<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 OF 1934

For the quarterly period ended September 30, 1996

  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.
       (Exact name of small business issuer as specified in its charter)


                   Delaware                           74-1223691
(State or other jurisdiction of incorporation      (I.R.S. Employer
            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

                             ---------------------

             (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
November 11, 1996, Common Stock $1.00 Par Value
  Transitional Small Business Disclosure Format (Check One):
    Yes    ;   No  X
        ---       ---
<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 generally accepted accounting principles 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.

                                       1
<PAGE>
 
           SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
           --------------------------------------------------------
                          CONSOLIDATED BALANCE SHEET
                          --------------------------                 
                              SEPTEMBER 30, 1996
                              ------------------                       
                            (Thousands of Dollars)
                                  (Unaudited)
<TABLE> 
<CAPTION> 


<S>                                                     <C> 
ASSETS
------                                                   
 
REAL ESTATE ASSETS:
 Resort development, net                               $2,648
 Real estate held for resale or development                98
 Equity in real estate joint ventures, net                500
                                                       ------  
  Total real estate assets                              3,246
CASH                                                      107
ACCOUNTS RECEIVABLE                                       185
OTHER ASSETS                                               12
                                                       ------  
                                                       $3,550 
                                                       ======  
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------                    
 
LIABILITIES:
 Notes payable                                         $5,187
 Other debt                                               755
 Accounts payable and accrued expenses                  1,998
 Other liabilities                                        331
                                                       ------
  Total liabilities                                     8,271
                                                       ------  
 
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                                     (10,907)
 Less treasury stock, 112,402 shares, at cost         (   126)
                                                       ------
  Total stockholders' deficit                         ( 4,721)
                                                       ------

                                                       $3,550
                                                       ======

</TABLE> 

        The accompanying notes are an integral part of this statement.

                                       2
<PAGE>
 
           SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
           ---------------------------------------------------------
 
                       CONSOLIDATED STATEMENTS OF INCOME
                       ---------------------------------
 
                            (Thousands of Dollars)
                                  (Unaudited)
 
<TABLE> 
<CAPTION> 

                                                          Three Months Ended         Nine  Months Ended
                                                             September  30,             September 30,
                                                          --------------------      ----------------------
                                                            1996         1995         1996         1995
                                                          --------     -------      -------       --------
<S>                                                     <C>          <C>          <C>              <C> 
RESORT REVENUES                                         $     271     $    287     $  1,495       $  1,614
 
REAL ESTATE REVENUES                                          216          200          679            875
                                                          --------     -------      -------       --------      
 
                                                              487          487        2,174          2,489
                                                          --------     -------      -------       --------      
 
RESORT OPERATING EXPENSES                                     562          538        1,881          1,685
 
OTHER OPERATING EXPENSES                                      270          218          760            722
                                                          --------     -------      -------       --------   
 
                                                              832          756        2,641          2,407
                                                          --------     -------      -------       --------
 
INCOME (LOSS) FROM OPERATIONS                                (345)        (269)        (467)            82
 
INTEREST EXPENSE                                              (98)        (112)        (297)          (341)
                                                          --------     -------      -------       --------    
 
(LOSS) BEFORE EXTRAORDINARY
  GAIN                                                       (443)        (381)        (764)          (259)
 
EXTRAORDINARY GAIN ON DEBT
  SETTLEMENTS                                                 201           --          897             33
                                                          --------     -------      -------       --------    
 
NET INCOME (LOSS)                                           ($242)       ($381)    $    133        ($  226)
                                                          ========     =======      =======       ========
 
INCOME (LOSS) PER COMMON SHARE:
 (Loss) before extraordinary gain                         ($  .14)      ($ .12)       $(.24)        ($ .08)
                                                          ========     =======      =======       ========
 Net income (loss)                                        ($  .08)      ($ .12)       $ .04         ($ .07)
                                                          ========     =======      =======       ========
 
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.

