<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1998
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 04863
SOUTHERN INVESTORS SERVICE COMPANY, INC.
(Name of small business issuer 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)
Issuer's telephone number (713) 869-7800
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $1.00 Par Value
(Title of Class)
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 [_]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X]
State issuer's revenues for its most recent fiscal year. $2.9 Million
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act). $0.00 as
of March 20, 1998
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 shares, Common Stock $1.00
Par Value as of March 22, 1999
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the Company's proxy statement to be used in connection
with the 1998 annual meeting is incorporated by reference into Part III.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Southern Investors Service Company, Inc., was incorporated under the laws of
the State of Delaware in 1972. Southern Investors Service Company, Inc. and its
subsidiaries (Company) are currently engaged in the operation of a resort
property in west Texas known as Lajitas in the Big Bend (Lajitas).
Prior to 1990, the Company was engaged in the ownership and development of
real estate primarily in the Houston, Texas area. The operations of the Company
were significantly reduced during 1990, as a result of various debt settlements
with lenders and other creditors. These settlements resulted in the transfer of
substantially all of the Company's holdings to its creditors. Cash flow from
operations has not been adequate to meet the Company's obligations for the past
several years and management projects negative cash flow from operations for
1999. The Company's last remaining operating asset is Lajitas. During 1998 and
prior years, the Company's operations included the management of residential
developments and two office buildings owned by others. During 1998, the majority
of these residential projects were sold by the owners and therefore the Company
no longer is managing these projects. Effective January 1, 1999, the Company
ceased all management activity and all employees related to this activity were
terminated. See Note 7 of the Notes to Consolidated Financial Statements of the
Company for a discussion of related party transactions. During 1998, and prior
years some of these activities were conducted through joint ventures in which
the Company has equity interests. Unless otherwise indicated, the term "Company"
includes these joint ventures.
The Company's future financial condition depends upon its ability to generate
cash at levels to meet operating needs and debt obligations. Management is
currently reviewing possible options to settle the Company's existing
liabilities with its very limited resources. These options include, but are not
limited to, continued efforts to reduce operating expenses (including interest
expense), 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, a possible plan of reorganization under Chapter 11 of the U.S.
Bankruptcy Code or possible liquidation of the Company.
LIABILITY SETTLEMENTS
During 1998, the Company sold two small tracts of undeveloped real estate
which had been collateral for a note payable to an insurance company. This note
was issued during 1992 as part of a settlement with the insurance company the
terms of which provided for the release from liability of approximately $273,000
in claims if the note was paid. The sale of the two tracts of land provided the
funds necessary to repay the note for $9,000 less than the amount due. As a
result the Company recorded an extraordinary gain of $282,000 during 1998. The
Company had no liability settlements during 1997.
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CONTINUED OPERATIONS
Debt totaling $4,748,000 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 its operating expenses and other cash requirements. The
Company's financial statements have been prepared in conformity with generally
accepted accounting principles assuming that the Company will continue as a
going concern. The financial statements of the Company do not include any
adjustments relating to the recoverability of asset carrying amounts that might
be necessary should the Company be unable to continue as a going concern. In
the event the Company fails to continue as a going concern, the value of its
assets may be substantially less than the value that normally would be realized
in the ordinary course of business. See Note 5 of the Notes to Consolidated
Financial Statements for a discussion of the Company's debt.
OPERATIONS
GENERAL
The Company's most significant asset consists of Lajitas. Rental and other
revenue from the operation of this facility totaled $2.1 million and $2.5
million for the years ended December 31, 1998 and 1997, respectively. See Item
2, "Description of Property."
Since 1990, in addition to the operations of its resort property, the Company
had emphasized the management of real estate development for others. The Company
had entered into contracts to manage, operate and develop residential property,
including the performance of various administrative functions. Such contracts
could be canceled on 30 days notice. During 1998, the majority of these
residential projects were sold by the owner and therefore the Company's
contracts were canceled. Effective January 1, 1999, the Company ceased all
development management activities and all employees related to this activity
were terminated. See Note 7 of the Notes to Consolidated Financial Statements
of the Company for a discussion of management contracts with related parties.
The Company has a 6.7% equity interest in a ten-story building located at 2707
North Loop West. The Company also has a cash flow interest in 2727 North Loop
West, where its corporate headquarters are located.
The Company also had equity interests in three other real estate joint
ventures. During 1998, the assets of two of these ventures were sold and the
ventures therefore, terminated. In addition, the assets of the one remaining
venture were sold during February 1999. As a result of these transactions the
Company recorded net gains of approximately $161,000 during 1998.
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EMPLOYEES
The Company employed a total of 81 persons on a full-time basis and a total of
5 persons on a part-time basis, as of December 31, 1998.
COMPETITION
The Company's resort development in west Texas does not have any direct
competition due to its location. The only other resort facility in the area
offering accommodations and other amenities is the Big Bend National Park.
CURRENT BUSINESS CONDITIONS
Current economic conditions affecting the Company and its financial condition
are discussed more fully in Item 6, "Management's Discussion and Analysis or
Plan of Operation" and in Note 1 of the Notes to Consolidated Financial
Statements of the Company.
