:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1995 1994 1995 1994
-------- ------- -------- -------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Equity in income of real estate
joint ventures $ 15 $ 21 $ 59 $100
Management fees 185 193 377 378
Interest and other income 229 24 239 25
---- ---- ---- ----
Total real estate revenues $429 $238 $675 $503
==== ==== ==== ====
</TABLE>
The combined condensed statements of income of the real estate joint ventures
accounted for on the equity method are set forth below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(Thousands of Dollars)
REVENUES:
Sales of real estate $ 412 $ 176 $ 656 $ 932
Cost of sales 280 96 450 391
----- ------ ------ ------
132 80 206 541
Rental and other income 898 1,052 1,992 2,037
----- ------ ------ ------
1,030 1,132 2,198 2,578
EXPENSES:
Operating expenses 759 804 1,509 1,544
Interest expense 130 136 267 270
----- ------ ------ ------
Net income $ 141 $ 192 $ 422 $ 764
===== ====== ====== ======
Equity of the Company and its subsidiaries
in income of real estate joint ventures $ 15 $ 21 $ 59 $ 100
===== ====== ====== ======
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
- ---------------------
Net income for the first six months of 1995 was $155,000 or $.05 per share
compared to net income of $2,452,000 or $.77 per share during the first six
months of 1994. Included in income for the six months ended June 30, 1994 was a
gain of $1,318,000 from the settlement of litigation. In addition, net income
for the six months ended June 30, 1994, included extraordinary gains from the
settlement of outstanding liabilities of $1,352,000.
Rental and other revenues from the operation of the Company's resort in
west Texas totalled $1,327,000 and $1,226,000 for the six months ended June 30,
1995 and 1994, respectively. Rental revenue and occupancy statistics for the
Company's resort operations for each of these periods are summarized as follows:
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------
1995 1994
------------- ------------
<S> <C> <C>
Hotel rooms:
% Occupancy 60% 52%
Average rate $ 56.57 $ 59.10
Total revenue $ 549,000 $ 490,000
Condominiums:
% Occupancy 39% 39%
Average rate $ 115.04 $ 95.88
Total revenue $ 177,000 $ 149,000
Total rental revenue $ 726,000 $ 639,000
Restaurant, bar and
golf course revenue 498,000 415,000
Other revenues 103,000 172,000
---------- ----------
Total revenues $1,327,000 $1,226,000
========== ==========
</TABLE>
Real estate revenues were $675,000 for the first six months of 1995
compared to $503,000 last year. This increase was due to the receipt by the
Company of $225,000 in connection with its ownership of a net profits interest
in a Houston subdivision. This net profits interest was retained by the Company
as part of its 1990 debt restructure.
LIQUIDITY AND CAPITAL RESOURCES
On an annual basis cash flow from operations has been negative for the past
several years, and management anticipates that cash flow from operations will
not be sufficient to meet the Company's liquidity needs during 1995. The
financial condition of the Company indicates that, unless operating results and
cash flow improve, the Company will be required to borrow funds or to continue
to sell assets. It is unlikely that the Company will be able to arrange to
borrow funds from other sources and there is no assurance that the Company could
sell sufficient assets to meet its cash needs.
Management believes that the debt settlements which have been consummated
in prior years have improved the Company's financial condition and its ability
to pursue and realize
8
<PAGE>
investment, development and management opportunities in real estate properties.
However, debt totaling $1,839,000 has matured and is currently due and debt
totaling $4,101,000 will mature later in 1995. The ability of the Company to
continue as a going concern is dependent upon its ability to settle or
restructure its remaining debt and other obligations and generate positive cash
flow to cover operating expenses and other cash requirements. Management is
currently reviewing possible options to increase cash flow and settle the
Company's existing liabilities with its limited resources. These options
include, but are not limited to, continued efforts to procure management and
consulting contracts for a fee, reduction of operating expenses (including
interest), attempts to increase revenues of the Company's resort development,
continued negotiations with various creditors to settle their accounts for cash
payments at substantially less than the amount due, the settlement of
liabilities through the transfer of assets to creditors in satisfaction of their
claims, and a possible plan of reorganization under Chapter 11 of the U.S.
Bankruptcy Code or liquidation of the Company. While management believes that
the assumptions relative to the options currently being considered are
reasonable, there is no assurance that actual events will occur in accordance
with such assumptions. Accordingly, management's assumptions may need to be
revised as actual events occur which differ from such assumptions. The
consolidated financial statements do not include any adjustments, which could be
significant, relating to the recoverability of asset carrying amounts or the
amount of liabilities that might be necessary if the Company is unable to
continue as a going concern.
With the exception of the improvements located at the Company's resort
development in west Texas, substantially all of the Company's real estate assets
are pledged to banks to secure debt. Management believes that in a stable
market the values of the properties would exceed the balances of the loans that
they secure. If the Company were to sell or dispose of its real estate assets
as a result of the maturity or acceleration of the underlying debt or for
reasons other than those arising in the normal course of business, it is
anticipated that sales prices would be significantly less than the current
carrying amount of the assets and that such sales or dispositions would not
generate sufficient funds to retire the related debt.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Default upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of stockholders on May 17, 1995, at which
time the stockholders elected the Company's directors and ratified the
appointment of Arthur Andersen LLP independent public accountants for the
Company for the year ending December 31, 1995. The results were as follows:
<TABLE>
<CAPTION>
Against/ Broker
For Withheld Abstain Non-Votes
--------- -------- ------- ---------
<S> <C> <C> <C> <C>
Directors:
Walter M. Mischer, Sr. 2,005,912 606 - -
Walter M. Mischer, Jr. 2,005,918 600 - -
John D. Weil 2,005,918 600 - -
Tom F. Steele 2,005,918 600 - -
Accountants 2,006,178 20 320 -
</TABLE>
ITEM 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(27) Financial Data Schedule
10
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SOUTHERN INVESTORS SERVICE COMPANY, INC.
/s/ Walter M. Mischer, Jr.
-----------------------------------------
WALTER M. MISCHER, JR.
President - Principal Executive Officer
/s/ Eric Schumann
-------------------------------------------
ERIC SCHUMANN
Senior Vice President - Finance
Principal Financial and Accounting Officer
DATE: August 11, 1995
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (UNAUDITED
FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1995) AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 251
<SECURITIES> 0
<RECEIVABLES> 113
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,500
<DEPRECIATION> 3,817
<TOTAL-ASSETS> 4,506
<CURRENT-LIABILITIES> 0
<BONDS> 6,275
<COMMON> 3,281
0
0
<OTHER-SE> (8,085)
<TOTAL-LIABILITY-AND-EQUITY> 4,506
<SALES> 0
<TOTAL-REVENUES> 2,002
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,652
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 228
<INCOME-PRETAX> 122
<INCOME-TAX> 0
<INCOME-CONTINUING> 122
<DISCONTINUED> 0
<EXTRAORDINARY> 33
<CHANGES> 0
<NET-INCOME> 155
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