                                       3
<PAGE>
 
           SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
           ---------------------------------------------------------
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------

                            (Thousands of Dollars)
                                  (Unaudited)


<TABLE> 
<CAPTION> 

                                                              Nine Months
                                                          Ended September 30,
                                                          -------------------
                                                            1996       1995
                                                          --------   --------
<S>                                                       <C>        <C> 

Cash flows from operating activities:
 Net income (loss)                                          $ 133    ($ 226)
 Adjustments to reconcile net income (loss) to net cash
  provided by (used in) by operating activities:
   Equity in undistributed income of real
    estate joint ventures                                     (45)      (73)
   Distributions from real estate joint ventures               84        36
   Extraordinary gain on debt settlements                    (897)      (33)
   Depreciation and amortization                              168       175
 Change in assets and liabilities:
  Investments in resort development                          (147)      (16)
  Decrease in accounts receivable and other assets             65        64
  Increase in accounts payable, accrued
   expenses and other                                         329       107
                                                            -----     -----
 
     Net cash provided by (used in) operating activities     (310)       34
                                                            -----     -----
 
Cash flows from financing activities:
 Advances on notes payable and other debt                     187        --
 Payments on notes payable and other debt                     (87)      (27)
                                                            -----     -----
 
     Net cash provided by (used in) financing activities      100       (27)
                                                            -----     -----
 
Net (decrease) increase in cash                              (210)        7
Beginning cash                                                317        93
                                                            -----     -----
 
Ending cash                                                 $ 107     $ 100
                                                            =====     =====
 
</TABLE>

       The accompanying notes are an integral part of these statements.

                                       4
<PAGE>
 
           SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
           ---------------------------------------------------------
                                        
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------

                                  (Unaudited)


(1)  CURRENT BUSINESS CONDITIONS

     Net income of Southern Investors Service Company, Inc. and subsidiaries
(the Company) was $133,000 for the nine months ended September 30, 1996, as
compared to a loss of $226,000 for the nine months ended September 30, 1995.
Included in net income are extraordinary gains of $897,000 and $33,000 in 1996
and 1995, respectively, from the settlement of certain liabilities for less than
the full amount due.

     The Company has sustained losses from operations for each of the past
several years, and management anticipates that the Company will incur an
operating loss for the remainder of 1996. Cash flow from operations has not been
and will not be sufficient to meet liquidity needs. Such losses have depleted
the Company's stockholders' equity. These factors raise substantial doubt about
the Company's ability to continue as a going concern.

Liability Settlements
---------------------

     During 1995, a joint venture note payable with an outstanding principal
balance of $5.2 million was due and payable. The joint venture in which the
Company had a 19.4% ownership interest was unable to repay this note at its
maturity. During January 1996, the venture obtained a new loan from a bank in
the original principal amount of $3.0 million. The proceeds of this new loan
were used to settle the $5.2 million loan plus accrued interest in full. As a
condition of the new loan, the bank required a ten year lease on the entire
building to be executed by the partners in the ratio of their ownership
interests. However, due to the financial condition of the Company, the bank was
not willing to accept the Company's lease. In addition, the building is in need
of approximately $400,000 in repairs. The Company would have been required to
make an $80,000 capital contribution to fund these repairs. The Company also
owed the venture approximately $70,000 in past due rent for periods prior to
1992. This amount was forgiven in January 1996. As a result, during January
1996, the Company sold its partnership interest to Hallmark Residential Group,
Inc. (Hallmark), a company controlled by Mr. Mischer. In exchange, Hallmark
assumed the Company's obligations in connection with this joint venture and
entered into the ten year lease. In connection with this transaction, the
Company retained a 25% cash flow interest in Hallmark's 20% ownership interest.
The Company recognized an extraordinary gain on the settlement of these
obligations of $408,000.

     During 1996, the Company settled certain notes payable with aggregate
outstanding principal balance of $345,000 and related accrued interest of
$200,000. These obligations were satisfied by the

                                       5
<PAGE>
 
foreclosure of properties which were collateral for these notes which had an
aggregate book value of $227,000 and a cash payment of $30,000. The Company
recognized extraordinary gains on these settlements of $288,000. In addition,
the Company settled certain obligations in connection with cash flow assignments
which were granted to creditors during 1990, and recorded extraordinary gains of
$201,000.

