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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 SEPTEMBER 30, 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 November 12, 1996, 1,360,169 common shares of the registrant were issued
and outstanding.
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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 September 30, 1996 and the results of operations for the interim
three-month and nine-month periods ending September 30, 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 10
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ITEM 1. FINANCIAL STATEMENTS
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(ROUNDED TO NEAREST HUNDRED, EXCEPT SHARES AND PER SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
1996 1995
(UNAUDITED)
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 42,200 $ 99,200
ACCOUNTS RECEIVABLE 73,300 78,500
INVENTORIES 71,700 67,800
PREPAID EXPENSES 54,000 63,600
---------- ----------
TOTAL CURRENT ASSETS 241,200 309,100
PROPERTY AND EQUIPMENT (NET) 2,171,300 2,435,800
OTHER ASSETS 13,500 23,400
---------- ----------
$2,426,000 $2,768,300
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 91,800 $ 115,900
ACCRUED LIABILITIES 308,900 237,400
PAYABLE TO AFFILIATES 135,100 34,300
NOTES PAYABLE TO STOCKHOLDER 379,600 359,600
---------- ----------
TOTAL CURRENT LIABILITIES 915,400 747,200
DEFERRED RENT LIABILITIES 40,100 69,400
---------- ----------
TOTAL LIABILITIES 955,500 816,600
---------- ----------
STOCKHOLDERS' EQUITY
COMMON STOCK OF $.01 PAR VALUE:
AUTHORIZED 12,000,000 SHARES; 1,360,169 SHARES
ISSUED AND OUTSTANDING AT SEPTEMBER 30, 1996
AND DECEMBER 31, 1995 (NOTE 3) 13,600 13,600
ADDITIONAL PAID-IN CAPITAL 4,413,000 4,413,000
DEFICIT (SINCE AUGUST 1, 1989) (2,956,100) (2,474,900)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,470,500 1,951,700
---------- ----------
$2,426,000 $2,768,300
---------- ----------
---------- ----------
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
Page 3 of 10
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SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(ROUNDED TO NEAREST HUNDRED, EXCEPT PER SHARE AMOUNTS)
<TABLE>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
RESTAURANT REVENUES $1,678,700 $1,515,900 $4,913,600 $4,271,700
RESTAURANT COSTS AND EXPENSES:
COST OF SALES 501,600 465,900 1,437,900 1,281,200
OPERATING EXPENSES 901,000 868,100 2,709,000 2,436,800
DEPRECIATION AND AMORTIZATION 84,200 82,000 255,900 239,000
---------- ---------- ---------- ----------
TOTAL RESTAURANT COSTS AND EXPENSES 1,486,800 1,416,000 4,402,800 3,957,000
---------- ---------- ---------- ----------
INCOME FROM
RESTAURANT OPERATIONS 191,900 99,900 510,800 314,700
GENERAL AND ADMINISTRATIVE EXPENSES 436,900 174,200 1,021,000 782,900
NONOPERATING INCOME, NET 10,000 3,700 29,000 8,200
---------- ---------- ---------- ----------
NET LOSS ($235,000) ($70,600) ($481,200) ($460,000)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET LOSS PER COMMON SHARE ($0.17) ($0.05) ($0.35) ($0.34)
------- ------- ------- ------
------- ------- ------- ------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
Page 4 of 10
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SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(ROUNDED TO NEAREST HUNDRED)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS ($481,200) ($460,000)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH FROM OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 277,700 255,700
GAIN ON SALE OF PROPERTY AND EQUIPMENT (7,900) ----
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE 5,200 58,300
INVENTORIES (3,900) 6,700
PREPAID EXPENSES 9,600 41,300
OTHER ASSETS 9,900 600
ACCOUNTS PAYABLE (24,100) 26,700
ACCRUED LIABILITIES 71,500 (18,000)
PAYABLE TO AFFILIATES 100,800 (12,100)
DEFERRED RENT LIABILITIES (29,300) 3,500
--------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (71,700) (97,300)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
ADDITIONS TO PROPERTY AND EQUIPMENT AND
LEASE INCENTIVES, NET (15,000) (30,200)
PROCEEDS FROM SALE OF PROPERTY AND EQUIPMENT 9,700 ----
--------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (5,300) (30,200)
CASH FLOWS FROM FINANCING ACTIVITIES:
ADDITIONS TO LOANS FROM STOCKHOLDER 20,000 ----
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 20,000 ----
--------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (57,000) (127,500)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 99,200 251,100
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 42,200 $123,600
--------- ---------
--------- ---------
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
Page 5 of 10
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SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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) 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.
(3) 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
retroactively restated to reflect the reverse stock split. There has been
no change in the authorized common shares.
(4) SUBSEQUENT EVENTS
During the third quarter, the Company was pursuing an acquisition of a
fourteen-location national chain of Italian restaurants that were
operating under protection of Chapter 11 of the Bankruptcy Code.
Subsequent to September 30, 1996, the Company gave notice through its
attorney of the termination of its intent to acquire the acquisition
target's assets out of Chapter 11.
Accordingly, included in general and administrative expenses for the
period ended September 30, 1996 are pre-acquisition costs and due
diligence costs of approximately $208,000. It is estimated that
additional costs will be expensed in the three months ending December 31,
1996.