FEDERAL TAX LAW CHANGES
The effects on the Company of the Revenue Reconciliation Act of 1993 and the
Tax Reform Act of 1986 are discussed in Note 4 of the Notes to Consolidated
Financial Statements of the Company.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's net investment in Lajitas was $2.2 million or 71% of total
assets as of December 31, 1998. The development consists of approximately 24,000
acres of land located in the southwest portion of Brewster County adjacent to
the western border of Big Bend National Park. A substantial portion of the
24,000 acres is pledged to secure borrowings of the Company. These borrowings
have a principal amount of $339,000. The development includes a hotel,
condominiums, a restaurant, meeting rooms, various shops and other facilities in
various separate one and two-story buildings. The development has ancillary
site improvements consisting of a nine-hole golf course, recreational vehicle
park, swimming pool, tennis courts, landing strip and an airplane hangar.
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Rental and other revenues from the operation of these facilities totaled $2.1
million and $2.5 million for the years ended December 31, 1998 and 1997,
respectively. Rental revenue and occupancy statistics for the Company's resort
operations for each of the two years ended December 31, 1998 are summarized as
follows:
Year Ended December 31,
-----------------------
1998 1997
------ ------
Hotel rooms:
% Occupancy 34% 42%
Average rate $ 61.37 $ 58.93
Total revenue $ 712,000 $ 833,000
Condominiums:
% Occupancy 22% 26%
Average rate $ 64.36 $ 64.48
Total revenue $ 137,000 $ 146,000
Total rental revenues $ 849,000 $ 979,000
Restaurant, bar and golf course revenues 653,000 734,000
Other revenues 577,000 790,000
---------- ----------
Total revenues $2,079,000 $2,503,000
========== ==========
The development has a basis for federal income tax reporting of approximately
$1.7 million as of December 31, 1998. The improvements are depreciated using
the straight-line method with lives which range from twelve to forty years. The
realty tax rate for 1998 was $1.94 per $100 assessed value and total taxes were
approximately $69,000 for the year ended December 31, 1998. Due to the location
of the development and lack of public fire protection, the Company considers the
cost of obtaining insurance prohibitive and consequently does not carry property
insurance for this development.
The Company's principal executive offices are located in northwest Houston and
are shared at no charge with companies affiliated with the Chairman of the Board
and Chief Executive Officer, Walter M. Mischer, Sr. The Company owns or leases
office furniture, furnishings, equipment and vehicles as management deems
necessary for its operations. Information concerning encumbrances on the
property owned by the Company and subleases from a related party is contained in
Notes 5 and 7 of the Notes to Consolidated Financial Statements of the Company.
The Company has planned no significant additions to its properties during
1999.
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ITEM 3. LEGAL PROCEEDINGS
The information with respect to legal proceedings is contained in Note 6 of
the Notes to Consolidated Financial Statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1998.
6
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the over-the-counter market, but is
not quoted on the National Association of Securities Dealers Automated Quotation
(NASDAQ) system. According to National Quotation Bureau, Incorporated, the last
reported price of the Company's common stock was $.0625 on June 18, 1993. There
were no prices quoted after that date.
The approximate number of holders of record of the Company's stock as of March
22, 1999 was 509. No dividends have been paid by the Company since its
inception and the Company has no plans to pay dividends in the foreseeable
future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This report contains "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this section and elsewhere in this
report are forward looking statements and, although the Company believes that
the expectations reflected in such forward looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
The Company's business and financial results are subject to various risks and
uncertainties, including the Company's ability to settle or restructure its
remaining debt and other obligations and to generate positive cash flow to cover
its operating expenses, that may cause actual results to differ materially from
the Company's expectations. The Company does not intend to provide updated
information other than as otherwise required by applicable law. All subsequent
written and oral forward looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
cautionary statements contained in this paragraph and elsewhere in this report.
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The following is a summary of certain financial information regarding the
Company. All amounts are stated in thousands of dollars, except per share
amounts. This summary should be read in conjunction with the Consolidated
Financial Statements of the Company and notes thereto.
Year Ended December 31,
-----------------------
1998 1997
------ ------
Resort revenues $ 2,079 $ 2,503
Real estate revenues, net 827 1,151
Resort operating expenses (2,377) (2,475)
Other operating expenses (680) (868)
Interest expense (367) (369)
--------- ---------
Loss before extraordinary gains (518) (58)
Extraordinary gains on debt settlements 282 -
--------- ---------
Net Loss $ (236) $ (58)
========= =========
Loss per common share:
Loss before extraordinary gains $ (0.16) $ (0.02)
Net Loss $ (0.07) $ (0.02)
Total assets $ 3,098 $ 3,606
Total debt $ 5,452 $ 5,512
Total stockholders' deficit $ (4,846) $ (4,610)
CURRENT BUSINESS CONDITIONS, CERTAIN EVENTS AND UNCERTAINTIES
The Company has sustained losses from operations for several years and the
Company anticipates that it will incur a loss from operations for 1999. Such
losses depleted the Company's stockholders' equity in 1989. Cash flow from
operations has not been sufficient to meet liquidity needs during the past
several years and the Company anticipates negative cash flow from operations
during 1999. 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. Reduced revenues during this period resulted in a deterioration
of the Company's financial condition and its ability to meet its obligations.
