<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 June 30, 1998
                               ----------------
 
       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             (I.R.S. Employer Identification No.)
  incorporation or organization)           


    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 August 10, 1998,
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.
<PAGE>
 
           SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEET
                                 JUNE 30, 1998
                            (Thousands of Dollars)
                                  (Unaudited)
 
ASSETS
------
 
REAL ESTATE ASSETS:
 Resort development, net                                $ 2,454 
 Real estate held for resale or development                  98
 Equity in real estate joint ventures, net                  434
                                                         ------
  Total real estate assets                                2,986
CASH                                                        205
ACCOUNTS RECEIVABLE                                         279
OTHER ASSETS                                                 12
                                                         ------
 
                                                        $ 3,482
                                                         ======
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
 
LIABILITIES:
 Notes payable                                          $ 4,920 
 Other debt                                                 511
 Accounts payable and accrued expenses                    2,503
 Other liabilities                                          336
                                                         ------
  Total liabilities                                       8,270
                                                         ------
 
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                                       (10,974)
 Less treasury stock, 112,402 shares, at cost              (126)
                                                         ------
  Total stockholders' deficit                            (4,788)
                                                         ------
                                                         $3,482
                                                         ======


        The accompanying notes are an integral part of this statement.
<PAGE>
 
           SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME
 

                            (Thousands of Dollars)
                                  (Unaudited)

<TABLE> 
<CAPTION> 
                                                 Three Months Ended         Six Months Ended
                                                     June  30,                  June 30,
                                        ---------------------------    --------------------------
                                            1998            1997          1998            1997               
                                        ----------       ----------    ----------     -----------
<S>                                     <C>              <C>           <C>            <C>        
RESORT REVENUES                         $      529       $      735    $    1,277     $     1,529
 
REAL ESTATE REVENUES                            98              421           423             682
                                        ----------       ----------    ----------     -----------
 
                                               627            1,156         1,700           2,211
                                        ----------       ----------    ----------     ----------- 
RESORT OPERATING EXPENSES                      585              674         1,237           1,373
 
OTHER OPERATING EXPENSES                       253              260           457             464
                                        ----------       ----------    ----------     ----------- 
                                               838              934         1,694           1,837
                                        ----------       ----------    ----------     ----------- 
INCOME (LOSS) FROM OPERATIONS                 (211)             222             6             374
 
INTEREST EXPENSE                               (93)             (91)         (184)           (183)
                                        ----------       ----------    ----------     ----------- 
NET INCOME (LOSS)                       $     (304)      $      131    $     (178)    $       191
                                        ==========       ==========    ==========     ===========
 
BASIC AND DILUTED EARNING
 (LOSS) PER COMMON SHARE                $     (.10)      $      .04    $     (.06)    $       .06
                                        ----------       ==========    ----------     =========== 
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.
<PAGE>
 
           SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                            (Thousands of Dollars)
                                  (Unaudited)

<TABLE> 
<CAPTION> 
 
                                                                            Six Months
                                                                          Ended June 30,
                                                                         ---------------
                                                                           1998     1997
                                                                         ------    -----
<S>                                                                      <C>       <C>  
Cash flows from operating activities:
 Net (loss) income                                                        $(178)    $191
 Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
    Equity in undistributed (income) loss of real
     estate joint ventures                                                   10      (61)
    Distribution from (contributions to) real estate joint ventures         190       (4)
    Gain from sale of assets                                                (94)     (79)
    Depreciation and amortization                                            95       99
 Change in assets and liabilities:
   Investments in real estate                                              (125)     (28)
   Decrease in accounts receivable and other assets                          22       19
   Increase in accounts payable, accrued
    expenses and other                                                      107      107
                                                                          -----     ----
      Net cash provided by operating activities                              27      244
                                                                          -----     ----
Cash flows from investing activities:
  Proceeds from sale of investments                                          94       79
                                                                          -----     ----
Cash flows from financing activities:
 Payments on notes payable and other debt, net                              (70)     (36)
                                                                          -----     ----
Net increase in cash                                                         51      287
Beginning cash                                                              154      154
                                                                          -----     ----
Ending cash                                                               $ 205     $441
                                                                          =====     ====
 
</TABLE>

       The accompanying notes are an integral part of these statements.
<PAGE>
 
           SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
                                        
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Unaudited)


(1)  CURRENT BUSINESS CONDITIONS

  Net loss of Southern Investors Service Company, Inc. and subsidiaries (the
Company) was ($178,000) for the six months ended June 30, 1998, as compared to
net income of $191,000 for the six months ended June 30, 1997.

