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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ___________
Commission file number: 0-16808
SIXX HOLDINGS, INCORPORATED
(Name of small business issuer in its charter)
DELAWARE 75-2222883
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 CRESCENT COURT, SUITE 1630
DALLAS, TEXAS 75201
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (214) 855-8800
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Common Stock, $.01 par value per share
Check 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 past 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 X No
------ ------
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form and no disclosure will be
contained, to the best or registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Revenues for the year ended December 31, 1997 were $6,842,300.
As of February 27, 1998 the registrant had issued and outstanding 1,359,273
shares of the Company's common stock, $.01 par value.
The aggregate market value of the approximately 18% of the voting stock
held by non-affiliates of the registrant, based on the closing price of such
stock on February 27, 1998, was approximately $152,581. For purposes of this
computation, all executive officers, directors and 10% beneficial owners of the
registrant are deemed to be affiliates. Such determination should not be deemed
an admission that such executive officers, directors and 10% beneficial owners
are affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format Yes [ ] No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Sixx Holdings, Incorporated (formerly "Yates Unit, Inc."), a Delaware
corporation ("Sixx" or the "Company"), was organized in January 1988 to hold the
interests of Caspen Oil, Inc. (formerly Summit Energy, Inc.) in the Yates Field
Unit. The assets and operations were transferred to Sixx on March 3, 1988, and,
after settlement of certain litigation in August 1989, consisted primarily of
cash and cash equivalents until April 25, 1994 when Patrizio Restaurant, Inc., a
Texas corporation and Patrizio North, Inc., a Texas corporation, were merged
(the "Merger") with and into Patrizio Acquisition, Inc., a Texas corporation and
wholly-owned subsidiary of the Company. At the effective time of the Merger, the
name of Patrizio Acquisition, Inc. was changed to Patrizio Restaurant, Inc.
Prior to the Merger, Patrizio Restaurant, Inc. owned and operated an
upscale Italian food restaurant in Dallas, Texas (Patrizio I) and Patrizio
North, Inc. owned and operated a similar restaurant in Plano, Texas (Patrizio
II). 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, will continue to be
utilized in operating the existing two restaurants.
PATRIZIO RESTAURANT, INC.
The Company's primary business is operating full service restaurants under
the name "Patrizio" that offer moderately priced, high quality, Italian-style
cuisine and alcoholic beverages. The Company continually evaluates and revises
its menu to improve its products. The restaurants are open daily for lunch and
dinner and offer entrees that generally range from $5.15 to $9.21. Alcoholic
beverages, which are served primarily with meals (as opposed to bar service)
generated approximately 27% of all restaurant revenues for 1997 and 1996.
Patrizio I opened September 1989 and seats approximately 235 people including
approximately 75 people outdoors, weather permitting, and is approximately 4,268
square feet. Patrizio II opened March 1994 and seats approximately 320 people
including approximately 120 people outdoors, weather permitting, and is
approximately 6,288 square feet. The Company utilizes local advertising, which
emphasizes the restaurants as New York style "trattorias" featuring eighteenth
century Italian paintings, antique European bar and beautiful old world rugs
with everything prepared with the freshest of ingredients.
NEW RESTAURANT CONSTRUCTION
The Company anticipates opening additional Patrizio restaurants in other
cities sometime in the future using the same "Patrizio" concept, design and
motif as the two existing restaurants, but at this time has not identified any
specific additional locations.
SERVICE MARKS
The Company has obtained federal registration of the service marks
"Patrizio" and the Patrizio design. These service marks are of material
importance to the operation of the Company's business.
EMPLOYEES
As of December 31, 1997, the Company employed five persons in its corporate
headquarters and approximately 160 in its restaurants. None of the employees are
covered by collective bargaining agreements and the Company has never
experienced a work stoppage, strike or labor dispute. The Company considers its
employee relations to be good.
COMPETITION
The restaurant business is highly competitive and competition among
restaurants serving Italian cuisine is increasing. The Company believes that the
principal competitive factors in its restaurant business are quality, value,
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service, atmosphere, and location. The Company believes that its competitive
position is enhanced by its quality food, up-scale atmosphere and moderately
priced menu.
GOVERNMENTAL REGULATION
The Company is subject to various federal, state, and local laws affecting
its business. Many stringent and varied requirements of local governmental
bodies with respect to zoning, land use, and environmental factors have
increased, and can be expected to continue to increase, both the cost of and the
time required for constructing new restaurants as well as the cost of operating
Company restaurants. The Company's restaurants are subject to various health,
sanitation, and safety standards and are also subject to state and local
licensing and regulation with respect to the service of alcoholic beverages. The
service of alcoholic beverages is material to the business of the Company. The
failure to receive or retain, or a delay in obtaining, a liquor license in a
particular location could adversely affect the Company's operations in that
location. Liquor licenses must be renewed annually. The Company has not
encountered any significant problems relating to alcoholic beverage licenses and
permits to date.
The Company may be subject in certain states to "dram-shop" statutes, which
may establish liability for improper alcoholic beverage service. The Company
carries liquor liability coverage as part of its existing comprehensive general
liability insurance.