     Management believes that the debt settlements which have been consummated
during 1996 and in prior years have improved the Company's financial condition.
However, debt totaling $1,538,000 has matured and is currently due, and debt
totaling $4,045,000 matures later in 1996. During the quarter ended September
30, 1996, one note holder with a principal balance of $186,000 filed suit
against the Company for collection of the amount due. The ability of the Company
to continue as a going concern is dependent upon its ability to settle or
restructure its remaining debt and other obligations and generate positive cash
flow to cover operating expenses and other cash requirements. Management is
currently reviewing possible options to increase cash flow and settle the
Company's existing liabilities with its limited resources. These options
include, but are not limited to, continued efforts to reduce operating expenses
(including interest), attempts to increase revenues of the Company's resort
development, 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 of reorganization under
Chapter 11 of the U.S. Bankruptcy Code or liquidation of the Company. While
management believes that the assumptions relative to the options currently being
considered are reasonable, there is no assurance that actual events will occur
in accordance with such assumptions. Accordingly, management's assumptions may
need to be revised as actual events occur which differ from such assumptions.
The consolidated financial statements do not include any adjustments, which
could be significant, relating to the recoverability of asset carrying amounts
or the amount 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.

                                       6
<PAGE>
 
(3)    REAL ESTATE OPERATIONS

       Real estate revenues include the following amounts:
<TABLE>
<CAPTION>
 
                                                      Three Months Ended        Nine Months Ended
                                                         September 30,             September 30,
                                                      -------------------       ------------------
                                                       1996         1995         1996         1995
                                                      -------     -------       -------    -------
                                                                 (Thousands of Dollars)
<S>                                                   <C>         <C>           <C>        <C> 
 
Equity in income of real estate joint ventures        $  19       $  14         $  45      $  73
Management fees                                         211         182           623        559
Interest and other income                               (14)          4            11        243
                                                      -----       -----         -----      -----
 
Total real estate revenues                            $ 216       $ 200         $ 679      $ 875
                                                      =====       =====         =====      =====
</TABLE>

The combined condensed statements of income of the real estate joint ventures
accounted for on the equity method are set forth below:

<TABLE>
<CAPTION>
                                                      Three Months Ended        Nine Months Ended
                                                         September 30,             September 30,
                                                      -------------------       ------------------
                                                       1996         1995         1996         1995
                                                      -------     -------       -------    -------
                                                                 (Thousands of Dollars)
<S>                                                   <C>         <C>           <C>        <C> 
 
REVENUES:
  Sales of real estate                                $ 389       $ 262         $1,410     $   918
  Cost of sales                                         231         176            903         626
                                                     ------       -----         ------     -------
                                                        158          86            507         292
 
  Rental and other income                                21         894            239       2,887
                                                     ------       -----         ------     -------
                                                        179         980            746       3,179
EXPENSES:
  Operating expenses                                    (41)      (734)           (232)     (2,243)
  Interest expense                                       --       (128)            (16)       (395)
 
Gain on debt settlements                                 --         --          $1,118(a)       --
                                                     ------       -----         ------     -------
Net income                                            $ 138       $ 118         $1,616     $   541
                                                     ======       =====         ======     =======
 
Equity of the Company in income of real estate
joint ventures (before extraordinary gain)            $  19       $  14         $   45     $    73
                                                     ======       =====         ======     =======
 
</TABLE>

(a) The Company's equity in the gain on the debt settlements is reported in the
   accompanying consolidated statements of income as an extraordinary gain.

                                       7
<PAGE>
 
Item 2.  Management's Discussion and Analysis or Plan of Operation.

Results of Operations
---------------------

         The net income for the first nine months of 1996 was $133,000 or $.04
per share compared to a net loss of $226,000 or $.07 per share during the first
nine months of 1995. During 1996 and 1995 the Company recorded extraordinary
gains of $897,000 and $33,000, respectively, in connection with the settlement
of various obligations at less than the full amount due. See Note 1 of the Notes
to Consolidated Financial Statements.