As a result, since 1989, the Company has entered into a series of transactions
to significantly reduce its debt obligations through the transfer of a
significant amount of the Company's assets to its lenders and creditors.
LIABILITY SETTLEMENTS
During 1998, the Company sold two small tracts of undeveloped real estate
which had been collateral for a note payable to an insurance company. This note
was issued during 1992 as part of a settlement with the insurance company the
terms of which provided for the release from liability of approximately $273,000
in claims if the note was paid. The sale of the two tracts of land provided the
funds necessary to repay the note for $9,000 less than the amount due.
8
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As a result the Company recorded an extraordinary gain of $282,000 during 1998.
The Company had no liability settlements during 1997.
CONTINUED OPERATIONS
As more fully described in Note 5 of the Notes to Consolidated Financial
Statements, the Company continues to be delinquent on certain debt with an
outstanding principal balance of approximately $4,748,000 as of December 31,
1998. The Company must settle or restructure existing debt and generate
positive cash flow to cover operating expenses and other cash requirements to
continue as a going concern and to realize the carrying amount of its assets.
The Company's future financial condition depends upon its ability to generate
cash at levels to meet operating needs and debt obligations. Management is
currently reviewing possible options to settle the Company's existing
liabilities with its very limited resources. These options include, but are not
limited to, continued efforts to reduce operating expenses (including interest
expense), 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, a possible plan of reorganization under Chapter 11 of the U.S.
Bankruptcy Code or possible liquidation of the Company. The consolidated
financial statements do not include any adjustments relating to the
recoverability of asset carrying amounts or the amount and classification of
liabilities that might be necessary if the Company is unable to continue as a
going concern.
RESULTS OF OPERATIONS
The Company reported a $236,000 loss for 1998 compared with a loss of $58,000
in 1997. The Company recorded extraordinary gains on debt settlements of
$282,000 during 1998. Net loss was $236,000 or $.07 per share for 1998 compared
to net loss of $58,000 or $.02 per share for 1997.
Rentals and other income from the Company's resort in west Texas were $2.1
million and $2.5 million for the years ended December 31, 1998 and 1997,
respectively. The decrease in rental and other income was due to decreased
occupancy during 1998. Resort operating expenses for 1998 decreased slightly as
compared to 1997. See Item 2, "Description of Property" included herein for a
discussion of the Company's resort development.
Real estate revenues decreased to $827,000 in 1998 from $1,151,000 in 1997.
Revenues for 1997 include the sale of the remainder of the Company's ownership
of a former subsidiary and the receipt of litigation proceeds. During 1996, the
Company sold a portion of its minority ownership in Jackson Supply Company, a
former subsidiary of the Company and recorded a profit of $116,000. The
remainder of this stock was sold during 1997 and the Company recorded a profit
of approximately $76,000. These amounts are included in interest and other
income shown below. During 1998 the Company sold its remaining land held for
development or sale for a net gain of $86,000. Management fee income decreased
as a result of fewer properties under management. Other operating expenses
declined $188,000 as a result of fewer management contracts because of a
reduction in the amount of properties managed and are expected to reduce further
during 1999.
9
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Real estate revenues, net include the following amounts:
(Thousands of Dollars) Year Ended December 31,
------------------------
1998 1997
------ ------
Management fees $ 530 $ 825
Interest and other income 144 200
Equity in income of real
estate joint ventures 67 126
Sales of real estate 177 ---
Cost of real estate sales (91) ---
Total real estate revenues, net $ 827 $1,151
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations has not been sufficient to meet the Company's
obligations for the past several years and management anticipates that cash flow
from operations will not be sufficient to meet its liquidity needs in 1999. 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. There can be no assurance that the Company could arrange to
borrow funds from other sources or to sell sufficient assets to meet its cash
needs or restructure its existing debt.
As of December 31, 1998, the Company was delinquent on notes payable and other
long-term debt of approximately $4,748,000 and interest payments of $1,884,000.
As of December 31, 1998, the Company had recorded accounts payable and accrued
expenses and other liabilities of $2.5 million. Management is currently
reviewing possible options to settle the Company's existing liabilities with its
very limited resources. These options include, but are not limited to,
continued efforts to reduce operating expenses (including interest expense),
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, a possible
plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code or possible
liquidation of the Company. The Company's debts and obligations are discussed
in Notes 1, 5, 6, and 7 of Notes to Consolidated Financial Statements of the
Company.
The developed land located at the Company's resort development in west Texas
is pledged to secure debt. Management believes that in a stable market the
values of the properties would exceed the balances of the loans which they
secure. If the Company were to sell or dispose of its real estate
10
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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 such sales or dispositions would not generate
sufficient funds to retire the debt related to such assets.
In assessing the Company's liquidity, the impact of income taxes has been
considered. The Company does not expect its cash flow to be affected by income
taxes in the foreseeable future because of its net operating loss carryforward.