The Company is also subject to state and federal labor laws. These include
the Fair Labor Standards Act, which governs such matters as minimum wages,
overtime, and other working conditions; the Immigration and Naturalization Act,
which governs employee citizenship requirements, and the Americans with
Disabilities Act, which governs non-discriminating employment practices and
reasonable accommodations for disabled persons, both employees and customers. A
significant portion of the Company's food service personnel are paid at rates
related to the federal minimum wage; and accordingly, increases in the minimum
wages increase the Company's labor costs. The federal minimum wage per hour was
increased from $4.25 to $4.75 for non-service personnel effective October 1,
1996 and from $4.75 to $5.15 effective September 1, 1997.
Prior to the Merger, effective November 3, 1990, Patrizio Restaurant, Inc.,
and on October 21, 1993, Patrizio North, Inc. elected to become non-subscribers
of the Texas Workers' Compensation Act. Upon this election, excess liability
insurance was acquired. Although this election has been favorable, the Texas
Workers' Compensation Act has undergone certain favorable reforms, with further
changes expected. Effective February 1, 1997, Patrizio Restaurant, Inc. elected
to re-enter the Texas Workers' Compensation program.
ITEM 2. DESCRIPTION OF PROPERTIES
As of December 31, 1997, the Company owned two restaurants, each located in
a strip shopping center. The Patrizio I lease expired in 1998 and the Company
exercised its option to renew the lease through 2005. The Patrizio I lease has
one five-year renewal option in 2005 at the then prevailing market rates. The
Patrizio II lease expires in 2003 and has two five-year renewal options at the
then prevailing market rates. The leases provide for rentals generally
competitive with rates in the same area. The Company's corporate office is
located at the Crescent Court, with its lease expiring in 1998 excluding renewal
options not yet exercised.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders, through the solicitation of
proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock began trading in the over-the-counter market and
was quoted on the National Association of Securities Dealers Automated Quotation
System (NASDAQ) through October 8, 1997. Effective October 9, 1997, the
Company's shares of common stock, traded under the symbol "SIXX", continue to
trade in the over-the-counter market. The following table sets forth the high
and low closing bid prices for the Common Stock of the Company as reported in
the consolidated transaction reporting system for the calendar periods
indicated. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
<TABLE>
- -----------------------------------------------------------------------------
<S> <C> <C>
1997: High Bid Low Bid
First Quarter 3.00 2.00
Second Quarter 2.25 1.63
Third Quarter 2.25 1.25
Fourth Quarter 1.38 .50
1996:
First Quarter 4.00 2.25
Second Quarter 4.00 2.50
Third Quarter 5.00 2.50
Fourth Quarter 5.50 3.00
- -----------------------------------------------------------------------------
</TABLE>
As of February 27, 1998, there were approximately 1,990 holders of record
of the Company's Common Stock. The Company has not paid cash dividends and has
no plans to pay dividends at the present time.
ITEM 6. 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.
Included in general and administrative expenses for the year ended December
31, 1996 are pre-acquisition costs and due-diligence costs of approximately
$491,800 incurred in connection with the Company's efforts to acquire a
fourteen-store Italian restaurant chain out of Chapter 11 bankruptcy. During
the fourth quarter of 1996, the Company gave notice through its attorney of the
termination of its intent to acquire the acquisition target's assets.
In order to partially fund the pre-acquisition costs, the majority
shareholder of the Company advanced to the Company in exchange for demand
promissory notes bearing interest at rates from 8.25% to 9.25% per annum
$200,000 during the fourth quarter of 1996 and $130,000 in early 1997.
Effective January 1, 1997, all notes to stockholder were modified to bear
interest at 9.25% per annum and effective July 1, 1997 all notes to stockholder
were modified to bear interest at 9.5%. Subsequent to the last advance in 1997,
the Company repaid $160,000 of the notes to stockholder and accrued interest
thereon.
CAPITAL RESOURCES AND LIQUIDITY
As of December 31, 1997, the Company's cash was approximately $66,200.
Management believes that sales at the current annual levels will provide
sufficient cash flow to fund operations at existing restaurants for the
foreseeable future.
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RESULTS OF OPERATIONS
The Company's restaurant revenues increased from $6,570,000 to $6,842,300
(4.1%) for the years ended December 31, 1996 and 1997, respectively; loss from
operations decreased 66.3% from $805,200 in 1996 to $271,400 in 1997; and net
loss decreased 63.2% from $792,400 in 1996 to $291,600 in 1997.
Restaurant revenues for the year ended December 31, 1997 increased $272,300
(4.1%) from the same period in 1996, primarily due to increased revenues
generated from Patrizio II. Patrizio I accounted for 54.4% of annual revenues
in 1997 and 55.8% of the revenues for year ended December 31, 1996. Patrizio II
restaurant revenues for the year ended December 31, 1997 increased 7.6% over the
year ended December 31, 1996.
Cost of sales as a percent of restaurant revenues decreased from 29.6%
for the year ended December 31, 1996 to 29.3% for the same period in 1997.
