<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 September 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
Southern Investors Service Company, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 74-1223691
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2727 North Loop West, Suite 200,
Houston, Texas 77008
(Address of principal executive offices) (Zip Code)
(713) 869-7800
Issuer's telephone number
-----------------------------------------------
(Former name, former address and former fiscal year,
if changed since last eport)
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
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 November 8,
1995, Common Stock $1.00 Par Value
Transitional Small Business Disclosure Format (Check One):
Yes ; No X
<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
SEPTEMBER 30, 1995
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
REAL ESTATE ASSETS:
Resort development, net $ 2,709
Real estate held for resale or development 325
Equity in real estate joint ventures, net 554
--------
Total real estate assets 3,588
CASH 100
ACCOUNTS RECEIVABLE 124
OTHER ASSETS 467
--------
Total assets $ 4,279
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
LIABILITIES:
Notes payable $ 5,557
Other long-term debt 720
Accounts payable and accrued expenses 2,864
Other liabilities 323
--------
Total liabilities 9,464
--------
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 (11,371)
Less treasury stock, 112,402 shares, at cost ( 126)
--------
Total stockholders' deficit ( 5,185)
--------
$ 4,279
========
</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 Nine Months Ended
September 30, September 30,
------------------------ -----------------------
1995 1994 1995 1994
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
RESORT REVENUES $ 287 $ 277 $ 1,614 $ 1,503
REAL ESTATE REVENUES 200 282 875 785
---------- ---------- ---------- ----------
487 559 2,489 2,288
---------- ---------- ---------- ----------
RESORT OPERATING EXPENSES 538 566 1,685 1,720
OTHER OPERATING EXPENSES 218 233 722 789
---------- ---------- ---------- ----------
756 799 2,407 2,509
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) (269) (240) 82 (221)
INTEREST EXPENSE (112) (115) (341) (352)
LITIGATION SETTLEMENT -- -- -- 1,318
---------- ---------- ---------- ----------
INCOME (LOSS)
BEFORE EXTRAORDINARY GAIN (381) (355) (259) 745
EXTRAORDINARY GAIN ON DEBT
SETTLEMENTS -- -- 33 1,352
---------- ---------- ---------- ----------
NET INCOME (LOSS) ($381) ($ 355) ($ 226) $ 2,097
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE:
Income (loss) before extraordinary gain ($ .12) ($ .11) ($ .08) $ .24
========== ========== ========== ==========
Net income (loss) ($ .12) ($ .11) ($ .07) $ .66
========== ========== ========== ==========
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>
Nine Months Ended
September 30,
-----------------
1995 1994
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Income (loss) before extraordinary gain $(259) $ 745
Adjustments to reconcile income (loss) to net cash
provided by operating activities:
Equity in undistributed income of real
estate joint ventures ( 73) (132)
Distributions from real estate joint ventures 36 --
Depreciation and amortization 175 198
Change in assets and liabilities:
Additions to resort development ( 16) --
Decrease in accounts receivable and other assets 64 31
Increase (decrease) in accounts payable, accrued
expenses and other 107 (373)
----- -----
Net cash provided by operating activities 34 469
----- -----
Cash flows from financing activities:
Payments on notes payable and other debt ( 27) (409)
----- -----
Net increase in cash 7 60
Beginning cash 93 249
----- -----
Ending cash $ 100 $ 309
===== =====
</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
The loss of Southern Investors Service Company, Inc. and subsidiaries (the
Company) was $226,000 for the nine months ended September 30, 1995, as compared
to net income of $2,097,000 for the nine months ended September 30, 1994.
Included in income for the nine months ended September 30, 1994, was a gain of
$1,318,000 from the settlement of litigation. In addition, during the nine
months ended September 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.
As a result, the Company's cash flow was not sufficient to meet liquidity needs
and 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 $1,847,000 has matured and is
currently due and debt totaling $4,101,000 will mature during the fourth quarter
of 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
5
<PAGE>
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 Nine Months Ended
September 30, September 30,
-------------------- --------------------
1995 1994 1995 1994
------ ------ ------ ------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Equity in income of real estate joint ventures $ 14 $ 32 $ 73 $ 132
Management fees 182 187 559 565
Interest and other income 4 63 243 88
------ ------ ------ ------
Total real estate revenues $ 200 $ 282 $ 875 $ 785
====== ====== ====== ======
</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 Nine Months Ended
September 30, September 30,
-------------------- --------------------
1995 1994 1995 1994
------ ------ ------ ------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
REVENUES:
Sales of real estate $ 262 $ 514 $ 918 $1,446
Cost of sales 176 294 626 685
------ ------ ------ ------
86 220 292 761
Rental and other income 894 880 2,887 2,917
------ ------ ------ ------
980 1,100 3,179 3,678
EXPENSES:
Operating expenses 734 737 2,243 2,281
Interest expense 128 132 395 402
------ ------ ------ ------
Net income $ 118 $ 231 $ 541 $ 995
====== ====== ====== ======
Equity of the Company and its subsidiaries
in income of real estate joint ventures $ 14 $ 32 $ 73 $ 132
====== ====== ====== ======
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
Net loss for the first nine months of 1995 was $226,000 or $.07 per
share compared to net income of $2,097,000 or $.66 per share during the first
nine months of 1994. Included in income for the nine months ended September 30,
1994 was a gain of $1,318,000 from the settlement of litigation. In addition,
net income for the nine months ended September 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 $1,614,000 and $1,503,000 for the nine months ended
September 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>
Nine months ended September 30,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Hotel rooms:
% Occupancy 48% 41%
Average rate $ 56.04 $ 60.33
Total revenue $ 657,000 $ 593,000
Condominiums:
% Occupancy 28% 28%
Average rate $ 115.07 $ 95.74
Total revenue $ 193,000 $ 166,000
Total rental revenue $ 850,000 $ 759,000
Restaurant, bar and
golf course revenue 532,000 512,000
Other revenues 232,000 232,000
---------- ----------
Total revenues $1,614,000 $1,503,000
========== ==========
</TABLE>
Real estate revenues which include the Company's equity in earnings of real
estate joint ventures, management fees and interest and other income were
$875,000 for the first nine months of 1995 compared to $785,000 last year. The
Company received $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. This increase in real estate
revenues was offset by a decrease in the Company's equity in the earning of real
estate joint ventures.
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
<PAGE>
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 $1,847,000 has matured and is
currently due and debt totaling $4,101,000 will mature in the fourth quarter of
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 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: November 10, 1995
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (UNAUDITED
FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995) AND IS
QUALIFIED IN ITS EXTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 124
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,463
<DEPRECIATION> 3,875
<TOTAL-ASSETS> 4,279
<CURRENT-LIABILITIES> 0
<BONDS> 6,277
<COMMON> 3,281
0
0
<OTHER-SE> (8,466)
<TOTAL-LIABILITY-AND-EQUITY> 4,279
<SALES> 0
<TOTAL-REVENUES> 2,489
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,407
<INTEREST-EXPENSE> 341
<INCOME-PRETAX> (259)
<INCOME-TAX> 0
<INCOME-CONTINUING> (259)
<DISCONTINUED> 0
<EXTRAORDINARY> 33
<CHANGES> 0
<NET-INCOME> (226)
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
