SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[X X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
Commission file number 0-16808
SIXX HOLDINGS, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 75-2222883
(State of Incorporation) (IRS Employer Identification No.)
300 Crescent Court, Suite 1630
Dallas, Texas 75201
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (214) 855-8800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 XX NO
As of May 13, 1996, 1,360,169 common shares of the registrant were issued and
outstanding.
Page 1 of 11
<PAGE>
PART I. FINANCIAL INFORMATION
The consolidated financial statements of Sixx Holdings, Incorporated
and its subsidiaries (the "Company") included herein have been prepared by the
registrant in conformity with generally accepted accounting principles. The
consolidated financial statements and information included herein are unaudited;
however, they reflect all adjustments which are, in the opinion of management,
necessary to reflect a fair presentation of the Company's financial position as
of March 31, 1996 and the results of operations for the interim three-month
periods ending March 31, 1996 and 1995. Reference is made to Notes to Unaudited
Consolidated Financial Statements found elsewhere in this document for
additional information concerning the consolidated financial statements.
Management is responsible for the fairness and reliability of the
consolidated financial statements and other financial data included in this
report. In the preparation of the consolidated financial statements, it is
necessary to make informed estimates and judgments based on currently available
information on the effects of certain events and transactions.
The Company maintains accounting and other controls which management
believes provide reasonable assurance that financial records are reliable,
assets are safeguarded, and that transactions are properly recorded in
accordance with management's authorizations. However, limitations exist in any
system of internal control based upon the recognition that the cost of the
system should not exceed benefits derived.
Page 2 of 11
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
Sixx Holdings, Incorporated and Subsidiaries
Consolidated Balance Sheets
(Rounded to nearest hundred, except share and per share amounts)
<TABLE>
<CAPTION>
March 31, 1996 December 31,
(Unaudited) 1995
----------- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 39,200 $ 99,200
Accounts receivable 80,600 78,500
Inventories 69,100 67,800
Prepaid expenses 70,300 63,600
------ ------
Total current assets 259,200 309,100
Property and equipment (net) 2,330,600 2,435,800
Other assets 13,500 23,400
------ ------
$2,603,300 $ 2,768,300
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current liabilities:
Accounts payable $ 60,200 $ 115,900
Accrued liabilities 224,600 237,400
Payable to affiliates 61,600 34,300
Notes payable to stockholder 379,600 359,600
------- -------
Total current liabilities 726,000 747,200
Deferred rent liabilities 59,600 69,400
------ ------
TOTAL LIABILITIES 785,600 816,600
------- -------
STOCKHOLDERS' EQUITY
Common stock of $.01 par value:
Authorized 12,000,000 shares; 1,360,169 shares
issued and outstanding at March 31, 1996 and
December 31, 1995 (note 4) 13,600 13,600
Additional paid-in capital 4,413,000 4,413,000
Deficit (since August 1, 1989) (2,608,900) (2,474,900)
-- ---- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,817,700 1,951,700
---------- ----------
$2,603,300 $2,768,300
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
Page 3 of 11
<PAGE>
Sixx Holdings, Incorporated and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(Rounded to nearest hundred, except per share amounts)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1996 1995
<S> <C> <C>
Restaurant revenues $1,471,500 $1,217,100
---------- ----------
Restaurant costs and expenses:
Cost of sales 421,600 357,900
Operating expenses 834,800 726,100
Depreciation and amortization 87,000 80,900
------ ------
Total restaurant costs and expenses 1,343,400 1,164,900
---------- ----------
Income from restaurant operations 128,100 52,200
General and administrative expenses 272,800 284,300
Nonoperating income, net 10,700 2,200
------ -----
Net loss ($134,000) ($229,900)
=========== ===========
Loss per common share (note 4) ($0.10) ($0.17)
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
Page 4 of 11
<PAGE>
Sixx Holdings, Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(Rounded to nearest hundred)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($134,000) ($229,900)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 94,500 83,900
Gain on sale of property and equipment (7,900) ---
Changes in assets and liabilities:
Accounts receivable (2,100) 55,000
Inventories (1,300) 3,100
Prepaid expenses (6,700) 19,600
Other assets 9,900 600
Accounts payable (55,700) 13,200
Accrued liabilities (12,800) (20,800)
Payable to affiliates 27,300 10,400
Deferred rent liabilities (9,800) (6,500)
----------- ----------
Net cash used in operating activities (98,600) (71,400)
----------- ----------
Cash flows from investing activities:
Additions to property and equipment and lease
incentives, net 8,900 (8,000)
Proceeds from sale of property and equipment 9,700 ---
----------- ----------
Net cash provided by (used in) investing activities 18,600 (8,000)
Cash flows from financing activities:
Additions to loans from stockholder 20,000 ---
----------- ----------
Net cash provided by financing activities 20,000 ---
----------- ----------
Net decrease in cash and cash equivalents (60,000) (79,400)
Cash and cash equivalents at beginning of period 99,200 251,100
----------- ----------
Cash and cash equivalents at end of period $39,200 $171,700
=========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
Page 5 of 11
<PAGE>
Sixx Holdings, Incorporated and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
March 31, 1996
(1) Basis of Presentation
---------------------
In the opinion of management of the Company, all adjustments (all of
which are normal and recurring) have been made which are necessary to
present fairly the accompanying consolidated financial statements.