Restaurant expenses totaled $3,717,900 for the year ended December 31, 1997,
a 3.9% increase over 1996. Restaurant expenses were 51.6% of revenue at
Patrizio I compared to 50.3% in the prior year primarily due to increases in
restaurant operating supplies and promotions. Patrizio II's restaurant
expenses were 57.5% of revenue in 1997 compared to 59.7% in 1996. Patrizio
II's decrease was due to efficiencies caused by the 7.6% increase in revenues
and decreases in personnel costs offset by increases in promotions.
Depreciation and amortization was $377,500 for the year ended December 31,
1997 and $374,800 for the year ended December 31, 1996. General and
administrative expenses were $1,015,900 for the year ended December 31, 1997,
compared to $1,479,000 in 1996. Included in the 1996 balance is $491,800 of
pre-acquisition and due diligence costs associated with the potential
acquisition of a fourteen-unit Italian chain. Therefore, the change in general
and administrative costs between 1996 and 1997 is comprised of a $491,800
decrease in pre-acquisition costs and an increase in other costs of $28,700 due
to increases in recruiting and general office costs offset generally by
decreases in corporate shareholder costs and related professional expenses.
Interest expense-stockholder of $60,000 reflects an increase of $34,100
over the 1996 expense of $25,900 as a result of increased principal amounts
outstanding in 1997 and the modification of the interest rates starting from 6%
in 1996 to 9.5% effective July 1, 1997. Principal additions of $200,000 were
made in the fourth quarter of 1996 and net decreases to principal of $30,000
were made throughout 1997.
Other income was $39,800 for the year ended December 31, 1997 and $37,400
for the year ended December 31, 1996. The majority of the increase from 1996 to
1997 is comprised of an increase in the charge to affiliates for accounting and
management services from $33,000 in 1996 to $36,000 in 1997.
As described in note 6 to the Company's audited consolidated financial
statements, no federal or state income taxes were payable by the Company during
the years presented and none was provided for in the consolidated financial
statements.
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
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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.
ACCOUNTING MATTERS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, "Reporting Comprehensive Income" ("Statement 130"). Statement 130 is
effective for fiscal years beginning after December 15, 1997 and requires
companies to report all components of comprehensive income in a financial
statement that is displayed with the same prominence as other financial
statements. Management of the Company does not expect the adoption of Statement
130 to have a material impact on the Company's reported results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("Statement 131"). Statement 131 is
effective for financial statements for periods beginning after December 15,
1997; however, application in interim periods is not required until the second
year of application. Statement 131 requires financial and descriptive
information be disclosed about an entity's reportable operating segments.
Management will assess the impact on the presentation of the consolidated
financial statements at the adoption of Statement 131.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements are set forth herein commencing on
page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has nothing to report under this item.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Set forth below is certain information concerning the directors and
executive officers of the Company:
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NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Jack D. Knox 60 Chairman of the Board,
President and Director
Dorothy L. Douglas 53 Secretary and Treasurer
G. Michael Boswell 57 Director
R. Ted Enloe, Jr. 59 Director
Richard Mullen 58 Director
The Bylaws of the Company provide that the Board of Directors shall consist
of not fewer than two nor more than 15 members and that the number of the
directors, within such limits, shall be determined by resolution of the Board of
Directors at any meeting. The Certificate of Incorporation and the Bylaws of
the Company provide for the division of the Board of Directors into three
classes, with each class having a three-year term of office expiring in
different years. Currently, the Board of Directors of the Company is composed
of four directors. Because the company has not elected directors during the
past two years, all directors' terms expire in May 1998 or until their successor
shall have been duly elected and qualified.
The following is a brief account of the business experience, during the
past five years, of each director and executive officer of the Company. Each of
the directors and the officers is a citizen of the United States.
Jack D. Knox has been Chairman of the Board and President of the Company
since January 1988. Mr. Knox served as President of Summit Energy, Inc.,
Dallas, Texas, an American Stock Exchange listed oil and gas company, from its
inception in 1970 through April 1989, and as a director through January 1990.
Mr. Knox also served as a director of El Chico Restaurants, Inc., a restaurant
company listed on the NASDAQ, from 1990 through January 1998.
Dorothy L. Douglas was elected Treasurer of the Company in April 1988 and
Secretary in May 1990. Ms. Douglas also served as Secretary of Caspen Oil, Inc.
from December 1987 until May 1990. Prior to joining Caspen Oil, Inc. in
February 1986 as Administrative Assistant to Jack D. Knox, Ms. Douglas was
employed by May Petroleum Inc. from May 1965 until January 1986, serving as
Administrative Vice President from 1975 until 1980 and as Secretary from 1974
until 1986.
G. Michael Boswell has been a director of the Company since April 1988. He
served as Secretary of the Company from January 1988 to May 1990. Mr. Boswell
is presently involved in private investments and the practice of law. He served
as the Chairman of the Board and President of Sunshine Mining Co., Dallas,
Texas, a New York Stock Exchange listed silver mining, precious metals, and oil
and gas producing company, from October 1977 to November 1992. Mr. Boswell is
also a director of a wholly-owned special purpose subsidiary of Mesa, Inc., a
New York Stock Exchange listed company.
