UNITED STATES 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 June 30, 2002
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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 (I.R.S. Employer Identification No.)
incorporation or organization)
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)
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 August 12,
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
JUNE 30, 2002
(Thousands of Dollars)
(Unaudited)
ASSETS
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CASH $ 2,232
EQUITY IN REAL ESTATE JOINT VENTURES, NET 286
NOTES RECEIVABLE AND OTHER ASSETS 8
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$ 2,526
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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LIABILITIES:
Notes payable $ 4,840
Accounts payable and accrued expenses 2,978
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Total liabilities 7,818
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, $1 par, 1,000,000
shares authorized, none issued --
Common stock, $1 par, 10,000,000 shares authorized,
3,281,331 shares issued 3,281
Additional paid-in capital 3,031
Retained deficit (11,478)
Less treasury stock, 112,402 shares, at cost ( 126)
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Total stockholders' deficit ( 5,292)
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$ 2,526
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The accompanying notes are an integral part of this statement.
SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(Thousands of Dollars, Except Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
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2002 2001 2002 2001
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INTEREST INCOME $ 11 $ 25 $ 23 $ 57
OTHER REVENUES 32 2 38 30
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43 27 61 87
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INTEREST EXPENSE 79 84 156 167
OTHER OPERATING EXPENSES 46 66 67 96
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125 150 223 263
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NET (LOSS) ($ 82) ($ 123) ($ 162) ($ 176)
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BASIC AND DILUTED
(LOSS) PER COMMON SHARE ($ .03) ($ .04) ($ .05) ($ .06)
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AVERAGE NUMBER OF
SHARES OUTSTANDING 3,168,929 3,168,929 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)
Six Months
Ended June 30,
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2002 2001
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Cash flows from operating activities:
Net (loss) ($ 162) ($ 176)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Recognition of deferred profit (37) (28)
Change in assets and liabilities:
Decrease in notes receivable and other assets 52 74
Increase in accounts payable, accrued
expenses and other 137 111
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Net cash used in operating activities (10) (19)
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Cash flows from financing activities:
Payments on notes payable, net --- (12)
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Net decrease in cash (10) (31)
Beginning cash 2,242 2,334
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Ending cash $ 2,232 $ 2,303
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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 $4,840,000 (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 after the plan is filed 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 six months of 2002 was ($162,000) or
($.05) per share compared to a net (loss) of ($176,000) or ($.06) per share
during the first six months of 2001.
The decrease in interest income is due to decreased interest rates in 2002.
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
$4,840,000 (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's 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 after the plan is filed 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 Statements
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
The Company held its annual meeting of stockholders on May 21, 2002, at which
time the stockholders elected the Company's directors. The results were as
follows:
Against/ Broker
For Withheld Abstain Non-Votes
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Directors:
Walter M. Mischer, Sr. 1,602,125 - - -
Walter M. Mischer, Jr. 1,602,125 - - -
Eric Schumann 1,602,125 - - -
ITEM 5. Other Information
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, each of the Chief Executive Officer and the
Senior Vice President - Finance and Principal Financial and Accounting Officer
of the Company has certified that the Quarterly Report of the Company on Form
10-QSB for the period ended June 30, 2002 (the "Report") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
and that the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
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
(99.1) Certifications Pursuant to 18 U.S.C. Section 1350, As *
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
B. Reports on Form 8-K.
The Company filed no reports of Form 8-K during the quarter ended June 30,
2002.
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: August 13, 2002