<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, 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 November 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.

                                       1
<PAGE>
 
           SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
           ---------------------------------------------------------
                          CONSOLIDATED BALANCE SHEET
                          --------------------------
                              SEPTEMBER 30, 1998
                              ------------------
                            (Thousands of Dollars)
                                  (Unaudited)
 
ASSETS
------
 
REAL ESTATE ASSETS:
 Resort development, net                                  2,457        
 Real estate held for resale or development                  98
 Equity in real estate joint ventures, net                  430
                                                         ------
  Total real estate assets                                2,985
CASH                                                         56
ACCOUNTS RECEIVABLE                                         354
OTHER ASSETS                                                 10
                                                         ------
 
                                                         $3,405
                                                          =====
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------

LIABILITIES:
 Notes payable                                            5,028
 Other debt                                                 519
 Accounts payable and accrued expenses                    2,634
 Other liabilities                                          351
                                                         ------
  Total liabilities                                       8,532
                                                         ------
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                                       (11,313)
Less treasury stock, 112,402 shares, at cost               (126)
                                                        --------
 Total stockholders' deficit                             (5,127)
                                                       --------
                                                       $  3,405
                                                       ========

        The accompanying notes are an integral part of this statement.

                                       2
<PAGE>
 
           SOUTHERN INVESTORS SERVICE COMPANY, INC. AND SUBSIDIARIES
           ---------------------------------------------------------
                       CONSOLIDATED STATEMENTS OF INCOME
                       ---------------------------------
<TABLE>
<CAPTION>
                            (Thousands of Dollars)
                                 (Unaudited)
 
                                           Three Months Ended         Nine Months Ended
                                             September  30,             September 30,
                                           ------------------          ----------------
                                           1998          1997         1998         1997
                                           ----          ----         ----         ----
<S>                                   <C>           <C>           <C>           <C>
RESORT REVENUES                       $      250    $      434    $    1,527    $    1,963
                                                                             
REAL ESTATE REVENUES                         115           226           539           907
                                      ----------    ----------    ----------    ----------        
                                             365           660         2,066         2,870
                                      ----------    ----------    ----------    ----------        
RESORT OPERATING EXPENSES                    523           586         1,760         1,961
                                                                             
OTHER OPERATING EXPENSES                      88           197           545           662
                                      ----------    ----------    ----------    ----------        
                                             611           783         2,305         2,623
                                      ----------    ----------    ----------    ----------        
INCOME (LOSS) FROM OPERATIONS               (246)         (123)         (239)          247
                                                                             
INTEREST EXPENSE                             (93)          (93)         (278)         (272)
                                      ----------    ----------    ----------    ----------        
NET  (LOSS)                               ($ 339)        ($216)       ($ 517)       ($  25)
                                      ==========    ==========    ==========    ==========        
BASIC AND DILUTED                                                            
  (LOSS) PER COMMON SHARE                ($  .11)       ($ .07)      ($  .16)      ($  .01)
                                      ==========    ==========    ==========    ==========        
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,
                                                                           -------------------
                                                                           1998           1997
                                                                           ----           ----
Cash flows from operating activities:
<S>                                                                       <C>            <C> 
 Net (loss)                                                               $(517)         $ (25)
 Adjustments to reconcile net (loss) to net cash
   provided by operating activities:
    Equity in undistributed (income) loss of real
     estate joint ventures                                                   15            (87)
    Distribution from (contributions to) real estate joint ventures         190             (9)
    Gain from sale of assets                                                (94)           (76)
    Depreciation and amortization                                           143            127
 Change in assets and liabilities:                                                    
   Investments in resort properties                                        (176)           (31)
   Increase in accounts receivable and other assets                         (50)           (76)
   Increase in accounts payable, accrued                                              
    expenses and other                                                      258            232
                                                                          -----          -----            
       Net cash  (used in) provided by operating activities                (231)           155
                                                                          -----          -----            
Cash flows from investing activities:                                                 
  Proceeds from sale of investments                                          94             76
                                                                          -----          -----            
Cash flows from financing activities:                                                 
 Borrowing (payments) on notes payable and other debt, net                   39            (45)
                                                                          -----         ------ 
Net (decrease) increase in cash                                             (98)            86
Beginning cash                                                              154            154
                                                                          -----         ------
Ending cash                                                               $  56         $  240
                                                                          =====         ====== 
</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 loss of Southern Investors Service Company, Inc. and subsidiaries (the
Company) was ($517,000) for the nine months ended September 30, 1998, as
compared to net loss of ($25,000) for the nine months ended September 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 $5,200,000 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 annual report on Form 10-KSB.  These consolidated
financial statements should be read in conjunction with those notes.

