<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
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OF 1934
For the quarterly period ended September 30, 2000
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file number 04863
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Southern Investors Service Company, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 74-1223691
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(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
2727 North Loop West, Suite 200, Houston, Texas 77008
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(Address of principal executive offices) (Zip Code)
(713) 869-7800
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Issuer's telephone number
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(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 November 13,
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2000, Common Stock $1.00 Par Value
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Transitional Small Business Disclosure Format (Check One):
Yes_____; No X
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<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 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
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CONSOLIDATED BALANCE SHEET
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SEPTEMBER 30, 2000
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(Thousands of Dollars)
(Unaudited)
ASSETS
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CASH $ 2,307
EQUITY IN REAL ESTATE JOINT VENTURES, NET 361
ACCOUNTS RECEIVABLE 114
OTHER ASSETS 7
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$ 2,789
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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LIABILITIES:
Notes payable $ 4,934
Accounts payable and accrued expenses 2,598
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Total liabilities 7,532
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, $1 par, 1,000,000
shares authorized, none issued --
Common stock, $1 par, 10,000,000 shares authorized,
3,281,331 shares issued 3,281
Additional paid-in capital 3,031
Retained deficit (10,929)
Less treasury stock, 112,402 shares, at cost { 126)
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Total stockholders' deficit ( 4,743)
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$ 2,789
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The accompanying notes are an integral part of this statement.
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SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME (LOSS)
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(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
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2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
RESORT REVENUES $ --- $ 419 $ 1,039 $ 1,664
OTHER REVENUES 24 24 34 46
---------- ---------- ---------- ----------
24 443 1,073 1,710
---------- ---------- ---------- ----------
RESORT OPERATING EXPENSES --- 627 967 1,988
OTHER OPERATING EXPENSES 23 4 130 53
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23 631 1,097 2,041
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INCOME (LOSS) FROM OPERATIONS 1 (188) (24) (331)
INTEREST INCOME 32 6 62 18
INTEREST EXPENSE (85) (96) (279) (283)
GAIN ON SALE OF RESORT OPERATIONS --- --- 755 ---
INCOME (LOSS) BEFORE ---------- ---------- ---------- ----------
EXTRAORDINARY GAIN (52) (278) 514 (596)
EXTRAORDINARY GAIN ON DEBT
SETTLEMENT (Net of tax provision &
operating loss carryforward realization
of $39 in 1999) --- --- --- 116
---------- ---------- ---------- ----------
NET INCOME (LOSS) ($ 52) ($ 278) $ 514 ($ 480)
========== ========== ========== ==========
BASIC AND DILUTED INCOME
(LOSS) PER COMMON SHARE
Income (loss) before extraordinary gain ($ .02) ($ .09) $.16 ($ .19)
========== ========== ========== ==========
Extraordinary gain on debt settlement $ --- $ --- $ --- $ .04
========== ========== ========== ==========
Net Income (loss) ($ .02) ($ .09) $ .16 ($ .15)
========== ========== ========== ==========
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
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
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2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 514 ($ 480)
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 66 143
Change in assets and liabilities:
Resort development, net (302) (145)
Decrease in accounts receivable and other assets 334 91
(Decrease) increase in accounts payable, accrued
expenses and other (124) 314
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Net cash provided by (used in) operating activities (267) (46)
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Cash flows from investing activities:
Proceeds from sale of resort development, net 3,155 ---
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Cash flows from financing activities:
(Payments) borrowings on notes payable, net (650) 63
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Net increase in cash 2,238 17
Beginning cash 69 41
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Ending cash $2,307 $ 58
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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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(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.
<PAGE>
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 and clear title to the buyer. As
part of the property sold, the buyer purchased a portion of the employee housing
at the resort previously 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:
Nine Months Ended
September 30
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2000 1999
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Revenues $ 96 $ 64
Loss before extraordinary items ($289) ($250)
Basic and diluted loss per share
before extraordinary items ($.09) ($.08)
The Company will attempt to use the net proceeds from the sale to settle or
restructure existing debt, of which approximately $4,803,000 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.
<PAGE>
(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.
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued in June 1998, amended
in June 1999 by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133" and
amended in June 2000 by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." The Company will adopt these
pronouncements on January 1, 2001 and does not expect adoption to have a
material impact on the Company's results of operations or financial position.
Item 2. Management's Discussion and Analysis or Plan of Operation.
General
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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
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The net (loss) for the three months ended September 30, 2000, was ($52,000)
or ($.02) per share as compared to a net (loss) of ($278,000) or ($.09) share
for the three months ended September 30, 1999. The results of operations for the
quarter ended September 30, 1999, included the results of operations of the
Lajitas resort, which incurred a (loss) of ($208,000) during the quarter.
<PAGE>
The net income for the first nine months of 2000 was $514,000 or $.16 per
share compared to a net (loss) of ($480,000) or ($.15) per share during the
first nine months of 1999. The result of operations for the first nine 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 the closing date. Other
operating expenses have increased due to increased legal and other professional
fees.
Liquidity and Capital Resources
As of September 30, 2000, the Company was delinquent on notes payable of
approximately $4,803,000. 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.
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.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
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ITEM 6. (a) Exhibits
Exhibit No. Description
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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
None
__________
*Filed herewith
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SIGNATURES
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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.
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WALTER M. MISCHER, JR.
President - Principal Executive Officer
/s/ Eric Schumann
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ERIC SCHUMANN
Senior Vice President - Finance
Principal Financial and Accounting Officer
DATE: November 13, 2000
