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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 April 30, 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 March 31, 1998 and the results of operations for the
interim three-month periods ending March 31, 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>
MARCH 31, DECEMBER 31,
1998 1997
(UNAUDITED)
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<S> <C> <C>
ASSETS
Current Assets:
Cash $ 145,300 $ 66,200
Accounts receivable 65,400 56,900
Inventories 75,900 76,400
Prepaid Expenses 65,700 60,700
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Total current assets 352,300 260,200
Property and equipment (net) 1,683,700 1,767,200
Other assets 11,800 11,800
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$ 2,047,800 $ 2,039,200
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 93,700 $ 37,000
Accrued liabilities 208,700 198,500
Payable to affiliates 351,700 359,100
Notes payable to stockholder 549,600 549,600
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Total current liabilities 1,203,700 1,144,200
Capital lease obligations 3,300 4,000
Deferred rent liabilities 27,800 27,400
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Total liabilities 1,234,800 1,175,600
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Stockholders' Equity:
Common stock of $.01 par value:
Authorized 12,000,000 shares; 1,359,273
shares issued and outstanding 13,600 13,600
Additional paid-in capital 4,408,900 4,408,900
Accumulated deficit (since August 1, 1989) (3,609,500) (3,558,900)
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Total stockholders' equity 813,000 863,600
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$ 2,047,800 $ 2,039,200
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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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
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997
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<S> <C> <C>
Restaurant revenues $1,588,800 $1,540,300
Costs and expenses:
Cost of sales 470,700 451,800
Restaurant expenses 886,500 876,500
Depreciation and amortization 92,700 92,600
General and administrative expenses 176,400 228,100
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Total costs and expenses 1,626,300 1,649,000
Loss from operations (37,500) (108,700)
Nonoperating income (expense):
Interest expense - stockholder (13,100) (14,100)
Other income -- 1,600
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Net loss ($ 50,600) ($121,200)
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Net loss per common share - basic and diluted ($0.04) ($0.09)
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Weighted average common shares outstanding 1,359,273 1,359,274
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</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>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997
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<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss ($50,600) ($121,200)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization 92,700 92,600
Changes in assets and liabilities:
Accounts receivable (8,500) (19,700)
Inventories 500 (2,400)
Prepaid expenses (5,000) (12,700)
Other assets --- 2,400
Accounts payable 56,700 (194,900)
Accrued liabilities 10,200 35,100
Payable to affiliates (7,400) 43,700
Deferred rent liabilities 400 (7,000)
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Net cash provided by (used in) operating activities 89,000 (184,100)
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Cash flows provided by (used in) investing activities -
Additions to property and equipment (9,200) (6,300)
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Cash flows provided by (used in) financing activities:
Additions to notes payable to stockholder, net --- 80,000
Payments of capital lease obligations (700) ---
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Net cash provided by (used in) financing activities (700) 80,000
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Net increase (decrease) in cash 79,100 (110,400)
Cash at beginning of period 66,200 118,100
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Cash at end of period $145,300 $ 7,700
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 $59,300 and $9,000 for the three months ended March 31, 1998 and 1997,
respectively. In addition, on April 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 rent amount of approximately $8,200 per month.
Subsequent to March 31, 1998, the Company repaid notes totaling $80,000
and the related accrued interest of approximately $11,000.
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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 March 31, 1998 and 1997 the Company's cash was approximately
$145,300 and $7,700 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 $1,540,300 to
$1,588,800 (3.1%) for the three months ended March 31, 1997 and 1998,
respectively; loss from operations decreased 65.5% from $108,700 in 1997 to
$37,500 in 1998; and net loss decreased 58.2% from $121,200 in 1997 to
$50,600 in 1998.
Restaurant revenues for the three-month period ended March 31, 1998
increased $48,500 (3.1%) from the same period in 1997, primarily because of
increased revenues generated by Patrizio II's increased cover count.
Patrizio I accounted for 53.4% and 55.0% of the revenues for the three-month
periods ended March 31, 1998 and 1997, respectively.
Restaurant expenses for the three-month period ended March 31, 1998
increased $10,000 (1.1%) from the same period in 1997 primarily because of
the increase in sales volume. Cost of sales as a percent of restaurant
revenues increased slightly from 29.3% in 1997 to 29.6% in 1998 primarily due
to the increases in the cost of alcoholic beverages sold.
General and administrative expenses for the three-month period ended
March 31, 1998 decreased $51,700 (22.7%) from the three-month period ended
March 31, 1997 primarily because of the increase in the charge to affiliates
for shared resources
Interest expense - stockholder decreased $1,000 during the first three
months of 1998 compared to the same period of 1997 primarily because of the
net decrease in the principal balance of loans outstanding 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 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
Page 7 of 10
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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.
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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
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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
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<S> <C> <C>
/s/ Jack D. Knox Chairman of the Board, May 14, 1998
- ---------------------- President and Director
Jack D. Knox (Principal Executive
Officer)
/s/ Catherine E. Blair Chief Financial Officer May 14, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 145,300
<SECURITIES> 0
<RECEIVABLES> 65,400
<ALLOWANCES> 0
<INVENTORY> 75,900
<CURRENT-ASSETS> 352,300
<PP&E> 3,699,100
<DEPRECIATION> (2,015,400)
<TOTAL-ASSETS> 2,047,800
<CURRENT-LIABILITIES> 1,203,700
<BONDS> 0
0
0
<COMMON> 13,600
<OTHER-SE> 799,400
<TOTAL-LIABILITY-AND-EQUITY> 2,047,800
<SALES> 1,588,800
<TOTAL-REVENUES> 1,588,800
<CGS> 470,700
<TOTAL-COSTS> 1,626,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,100
<INCOME-PRETAX> (50,600)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50,600)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