(2) Merger Transaction
------------------
On April 25, 1994, Patrizio Restaurant, Inc., a Texas corporation,
("Patrizio I") and Patrizio North, Inc., a Texas corporation,
("Patrizio II") were merged (the "Merger") with and into Patrizio
Acquisition, Inc., a Texas corporation and wholly owned subsidiary of
the Company. At the effective date of the Merger, the name of Patrizio
Acquisition, Inc. was changed to Patrizio Restaurant, Inc.
Prior to the Merger, Jack D. Knox, the president, chief executive
officer and a director of the Company, owned 100% of the outstanding
capital stock of Patrizio I and Patrizio II and approximately 51% of
the Company's outstanding common stock. Pursuant to the terms of the
Agreement and Plan of Merger (the "Merger Agreement"), Mr. Knox
exchanged the outstanding shares of capital stock of Patrizio I and
Patrizio II for, in the aggregate, approximately $2,967,700 (of which
$2,365,600 went to repay Mr. Knox for personal funds advanced to build
the Patrizio II restaurant) and 6,163,934 shares of the Company's
common stock; of which 4,717,896 shares are restricted and
unregistered. As a result of the common control of the entities, which
occurred effective January 1, 1994, the Merger was treated in a manner
similar to a pooling of interests for financial accounting purposes.
Accordingly, the assets acquired and liabilities assumed are presented
at their historical costs in the accompanying consolidated financial
statements and the results of operations of Patrizio I and II are
included from the effective date at which common control was
established.
The consideration received by Mr. Knox pursuant to the Merger Agreement
was determined by negotiations between the parties, and is supported by
appraisals prepared by three separate independent business valuation
companies and a fairness opinion prepared by one of the valuation
companies. The cash portion of the purchase price paid to Mr. Knox in
the Merger was funded from the Company's existing cash and included
payment to Mr. Knox for personal funds advanced by him in connection
with the construction of Patrizio II aggregating approximately
$2,365,600.
Prior to the Merger, Patrizio I owned and operated an upscale Italian
food restaurant in Dallas, Texas which opened for business in 1989, and
Patrizio II owned and operated a similar restaurant in Plano, Texas,
since its opening on March 14, 1994. All assets acquired in the Merger,
which included the two existing restaurants, the "Patrizio" concept,
design and motif, and other assets used in the day-to-day operations of
the two existing restaurants, continue to be utilized in operating the
existing two restaurants.
Page 6 of 11
<PAGE>
Sixx Holdings, Incorporated and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
March 31, 1996
(3) Accounting Policies
-------------------
During the interim periods presented, the Company has followed the
accounting policies set forth in its consolidated financial statements
and related notes thereto, included in its 1995 Annual Report on Form
10-KSB. Such document should be referred to for information on
accounting policies and further financial details.
(4) Reverse Stock Split
-------------------
On February 19, 1996, the Board of Directors of the Company approved a
one-for-eight reverse stock split effective March 15, 1996. The reverse
split reduced the Company's issued stock by 9,521,187 shares. Common
stock was reduced by $95,200, with a corresponding increase to
additional paid-in capital, retaining the $.01 par value per share. The
Company's consolidated financial statements and all share amounts have
been restated to reflect the reverse stock split. There has been no
change in the authorized common shares.
Page 7 of 11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Prior to April 25, 1994, the Company's assets consisted primarily of cash
and cash equivalents. On that date, Patrizio I and Patrizio II were merged with
and into a subsidiary of the Company in exchange for the payment by the Company
of approximately $3.0 million in cash and 6,163,934 shares of the Company's
common stock. Prior to the Merger, Patrizio I owned and operated an upscale
Italian food restaurant in Dallas, Texas and Patrizio II owned and operated a
similar restaurant in Plano, Texas. All assets acquired in the Merger, which
include the two existing restaurants, the "Patrizio" concept, design and motif,
and other assets used in the day-to-day operations of the two existing
restaurants, continue to be utilized in operating the existing two restaurants.
Prior to the Merger, Jack D. Knox, the chairman, president, and a director
of the Company, owned 100% of the outstanding capital stock of Patrizio I and
Patrizio II and approximately 51% of the Company's outstanding common stock. As
a result of the common control of entities, which occurred effective January 1,
1994, the Merger was treated in a manner similar to a pooling of interests for
financial accounting purposes. Accordingly, the assets acquired and liabilities
assumed were recorded at their historical costs and the results of operations of
Patrizio I and Patrizio II are consolidated from the effective date at which
common control was established.