The Company's federal income taxes are disclosed in Note 4 of the Notes to
Consolidated Financial Statements of the Company.
The impact of inflation on the Company over the past several years has been
minimal.
No major additions to property, plant and equipment are anticipated.
THE YEAR 2000 ISSUE
The year 2000 problem is the result of computer programs being written using two
digits (rather than four) to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. The Company has conducted a review of
its computer systems to identify the systems that could be affected by "the year
2000" issue.
The Company's major systems have all been developed by third party software
providers. The Company has contacted its major computer service providers and
has received assurances that those services will function properly on January 1,
2000. Since the Company does not process a large volume of transactions in its
accounting system and does not rely on other automated systems that could not be
processed manually, the Company does not foresee a material financial risk
associated with the year 2000 issue. The Company will continue to coordinate
with its third party providers to assess the year 2000 issue and develop plans
for compliance.
ITEM 7. FINANCIAL STATEMENTS
The following financial statement data required pursuant to this item are
included herein:
Report of Independent Public Accountants
Consolidated Balance Sheet -
December 31, 1998
Consolidated Statements of Income (Loss) for
each of the Two Years Ended
December 31, 1998 and 1997
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Consolidated Statements of Change in Stockholders'
Deficit for each of the Two Years
Ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows for
each of the Two Years Ended
December 31, 1998 and 1997
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The information required by Item 9 is contained in the Company's proxy
statement to be used in connection with its 1999 annual meeting of stockholders
under the captions "Principal Security Holders" and "Nominees for Director,"
which information is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is contained in the Company's proxy
statement to be used in connection with its 1999 annual meeting of stockholders
under the caption "Executive Compensation," which information is incorporated
herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is contained in the Company's proxy
statement to be used in connection with its 1999 annual meeting of stockholders
under the captions "Principal Security Holders" and "Nominees for Director,"
which information is incorporated herein by reference.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is contained in the Company's proxy
statement to be used in connection with its 1999 annual meeting of stockholders
under the captions "Principal Security Holders" and "Nominees for Director,"
which information is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits Required by Item 601 of Regulation S-B
*Filed Herein or
Incorporated by Reference
Exhibit from Exhibit
------- -------------------------
(3) (a) Certificate of Incorporation as 3(a) 1989 Form 10-K
Amended through June 6, 1989
(b) Articles of Amendment to 3(b) 1989 Form 10-K
Certificate of Incorporation
dated June 7, 1989
(c) Articles of Amendment to 3(c) 1993 Form 10-KSB
Certificate of Incorporation
dated May 21, 1993
(d) Bylaws as Amended through 3(b) June 30, 1989
date hereof Form 10-Q
(21) Subsidiaries of the Registrant *
(27) Financial Data Schedule *
(B) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
December 31, 1998.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Southern Investors Service Company, Inc.:
We have audited the accompanying consolidated balance sheet of Southern
Investors Service Company, Inc. (a Delaware Corporation), and subsidiaries (the
Company) as of December 31, 1998, and the related consolidated statements of
income (loss), changes in stockholders' deficit and cash flows for each of the
two years in the period ended December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southern Investors Service
Company, Inc. and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
The Company's cash flow from operations has not been adequate to meet the
Company's obligations for the past several years. Management projects negative
cash flow from operations for 1999 and the Company has a deficit in
stockholders' equity. As described in Note 5 to the Consolidated Financial
Statements, even though the Company has restructured certain indebtedness in the
last several years, it continues to be delinquent on $4,748,000 of debt. As
discussed in Note 6 to the Consolidated Financial Statements, the Company is
involved in litigation and other contingencies, the outcomes of which are
uncertain at this time. These factors raise substantial doubt about the
Company's ability to continue as a going concern and to realize the carrying
amount of its assets. Management is currently reviewing options in regard to
these matters as described in Note 1 to the Consolidated Financial Statements.
There can be no assurance that actual events will occur in accordance with any
of the options management is currently reviewing. The accompanying consolidated
financial statements have been prepared assuming the Company will continue as a
going concern and the consolidated financial statements do not include any
adjustments, which could be significant, that might result from the outcome of
the uncertainties described above.
Arthur Andersen LLP
Houston, Texas
March 19, 1999
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SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(Thousands of Dollars)
ASSETS
REAL ESTATE ASSETS:
Resort development, net $ 2,193
Equity in real estate joint ventures, net 507
-------
Total real estate assets 2,700
CASH 41
ACCOUNTS RECEIVABLE 340
OTHER ASSETS 17
-------
Total assets $ 3,098
=======
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Notes payable, including $4,748 matured $ 5,452
Accounts payable and accrued expenses 2,344
Other liabilities 148
-------
Total liabilities 7,944
-------
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 (11,032)
Less treasury stock, 112,402 shares, at cost (126)
-------
Total stockholders' deficit (4,846)
-------
Total liabilities and stockholders' deficit $ 3,098
=======
The accompanying notes are an integral part of this statement.