Robert Ted Enloe III has been a director of the Company since February
1993. He is the managing general partner of Balquita Partners, Ltd., a real
estate and securities investment partnership. He served as President of
Liberte' Investors from March 1995 until August 1996 and was chief executive
officer from April 1992 until August 1996. Mr. Enloe also serves as a director
of Compaq Computer Corporation, a computer manufacturer, and Liberte' Investors,
Inc., a holding company seeking acquisitions of operating companies. In
connection with a previously planned and announced restructuring of its debt,
Liberte' filed a petition for protection under Chapter 11 of the Federal
bankruptcy laws in October of 1993.
Richard T. Mullen has been a director of the Company since February 1993.
He is President of The Mullen Company, Dallas, Texas, a real estate brokerage,
development, and management company, and has served in this position for more
than five years.
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There is no family relationship among the nominees or present directors and
any executive officer of the Company.
SECTION 16 COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10 percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and greater than 10-percent shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the copies of such forms
received by it, or written representations from certain reporting persons that
no Forms 5 were required for those persons, the Company believes that during
1997 all filing requirements applicable to its officers, directors, and greater
than 10-percent beneficial owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION
The total compensation paid during 1997, 1996, and 1995 to the Chief
Executive Officer of the Company, Jack D. Knox, is set forth below in the
following Summary Compensation Table:
<TABLE>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation Awards
---------------------------- ------------------------
Securities
Other Underlying
Annual Options/ All Other
Name Year Salary Bonus Comp. SARs(#) Compensation
- --------------------- ---- -------- ----- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jack D. Knox 1997 $ -- (1) $-- $1,227(2) -- $2,755(3)
Chairman of the Board 1996 $ -- (1) $-- $3,436(2) -- $2,545(3)
and President (Chief 1995 $ -- (1) $-- $2,727(2) -- $1,750(3)
Executive Officer)
</TABLE>
(1) Mr. Knox has not received a salary from the Company since April 30, 1994.
However, Mr. Knox and affiliates received payments from, and certain
services provided by, the Company pursuant to agreements entered into in
connection with the Merger. Information with respect to these agreements
for 1997 and 1996 is included in "Certain Relationships and Related
Transactions."
(2) Consists of payment by the Company with respect to Mr. Knox's percentage of
personal use of a company car and $1,800 and $600 for the years ended
December 31, 1996 and 1995, respectively, in fees paid to Mr. Knox as a
director of the Company.
(3) Reflects the Company-paid premium for a health insurance policy in 1997 and
a life insurance policy on the life of Mr. Knox, the beneficiary of which
is Mr. Knox's estate, in 1997, 1996 and 1995.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of the Record Date, with
respect to (i) any person known to the Company to be the beneficial owner of
more than 5% of the Common Stock, (ii) the number of shares of Common Stock
beneficially owned by each director and nominee for director, (iii) the number
of shares of Common Stock beneficially owned by each executive officer named in
the Summary Compensation Table presented below under the heading "Compensation
of Directors and Executive Officers," and (iv) the number of shares of Common
Stock owned by all directors and officers of the Company as a group.
<TABLE>
Amount Percent
Name & Address of Beneficially of
Beneficial Owner Owned (1) Class
----------------- ------------ -------
<S> <C> <C>
Jack D. Knox 1,095,898 80.6%
300 Crescent Court, #1630
Dallas, Texas
G. Michael Boswell 6,375 less than 1.0%
Danbury, Texas
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Robert Ted Enloe III 6,375 less than 1.0%
Dallas, Texas
Richard T. Mullen 6,375 less than 1.0%
Dallas, Texas
All Directors and
Officers as a Group
(5 persons) 1,115,143 82.0%
</TABLE>
- ------------------
(1) Each person has sole voting and dispositive power over the shares
indicated.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 25, 1994, a subsidiary of the Company merged (the "Merger") with
entities wholly-owned by the Company's majority shareholder to own and operate
two existing upscale Italian food restaurants, the restaurant concept, design
and motif and the other assets used in the day-to-day operation of the
restaurants.
In connection with the Merger, the Company entered into agreements with Mr.
Knox and entities affiliated with Mr. Knox ("Mr. Knox"). Under a five-year
Consulting Agreement, Mr. Knox agreed to serve without pay as an officer and
Chairman of the Board of the Company (if elected) and to provide certain
services to the Company in exchange for consulting fees of 1-1/2 % of defined
revenues of the Company up to 32 restaurants. In addition, Mr. Knox developed
and refined the Patrizio concept, design, and motif over a five-year period. A
separate agreement provides that Mr. Knox earn a developer's royalty ranging
from 1/2 of 1% to 2% of defined gross revenues of the Company based on the
number of open restaurants, capped at 32 restaurants. From inception through
1997, this fee has been 1/2 of 1%.
Pursuant to these agreements, Mr. Knox earned consulting and royalty fees
of approximately $136,800 and $131,600 in 1997 and 1996, respectively. The fees
are included in general and administrative expenses. No payment of the 1997 or
1996 fees earned were made and, accordingly, they are included in payable to
affiliates.
