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, 2002
[ ] 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.
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(Exact name of small business issuer as specified in its charter)
Delaware 74-1223691
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
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(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
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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
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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 10, 2002,
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.
SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2002
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(Thousands of Dollars)
(Unaudited)
ASSETS
CASH $ 2,251
EQUITY IN REAL ESTATE JOINT VENTURES, NET 286
NOTES RECEIVABLE AND OTHER ASSETS 9
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$ 2,546
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LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Notes payable $ 4,835
Accounts payable and accrued expenses 2,921
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Total liabilities 7,756
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, $1 par, 1,000,000
shares authorized, none issued --
Common stock, $1 par, 10,000,000 shares authorized,
3,281,331 shares issued 3,281
Additional paid-in capital 3,031
Retained deficit (11,396)
Less treasury stock, 112,402 shares, at cost (126)
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Total stockholders' deficit (5,210)
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$ 2,546
========
The accompanying notes are an integral part of this statement.
SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS)
(Thousands of Dollars)
(Unaudited)
Three months ended
March 31,
----------------------
2002 2001
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INTEREST INCOME $ 12 $ 32
OTHER REVENUES 6 28
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18 60
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INTEREST EXPENSE 77 83
OTHER OPERATING EXPENSES 21 30
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98 113
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NET (LOSS) $ (80) $ (53)
========= =========
BASIC AND DILUTED
(LOSS) PER COMMON SHARE $ (.03) $ (.02)
========= =========
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
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Three Months
Ended March 31,
------------------
2002 2001
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Cash flows from operating activities:
Net (loss) $ (80) $ (53)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Change in assets and liabilities:
Decrease in notes receivable and other assets 16 25
Increase in accounts payable, accrued
expenses and other 73 43
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Net cash provided by operating activities 9 15
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Cash flows from financing activities:
Borrowings on notes payable, net -- --
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Net increase in cash 9 15
Beginning cash 2,242 2,334
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Ending cash $ 2,251 $ 2,349
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The accompanying notes are an integral part of these statements.
SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) CURRENT BUSINESS CONDITIONS
Southern Investors Service Company, Inc., (the Company), was incorporated
under the laws of the State of Delaware in 1972. 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. The Company's operations since 1990
have been limited to attempts to settle or restructure the Company's remaining
liabilities. The Company's operations also 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.
The Company determined in late 1999 that the sale of Lajitas (a resort property
in west Texas), its sole remaining operating asset, would facilitate the
Company's ability to settle its existing liabilities most favorably. As a
result, the Company retained the National Auction Group, Inc., (National
Auction) to conduct an auction of Lajitas. 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 a 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. During
2000, the Company realized a gain on the sale of Lajitas of $755,000 and
received net cash proceeds of approximately $2.4 million, after the payment of a
mortgage note related to the property sold.
The Company has attempted to use the net proceeds from the sale of Lajitas to
settle or restructure existing debt, of which approximately $4,835,000 (plus
accrued interest) has matured and is currently past due, and to realize the
carrying amount of its remaining assets. On March 26 2002, the Board of
Directors of the Company determined that the best alternative to settle the
Company's existing debt was to file a voluntary petition for relief under
Chapter 11 of Title 11 of the United States Bankruptcy Code (Chapter 11) with
the United States Bankruptcy Court (Bankruptcy Court). The Company currently
anticipates that it will file its voluntary petition with the Bankruptcy Court
during 2002 and that any plan of liquidation submitted to the Bankruptcy Court
in connection therewith will call for the disposition of the Company's remaining
assets and the distribution of all the net proceeds therefrom to the Company's
creditors. These financial statements have been prepared using the historical
cost basis of accounting. Management of the Company believes the historical cost
basis of accounting states assets at approximately their liquidation values and
states the Company's liabilities at their historical amounts. It is not
presently determinable what amounts the creditors will agree to accept in
settlement of the obligations due them. These financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Accordingly, the Company believes the equity of the Company has, and will
continue to have, no value and that any Chapter 11 plan confirmed by the
Bankruptcy Court will result in the elimination of the equity interests of all
of the Company's stockholders. The Company anticipates that it will take
approximately nine months to complete its liquidation process; however, any and
all Chapter 11 plans that may be proposed will be subject to obtaining all
necessary approvals, including but not limited to creditor votes and judicial
determinations of confirmability. There can be no assurance, therefore, as to
how long it may take to complete the Company's liquidation process.
(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.
Results of Operations
The net (loss) for the first three months of 2002 was ($80,000) or ($.03)
per share compared to a net (loss) of ($53,000) or ($.02) per share during the
first quarter of 2001.
The decrease in interest income is due to decreased interest rates in 2002.
The decrease in other revenues is due to the recognition of $28,000 of
previously deferred profit from the sales of residential lots during 2001.
The decrease in other expenses is due to a decrease in legal and professional
fees.
Current Business Conditions, Operations, Certain Events and Uncertainties
The Company has attempted to use the net proceeds from the sale of Lajitas
to settle or restructure existing debt, of which approximately $4,835,000 (plus
accrued interest) has matured and is currently past due, and to realize the
carrying amount of its remaining assets. On March 26, 2002, the Board of
Directors of the Company determined that the best alternative to settle the
Company's existing debt was to file a voluntary petition for relief under
Chapter 11 with the Bankruptcy Court. The Company currently anticipates that it
will file its voluntary petition during 2002 and that any plan of liquidation
submitted to the Bankruptcy Court in connection therewith will call for the
disposition of the Company's remaining assets and the distribution of all the
net proceeds therefrom to the Company creditors. The Financial Statements have
been prepared using the historical cost basis of accounting. Management of the
Company believes the historical cost basis of accounting states assets at
approximately their liquidation values and states the Company's liabilities at
their historical amounts. It is not presently determinable what amounts the
creditors will agree to accept in settlement of the obligations due them. The
Financial Statements do not include any adjustments that might result from the
outcome of this uncertainty. Accordingly, the Company believes that the equity
of the Company has, and will continue to have, no value and that any Chapter 11
plan confirmed by the Bankruptcy Court will result in the elimination of the
equity interests of all of the Company's stockholders. The Company anticipates
that it will take approximately nine months to complete its liquidation process;
however, any and all Chapter 11 plans that may be proposed will be subject to
obtaining all necessary approvals, including but not limited to creditor votes
and judicial determinations of confirmability. There can be no assurance,
therefore, as to how long it may take to complete the Company's liquidation
process.
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
None
ITEM 5. Other Information
None
ITEM 6. 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 Certificate 3(b) 1989 Form 10-K
of Incorporation dated June 7, 1989
(c) Articles of Amendment to Certificate 3(c) 1993 Form 10-K
of Incorporation dated May 21, 1993
(d) Bylaws, as Amended, through date 3(d) June 30, 1989 Form 10-K
hereof Form 10-Q
B. Reports on Form 8-K.
The Company filed no reports of Form 8-K during the quarter ended March 31,
2002.
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.
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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: May 13, 2002