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SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Thousands of Dollars,
Except Per Share Amounts)
Year Ended December 31,
-----------------------
1998 1997
------ ------
RESORT REVENUES $ 2,079 $ 2,503
REAL ESTATE REVENUES, NET 27 1,151
---------- ----------
2,906 3,654
---------- ----------
RESORT OPERATING EXPENSES 2,377 2,475
OTHER OPERATING EXPENSES 680 868
---------- ----------
3,057 3,343
---------- ----------
INCOME (LOSS) FROM OPERATIONS (151) 311
INTEREST EXPENSE (367) (369)
---------- ----------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY GAINS (518) (58)
INCOME TAXES -- --
---------- ----------
LOSS BEFORE EXTRAORDINARY GAINS (518) (58)
EXTRAORDINARY GAINS ON DEBT SETTLEMENTS
(Net of tax provision and operating loss carryforward
realization of $96 in 1998) (282) --
---------- ----------
NET LOSS $ (236) $ (58)
========== ==========
LOSS PER COMMON SHARE:
Loss before extraordinary gains $ (0.16) $ (0.02)
========== ==========
Net Loss $ (0.07) $ (0.02)
========== ==========
AVERAGE NUMBER OF SHARES OUTSTANDING 3,168,929 3,168,929
========== ==========
The accompanying notes are an integral part of these statements.
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SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(Thousands of Dollars)
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid-In Retained Treasury
Shares Amount Capital Deficit Stock
--------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 3,281,331 $3,281 $3,031 $(10,738) ($126)
Net loss -- -- -- (58) --
--------- ------ ------ -------- --------
BALANCE, December 31, 1997 3,281,331 3,281 3,031 (10,796) (126)
Net loss -- -- -- (236) --
--------- ------ ------ -------- --------
BALANCE, December 31, 1998 3,281,331 $3,281 $3,031 $(11,032) ($126)
========= ====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE>
SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(236) $( 58)
Adjustments to reconcile net loss
to net cash used in operating activities:
Extraordinary gains on debt settlements (282) ---
Equity in undistributed income of real estate joint
ventures (67) (126)
Distribution from real estate joint ventures, net 193 ( 9)
Gain from sale of real estate and joint venture interests (180) ( 76)
Cost of real estate sold (91) ---
Depreciation and amortization 190 127
Change in assets and liabilities:
Investments in real estate, net (80) ( 62)
Increase in accounts receivable and other assets (36) (112)
Increase in accounts payable, accrued expenses
and other 260 295
----- -----
Net cash used in operating activities (329) (21)
Cash flows from investing activities:
Proceeds from sale of investments 271 76
----- -----
Net cash provided by investing activities 271 76
Cash flows from financing activities:
Borrowings on notes payable and other debt 154 66
Payments on notes payable and other debt (209) (121)
----- -----
Net cash used in financing activities (55) (55)
Net decrease in cash (113) --
Beginning cash 154 154
----- -----
Ending cash $ 41 $ 154
===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE>
SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) CURRENT BUSINESS CONDITIONS
Southern Investors Service Company, Inc. and its subsidiaries' (Company)
operations are concentrated in Texas. During 1990 as a result of a downturn in
the energy and real estate markets, the Company reached an 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 a significant portion of the Company's
assets. As a result, 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 several of the prior years and
anticipates that it will incur a net operating loss for 1999. Such losses
depleted the Company's stockholders' equity in 1989. The Company's ability to
continue as a going concern is dependent upon its ability to settle or
restructure existing debt and generate positive cash flow to cover operating
expenses and other cash requirements.
The Company has debt totaling $4,748,000 which 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
settle the Company's existing liabilities with its very limited resources.
These options include, but are not limited to, continued efforts to reduce
operating expenses (including interest expense), 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, a possible plan of reorganization
under Chapter 11 of the U.S. Bankruptcy Code or possible liquidation of the
Company. There is no assurance that the Company could arrange to borrow funds or
raise capital from other sources. Management will continue to pursue these
options. There can be no assurance that actual events will occur in accordance
with any of the options management is currently reviewing. The consolidated
financial statements do not include any adjustments, which could be significant,
relating to the recoverability of asset carrying amounts or the amount and
classification of liabilities that might be necessary if the Company is unable
to continue as a going concern.
LIABILITY SETTLEMENTS
During 1998, the Company sold two small tracts of undeveloped real estate
which had been collateral for a note payable to an insurance company. This note
was issued during 1992 as part of a settlement with the insurance company the
terms of which provided for the release from liability of approximately $273,000
in claims if the note was paid. The sale of the two tracts of land provided the
funds necessary to repay the note for $9,000 less than the amount due. As a
result the Company recorded an extraordinary gain of $282,000 during 1998.
There were no debt settlements during 1997.
19
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. Income and expenses are recorded on the
accrual basis of accounting, and all significant intercompany accounts and
transactions have been eliminated. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The Company records its investment in real estate joint ventures in which its
ownership equals or exceeds 20% but is 50% or less and which the Company does
not control on the equity method. Those ventures in which the Company's
ownership is less than 20% are carried at cost unless the Company exercises
significant influence.