Included in other income is $36,000 and $33,000 for the years ended
December 31, 1997 and 1996, respectively, representing administrative charges to
Mr. Knox for accounting and other such services.
The notes payable to Mr. Knox are unsecured and payable on demand. Notes
totaling $579,600, bearing interest at rates ranging from 6% to 9.25% per annum,
were outstanding at December 31, 1996. Effective January 1, 1997, the interest
rates of notes bearing interest at rates less than 9.25% were modified to 9.25%.
Effective July 1, 1997, the interest rates of all notes were modified to 9.50%.
Notes totaling $549,600 were outstanding at December 31, 1997. Interest
expense for such notes aggregated approximately $59,500 and $25,900 in
1997 and 1996, respectively. The unpaid interest is included in payable
to affiliates at December 31, 1997 and 1996.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) FINANCIAL STATEMENTS:
The Consolidated Financial Statements are listed in the Index to
Consolidated Financial Statements on page F-1 of this report.
(2) FINANCIAL STATEMENT SCHEDULES:
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None.
(3) EXHIBITS:
3.1 Certificate of Incorporation of the Company (filed as
exhibit 3.1 of the Company's General Form of
Registration of Securities on Form 10 filed April 29,
1988, and incorporated herein by reference).
3.2 Amendment to Certificate of Incorporation of the
Company, filed on January 22, 1990 (filed as exhibit 3.2
to the Company's Annual Report on Form 10-K for the
fiscal year ended July 31, 1990, and incorporated herein
by reference).
3.3 Amendment to Certificate of Incorporation of the
Company, filed on March 15, 1996 (filed as exhibit 3.3
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, and incorporated
herein by reference).
3.4 Bylaws of the Company (filed as exhibit 3.2 of the
Company's General Form for Registration of Securities on
Form 10 filed April 29, 1988, and incorporated herein by
reference).
3.5 Amendment to Bylaws of the Company, adopted June 29,
1990 (filed as exhibit 3.4 to the Company's Annual
Report on Form 10-K for the fiscal year ended July 31,
1990, and incorporated herein by reference).
10.1 Consulting Agreement, by and between Sixx and Comico
Corporation ("Comico"), dated as of April 25, 1994
(filed as exhibit A of Exhibit 2.1 to the Company's
Current Report on Form 8-K filed April 23, 1994, and
incorporated herein by reference).
10.2 Registration Rights Agreement, by and between Sixx and
Knox, dated April 25, 1994 (filed as exhibit B of
Exhibit 2.1 to the Company's Current Report on Form 8-K
filed April 23, 1994, and incorporated herein by
reference).
10.3 Developer's Royalty Agreement, by and between Sixx and
Knox, dated as of April 25, 1994 (filed as exhibit C of
Exhibit 2.1 to the Company's Current Report on Form 8-K
filed April 23, 1994, and incorporated herein by
reference).
(b) REPORTS ON FORM 8-K
The Company filed no current reports on Form 8-K during the last quarter of
the period covered by this report.
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.
Date: March 27, 1998
SIXX HOLDINGS, INCORPORATED
By: /s/ JACK D. KNOX
------------------------------------
Jack D. Knox, Chairman of the Board,
President, and Director
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and the dates indicated.
<TABLE>
Signatures Titles Date
---------- ------ ----
<C> <C> <C>
/s/ JACK D. KNOX Chairman of the Board, March 27, 1998
- --------------------------- President, and Director
Jack D. Knox (Principal Executive Officer)
/s/ CATHERINE E. BLAIR Chief Financial Officer March 27, 1998
- --------------------------- (Principal Financial and
Catherine E. Blair Accounting Officer)
/s/ G. MICHAEL BOSWELL Director March 27, 1998
- ---------------------------
G. Michael Boswell
/s/ ROBERT TED ENLOE III Director March 27, 1998
- ---------------------------
Robert Ted Enloe III
/s/ RICHARD T. MULLEN Director March 27, 1998
- ---------------------------
Richard T. Mullen
</TABLE>
12
<PAGE>
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Index to Consolidated Financial Statements
PAGE
----
Independent Auditors' Report F-2
Consolidated Balance Sheets at December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
Schedules are omitted as the required information is inapplicable or the
information is presented in the consolidated financial statements or notes
thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Sixx Holdings, Incorporated:
We have audited the consolidated financial statements of Sixx Holdings,
Incorporated and subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sixx
Holdings, Incorporated and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
February 25, 1998
F-2
<PAGE>
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
(Rounded to nearest hundred, except share and per share amounts)
<TABLE>
Assets 1997 1996
------ ----------- ---------
<S> <C> <C>
Current assets:
Cash $ 66,200 118,100
Accounts receivable 56,900 57,400
Inventories 76,400 75,800
Prepaid expenses 60,700 56,400
----------- ---------
Total current assets 260,200 307,700
Net property and equipment (note 2) 1,767,200 2,082,400
Other assets 11,800 13,700
----------- ---------
$ 2,039,200 2,403,800
----------- ---------
----------- ---------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 37,000 262,500
Accrued liabilities (note 3) 198,500 196,100
Payable to affiliates (note 9) 359,100 179,200
Notes payable to stockholder (notes 9 and 10) 549,600 579,600
----------- ---------
Total current liabilities 1,144,200 1,217,400
Capital lease obligations (note 5) 4,000 -
Deferred rent liabilities (note 4) 27,400 31,200
