U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
___ 1934
For the quarterly period ended March 31, 2000
______________
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.
________________________________________
(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)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes__No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
3,168,929 as of May 12, 2000, Common Stock $1.00 Par Value
__________________________________________________________
Transitional Small Business Disclosure Format (Check One):
Yes___; No X
___
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.
SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET
--------------------------
MARCH 31, 2000
--------------
(Thousands of Dollars)
(Unaudited)
ASSETS
- ------
RESORT DEVELOPMENT, NET $ 2,122
EQUITY IN REAL ESTATE JOINT VENTURES, NET 361
CASH 155
ACCOUNTS RECEIVABLE 331
OTHER ASSETS 251
--------
$ 3,220
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
LIABILITIES:
Notes payable $ 5,684
Accounts payable and accrued expenses 2,875
--------
8,559
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, $1 par, 1,000,000
shares authorized, none issued --
Common stock, $1 par, 10,000,000 shares authorized,
3,281,331 shares issued 3,281
Additional paid-in capital 3,031
Retained deficit (11,525)
Less treasury stock, 112,402 shares, at cost ( 126)
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Total stockholders' deficit ( 5,339)
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$ 3,220
========
The accompanying notes are an integral part of this statement.
SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF (LOSS)
---------------------------------
(Thousands of Dollars)
(Unaudited)
Three months ended March 31,
----------------------------
2000 1999
---- ----
RESORT REVENUES $ 775 $ 686
REAL ESTATE REVENUES 9 27
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784 713
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RESORT OPERATING EXPENSES 710 685
OTHER OPERATING EXPENSES 54 25
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764 710
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INCOME FROM OPERATIONS 20 3
INTEREST EXPENSE (102) (94)
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NET (LOSS) $ (82) $ (91)
===== ======
(LOSS) PER COMMON SHARE ($ .03) ($ .03)
===== ======
AVERAGE NUMBER OF
SHARES OUTSTANDING 3,168,929 3,168,929
========= =========
The accompanying notes are an integral part of these statements.
SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Thousands of Dollars)
(Unaudited)
Three Months
Ended March 31,
----------------
2000 1999
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Cash flows from operating activities:
Net (loss) $ (82) $ (91)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Equity in undistributed (income) loss of real
estate joint ventures --- (2)
Depreciation and amortization 48 48
Change in assets and liabilities:
Investments in resort development (6) (55)
(Increase) decrease in accounts receivable and other assets (127) 98
Increase in accounts payable, accrued
expenses and other 160 117
---- ----
Net cash (used in) provided by operating activities ( 7) 115
---- ----
Cash flows from financing activities:
Borrowings on notes payable, net 93 55
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Net increase in cash 86 170
Beginning cash 69 41
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Ending cash $ 155 $211
===== ====
The accompanying notes are an integral part of these statements.
SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
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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 have been efforts to sell 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
currently 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
at this time was also influenced by its perception that a strong marketplace
currently favors 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 have been 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 net proceeds from the sale of Lajitas were approximately $2,385,000. The
Company will use these proceeds in an attempt to settle or restructure existing
debt of which approximately $5,513,000 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.
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").
Under the Purchase Agreement, dated February 24, 2000, the Company
agreed to sell and transfer its right, title and interest in the assets and real
property of the resort and town of Lajitas, excluding, among other items,
certain receivables and the two adjoining tracts of land that are covered by the
separate REPSAs. The transferred assets also included all of the outstanding
capital stock of Lajitas Utility Co., Inc., which provides water and related
utility services to the resort and town.
Under the REPSAs, each dated February 24, 2000, the Company agreed to
convey two tracts of land, "as is, where is" and "with all faults, if any." The
first REPSA, for the "North Tract," related to approximately 6,330 acres to be
conveyed by special warranty deed and approximately 940 acres to be conveyed by
quit claim deed. The second REPSA, for the "South Tract," related to
approximately 8,513 acres to be conveyed by special warranty deed and
approximately 3,430 acres to be conveyed by quit claim deed.
The descriptions above of the Purchase Agreement and the REPSAs are
qualified in their entirety by reference to the agreements themselves, which
have been filed as exhibits to this Form 10-QSB. See also Note 1 to Notes to
Consolidated Financial Statements.
Results of Operations
- ---------------------
The net (loss) for the first three months of 2000 was ($82,000) or
($.03) per share compared to a net (loss) of ($91,000) or ($.03) per share
during the first quarter of 1999.
Rental and other revenues from the operation of the Company's resort in
west Texas totaled $775,000 and $686,000 for the three months ended March 31,
2000 and 1999, respectively. Rental revenue and occupancy statistics for the
Company's resort operations for each of these periods are summarized as
follows :
Three months ended March 31,
----------------------------
2000 1999
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Hotel rooms:
% Occupancy 49% 47%
Average rate $ 71.29 $ 64.70
Total revenue $284,000 $250,000
Condominiums:
% Occupancy 45% 34%
Average rate $ 66.19 $ 64.56
Total revenue $ 63,000 $ 53,000
Total rental revenue $347,000 $303,000
Restaurant, bar and
golf course revenue 229,000 234,000
Other revenues 199,000 149,000
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Total revenues $775,000 $686,000
======== ========
The increase in other revenues is due to the sale of residential lots at the
Lajitas resort during the first quarter of 2000.
The increase in other expenses is due to an increase in legal and professional
fees.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company was delinquent on notes payable of
approximately $5,513,000. The Company will attempt to use the proceeds from the
sale of Lajitas estimated to be $2,385,000 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.
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
On February 21, 2000, stockholders representing approximately 64.5% of the
Company's $1.00 par value common stock executed a Written Consent of
Stockholders in lieu of a Special Meeting to approve the sale of Lajitas. The
stockholders approved the disposition of Lajitas at an auction sale to as many
as three independent buyers who bid in cash at least $2,500,000 for the resort
and town, $300,000 for the adjoining tract of land comprising approximately
7,700 acres and $600,000 for an adjoining tract of land comprising approximately
10,000 acres with an adjacent parcel of 4,500 acres. The auction sale occurred
on February 24, 2000, and the Company agreed to sell Lajitas for $3,950,000 in
cash, as further described under the caption -"General" under Item 2 of
Part I above. The Written Consent is filed as an exhibit to this Form 10-QSB.
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
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)
__________
*Filed herewith
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.
--------------------------
WALTER M. MISCHER, JR.
President - Principal Executive Officer
/s/ Eric Schumann
-------------------------------
ERIC SCHUMANN
Senior Vice President - Finance
Principal Financial and Accounting Officer
DATE: May 12, 2000