<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 June 30, 2000
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
incorporation or organization) (I.R.S. Employer Identification No.)
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)
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 August 11, 2000,
Common Stock $1.00 Par Value
Transitional Small Business Disclosure Format (Check One):
Yes _____; No X
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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 accounting principles generally accepted in the
United States 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.
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SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(Thousands of Dollars)
(Unaudited)
ASSETS
------
CASH 2,264
EQUITY IN REAL ESTATE JOINT VENTURES, NET 361
ACCOUNTS RECEIVABLE 145
OTHER ASSETS 8
--------
$ 2,778
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
LIABILITIES:
Notes payable $ 4,936
Accounts payable and accrued expenses 2,532
--------
Total liabilities 7,468
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, $1 par, 1,000,000
shares authorized, none issued --
Common stock, $1 par, 10,000,000 shares authorized,
3,281,331 shares issued 3,281
Additional paid-in capital 3,031
Retained deficit (10,876)
Less treasury stock, 112,402 shares, at cost (126)
--------
Total stockholders' deficit (4,690)
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$ 2,778
========
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)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
RESORT REVENUES $ 264 $ 559 $ 1,039 $ 1,245
OTHER REVENUES 31 7 40 34
---------- ---------- ---------- ----------
295 566 1,079 1,279
---------- ---------- ---------- ----------
RESORT OPERATING EXPENSES 257 675 967 1,362
OTHER OPERATING EXPENSES 53 24 107 47
---------- ---------- ---------- ----------
310 699 1,074 1,409
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (15) (133) 5 (130)
INTEREST EXPENSE (91) (93) (193) (187)
GAIN ON SALE OF RESORT OPERATIONS 755 --- 755 ---
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN 649 (226) 567 (317)
EXTRAORDINARY GAIN ON DEBT SETTLEMENT
(Net of tax provision & operating loss
carryforward realization of $39 in 1999) --- 116 --- 116
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 649 $ (110) $ 567 $ (201)
========== ========== ========== ==========
BASIC AND DILUTED INCOME (LOSS) PER
COMMON SHARE
Income (loss) before extraordinary gain $ .20 $ (.07 ) $ .18 $ (.10)
========== ========== ========== ==========
Extraordinary gain on debt settlement $ --- $ .04 $ --- $ .04
========== ========== ========== ==========
Net Income (loss) $ .20 $ (.03) $ .18 $ (.06)
========== ========== ========== ==========
AVERAGE NUMBER OF SHARES OUTSTANDING 3,168,929 3,168,929 3,168,929 3,168,929
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-----------------
2000 1999
------ -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 567 $(201)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary gain on debt settlements --- (116)
Equity in undistributed (income) loss of real
estate joint ventures --- (2)
Distribution from real estate joint ventures --- 149
Gain from sale of resort development (755) ---
Depreciation and amortization 66 95
Change in assets and liabilities:
Resort development, net (302) (124)
Decrease in accounts receivable and other assets 301 135
(Decrease) increase in accounts payable, accrued
expenses and other (190) 188
------ -----
Net cash provided by (used in) operating activities (313) 124
------ -----
Cash flows from investing activities:
Proceeds from sale of resort development, net 3,155 ---
------ -----
Cash flows from financing activities:
Payments on notes payable, net (647) (20)
------ -----
Net increase in cash 2,195 104
Beginning cash 69 41
------ -----
Ending cash $2,264 $ 145
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</TABLE>
The accompanying notes are an integral part of these statements.
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SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) CURRENT BUSINESS CONDITIONS
As a result of the Company's operational losses in recent years, the Company's
management has from time to time considered several options to generate cash at
sufficient levels to meet operating needs and increasing debt obligations.
These options have included efforts to reduce operating expenses (including
interest), attempts to increase revenues of the Company's resort development,
negotiations with various creditors to settle accounts for cash payments at
substantially lower amounts than the amounts due, the settlement of liabilities
through the transfer of assets to creditors in satisfaction of their claims, and
a possible plan under the U.S. Bankruptcy Code or possible liquidation of the
Company.
Although there had been efforts to sell the Company's resort located in west
Texas known as Lajitas together with surrounding real estate ("Lajitas") in the
past, only a few potential buyers ever seriously examined the property or
conducted any due diligence. With debt of more than $4.8 million that had
matured and was due, the Company determined in late 1999 that the sale of
Lajitas, its sole remaining operating asset, would facilitate the Company's
ability to settle its existing liabilities most favorably. The Company's
decision to sell Lajitas earlier this year was also influenced by its perception
that a strong marketplace favored sellers of specialty properties. After
considering the Company's past efforts and reviewing sales of other specialty
properties, the Company determined that the best alternative would be to sell
the property through an auction process. The auction was conducted on February
24, 2000 and the property was sold for $3,950,000.
The sale of Lajitas included the sale of the capital stock of Lajitas
Utility Co., Inc., (Lajitas Utility), a Company which provides water and related
utility services to the resort town. The Lajitas Utility facilities were in
need of certain repairs and improvements which were ordered by regulatory
agencies. The transfer of the capital stock of Lajitas Utility was also subject
to the approval of the regulatory agency. Subsequent to the auction the
estimated costs of these repairs increased and as a result the Company and the
buyer entered into a series of discussions in order to resolve this matter and
to obtain the approvals necessary. As a result of these negotiations the
Company agreed to a reduction in the purchase price of $400,000. The sale of
the Lajitas property closed on May 2, 2000.
