<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 March 31, 1995
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TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
For the transition period from to
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Commission file number 04863
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Southern Investors Service Company, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 74-1223691
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2727 North Loop West, Suite 200, Houston, Texas 77008
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(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
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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 May 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
MARCH 31, 1995
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
REAL ESTATE ASSETS:
Resort development, net $ 2,865
Real estate held for resale or development 325
Equity in real estate joint ventures, net 536
--------
Total real estate assets 3,726
CASH 253
ACCOUNTS RECEIVABLE 156
OTHER ASSETS 110
--------
Total assets $ 4,245
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
LIABILITIES:
Notes payable $ 5,568
Other long-term debt 716
Accounts payable and accrued expenses 2,495
Other liabilities 350
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Total liabilities 9,129
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, $1 par, 1,000,000
shares authorized, none issued --
Common stock, $1 par, 10,000,000 shares authorized,
3,281,331 shares issued 3,281
Additional paid-in capital 3,031
Retained deficit (11,070)
Less treasury stock, 112,402 shares, at cost (126)
--------
Total stockholders' deficit (4,884)
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$ 4,245
========
</TABLE>
The accompanying notes are an integral part of this statement.
2
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SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------
1995 1994
----------- ------------
<S> <C> <C>
RESORT REVENUES $ 770 $ 673
REAL ESTATE REVENUES 246 265
---------- ----------
1,016 938
RESORT OPERATING EXPENSES 582 568
OTHER OPERATING EXPENSES 281 241
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863 809
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INCOME FROM OPERATIONS 153 129
INTEREST EXPENSE (111) (120)
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INCOME BEFORE EXTRAORDINARY GAIN 42 9
EXTRAORDINARY GAIN ON DEBT SETTLEMENTS 33 ---
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NET INCOME $ 75 $ 9
========== ==========
NET INCOME PER COMMON SHARE:
Income before extraordinary gain $ .01 $ -
========== ==========
Net income $ .02 $ -
========== ==========
AVERAGE NUMBER OF
SHARES OUTSTANDING 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>
Three Months
Ended March 31,
--------------
1995 1994
----- -----
<S> <C> <C>
Cash flows from operating activities:
Net income before extraordinary gain $ 42 $ 9
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of real
estate joint ventures (44) (79)
Distributions from real estate joint ventures 25 --
Depreciation and amortization 56 70
Change in assets and liabilities:
Investments in real estate (21) (2)
Decrease (increase) in accounts receivable and other assets 39 (13)
Increase in accounts payable, accrued
expenses and other 75 66
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Net cash provided by operating activities 172 51
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Cash flows from financing activities:
Payments on notes payable and other debt (12) (16)
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Net cash used by financing activities (12) (16)
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Net increase in cash 160 35
Beginning cash 93 249
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Ending cash $ 253 $ 284
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</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) CURRENT BUSINESS CONDITIONS
Net income of Southern Investors Service Company, Inc. and
subsidiaries (the Company) was $75,000 for the three months ended March 31,
1995, as compared to $9,000 for the three months ended March 31, 1994. Included
in net income for 1995 are extraordinary gains of $33,000 from the settlement of
certain liabilities for less than the full amount due. 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. 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. The settlement provided for the
conveyance to the creditors of title to certain collateral securing the loans
and the assignment of distribution rights of certain real estate projects.
Total debt satisfied was $85.4 million for the conveyance and assignments of a
significant portion of the Company's assets. As a result of this 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 $1,798,000 has
matured and is currently due and debt totaling $4,146,000 matures 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
5
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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.
(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
March 31,
----------------------
1995 1994
---- ----
(Thousands of Dollars)
<S> <C> <C>
Equity in income of real estate joint ventures $ 44 $ 79
Management fees 192 185
Interest and other income 10 1
---- ----
Total real estate revenues $246 $265
==== ====
</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
March 31,
----------------------
1995 1994
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
REVENUES:
Sales of real estate $ 244 $ 756
Cost of sales 170 295
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74 461
Rental and other income 1,094 985
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1,168 1,446
EXPENSES:
Operating expenses 750 740
Interest expense 137 134
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Net income $ 281 $ 572
====== ======
Equity of the Company and its subsidiaries
in income of real estate joint ventures $ 44 $ 79
====== ======
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
- ---------------------
The net income for the first three months of 1995 was $75,000 or $.02 per
share compared to a net income of $9,000 or less than $.01 per share during the
first quarter of 1994. The increase in net income was primarily attributable to
an increase in resort revenues discussed below. In addition, during 1995 the
Company recorded extraordinary gains of $33,000 in connection with the
settlement of various obligations at less than the full amount due.
Rental and other revenues from the operation of the Company's resort in
west Texas totalled $770,000 and $673,000 for the three months ended March 31,
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>
Three months ended March 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Hotel rooms:
% Occupancy 70% 55%
Average rate $ 53.69 $ 56.51
Total revenue $304,000 $247,000
Condominiums:
% Occupancy 59% 53%
Average rate $ 114.16 $ 85.04
Total revenue $127,000 $ 88,000
Total rental revenue $431,000 $335,000
Restaurant, bar and
golf course revenue 254,000 240,000
Other revenues 85,000 98,000
-------- --------
Total revenues $770,000 $673,000
======== ========
</TABLE>
Real estate revenues were $246,000 for the first three months of 1995
compared to $265,000 last year. This decrease was due to a decrease in the
Company's equity in income of real estate joint ventures of $35,000.
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.
8
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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 $1,798,000 has matured and is
currently due and debt totaling $4,146,000 matures 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
None
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: May 12, 1995
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Unaudited
Financial Statements for Three Months ended March 31, 1995 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 253
<SECURITIES> 0
<RECEIVABLES> 156
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,484
<DEPRECIATION> 3,758
<TOTAL-ASSETS> 4,245
<CURRENT-LIABILITIES> 0
<BONDS> 6,284
<COMMON> 3,281
0
0
<OTHER-SE> (8,165)
<TOTAL-LIABILITY-AND-EQUITY> 4,245
<SALES> 0
<TOTAL-REVENUES> 1,016
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111
<INCOME-PRETAX> 42
<INCOME-TAX> 0
<INCOME-CONTINUING> 42
<DISCONTINUED> 0
<EXTRAORDINARY> 33
<CHANGES> 0
<NET-INCOME> 75
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
