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 OF 1934
For the quarterly period ended September 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 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
________________________________________________________________________________
(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
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 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 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
Financial Statements be read in conjunction with the 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.
BALANCE SHEET
SEPTEMBER 30, 2002
(Thousands of Dollars)
(Unaudited)
ASSETS
- ------
CASH $ 2,204
EQUITY IN REAL ESTATE JOINT VENTURES, NET 286
NOTES RECEIVABLE AND OTHER ASSETS 8
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$ 2,498
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
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LIABILITIES:
Notes payable $ 4,845
Accounts payable and accrued expenses 3,053
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Total liabilities 7,898
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, $1 par, 1,000,000
shares authorized, none issued --
Common stock, $1 par, 10,000,000 shares authorized,
3,281,331 shares issued 3,281
Additional paid-in capital 3,031
Retained deficit (11,586)
Less treasury stock, 112,402 shares, at cost (126)
--------
Total stockholders' deficit (5,400)
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$ 2,498
========
The accompanying notes are an integral part of this financial statement.
SOUTHERN INVESTORS SERVICE COMPANY, INC.
STATEMENTS OF LOSS
(Thousands of Dollars, Except Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2002 2001 2002 2001
---- ---- ---- ----
INTEREST INCOME $ 13 $ 18 $ 37 $ 75
OTHER REVENUES 10 -- 48 30
----------- ----------- ----------- -----------
23 18 85 105
----------- ----------- ----------- -----------
INTEREST EXPENSE 79 75 235 242
OTHER OPERATING EXPENSES 52 26 120 122
----------- ----------- ----------- -----------
131 101 355 364
----------- ----------- ----------- -----------
NET LOSS ($108) ($83) ($270) ($259)
=========== =========== =========== ===========
BASIC AND DILUTED
LOSS PER COMMON SHARE ($.03) ($.03) ($.08) ($.08)
=========== =========== =========== ===========
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 financial statements.
SOUTHERN INVESTORS SERVICE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Nine Months
Ended September 30,
-------------------
2002 2001
---- ----
Cash flows from operating activities:
Net loss ($270) ($259)
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Recognition of deferred profit (46) (28)
Change in assets and liabilities:
Decrease in notes receivable and other assets 62 113
Increase in accounts payable, accrued
expenses and other 216 187
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Net cash (used in) provided by operating activities (38) 13
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Cash flows from financing activities:
Payments on notes payable, net --- (38)
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Net decrease in cash (38) (25)
Beginning cash 2,242 2,334
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Ending cash $ 2,204 $ 2,309
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Interest paid in cash $ 0 $ 8
======= =======
The accompanying notes are an integral part of these financial statements.
SOUTHERN INVESTORS SERVICE COMPANY, INC.
NOTES TO 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 $4,845,000 (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 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 in
late 2002 or early 2003 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 the Company's
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 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 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 nine months of 2002 was ($270,000) or
($.09) per share compared to a net (loss) of ($259,000) or ($.08) per share
during the first nine months of 2001.
Other revenues are primarily the recognition of gross profits deferred in prior
periods from the sale of real estate.
The decrease in interest income is due to decreased interest rates in 2002.
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
$4,845,000 (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 in late 2002 or early 2003 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 the Company's 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.
Item 3. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of a date within 90 days of the filing
date of this Quarterly Report of the Company on Form 10-QSB for the period ended
September 30, 2002, the Company's Chief Executive Officer, its President and
Principal Executive Officer and its Senior Vice President - Finance and
Principal Financial and Accounting Officer have concluded that the Company's
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934) are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.
Changes in Internal Controls
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
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
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 September 30, 2002 (this "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 this 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
(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 a Form 8-K on August 13, 2002, as amended on August 26,
2002, reporting a change in the Company's certifying independent public
accountants.
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: November 14, 2002
CERTIFICATIONS
I, Walter M. Mischer, Sr., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Southern
Investors Service Company, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Walter M. Mischer, Sr.
---------------------------------
Name: Walter M. Mischer, Sr.
Title: Chief Executive Officer
I, Walter M. Mischer, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Southern
Investors Service Company, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Walter M. Mischer, Jr.
---------------------------------
Name: Walter M. Mischer, Jr.
Title: President - Principal Executive Officer
I, Eric Schumann, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Southern
Investors Service Company, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which
this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Eric Schumann
------------------------------------
Name: Eric Schumann
Title: Senior Vice President - Finance
Principal Financial and Accounting Officer