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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, 1997
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 October 31, 1997, 1,359,273 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, 1997 and the results of operations for the interim three-month
and nine-month periods ending September 30, 1997 and 1996. 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,
1997 1996
(UNAUDITED)
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 153,500 $ 118,100
ACCOUNTS RECEIVABLE 51,500 57,400
INVENTORIES 77,500 75,800
PREPAID EXPENSES 77,200 56,400
----------- -----------
TOTAL CURRENT ASSETS 359,700 307,700
PROPERTY AND EQUIPMENT (NET) 1,848,600 2,082,400
OTHER ASSETS 11,800 13,700
----------- -----------
$ 2,220,100 $ 2,403,800
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 71,600 $ 262,500
ACCRUED LIABILITIES 232,000 196,100
PAYABLE TO AFFILIATES 316,900 179,200
NOTES PAYABLE TO STOCKHOLDER 589,600 579,600
----------- -----------
TOTAL CURRENT LIABILITIES 1,210,100 1,217,400
CAPITAL LEASE OBLIGATIONS 6,500 ---
DEFERRED RENT LIABILITIES 27,100 31,200
----------- -----------
TOTAL LIABILITIES 1,243,700 1,248,600
----------- -----------
STOCKHOLDERS' EQUITY:
COMMON STOCK OF $.01 PAR VALUE:
AUTHORIZED 12,000,000 SHARES; 1,359,273 AND
1,359,274 SHARES ISSUED AND OUTSTANDING AT
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996,
RESPECTIVELY 13,600 13,600
ADDITIONAL PAID-IN CAPITAL 4,408,900 4,408,900
ACCUMULATED DEFICIT (SINCE AUGUST 1, 1989) (3,446,100) (3,267,300)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 976,400 1,155,200
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$ 2,220,100 $ 2,403,800
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----------- -----------
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,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
RESTAURANT REVENUES $1,787,700 $1,678,700 $5,170,000 $4,913,600
COSTS AND EXPENSES:
COST OF SALES 531,600 501,600 1,513,800 1,437,900
RESTAURANT EXPENSES 949,400 901,000 2,793,600 2,709,000
DEPRECIATION AND AMORTIZATION 96,200 91,300 282,100 277,700
GENERAL AND ADMINISTRATIVE EXPENSES 213,600 424,100 743,700 982,300
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 1,790,800 1,918,000 5,333,200 5,406,900
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS (3,100) (239,300) (163,200) (493,300)
NONOPERATING INCOME (EXPENSE)
INTEREST EXPENSE - STOCKHOLDER (16,000) (5,700) (46,200) (16,900)
INTEREST INCOME --- 300 --- 900
OTHER INCOME, NET 9,800 9,700 30,600 28,100
---------- ---------- ---------- ----------
NET LOSS $ (9,300) $ (235,000) $ (178,800) $ (481,200)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
LOSS PER COMMON SHARE $ (0.01) $ (0.17) $ (0.13) $ (0.35)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</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)
<TABLE>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
NET LOSS $(178,800) $(481,200)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH FROM
OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 282,100 277,700
GAIN ON SALE OF PROPERTY AND EQUIPMENT --- (7,900)
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE 5,900 5,200
INVENTORIES (1,700) (3,900)
PREPAID EXPENSES (20,800) 9,600
OTHER ASSETS 1,900 9,900
ACCOUNTS PAYABLE (190,900) (24,100)
ACCRUED LIABILITIES 35,900 71,500
PAYABLE TO AFFILIATES 137,700 100,800
DEFERRED RENT LIABILITIES (4,100) (29,300)
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 67,200 (71,700)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
ADDITIONS TO PROPERTY AND EQUIPMENT AND
LEASE INCENTIVES, NET (48,300) (15,000)
PROCEEDS FROM SALE OF PROPERTY AND EQUIPMENT --- 9,700
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (48,300) (5,300)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
ADDITIONS TO NOTES PAYABLE TO STOCKHOLDER, NET (NOTE 3) 10,000 20,000
ADDITIONS TO CAPITAL LEASE OBLIGATIONS 6,500 ---
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 16,500 20,000
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 35,400 (57,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 118,100 99,200
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 153,500 $ 42,200
--------- ---------
--------- ---------
</TABLE>
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, 1997
(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 1996 Annual Report on Form 10-KSB.