Capital Resources and Liquidity:
- - --------------------------------
Since 1990, the Company reviewed numerous opportunities to acquire an
operating business utilizing its cash and cash equivalents. As described
elsewhere in this document, the Company acquired the design and concept rights
of Patrizio and two Patrizio Italian-themed restaurants effective April 25,
1994. This transaction utilized $2,967,661 of the Company's cash and short-term
investments which totaled $3,594,060 at March 31, 1994. As of March 31, 1996 and
1995, $213,813 is payable to Mr. Knox for advances made relating to Patrizio I.
In addition to the cash consideration, the Company issued 6,163,934 shares of
common stock to Mr. Knox.
As of March 31, 1996, the Company's cash and cash equivalents were
approximately $39,000. Management believes that sales at the current annual
levels will provide sufficient cash flow to fund operations at existing
restaurants for the foreseeable future. Future restaurant expansion will require
additional capital. Evaluation of various financing options is under
consideration by the Company at this time.
Page 8 of 11
<PAGE>
Results of Operations:
- - ----------------------
The Company entered the casual dining segment of the restaurant industry as
a result of its Merger with Patrizio I and Patrizio II on April 25, 1994. Prior
to the Merger, the Company had no operating business.
As described in more detail below, during the three-month period ended
March 31, 1996, revenues from restaurant operations increased 21%; income from
restaurant operations increased from $52,200 in 1995 to $128,100 in 1996; and
net loss decreased from $229,900 for the three months ended March 31, 1995 to
$134,000 for the same period in 1996.
Restaurant revenues for the quarter ended March 31, 1996 increased $254,400
(21%) from the quarter ended March 31, 1995, primarily due to increased revenues
generated from Patrizio II. Patrizio I accounted for 58% and 62% of the revenues
for the three-month periods ended March 31, 1996 and 1995, respectively.
Restaurant costs and expenses for the three-month period ended March 31,
1996 increased $178,500, or 15%, from the same period in 1995. Cost of sales as
a percent of restaurant revenues decreased from 29.4% for the quarter ended
March 31, 1995 to 28.7% for the same period in 1996.
General and administrative expenses for the three-month period ended March
31, 1996 decreased $11,500 (4%) from the three-month period ended March 31,
1995.
Nonoperating income increased $8,500 during the first three months of 1996
compared to the first quarter of 1995 primarily due to the sale of certain
equipment held at the corporate headquarters.
Impact of Inflation:
- - --------------------
The Company is subject to the effect of inflation on its restaurant labor,
food and occupancy costs. The Company employs workers who are paid hourly rates
based upon the federal minimum wage, which last increased in 1991. Operating
margins at the restaurant level have been improved through rigorous food cost
control, procurement efficiencies and, as a last resort, menu price adjustments.
Competitive pressures and the Company's strategy of providing an upscale dining
experience for a moderate expense preclude the Company from frequent menu price
adjustments. The costs of taxes, maintenance and insurance all have an impact on
the Company's occupancy costs, which continued to increase during the period.
Management believes the current practice of maintaining operating margins
through a combination of infrequent menu price increases and cost controls,
careful evaluation of property and equipment needs, and efficient purchasing
practices is the most effective means to manage the effects of inflation.
Seasonality
- - -----------
The Company's business is somewhat seasonal in nature, with restaurant
revenues being stronger in the spring and autumn when patrons can be seated
comfortably on each restaurant's outdoor patio.
Page 9 of 11
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K: None
Page 10 of 11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIXX HOLDINGS, INCORPORATED
By: /s/ Jack D. Knox
Jack D. Knox, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
the dates indicated.
SIGNATURE TITLE DATE
/s/ Jack D. Knox Chairman of the Board, May 13, 1996
Jack D. Knox President and Director
(Principal Executive Officer)
/s/Dorothy L. Douglas Secretary and Treasurer May 13, 1996
Dorothy L. Douglas (Chief Financial Officer)
Page 11 of 11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 39,200
<SECURITIES> 0
<RECEIVABLES> 80,600
<ALLOWANCES> 0
<INVENTORY> 69,100
<CURRENT-ASSETS> 259,200
<PP&E> 2,330,600
<DEPRECIATION> 94,500
<TOTAL-ASSETS> 2,603,300
<CURRENT-LIABILITIES> 726,000
<BONDS> 0
0
0
<COMMON> 13,600
<OTHER-SE> 1,804,100
<TOTAL-LIABILITY-AND-EQUITY> 2,603,300
<SALES> 1,471,500
<TOTAL-REVENUES> 1,471,500
<CGS> 421,600
<TOTAL-COSTS> 1,343,400
<OTHER-EXPENSES> 272,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (134,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