INCOME TAXES
Income taxes are provided on the liability method whereby deferred tax assets
are recognized for deductible temporary differences, and operating loss and tax
credit carryforwards, and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and accounts receivable approximate fair value
due to relatively short maturities. It was not practicable to estimate the fair
value of debt and related accrued interest as significant amounts of debt have
matured or will mature during 1999. The Company is in process of negotiating
with lenders to settle debt for cash payments or transfer of other assets at
substantially less than amounts due.
REAL ESTATE OPERATIONS
Profits from sales of real estate are recognized only upon delivery of a deed,
transfer of all attributes of ownership, receipt from the purchaser of an
adequate cash down payment, and the absence of obligations to perform
significant activities after the sale. If the required cash down payments have
not been received, sales and related costs are recorded but the gross profits
are deferred and recognized on the installment method of accounting until
sufficient cash payments have been received. Deferred gross profit of $148,000
as of December 31, 1998 is included in other liabilities in the accompanying
Consolidated Balance Sheet.
20
<PAGE>
Real estate held for resale or development is stated at the lower of cost or
net realizable value. The estimated net realizable value of real estate is
based upon the anticipated sales price in the normal course of business less
estimated costs of completion and direct costs of disposal. If the Company
estimates that the cost upon completion will exceed the net realizable value,
the Company provides a reserve for such excess costs. Cost includes the land
acquisition cost, general improvements and interest, property taxes and other
carrying costs capitalized during development. Interest is capitalized on the
average amount of accumulated expenditures for property being developed using an
effective rate based on related debt. Interest and property tax capitalization
continues until the assets are ready for sale or until development of the
property is suspended. Costs are allocated to tracts based upon the relative
sales value of the tracts.
Management continues to monitor the impact of changes in economic conditions
to determine the effect on the carrying value of its real estate assets in
accordance with SFAS No. 121. The effect of any significant changes will be
reported in income in the period such effect can be reasonably estimated. 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 because the Company is not
able to continue as a going concern, it is anticipated that sales or
dispositions would not generate sufficient funds to retire the related debt and
would be significantly less than the current carrying amount of assets.
DEPRECIATION
Resort development properties are carried at amortized cost and are
depreciated on the straight-line basis over their estimated useful lives net of
estimated salvage value. At December 31, 1998, accumulated depreciation totaled
approximately $4,445,000.
Upon sale or retirement of depreciable assets, the cost and the related
accumulated depreciation are removed from the accounts and the resulting profit
or loss is reflected in income. The costs of ordinary maintenance and repairs
are expensed, whereas renewals and major replacements are capitalized and
expensed to future operations through depreciation charges.
LOSS PER COMMON SHARE
Loss per common share was computed in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS 128) issued by the
Financial Accounting Standards Board during 1997. The adoption of SFAS 128 had
no effect on current or prior year earnings per share.
PREFERRED STOCK
The Company has authorized 1 million shares of $1.00 par value preferred
stock. No such stock has been issued. The preferred stock may be issued in one
or more series, with the shares in each such series having such voting powers
and such designations, preferences and relative participating, optional
redemption, conversion, exchange and other special rights and restrictions as
may be fixed by a resolution of the Company's Board of Directors.
21
<PAGE>
(3) REAL ESTATE OPERATIONS
Real estate revenues, net include the following amounts:
(Thousands of Dollars) Year Ended December 31,
- -----------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------
Management fees $ 530 $ 825
Interest and other income 144 200
Equity in income of real estate joint ventures 67 126
Sales of real estate 177 --
Cost of real estate sales (91) --
- -----------------------------------------------------------------------------
Total real estate revenues, net $ 827 $1,151
=============================================================================
As of December 31, 1998, the Company had an investment in one real estate joint
venture accounted for on the equity method. The venture had total assets of
$275,000 and the Company's equity in such venture totaled $147,000. The assets
of this venture were sold during February 1999 at approximately book value. In
addition to this venture the Company has investments in two other ventures
accounted for on the cost method. These ventures had a book value of $360,000
as of December 31, 1998.
22
<PAGE>
(4) FEDERAL INCOME TAXES
The estimated tax effect of temporary differences and tax attributes
representing deferred tax liabilities and assets is summarized as follows:
December 31,
- ---------------------------------------------------------
(Thousands of Dollars) 1998
- ---------------------------------------------------------
Tax benefits due to:
Tax loss carryforwards $ 8,456
Accrued expenses and other liabilities 95
Other (15)
------
Gross deferred tax asset 8,536
Deferred tax liability due to:
Accelerated depreciation (47)
Basis difference in real estate assets (1,523)
------
Net deferred tax asset 6,966
Less-Valuation allowance (6,966)
------
$ --
======
The Company estimates that as of December 31, 1998, its loss carryforward for
federal income tax reporting purposes, is approximately $24.9 million, of which
approximately $3.1 million is capital loss carryforward. During 1998,
approximately $.8 million of the capital loss carryforward expired. The
remainder of the capital loss carryforward will expire by 2002. The operating
loss carryforward will begin to expire in 2002. The tax benefit of the
operating loss carryforward has been recognized as a reduction of the deferred
taxes provided on temporary differences which are expected to reverse during the
carryforward period. The valuation allowance as of December 31, 1998 totaled
$6,966,000, a decrease of approximately $269,000 from December 31, 1997.
