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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 JUNE 30, 1998
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 July 31, 1998, 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 June 30, 1998 and the results of operations for the
interim three-month and six-month periods ending June 30, 1998 and 1997.
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 SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
(UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 153,700 $ 66,200
Accounts receivable 59,700 56,900
Inventories 69,300 76,400
Prepaid expenses 71,200 60,700
----------- -----------
Total current assets 353,900 260,200
Property and equipment (net) 1,687,000 1,767,200
Other assets 11,800 11,800
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$ 2,052,700 $ 2,039,200
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----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 113,300 $ 37,000
Accrued liabilities 259,100 198,500
Payable to affiliates 398,900 359,100
Notes payable to stockholder 419,600 549,600
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Total current liabilities 1,190,900 1,144,200
Capital lease obligations 2,600 4,000
Deferred rent liabilities 28,200 27,400
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Total liabilities 1,221,700 1,175,600
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Stockholders' equity:
Common stock of $.01 par value:
Authorized 12,000,000 shares; 1,359,273
Shares issued and outstanding 13,600 13,600
Additional paid-in capital 4,408,900 4,408,900
Accumulated deficit (since august 1, 1989) (3,591,500) (3,558,900)
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Total stockholders' equity 831,000 863,600
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$ 2,052,700 $ 2,039,200
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</TABLE>
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 SHARE AND PER SHARE AMOUNTS)
<TABLE>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Restaurant revenues $1,829,200 $1,842,000 $3,418,000 $3,382,300
Costs and expenses:
Cost of sales 536,900 530,400 1,007,600 982,200
Restaurant expenses 980,600 967,700 1,867,100 1,844,200
Depreciation and amortization 87,200 93,300 179,900 185,900
General and administrative expenses 194,200 284,000 370,600 512,100
---------- ---------- ---------- ----------
Total costs and expenses 1,798,900 1,875,400 3,425,200 3,524,400
---------- ---------- ---------- ----------
Income (loss)
from operations 30,300 (33,400) (7,200) (142,100)
Nonoperating income, expense
Interest expense - stockholder (12,300) (16,100) (25,400) (30,200)
Other income, net --- 1,200 --- 2,800
---------- ---------- ---------- ----------
Net income (loss) $ 18,000 $ (48,300) $ (32,600) $ (169,500)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income (loss) per common share -
basic and diluted $ 0.01 $ (0.04) $ (0.02) $ (0.12)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common
shares outstanding 1,359,273 1,359,274 1,359,273 1,359,274
</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>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1997
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss $ (32,600) $(169,500)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization 179,900 185,900
Changes in assets and liabilities:
Accounts receivable (2,800) (38,400)
Inventories 7,100 (1,300)
Prepaid expenses (10,500) (16,500)
Other assets --- 2,400
Accounts payable 76,300 (220,000)
Accrued liabilities 60,600 73,300
Payable to affiliates 39,800 92,900
Deferred rent liabilities 800 (4,500)
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Net cash provided by (used in) operating activities 318,600 (95,700)
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Cash flows provided by (used in) investing activities -
Additions to property and equipment (99,700) (33,000)
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Cash flows provided by (used in) financing activities:
Additions to (payments of) notes payable to
stockholder, net (130,000) 110,000
Payments of capital lease obligations (1,400) ---
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Net cash provided by (used in) financing activities (131,400) 110,000
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Net increase (decrease) in cash 87,500 (18,700)
Cash at beginning of period 66,200 118,100
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Cash at end of period $ 153,700 $ 99,400
--------- ---------
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</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
JUNE 30, 1998
(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 1997 Annual Report on Form 10-KSB.
Such document should be referred to for information on accounting policies
and further financial details.
Certain previously reported financial information has been
reclassified to conform to the current presentation.
(3) RELATED PARTY TRANSACTIONS
The Company charges its majority shareholder and affiliates on a time-
incurred basis for certain shared general and administrative resources.