----------- ---------
Total liabilities 1,175,600 1,248,600
----------- ---------
Stockholders' equity (notes 7 and 8):
Common stock of $.01 par value. Authorized
12,000,000 shares; 1,359,273 shares in 1997
and 1,359,274 shares in 1996 issued and
outstanding 13,600 13,600
Additional paid-in capital 4,408,900 4,408,900
Accumulated deficit (since August 1, 1989) (3,558,900) (3,267,300)
----------- ---------
Total stockholders' equity 863,600 1,155,200
Commitments and contingent liability (note 5) $ 2,039,200 2,403,800
----------- ---------
----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1997 and 1996
(Rounded to nearest hundred, except per share amounts)
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Restaurant revenues $6,842,300 6,570,000
---------- ---------
Costs and expenses:
Cost of sales 2,002,400 1,942,200
Restaurant expenses 3,717,900 3,579,200
Depreciation and amortization 377,500 374,800
General and administrative expenses
(note 9) 1,015,900 1,479,000
---------- ---------
Total costs and expenses 7,113,700 7,375,200
---------- ---------
Loss from operations (271,400) (805,200)
Nonoperating income (expense):
Interest expense - stockholder (note 9) (60,000) (25,900)
Interest income - 1,300
Other income (note 9) 39,800 37,400
---------- ---------
Net loss $(291,600) (792,400)
---------- ---------
---------- ---------
Loss per common share - basic and diluted $(.21) (.58)
---------- ---------
---------- ---------
Weighted average common shares outstanding 1,359,273 1,359,460
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997 and 1996
(Rounded to nearest hundred, except share amounts)
<TABLE>
Common stock Additional Total
--------------------- paid-in Accumulated stockholders'
Shares Amount capital deficit equity
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 (note 7) 1,360,169 $13,600 4,413,000 (2,474,900) 1,951,700
Cash paid in lieu of fractional shares (note 7) (895) - (4,100) - (4,100)
Net loss - - - (792,400) (792,400)
--------- ------- --------- ---------- ---------
Balance at December 31, 1996 (note 7) 1,359,274 13,600 4,408,900 (3,267,300) 1,155,200
Purchase and retirement of share (1) - - - -
Net loss - - - (291,600) (291,600)
--------- ------- --------- ---------- ---------
Balance at December 31, 1997 1,359,273 $13,600 4,408,900 (3,558,900) 863,600
--------- ------- --------- ---------- ---------
--------- ------- --------- ---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997 and 1996
(Rounded to nearest hundred)
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(291,600) (792,400)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 377,500 374,800
Gain on sale of property and equipment - (7,900)
Changes in assets and liabilities:
Accounts receivable 500 21,100
Inventories (600) (8,000)
Prepaid expenses (4,300) 7,200
Other assets 1,900 9,700
Accounts payable (225,500) 146,600
Accrued liabilities 500 (41,300)
Payable to affiliates 179,900 144,900
Deferred rent liabilities (3,800) (38,200)
-------- --------
Net cash provided by (used in)
operating activities 34,500 (183,500)
-------- --------
Cash flows from investing activities:
Additions to property and equipment, net (55,500) (23,200)
Proceeds from sale of property and equipment - 9,700
-------- --------
Net cash used in investing activities (55,500) (13,500)
-------- --------
Cash flows from financing activities:
Additions to notes payable to stockholder 130,000 220,000
Repayments of notes payable to stockholder (160,000) -
Payments of capital lease obligations (900) -
Cash paid in lieu of fractional shares for
reverse stock split - (4,100)
-------- --------
Net cash provided by (used in)
financing activities (30,900) 215,900
-------- --------
Net increase (decrease) in cash (51,900) 18,900
Cash at beginning of year 118,100 99,200
-------- --------
Cash at end of year $66,200 118,100
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(rounded to nearest hundred, except share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL
Sixx Holdings, Incorporated, a Delaware corporation (the Company),
was organized in January 1988 to hold the interests of Caspen Oil,
Inc. (Caspen) in the Yates Field Unit. Certain assets and
operations of Caspen, along with liabilities associated therewith
and certain litigation, were transferred to the Company on March 3,
1988. As a result of the settlement of the Yates Field litigation,
the assets of the Company consisted principally of cash and cash
equivalents until April 25, 1994 when the Company merged (the
Merger) with Patrizio Restaurant, Inc. and Patrizio North, Inc.,
both Texas corporations wholly-owned by the Company's majority
shareholder. The Company and its subsidiaries own and operate two
full service, Italian concept Patrizio restaurants located in the
Dallas, Texas metropolitan area. The restaurants were opened on
September 22, 1989 and March 14, 1994, respectively.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements present the consolidated
financial information of the Company and its subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
(c) STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments purchased with
an original maturity of three months or less to be cash
equivalents. The Company held no cash equivalents at December 31,
1997 and 1996. The Company paid no income taxes during the years
presented. Interest of $10,600 was paid during the year ended
December 31, 1997 and no interest was paid during the year ended
December 31, 1996. Noncash investing and financing activities
consist of purchases of equipment under the terms of a capital
lease for $6,800 in 1997.
