<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, 1998
------------------
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 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, 1998, 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, 1998
(Thousands of Dollars)
(Unaudited)
ASSETS
- ------
REAL ESTATE ASSETS:
Resort development, net $2,463
Real estate held for resale or development 98
Equity in real estate joint ventures, net 439
------
Total real estate assets 3,000
CASH 477
ACCOUNTS RECEIVABLE 291
OTHER ASSETS 10
------
$3,778
======
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
LIABILITIES:
Notes payable $4,915
Other debt 503
Accounts payable and accrued expenses 2,495
Other liabilities 348
------
Total liabilities 8,261
------
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 (10,669)
Less treasury stock, 112,402 shares, at cost (126)
------
Total stockholders' deficit (4,483)
------
$3,778
======
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)
Three months ended March 31,
----------------------------
1998 1997
------ ------
RESORT REVENUES $ 748 $ 794
REAL ESTATE REVENUES 325 260
------ ------
1,073 1,054
------ ------
RESORT OPERATING EXPENSES 652 700
OTHER OPERATING EXPENSES 204 204
------ ------
856 904
------ ------
INCOME FROM OPERATIONS 217 150
INTEREST EXPENSE (91) (91)
------ ------
NET INCOME $ 126 $ 59
====== ======
INCOME PER COMMON SHARE $ .04 $ .02
====== ======
AVERAGE NUMBER OF
SHARES OUTSTANDING 3,168,929 3,168,929
========= =========
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,
---------------
1998 1997
----- -----
<S> <C> <C>
Cash flows from operating activities:
Net income $126 $ 59
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed (income) loss of real
estate joint ventures 4 (30)
Distribution from (contributions to) real estate joint ventures 190 (4)
Gain from sale of assets (94) ---
Depreciation and amortization 48 50
Change in assets and liabilities:
Investments in real estate (81) (26)
Decrease in accounts receivable and other assets 12 12
Increase in accounts payable, accrued
expenses and other 100 67
----- ----
Net cash provided by operating activities 305 128
----- ----
Cash flows from investing activities:
Proceeds from sale of investments 94 ---
----- ----
Cash flows from financing activities:
Borrowings (payments) on notes payable and other debt, net (76) 53
----- ----
Net increase in cash 323 181
Beginning cash 154 154
----- ----
Ending cash $477 $335
===== ====
</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 $126,000 for the three months ended March 31, 1998, as compared to
$59,000 for the three months ended March 31, 1997.
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 1998. 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.
Debt totaling $5,203,000 has matured and is currently due. 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 relating to
the recoverability of asset carrying amounts or the amount of liabilities, which
adjustments might be necessary if the Company is unable to continue as a going
concern and could be significant.
(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.
5
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
The net income for the first three months of 1998 was $126,000 or $.04 per
share compared to a net income of $59,000 or $.02 per share during the first
quarter of 1997.
Rental and other revenues from the operation of the Company's resort in west
Texas totaled $748,000 and $794,000 for the three months ended March 31, 1998
and 1997, respectively. Rental revenue and occupancy statistics for the
Company's resort operations for each of these periods are summarized as follows:
Three months ended March 31,
----------------------------
1998 1997
------------ ------------
Hotel rooms:
% Occupancy 46% 50%
Average rate $ 58.71 $ 59.71
Total revenue $220,000 $240,000
Condominiums:
% Occupancy 35% 43%
Average rate $ 53.95 $ 61.85
Total revenue $ 46,000 $ 55,000
Total rental revenue $266,000 $295,000
Restaurant, bar and
golf course revenue 229,000 240,000
Other revenues 253,000 259,000
-------- --------
Total revenues $748,000 $794,000
======== ========
6
<PAGE>
Real estate revenues were $325,000 for the first three months of 1998
compared to $260,000 last year. During the first quarter of 1998, the Company
sold its 12.5% interest in Heritage Park Venture II for a gain of $94,000. This
gain is included in interest and other income.
Real estate revenues include the following amounts:
Three Months Ended
March 31,
----------------
1998 1997
------- ------
(Thousands of Dollars)
Management fees $ 189 $218
Interest and other income 140 12
Equity in income (loss) of real estate joint ventures (4) 30
----- ----
Total real estate revenues $ 325 $260
===== ====
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 1998. 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.
Debt totaling $5,203,000 has matured and is currently due. 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.
7
<PAGE>
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 relating to the recoverability of asset carrying
amounts or the amount of liabilities, which adjustments might be necessary if
the Company is unable to continue as a going concern and could be significant.
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.
8
<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
9
<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, 1998
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from unaudited
financial statements for the three months ended March 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 477
<SECURITIES> 0
<RECEIVABLES> 291
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,302
<DEPRECIATION> 4,302
<TOTAL-ASSETS> 3,778
<CURRENT-LIABILITIES> 0
<BONDS> 5,418
0
0
<COMMON> 3,281
<OTHER-SE> (7,764)
<TOTAL-LIABILITY-AND-EQUITY> 3,778
<SALES> 0
<TOTAL-REVENUES> 1,073
<CGS> 0
<TOTAL-COSTS> 856
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91
<INCOME-PRETAX> 126
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 126
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