         Rental and other revenues from the operation of the Company's resort in
west Texas totaled $1,495,000 and $1,614,000 for the nine months ended September
30, 1996 and 1995, respectively. Occupancy was higher during 1995 due to room
rentals in connection with the production of a movie that did not recur in 1996.
Resort operating expenses have increased during the first nine months of 1996
compared to 1995 due to increased salaries and general operating expenses.
Rental revenue and occupancy statistics for the Company's resort operations for
each of these periods are summarized as follows:

<TABLE>
<CAPTION>
 
                             Nine months ended June 30,
                             --------------------------  
                                 1996         1995
                             ------------  ------------
<S>                           <C>          <C>
Hotel rooms:
     % Occupancy                      39%          48%
     Average rate             $    56.73   $    56.04
     Total revenue            $  538,000   $  657,000
Condominiums:
     % Occupancy                      25%          28%
     Average rate             $   113.06   $   115.07
     Total revenue            $  140,000   $  193,000
 
Total rental revenue          $  678,000   $  850,000
Restaurant, bar and
  golf course revenue            559,000      532,000
Other revenues                   258,000      232,000
                              ----------   ----------
Total revenues                $1,495,000   $1,614,000
                              ==========   ==========
 
</TABLE>

         Real estate revenues were $679,000 for the first nine months of 1996
compared to $875,000 last year. The decrease in real estate revenues was due to
the 1995 receipt by the Company of $225,000 in connection with its ownership of
a net profits interest in a Houston subdivision.

                                       8
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

     On an annual basis, cash flow from operations has been negative for the
past several years, and management anticipates that cash flow from operations
will not be sufficient to meet the Company's liquidity needs during 1996.  The
financial condition of the Company indicates that, unless operating results and
cash flow improve, the Company will be required to borrow funds or to continue
to sell assets.  It is unlikely that the Company will be able to arrange to
borrow funds from other sources and there is no assurance that the Company could
sell sufficient assets to meet its cash needs.

     Management believes that the debt settlements which have been consummated
during 1996 and in prior years have improved the Company's financial condition.
However, debt totaling $1,538,000 has matured and is currently due and debt
totaling $4,045,000 matures in 1996.  During the quarter ended September 30,
1996, one note holder with a principal balance of $186,000 filed suit against
the Company for collection of the amount due.  The ability of the Company to
continue as a going concern is dependent upon its ability to settle or
restructure its remaining debt and other obligations and generate positive cash
flow to cover operating expenses and other cash requirements.  Management is
currently reviewing possible options to increase cash flow and settle the
Company's existing liabilities with its limited resources.  These options
include, but are not limited to, continued efforts to reduce operating expenses
(including interest), attempts to increase revenues of the Company's resort
development, 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 of reorganization under
Chapter 11 of the U.S. Bankruptcy Code or liquidation of the Company.  While
management believes that the assumptions relative to the options currently being
considered are reasonable, there is no assurance that actual events will occur
in accordance with such assumptions.  Accordingly, management's assumptions may
need to be revised as actual events occur which differ from such assumptions.
The consolidated financial statements do not include any adjustments, which
could be significant, relating to the recoverability of asset carrying amounts
or the amount of liabilities that might be necessary if the Company is unable to
continue as a going concern.

     With the exception of the improvements located at the Company's resort
development in west Texas, substantially all of the Company's real estate assets
are pledged to banks to secure debt.  Management believes that in a stable
market the values of the properties would exceed the balances of the loans that
they secure.  If the Company were to sell or dispose of its real estate assets
as a result of the maturity or acceleration of the underlying debt or for
reasons other than those arising in the normal course of business, it is
anticipated that sales prices would be significantly less than the current
carrying amount of the assets and that such sales or dispositions would not
generate sufficient funds to retire the related debt.

                                       9
<PAGE>
 
                         PART II  -  OTHER INFORMATION


ITEM 1.   Legal Proceedings

During the quarter ended September 30, 1996, a creditor of the Company filed
suit for the collection of a promissory note payable in the principal amount of
$186,000.

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

          (27) Financial Data Schedule

                                       10
<PAGE>
 
                                 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 12, 1996

                                       11