No taxes were paid during 1998 or 1997.
In October 1986, the Tax Reform Act of 1986 (the Act) was passed. The Act
substantially changed the rules regarding the availability of a corporation's
operating loss carryforward following a significant change of ownership. Under
most circumstances, the limitations on the use of the operating loss
carryforward are imposed if the equity ownership of a corporation's 5%
stockholders increases by more than 50% over the lowest percentage of equity
ownership of such stockholders during the three year period prior to the date of
the ownership change. No change of ownership had occurred through December 31,
1998. The Revenue Reconciliation Act of 1993 did not have a material impact on
the Company's financial position or results of operation.
23
<PAGE>
(5) NOTES PAYABLE AND OTHER DEBT
NOTES PAYABLE
The Company's notes payable are summarized as follows:
December 31,
- --------------------------------------------------------------------
(Thousands of Dollars) 1998
- --------------------------------------------------------------------
Matured notes, bearing interest at rates ranging
from 6% to 10% $1,308
Matured notes issued to various debenture holders,
bearing interest at 6% 3,440
Note payable to Walter M. Mischer secured by
real estate, and bearing interest
at the prime rate plus 1% 339
Notes payable to Walter M. Mischer (See Note 7) 190
Other 175
-----
$5,452
=====
During 1993 the Company restructured debentures with an aggregate principal
balance of $2,331,000, debenture loans advanced by certain debenture holders
with aggregate principal balances of $639,000 and accrued and unpaid interest
with respect to these debentures and debenture loans of approximately $470,000
in exchange for unsecured promissory notes of the Company. These notes with an
aggregate principal balance of $3,440,000 bear interest at 6% compounded
annually and were due October 2, 1996.
As of December 31, 1998, the Company was delinquent on principal and interest
payments of $4,748,000 and $1,884,000, respectively, on its notes payable and
other debt. The Company is currently negotiating settlement of these debts.
With the exception of the improvements and a portion of the land located at
the Company's resort in west Texas, substantially all of the Company's real
estate assets are pledged as collateral. Minimum annual principal payments on
total notes payable and other debt during the years 1999 through 2003 are $0,
$339,000, $190,000, $0, and $0, respectively, not including the delinquent
principal amounts discussed above. Additional amounts may become due to obtain
the release of real estate which is sold.
As of December 31, 1998, the Company has not received any notices of default
or acceleration from any of its lenders.
24
<PAGE>
Interest paid on the consolidated indebtedness during the years ended December
31, 1998 and 1997 was $19,000 and $26,000, respectively.
(6) COMMITMENTS AND CONTINGENCIES
Due to the location of the Company's investment in the west Texas resort
development and lack of public fire protection, the cost of obtaining insurance
is considered prohibitive; consequently, property insurance is not carried by
the Company for this development.
The Company is also named a defendant in lawsuits and other claims arising in
the ordinary course of the Company's business. If the Company, in the light of
its present circumstances, were required to make substantial cash expenditures
in connection with current and future lawsuits and other claims, such
expenditures might have a material adverse effect on the Company's consolidated
financial position and might affect the Company's ability to continue as a going
concern.
(7) RELATED PARTY TRANSACTIONS
In connection with various debt settlements during the past several years, Mr.
Mischer had loaned or advanced the Company various amounts. In 1993, these
loans and advances were consolidated into a single note in the principal amount
of $339,000. This note bears interest at the prime rate plus 1% and will mature
in February, 2000. This note is secured by approximately 14,720 acres of land
located adjacent to the Company's resort in west Texas. In addition, during
1996, the Company executed two additional notes to Mr. Mischer. One note in the
original principal amount of $26,000 was unsecured and was payable in monthly
payments of $640 per month and bore interest at the rate of 9%. This note was
paid March 1998. The second note is secured by receivables, is payable monthly
as collections on the related receivables are received, bears interest at the
rate of 9%, with a final maturity of July 2001. During 1998, the Company
borrowed an additional $154,000 and made payments of $65,000 in connection with
this note. As of December 31, 1998, the outstanding principal balance was
$190,000.
During 1998, the Company sold its 12.5% joint venture interest in Heritage
Park to an entity affiliated with Mr. Mischer. The Company received cash
distributions of $288,000 and $0 and recognized income of $96,000 and $147,000
during 1998 and 1997, respectively, relating to its 12.5% equity interest in
Heritage Park including $94,000 from the gain on the sale.
During 1997, Mr. Mischer purchased various construction materials from the
Company's resort in west Texas totaling $102,000, which represented the
Company's cost of these items plus 10%. In addition, Mr. Mischer reimbursed the
Company $50,000 for salaries.
25
<PAGE>
On December 15, 1989, Mr. Mischer and Walter M. Mischer, Jr. agreed to make
debenture loans to the Company equal to all future principal payments and 72% of
future interest payments received on the debentures held by them. In 1991, Mr.