  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 1998.  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.

  Debt totaling $5,201,000 has matured and is currently 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. In
considering the foregoing options management has made certain assumptions
relative to the options currently being considered that management believes are
reasonable.  However, 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 relating to
the recoverability of asset carrying amounts or the amount of liabilities, which
adjustments might be necessary if the Company is unable to continue as a going
concern and could be significant.

(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 
<PAGE>
 
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 (loss) for the first six months of 1998 was ($178,000) or  ($.10) per
share compared to a net income of $191,000 or $.06 per share during the first
six months of 1997.

  Rental and other revenues from the operation of the Company's resort in west
Texas totaled $1,277,000 and $1,529,000 for the six months ended June 30, 1998
and 1997, respectively.  Rental revenue and occupancy statistics for the
Company's resort operations for each of these periods are summarized as follows:
 
                               Six months ended June 30,
                               -------------------------
                                  1998          1997
                               -----------   -----------
Hotel rooms:
     % Occupancy                       45%           52%
     Average rate              $    60.07    $    59.15
     Total revenue             $  448,000    $  505,040
Condominiums:
     % Occupancy                       29%           35%
     Average rate              $    58.71    $    66.99
     Total revenue             $   84,000    $   98,000
 
Total rental revenue           $  532,000    $  603,040
Restaurant, bar and
  golf course revenue             477,000       437,000
Other revenues                    268,000       489,000
                               ----------    ----------
Total resort revenues          $1,277,000    $1,529,000
                               ==========    ==========
 
     The decrease in other revenues during 1998 is due to the 1997 sale of the
remaining condominium units owned by the Company.  In addition, sales in the
Company's lumber and hardware operations decreased during 1998.
 
<PAGE>
 
     Real estate revenues were $423,000 for the first six months of 1998
compared to $682,000 for the first six months of 1997.  During 1998, the Company
sold its 12.5% interest in Heritage Park Venture II for a gain of $94,000.
During 1997, the Company sold its remaining investment in a former subsidiary
for a gain of $79,000.  In addition, during 1997 the Company received litigation
proceeds of $86,000.  These gains are included in interest and other income.
The decrease in management fees during 1998 is due to a reduction in the number
of projects managed by the Company.


  Real estate revenues include the following amounts:
 
                                                         Six Months Ended
                                                              June 30,
                                                           -------------
                                                           1998    1997
                                                           -----   -----       
                                                      (Thousands of Dollars)
 
Management fees                                            $ 286    $431
Interest and other income                                    147     190
Equity in income (loss) of real estate joint ventures        (10)     61
                                                           -----    ----
Total real estate revenues                                 $ 423    $682
                                                           =====    ====

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 1998.  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.

     Debt totaling $5,201,000 has matured and is currently 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

<PAGE>
 
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. In considering the foregoing options management
has made certain assumptions relative to the options currently being considered
that management believes are reasonable. However, 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 relating to the recoverability of asset carrying amounts
or the amount of liabilities, which adjustments might be necessary if the
Company is unable to continue as a going concern and could be significant.

     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.
<PAGE>
 
                         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 19, 1998, at which
time the stockholders elected the Company's directors and ratified the
appointment of Arthur Andersen LLP independent public accountants for the
company for the year ending December 31, 1998.  The results were as follows:
 
                                        Against/              Broker
                               For      Withheld   Abstain   Non-Votes
                            ---------   --------   -------   ---------
 
Directors:
 
Walter M. Mischer, Sr.      2,592,270        470         -           -
 
Walter M. Mischer, Jr.      2,592,240        500         -           -
 
John D. Weil                2,592,270        470         -           -
 
Accountants                 2,557,880     34,780        80           -
 

ITEM 5.   Other Information

None

Item 6.   Exhibits and Reports on Form 8-K

     (27) Financial Data Schedule
<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:  August 13, 1998