The Lajitas resort property was subject to a mortgage in the amount of
$726,000, including accrued interest, in favor of Walter M. Mischer, Chairman of
the Board and Chief Executive Officer of the Company. At closing the Company
used a portion of the proceeds to repay this indebtedness in order to remove the
mortgage lien from the property and convey free
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and clear title to the buyer. As part of the property sold the buyer purchased
a portion of the employee housing at the resort owned by Mr. Mischer. Mr.
Mischer agreed to provide such employee housing for Lajitas at a time when the
Company was unable to finance its construction on acceptable terms. Mr. Mischer
agreed to sell this housing to the Company for $237,000 which was the cost
incurred by Mr. Mischer in connection with the construction. The Company also
incurred approximately $370,000 in expenses, including commissions, in
connection with the sale.
The accompanying consolidated statements of income (loss) include the operations
of the Lajitas resort until the date of sale. The following condensed proforma
information presents a summary of the consolidated statements of income (loss)
of the Company as if the sale had occurred at the beginning of the period with
proforma adjustments to reflect the sale, interest expense on notes payable and
other adjustments:
Six Months Ended
June 30
----------------
2000 1999
------ ------
Revenues $ 40 $ 34
Loss before extraordinary items ($237) ($183)
Basic and diluted loss per share
before extraordinary items ($.07) ($.06)
The Company will attempt to use the net proceeds from the sale to settle or
restructure existing debt, of which approximately $4,795,000 has matured and is
currently due, and to realize the carrying amount of its remaining assets.
However, there can be no assurance the Company will be able to settle or
restructure existing debt and realize the carrying amount of its remaining
assets. Management is currently reviewing possible options to settle the
Company's existing liabilities with its available resources. These options
include, but are not limited to, 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 under 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.
(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.
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Item 2. Management's Discussion and Analysis or Plan of Operation.
General
On March 10, 2000, the Company filed a definitive information statement
("Information Statement") on Schedule 14C with the SEC under the Securities
Exchange Act of 1934, as amended. The Information Statement disclosed the
Company's agreement to enter into a Purchase Agreement (the "Purchase
Agreement") and two Real Estate Purchase and Sale Agreements (the "REPSAs") with
Stephen R. Smith, a private investor from Austin, Texas, for the Company's
Lajitas Resort and two adjoining tracts of land in west Texas (together,
"Lajitas").
The sale of Lajitas closed on May 2, 2000, to two entities to which Mr.
Smith assigned all of his rights under the Purchase Agreement and the REPSAs by
means of an Assignment, Assumption, Amendment and Allocation Agreement
("Assignment Agreement") for an aggregate of $3,550,000. The Assignment
Agreement was filed as an exhibit to the Company's Form 8-K dated May 2, 2000.
The Purchase Agreement and the REPSAs were filed as exhibits to the Company's
Form 10-QSB as of March 31, 2000, as filed with the Securities and Exchange
Commission. See also Note 1 to Notes to Consolidated Financial Statements.
Results of Operations
The net income for the first six months of 2000 was $567,000 or $.18 per share
compared to a net (loss) of ($201,000) or ($.06) per share during the first six
months of 1999. The result of operations for the first six months of 2000
include a gain of $755,000 in connection with the sale of Lajitas on May 2,
2000. The Lajitas resort was the Company's only operating asset. The
operations of Lajitas are included in revenues and expenses through closing
date. Other operating expenses have increased due to incurred legal and other
professional fees.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company was delinquent on notes payable of
approximately $4,795,000. The Company will attempt to use the net proceeds from
the sale of Lajitas in an attempt to settle or restructure existing debt.
However, there can be no assurance the Company will be able to settle or
restructure existing debt and realize the carrying amount of its remaining
assets. Management is currently reviewing possible options to settle the
Company's existing liabilities with its available resources. These options
include 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 under the U.S. Bankruptcy Code or possible
liquidation of the Company.
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FORWARD LOOKING STATEMENT
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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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
The Company held its annual meeting of stockholders on May 16, 2000, at which
time the stockholders elected the Company's directors and ratified the
appointment of Arthur Andersen LLP independent public accountants for the
Company for the year ending December 31, 2000. The results were as follows:
Against/ Broker
For Withheld Abstain Non-Votes
--------- -------- ------- ---------
Directors:
Walter M. Mischer, Sr. 2,188,957 120 - -
Walter M. Mischer, Jr. 2,188,957 120 - -
John D. Weil 2,188,957 120 - -
Accountants 2,188,097 20 600 -
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ITEM 5. Other Information
None
ITEM 6. (a) Exhibits
Exhibit No. Description
----------- --------------------
2.1 -- Purchase Agreement (incorporated by reference to Annex B to the
Company's Information Statement on Schedule 14C, dated March 10,
2000, SEC File No. 0-04863).
2.2 -- Real Estate Purchase and Sale Agreement (incorporated by
reference to Annex C-1 to the Company's Information Statement on
Schedule 14C, dated March 10, 2000, SEC File No. 0-04863).
2.3 -- Real Estate Purchase and Sale Agreement (incorporated by
reference to Annex C-2 to the Company's Information Statement on
Schedule 14C, dated March 10, 2000, SEC File No. 0-04863).
*27.1 -- Financial Data Schedule.
99.1 -- Written Consent (incorporated by reference to Annex A to the
Company's Information Statement on Schedule 14C, dated March 10,
2000, SEC File No. 0-04863)
(b) Reports filed on Form 8-K
- The following current report on Form 8-K was filed by the Company during
the quarter ended June 30, 2000:
Form 8-K dated May 2, 2000 and filed May 17, 2000, reporting
the sale of Lajitas for an aggregate of $3,550,000.
__________
*Filed herewith
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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: August 11, 2000