Mischer and Mr. Mischer, Jr. agreed to make debenture loans to the Company equal
to 100% of the interest payments received on the debentures on June 1 and
December 1, 1991. Such debenture loans made to the Company bear interest at the
same rate as the applicable 7% or 8.5% debenture and were due on September 30,
1993. See Note 5 describing the terms of the debenture modification. In
addition, Mr. Mischer and Mr. Mischer, Jr. made debenture loans of $133,000
which amount is equal to 72% of interest payments received during 1989 on the
debentures held by them. Such debenture loans made to the Company during 1989
bear interest at 6% and 7% per annum and were due on September 30, 1993. During
1993, in connection with the restructure of the Company's debentures, the
Company issued $3,440,000 in unsecured promissory notes to certain directors,
stockholders and affiliates including notes to Mr. Mischer, Mr. Mischer, Jr.,
John D. Weil and John W. Storms, Trustee, in the aggregate principal amount of
$2,995,000 to consolidate amounts due for the debenture loans discussed above,
debentures held by them and accrued and unpaid interest. These notes bear
interest at 6% compounded annually and were due October 2, 1996.
Mr. Mischer and Mr. Mischer, Jr. participate in real estate projects in the
Houston area which may compete with the Company's projects.
The Company managed real estate projects in which Mr. Mischer or members of
his family has effective ownership interests ranging from 13% to 100% for an
aggregate monthly management fees of $58,000. The management contracts are
cancelable upon thirty days notice. During March 1998, five of these projects
which paid aggregate monthly management fees of $30,000 were sold and as a
result the management contracts were canceled by the new owners. In addition,
during 1995, the Company entered into a management agreement with a partnership
in which Mr. Mischer, Jr. has a 50% ownership interest which provides for
monthly payments. The Company received management fees of $40,000 during 1997.
This contract was terminated in April 1997. As of December 31, 1998, the
Company had accounts receivable from these and other projects of $87,000. These
receivables were collected in full in 1999.
During 1992 and 1987, Mr. Mischer purchased certain notes receivable held by a
subsidiary of the Company at face amount of $83,000 and $546,000, respectively.
The Company is required at Mr. Mischer's election to repurchase, at par, any
note with a payment more than 90 days delinquent. None of these notes have been
repurchased through December 31, 1998.
26
<PAGE>
Due to the Company's financial condition, it was unable to construct
additional employee housing at the Company's resort in west Texas. As a result,
Mr. Mischer built and owns additional employee housing that is leased by the
Company on a month to month basis for $2,100 per month.
In the opinion of the management of the Company, all of the transactions
described above were effected on terms at least as favorable to the Company as
those which could have been obtained from unaffiliated third parties.
(8) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses included the following:
December 31,
- -------------------------------------------------------------------------------
(Thousands of Dollars) 1998
- -------------------------------------------------------------------------------
Trade accounts payable $ 82
Accrued interest payable 2,055
Accrued taxes payable 53
Other accrued liabilities 154
-----
$2,344
=====
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
By: WALTER M. MISCHER
/s/ WALTER M. MISCHER
--------------------------------------------
Walter M. Mischer
Chairman of the Board
Chief Executive Officer
Date: March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ WALTER M. MISCHER Date: March 30, 1999
- ---------------------------------
Walter M. Mischer
Chairman of the Board and
Chief Executive Officer
Director
/s/ WALTER M. MISCHER, JR. Date: March 30, 1999
- ---------------------------------
Walter M. Mischer, Jr.
President and Director
Chief Operating Officer
/s/ ERIC SCHUMANN Date: March 30, 1999
- ---------------------------------
Eric Schumann
Senior Vice President - Finance
Principal Financial and Accounting Officer
/s/ JOHN D. WEIL Date: March 30, 1999
- ---------------------------------
John D. Weil
Director
28
<PAGE>
INDEX TO EXHIBITS
BY PAGE IN SEQUENTIAL NUMBER COPY
Document or Exhibit Page No.
- -------------------------------------------------------------------------------
Exhibit 21 Subsidiaries of the Registrant .................... 30
Exhibit 27 Financial Data Schedule............................ 31
29
<PAGE>
EXHIBIT 21- SUBSIDIARIES OF THE REGISTRANT
Percentage of
Owned by Registrant Voting Securities
- --------------------- ------------------
Mischer Enterprises, Inc. (Texas) 100%
City Pavers, Inc. d/b/a
Mischer Paving & Utility Company,
in the State of Texas (Delaware) 100%
Lajitas Utility Co., Inc. (Texas) 100%
The subsidiaries listed above are included in the Company's consolidated
financial statements.
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 41
<SECURITIES> 0
<RECEIVABLES> 340
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,638
<DEPRECIATION> 4,445
<TOTAL-ASSETS> 3,098
<CURRENT-LIABILITIES> 0
<BONDS> 5,452
0
0
<COMMON> 3,281
<OTHER-SE> (8,127)
<TOTAL-LIABILITY-AND-EQUITY> 3,098
<SALES> 0
<TOTAL-REVENUES> 2,906
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,057
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 367
<INCOME-PRETAX> (518)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 282
<CHANGES> 0
<NET-INCOME> (236)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