(d) INVENTORIES
Inventories, consisting mainly of food and beverages, are stated at
the lower of cost or market; cost is determined using the first-in,
first-out method.
F-7
<PAGE>
(e) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost net of accumulated
depreciation. Depreciation is calculated on the straight-line
method over the estimated useful lives of the assets which range
from 2 to 10 years.
Leasehold improvements are amortized using the straight-line method
over the lesser of the life of the lease, including renewal
options, or the estimated useful lives of the improvements of
generally 2 to 15 years. Repairs and maintenance are charged to
operations as incurred.
(f) ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs
amounted to $55,600 and $23,800 in 1997 and 1996, respectively.
(g) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(h) LOSS PER COMMON SHARE
The Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE (EPS),
during the fourth quarter of 1997. This statement requires basic
EPS to be computed by dividing income available to common
shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in
earnings of the entity. Adoption of this statement did not impact
recorded EPS at December 31, 1997 and 1996.
(i) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company adopted the provisions of SFAS No. 121, ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount
F-8
<PAGE>
of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this
statement did not impact the Company's financial position, results
of operations, or liquidity.
(j) USE OF ESTIMATES
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
(k) RECLASSIFICATIONS
Certain previously reported financial information has been
reclassified to conform to the 1997 presentation.
(2) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
December 31
1997 1996
------------ -----------
<S> <C> <C>
Leasehold improvements $ 2,205,800 2,201,200
Furniture, fixtures and equipment 1,484,100 1,426,400
----------- ----------
3,689,900 3,627,600
Less accumulated depreciation
and amortization (1,922,700) (1,545,200)
----------- ----------
$ 1,767,200 2,082,400
----------- ----------
----------- ----------
</TABLE>
At December 31, 1997, the gross amount of furniture, fixtures and
equipment and related accumulated amortization recorded under capital
leases were $6,800 and $700, respectively.
F-9
<PAGE>
(3) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
December 31
-------------------
1997 1996
-------- -------
<S> <C> <C>
Current portion - capital lease obligation $ 1,900 -
Current portion - deferred rent liabilities 8,600 33,000
Labor and related costs 48,300 42,400
Franchise, sales, liquor and property taxes 64,700 61,100
Other 75,000 59,600
-------- -------
$198,500 196,100
-------- -------
-------- -------
</TABLE>
(4) DEFERRED RENT LIABILITIES
Deferred rent liabilities represent the difference between cash payments
for minimum lease rentals and the recognition of such minimum lease
rentals as expense on a straight-line basis over the respective terms of
the restaurant facility operating leases. Additionally, certain
contingent rent abatements and incentives earned relating to restaurant
facility leases are deferred and recognized on a straight-line basis over
the remaining respective lease terms.
(5) LEASES
The Company leases its restaurant facilities, corporate office and
storage under operating leases. On February 24, 1998, the Company
exercised its option to renew one of its restaurant leases expiring at
the end of that month. After execution of this renewal, the restaurant
facilities have lease terms expiring in February 2005 and September 2003.
These restaurant leases have one five-year and two five-year renewal
clauses exercisable at the option of the Company and have provisions for
contingent rentals based on a percentage of revenues, as defined. The
corporate office lease expires in April 1998 and the storage lease
expires in March 1999. A summary of rent expense follows:
<TABLE>
Years ended December 31
-----------------------
1997 1996
-------- -------
<S> <C> <C>
Minimum rentals $337,800 337,800
Contingent rentals 99,300 94,400
-------- -------
$437,100 432,200
-------- -------
-------- -------
</TABLE>
In addition, the Company is obligated under capital leases for certain
equipment that expire through 2000.
F-10
<PAGE>
As of December 31, 1997, commitments for future minimum lease payments
under operating leases and executed renewals with initial or remaining
noncancelable lease terms in excess of one year and future minimum
capital lease payments are as follows:
<TABLE>
Operating Capital
leases leases
---------- -------
<S> <C> <C>
1998 $ 349,300 2,900
1999 336,300 2,900
2000 335,400 1,500
2001 339,800 -
2002 348,600 -
Thereafter 607,100 -
---------- -------
Total minimum lease payments $2,316,500 7,300
----------
----------
Less amount representing interest at 9.5% (1,400)
-------
Present value of net minimum capital
lease payments 5,900
Less current installments of obligations
under capital leases 1,900
-------
Obligation under capital leases, excluding
current installments $ 4,000
-------
-------
</TABLE>
At December 31, 1997, the Company remains contingently liable for
approximately $22,100 of future minimum rentals under a partial corporate
office lease assignment to a third party that expires in April 1998.
(6) INCOME TAXES
No federal or state income taxes were payable by the Company during the
years presented and none have been provided in the accompanying
consolidated financial statements. The Company and its subsidiaries file
a consolidated tax return.
