<PAGE>
UNITED STATES 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, 1996
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 registrant 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
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_____
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 May 13, 1996,
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
--------------------------
MARCH 31, 1996
----------------
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
REAL ESTATE ASSETS:
Resort development, net $ 2,678
Real estate held for resale or development 325
Equity in real estate joint ventures, net 559
-------
Total real estate assets 3,562
CASH 325
ACCOUNTS RECEIVABLE 163
OTHER ASSETS 380
-------
$ 4,430
=======
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
LIABILITIES:
Notes payable $ 5,396
Other debt 740
Accounts payable and accrued expenses 2,515
Other liabilities 354
-------
Total liabilities 9,005
-------
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 (10,761)
Less treasury stock, 112,402 shares, at cost (126)
-------
Total stockholders' deficit (4,575)
-------
$ 4,430
=======
</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,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
RESORT REVENUES $ 690 $ 770
REAL ESTATE REVENUES 226 246
--------- ---------
916 1,016
RESORT OPERATING EXPENSES 674 582
OTHER OPERATING EXPENSES 267 281
--------- ---------
941 863
--------- ---------
(LOSS) INCOME FROM OPERATIONS (25) 153
INTEREST EXPENSE (104) (111)
--------- ---------
(LOSS) INCOME BEFORE EXTRAORDINARY GAIN (129) 42
EXTRAORDINARY GAIN ON DEBT SETTLEMENTS 408 33
--------- ---------
NET INCOME $ 279 $ 75
========= =========
(LOSS) INCOME PER COMMON SHARE:
(Loss) income before extraordinary gain $ (.04) $ .01
========= =========
Net income $ .09 $ .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,
---------------
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 279 $ 75
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of real
estate joint ventures (9) (44)
(Contributions) distributions (to) from real estate joint ventures (9) 25
Extraordinary gain on debt settlements (408) (33)
Depreciation and amortization 57 56
Change in assets and liabilities:
Investments in real estate (66) (21)
Decrease in accounts receivable and other assets 18 39
Increase in accounts payable, accrued
expenses and other 152 75
----- ----
Net cash provided by operating activities 14 172
----- ----
Cash flows from financing activities:
Payments on notes payable and other debt (6) (12)
----- ----
Net cash used by financing activities (6) (12)
----- ----
Net increase in cash 8 160
Beginning cash 317 93
----- ----
Ending cash $ 325 $253
===== ====
</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 $279,000 for the three months ended March 31, 1996, as compared to
$75,000 for the three months ended March 31, 1995. Included in net income are
extraordinary gains of $408,000 and $33,000 in 1996 and 1995, respectively 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 1996. Cash flow from operations has not been and will not
be sufficient to meet liquidity needs. 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.
Liability Settlements
- ---------------------
During 1995, a joint venture note payable with an outstanding principal
balance of $5.2 million was due and payable. The joint venture in which the
Company had a 19.4% ownership interest was unable to repay this note at its
maturity. During January 1996, the venture obtained a new loan from a bank in
the original principal amount of $3.0 million. The proceeds of this new loan
were used to settle the $5.2 million loan plus accrued interest in full. As a
condition of the new loan the bank required a ten year lease on the entire
building to be executed by the partners in the ratio of their ownership
interests. However, due to the financial condition of the Company, the bank was
not willing to accept the Company's lease. In addition, the building is in need
of approximately $400,000 in repairs. The Company would have been required to
make an $80,000 capital contribution to fund these repairs. The Company also
owed the venture approximately $70,000 in past due rent for periods prior to
1992. This amount was forgiven in January 1996. As a result, during January
1996, the Company sold its partnership interest to Hallmark Residential Group,
Inc. (Hallmark), a company controlled by Mr. Mischer. In exchange, Hallmark
assumed the Company's obligations in connection with this joint venture and
entered into the ten year lease. In connection with this transaction, the
Company retained a 25% cash flow interest in Hallmark's 20% ownership interest.
The Company recognized an extraordinary gain on the settlement of these
obligations of $408,000.
Management believes that the debt settlements which have been consummated
during 1996 and in prior years have improved the Company's financial condition.
However, debt totaling $1,867,000 has matured and is currently due, and debt
totaling $4,057,000 matures later in 1996. The
5
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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
reduce 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.
(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,
------------------
1996 1995
-------- -------
(Thousands of Dollars)
<S> <C> <C>
Equity in income of real estate joint ventures $ 9 $ 44
Management fees 204 192
Interest and other income 13 10
----- ----
Total real estate revenues $ 226 $246
===== ====
</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,
------------------
1996 1995
-------- --------
(Thousands of Dollars)
<S> <C> <C>
REVENUES:
Sales of real estate $ 447 $ 244
Cost of sales 306 170
------ ------
141 74
Rental and other income 167 1,094
------ ------
308 1,168
EXPENSES:
Operating expenses (173) (750)
Interest expense (--) (137)
Gain on debt settlements 1,118(a) (--)
------ ------
Net income $1,253 $ 281
====== ======
Equity of the Company in income of real estate
joint ventures (before extraordinary gain) $ 9 $ 44
====== ======
</TABLE>
(a) The Company's equity in the gain on the debt settlements is reported in
the accompanying consolidated statements of income as an extraordinary gain.
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 1996 was $279,000 or $.09 per
share compared to a net income of $75,000 or $.02 per share during the first
quarter of 1995. During 1996 and 1995 the Company recorded extraordinary gains
of $408,000 and $33,000, respectively, 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 totaled $690,000 and $770,000 for the three months ended March 31, 1996
and 1995, 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,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Hotel rooms:
% Occupancy 51% 70%
Average rate $ 59.12 $ 53.69
Total revenue $248,000 $304,000
Condominiums:
% Occupancy 39% 59%
Average rate $ 128.23 $ 114.16
Total revenue $ 74,000 $127,000
Total rental revenue $322,000 $431,000
Restaurant, bar and
golf course revenue 261,000 254,000
Other revenues 107,000 85,000
-------- --------
Total revenues $690,000 $770,000
======== ========
</TABLE>
Real estate revenues were $226,000 for the first three months of 1996
compared to $246,000 last year.
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 1996. 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
8
<PAGE>
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
during 1996 and in prior years have improved the Company's financial condition.
However, debt totaling $1,867,000 has matured and is currently due and debt
totaling $4,057,000 matures in 1996. 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 reduce 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 13, 1996
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMETNS FOR THE THREE MONTHS ENDED MARCH 31, 1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 325
<SECURITIES> 0
<RECEIVABLES> 163
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,535
<DEPRECIATION> 3,973
<TOTAL-ASSETS> 4,430
<CURRENT-LIABILITIES> 0
<BONDS> 6,136
0
0
<COMMON> 3,281
<OTHER-SE> (7,856)
<TOTAL-LIABILITY-AND-EQUITY> 4,430
<SALES> 0
<TOTAL-REVENUES> 916
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 941
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> (129)
<INCOME-TAX> 0
<INCOME-CONTINUING> (129)
<DISCONTINUED> 0
<EXTRAORDINARY> 408
<CHANGES> 0
<NET-INCOME> 279
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