Subsequent to September 30, 1996, the majority shareholder of the Company
advanced funds to the Company in the amount of $100,000 in exchange for a
demand promissory note bearing interest at 8.25% per annum. Proceeds from
this note, in addition to cash flow from operations, were used to pay pre-
acquisition and due diligence costs.
Page 6 of 10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company owns and operates two upscale Italian restaurants. Patrizio I,
located in Dallas, Texas, was opened in 1989 and Patrizio II, located in Plano,
Texas opened in 1994.
Included in general and administrative expenses for the nine months ended
September 30, 1996 are pre-acquisition costs of approximately $208,000 in
connection with the Company's efforts to acquire a fourteen-store Italian
restaurant chain out of Chapter 11 bankruptcy. It is estimated that additional
costs will be expensed in the three months ending December 31, 1996.
Subsequent to September 30, 1996, the majority shareholder of the Company
advanced $100,000 to the Company in exchange for a demand promissory note
bearing interest at 8.25% per annum. Proceeds from this note, in addition to
cash flow from operations, will be used to pay pre-acquisition costs noted
above.
CAPITAL RESOURCES AND LIQUIDITY:
As of September 30, 1996 and 1995, the Company's cash and short-term
investments were approximately $42,200 and $123,600 respectively. Management
believes that sales at the current annual levels will provide sufficient cash
flow to fund operations at existing restaurants for the foreseeable future. In
addition, proceeds from a note from the majority shareholder, as well as
possible future advances from the majority shareholder, will fund the pre-
acquisition costs not paid by cash flow from operations.
RESULTS OF OPERATIONS:
Revenues from restaurant operations increased from $4,271,700 to
$4,913,600 (15%) for the nine months ended September 30, 1995 and 1996,
respectively; income from restaurant operations increased 62% from $314,700 in
1995 to $510,800 in 1996; and net loss increased from $460,000 in 1995 to
$481,200 in 1996.
Restaurant revenues for the nine-month period ended September 30, 1996
increased $641,900 (15%) from the same period in 1995, primarily due to
increased revenues generated from Patrizio II. Patrizio I accounted for 56% of
nine months' revenues in 1996 and 61% of the revenues for the same nine-month
period ended September 30, 1995.
Restaurant costs and expenses for the nine-month period ended September
30, 1996 increased $445,800 (11%) from the same period in 1995. Cost of sales
as a percent of restaurant revenues decreased from 30% for the nine months
ended September 30, 1995 to 29.2% for the same period in 1996.
General and administrative expenses for the nine-month period ended
September 30, 1996 increased $238,100 from the nine-month period ended
September 30, 1995. Included in the September 30, 1996 balance is $208,000 of
pre-acquisition costs associated with the potential acquisition of the fourteen-
unit Italian chain.
Nonoperating income increased during the first nine months of 1996
compared to the same period of 1995 primarily due to the sale of certain excess
equipment and furnishings from the corporate offices.
Page 7 of 10
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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. Enactment of recent legislation
increased the minimum wage by $0.90 per hour over a two-year period effective
October 1, 1996. Operating margins at the restaurant level have been
maintained through rigorous food cost control, procurement efficiencies and one
menu price adjustment of 2%. The cost 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 small 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, including the increase in the minimum wage.
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.
FORWARD-LOOKING STATEMENTS
Certain of the statements made in this report are forward-looking
statements that involve a number of risks and uncertainties. Statements that
should generally be considered forward-looking include, but are not limited to,
those that contain the words "estimate," "anticipate," "in the opinion of
management," "believes," and similar phrases. Among the factors that could
cause actual results to differ materially from the statements made are the
following: general business conditions in the local market served by the
Company's restaurants, competitive factors such as changes in the locations,
menus, pricing or other aspects of competitors' operations, the weather in each
of the locations, expense pressures relating to labor and supplies, and
unanticipated general and administrative expenses, including the costs of
additional acquisitions, expansion or financing.
Page 8 of 10
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K: None
Page 9 of 10
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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, November 12, 1996
- ---------------- President and Director
Jack D. Knox (Principal Executive
Officer)
/s/ Catherine E. Blair Chief Financial Officer November 12, 1996
- ---------------------- (Principal Financial
Catherine E. Blair and Accounting Officer)
Page 10 of 10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER>1
<CURRENCY> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 42,200
<SECURITIES> 0
<RECEIVABLES> 73,300
<ALLOWANCES> 0
<INVENTORY> 71,700
<CURRENT-ASSETS> 241,200
<PP&E> 3,621,800
<DEPRECIATION> 1,450,500
<TOTAL-ASSETS> 2,426,000
<CURRENT-LIABILITIES> 915,400
<BONDS> 0
0
0
<COMMON> 13,600
<OTHER-SE> 1,456,900
<TOTAL-LIABILITY-AND-EQUITY> 2,426,000
<SALES> 4,913,600
<TOTAL-REVENUES> 4,913,600
<CGS> 1,437,900
<TOTAL-COSTS> 4,402,800
<OTHER-EXPENSES> 1,021,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 481,200
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 481,200
<EPS-PRIMARY> (.35)
<EPS-DILUTED> (.35)
</TABLE>