Such document should be referred to for information on accounting policies
and further financial details.
(3) RELATED PARTY TRANSACTIONS
Effective January 1, 1997, the loans from shareholder with rates less than
9.25% per annum were modified to bear interest at 9.25% per annum.
Effective July 1, 1997, the loans from shareholder were modified to bear
interest at 9.50% per annum. During the nine months ended September 30,
1997, the majority shareholder of the Company loaned to the Company
$130,000 under demand promissory notes bearing interest at 9.25%. In
addition, the Company repaid promissory notes totaling $120,000 and the
accrued interest thereon of approximately $6,600.
Subsequent to September 30, 1997, the Company repaid additional promissory
notes of $40,000 and accrued interest thereon of approximately $3,300.
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.
CAPITAL RESOURCES AND LIQUIDITY:
As of September 30, 1997 and 1996 the Company's cash and cash
equivalents were approximately $153,500 and $42,200 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.
During the nine months ended September 30, 1997, the majority shareholder of
the Company loaned $130,000 to the Company in exchange for demand promissory
notes bearing interest at a current rate of 9.50% per annum. In addition,
the Company repaid to the majority shareholder promissory notes totaling
$120,000 and the accrued interest thereon. Subsequent to September 30, 1997,
the Company repaid additional promissory notes totaling $40,000 and the
accrued interest thereon.
RESULTS OF OPERATIONS:
Revenues from restaurant operations increased from $4,913,600 to
$5,170,000 (5.2%) for the nine months ended September 30, 1996 and 1997,
respectively; loss from operations decreased 66.9% from $493,300 in 1996 to
$163,200 in 1997; and net loss decreased 62.8% from $481,200 in 1996 to
$178,800 in 1997.
Restaurant revenues for the nine-month period ended September 30, 1997
increased $256,400 (5.2%) from the same period in 1996, primarily because of
increased revenues generated by Patrizio II's increased cover count.
Patrizio I accounted for 54% and 56% of the revenues for the nine-month
periods ended September 30, 1997 and 1996, respectively.
Restaurant expenses for the nine-month period ended September 30, 1997
increased $84,600 (3.1%) from the same period in 1996 primarily because of
the increase in revenues. Cost of sales as a percent of restaurant revenues
remained constant at 29.3% for the nine months ended September 30, 1996 and
1997.
General and administrative expenses for the nine-month period ended
September 30, 1997 decreased $238,600 (24.3%) from the nine-month period
ended September 30, 1996. 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; there were no such costs during
1997. Continued cost control measures also contributed to the decrease in
general and administrative expenses.
Interest expense - stockholder increased during the first nine months of
1997 compared to the same period of 1996 because of the increase in the
principal balance of loans outstanding and the modification of the interest
rates from 6% per annum in 1996 to 9.50% per annum in 1997.
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 minimal menu price adjustments. 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 5. OTHER INFORMATION
Effective October 9, 1997, trading in the Company's shares of common
stock, which traded under the symbol "SIXX", is no longer included in the
National Association of Dealers Automated Quotation System (NASDAQ). The
Company's shares of common stock continue to trade in the over-the-counter
market.
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
Chairman of the Board, November 5, 1997
/s/ JACK D. KNOX President and Director
- ------------------------ (Principal Executive
Jack D. Knox Officer)
/s/ CATHERINE E. BLAIR Chief Financial Officer November 5, 1997
- ------------------------ (Principal Financial
Catherine E. Blair and Accounting Officer)
Page 10 of 10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 153,500
<SECURITIES> 0
<RECEIVABLES> 51,500
<ALLOWANCES> 0
<INVENTORY> 77,500
<CURRENT-ASSETS> 359,700
<PP&E> 3,675,900
<DEPRECIATION> (1,827,300)
<TOTAL-ASSETS> 2,220,100
<CURRENT-LIABILITIES> 1,210,100
<BONDS> 0
0
0
<COMMON> 13,600
<OTHER-SE> 962,800
<TOTAL-LIABILITY-AND-EQUITY> 2,220,100
<SALES> 5,170,000
<TOTAL-REVENUES> 5,170,000
<CGS> 1,513,800
<TOTAL-COSTS> 5,333,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,200
<INCOME-PRETAX> (178,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (178,800)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