Such charges reduced general and administrative expenses by $118,800 and
$18,000 for the six months ended June 30, 1998 and 1997, respectively. In
addition, on May 1, 1998, the corporate office lease expired and was not
renewed; instead, the Company will lease the same office space on a month-
to-month basis from the majority shareholder for the full base rent amount
of approximately $8,300 per month and additional occupancy charges, as
incurred. For the six months ended June 30, 1998, $16,600 was paid to
the majority shareholder under this arrangement.
During 1998, the Company repaid notes totaling $130,000 and the related
accrued interest of approximately $18,100.
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 was opened in 1994.
CAPITAL RESOURCES AND LIQUIDITY:
As of June 30, 1998 and 1997 the Company's cash was approximately $153,700
and $99,400 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.
RESULTS OF OPERATIONS:
Revenues from restaurant operations increased from $3,382,300 to $3,418,000
(1.1%) for the six months ended June 30, 1997 and 1998, respectively; loss from
operations decreased 94.9% from $142,100 in 1997 to $7,200 in 1998; and net loss
decreased 80.8% from $169,500 in 1997 to $32,600 in 1998.
Restaurant revenues for the six-month period ended June 30, 1998 increased
$35,700 (1.1%) from the same period in 1997, primarily because of increased
revenues generated by Patrizio II's increased cover count in the first quarter.
Patrizio I accounted for 54.2% and 55.0% of the revenues for the six-month
periods ended June 30, 1998 and 1997, respectively.
Cost of sales as a percent of restaurant revenues increased from 29.0% in
1997 to 29.5% in 1998 primarily due to the increases in the cost of food sold.
Restaurant expenses for the six-month period ended June 30, 1998 increased
$22,900 (1.2%) from the same period in 1997 primarily because of the increase in
sales volume and increased usage of restaurant supplies, partially offset by a
reduction in labor costs.
Depreciation and amortization decreased slightly from $185,900 to $179,900
for the six months ended June 30, 1997 and 1998, respectively. General and
administrative expenses for the six-month period ended June 30, 1998 decreased
$141,500 (27.6%) from the six-month period ended June 30, 1997 primarily because
of the increase in the charge to affiliates for shared resources and continued
cost control measures.
Interest expense - stockholder decreased $4,800 during the first six months
of 1998 compared to the same period of 1997 primarily because of the net
decrease in the principal balance of loans outstanding, partially offset by the
modification of the interest rates from 9.25% per annum at January 1, 1997 to
9.50% per annum effective July 1, 1997.
YEAR 2000 ISSUE
The Company uses software and related technologies that will be affected by
the Year 2000 issue, which is common to most businesses, and concerns the
inability of information systems, primarily computer software programs, to
properly recognize and process date-sensitive information as the year 2000
approaches. Management has assessed its internal computer systems
Page 7 of 10
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and credit card processors and is in the process of evaluating the impact
that the Year 2000 issue will have on its product suppliers. Management of
the Company believes that the future costs required to address the Year 2000
issue will not significantly impact its financial condition nor adversely
impact business operations.
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 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.
<TABLE>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the Board, August 12, 1998
/s/ Jack D. Knox President and Director
- ----------------------- (Principal Executive
Jack D. Knox Officer)
/s/ Catherine E. Blair Chief Financial Officer August 12, 1998
- ----------------------- (Principal Financial
Catherine E. Blair and Accounting Officer)
</TABLE>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 153,700
<SECURITIES> 0
<RECEIVABLES> 59,700
<ALLOWANCES> 0
<INVENTORY> 69,300
<CURRENT-ASSETS> 353,900
<PP&E> 3,789,600
<DEPRECIATION> (2,102,600)
<TOTAL-ASSETS> 2,052,700
<CURRENT-LIABILITIES> 1,190,900
<BONDS> 0
0
0
<COMMON> 13,600
<OTHER-SE> 817,400
<TOTAL-LIABILITY-AND-EQUITY> 2,052,700
<SALES> 3,418,000
<TOTAL-REVENUES> 3,418,000
<CGS> 1,007,600
<TOTAL-COSTS> 3,425,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,400
<INCOME-PRETAX> (32,600)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,600)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