                                       5
<PAGE>
 
Item 2.   Management's Discussion and Analysis or Plan of Operation.

Results of Operations

     The (loss) for the first nine months of 1998 was ($517,000) or  ($.16) per
share compared to a net loss of ($25,000) or ($.01) per share during the first
nine months of 1997.

     Rental and other revenues from the operation of the Company's resort in
west Texas totaled $1,527,000 and $1,963,000 for the nine months ended September
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:

                                  Nine months ended September 30,
                                  -------------------------------
                                        1998          1997
                                        ----          ----
Hotel rooms:
     % Occupancy                             34%           43%
     Average rate                    $    60.34    $    58.34
     Total revenue                   $  421,000    $  440,000
Condominiums:
     % Occupancy                             22%           28%
     Average rate                    $    59.72    $    65.10
     Total revenue                   $   94,000    $  114,000
 
Total rental revenue                 $  515,000    $  554,000
Restaurant, bar and
  golf course revenue                   454,000       558,000
Other revenues                          558,000       851,000
                                     ----------    ----------
Total resort revenues                $1,527,000    $1,963,000
                                     ==========    ==========

     The decrease in other revenues during 1998 is due to the 1997 sale of the
remaining condominium units at the resort owned by the Company.  In addition,
sales in the Company's lumber and hardware operations at the resort decreased
during 1998.  The decrease in occupancy during 1998 was due to the draught which
caused a decrease in river rafting activities at the resort.

                                       6
<PAGE>
 
     Real estate revenues were $539,000 for the first nine months of 1998
compared to $907,000 for the first nine 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 $76,000.  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 and other operating expenses during
1998 is due to a reduction in the number of projects managed by the Company.

  Real estate revenues include the following amounts:
  
                                                         Nine Months Ended
                                                            September 30
                                                            ------------
                                                         1998         1997
                                                         ----         ----
                                                       (Thousands of Dollars)
 
Management fees                                          $423         $630
Interest and other income                                 131          190
Equity in income (loss) of real estate joint ventures     (15)          87
                                                         ----         ----
 
Total real estate revenues                               $539         $907
                                                         ====         ====

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 $5,200,000 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

                                       7
<PAGE>
 
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.

     The undeveloped land located at the Company's resort development in west
Texas and the Company's investment in real estate held for resale or development
are pledged 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.

THE YEAR 2000 ISSUE

     The year 2000 problem is the result of computer programs being written
using two digits (rather than four) to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. Due to the limited nature of
the Company's operations and limited financial resources the Company has not
conducted a comprehensive review of its computer systems to identify the systems
that could be affected by "the year 2000" issue.

     The Company's major systems have all been developed by third party software
providers. The Company has contacted its major computer service providers and
has received assurances that those services will function properly on January 1,
2000. Since the Company does not process a large volume of transactions in its
accounting system and does not rely on other automated systems that could not be
processed manually the Company does not foresee a material financial risk
associated with the year 2000 issue. The Company will continue to coordinate
with its third party providers to assess the year 2000 issue and develop plans
for compliance.

FORWARD LOOKING STATEMENT

     This report contains "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended.  All statements other than
statements of historical fact included in this section and elsewhere in this
report are forward looking statements and, although the Company believes that
the expectations reflected in such forward looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
The Company's business and financial results are subject to various risks and
uncertainties, including the Company's ability to settle or restructure its
remaining debt and other obligations and to generate positive cash flow to cover
its operating expenses, that may cause actual results to differ materially from
the Company's expectations.  The Company does not intend to provide updated
information other than as otherwise required by applicable law.  All subsequent
written and oral forward looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
cautionary statements contained in this paragraph and elsewhere in this report.

                                       8
<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

None

ITEM 5.   Other Information

None

Item 6. Exhibits and Reports on Form 8-K

        (27) Financial Data Schedule

                                       9
<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, 1998

                                       10