F-11
<PAGE>
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(rounded to the nearest hundred, except share amounts)
Actual income tax benefit differs from the "expected" income tax benefit
(computed by applying the U.S. federal corporate tax rate of 34% to net
loss before income taxes) as follows:
<TABLE>
Years ended December 31
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Computed "expected" tax benefit $(99,100) (269,400)
Change in valuation allowance for deferred tax
assets allocated to income tax expense 124,100 235,100
Expired capital loss - 55,200
FICA tip tax credit (23,100) (22,300)
Other (1,900) 1,400
-------- -------
Actual income tax benefit $ - -
-------- -------
-------- -------
</TABLE>
The tax effects of the primary temporary differences giving rise to the
deferred federal income tax assets and liabilities as determined under
SFAS 109 are as follows:
<TABLE>
December 31
-----------------------
1997 1996
----------- ----------
<S> <C> <C>
Deferred tax assets:
Preopening costs capitalized for tax purposes $ 14,200 28,500
Deferred rent costs in excess of rent paid 12,200 21,800
Net operating loss carryforwards 1,446,400 1,462,400
Capital loss carryforwards 45,000 42,200
Alternative minimum tax credit carryforwards 716,000 716,000
Consulting and developer's royalty fees and
interest accrued for stockholder 122,900 52,800
FICA tip tax credit carryforwards 97,200 66,300
Basis in property and equipment 18,200 -
Other 20,800 8,900
----------- ----------
Total gross deferred tax assets 2,492,900 2,398,900
Less valuation allowance (2,492,900) (2,368,800)
----------- ----------
Net deferred tax assets - 30,100
Deferred tax liabilities - basis in property and
equipment - 30,100
----------- ----------
Net deferred taxes $ - -
----------- ----------
----------- ----------
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Realization of deferred
tax assets (in excess of deferred tax liabilities) is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. At present, management is
unable to conclude on a more likely than not basis that the net deferred
assets will be realized.
F-12 (Continued)
<PAGE>
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(rounded to the nearest hundred, except share amounts)
Net operating loss carryforwards of $4,254,200 for federal income tax
purposes expire between 2004 and 2011. Capital loss carryforwards of
$132,500 expire in 1998. General business credits of $97,200 expire in
years 2009 through 2012. The alternative minimum tax credit carryforward
of $716,000 is available for an indefinite period.
(7) 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.
In conjunction with the above reverse stock split, the Company paid
$4,100 in lieu of a total of 895 fractional shares. This amount is
reflected as a decrease in shares outstanding and additional paid-in
capital.
(8) STOCK OPTIONS
Options to purchase the Company's common shares were previously granted
to all nonofficer directors. The exercise price for options granted was
the market value at date of grant. Such options expired ten years from
the date of grant or date of vesting, as defined, and became exercisable
with respect to one-third of the total option grant on each successive
anniversary of the date of grant, or date of vesting, as defined. On
December 27, 1996, all of the options outstanding (43,125 shares with
exercise prices between $4.00 and $6.24 per share) were cancelled for
total consideration of $15,000.
The Company previously applied the provisions of Accounting Principles
Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,
in accounting for its outstanding stock options. As such, compensation
expense was recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price.
During 1996, the Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-valued-based
method defined in SFAS No. 123 had been applied. As a result of the
cancellation of the outstanding stock options in 1996, the Company has
not presented the pro forma disclosures required by SFAS No. 123.
F-13 (Continued)
<PAGE>
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(rounded to the nearest hundred, except share amounts)
(9) RELATED PARTY TRANSACTIONS
In connection with the Merger (see note 1), effective April 25, 1994, the
Company entered into agreements with Mr. Knox, a majority shareholder,
and entities affiliated with Mr. Knox ("Mr. Knox"). Under a five-year,
renewable Consulting Agreement, Mr. Knox agreed to serve without pay as
an officer and Chairman of the Board of the Company (if elected) and to
provide certain services to the Company in exchange for consulting fees
of 1 1/2% of defined gross revenues of the Company up to 32 restaurants.
In addition, Mr. Knox developed and refined the Patrizio concept, design,
and motif over a five-year period. A separate agreement provides that
Mr. Knox earn a developer's royalty ranging from 1/2 of 1% to 2% of
defined gross revenues of the Company based on the number of open
restaurants, capped at 32 restaurants. From inception through 1997, this
fee has been 1/2 of 1%.
Pursuant to these agreements, Mr. Knox earned consulting and royalty fees
of approximately $136,800 and $131,600 in 1997 and 1996, respectively.
The consulting and royalty fees are included in general and
administrative expenses. No payments of the 1997 or 1996 fees earned
were made and, accordingly, they are included in payable to affiliates.
Included in other income is $36,000 and $33,000 for the years ended
December 31, 1997 and 1996, respectively, representing administrative
charges to Mr. Knox for accounting and other such services.
The notes payable to stockholder are unsecured and payable on demand.
Notes totaling $579,600, bearing interest at rates ranging from 6.00% to
9.25% per annum, were outstanding at December 31, 1996. Effective
January 1, 1997, the interest rates of notes bearing interest at rates
less than 9.25% were modified to 9.25%. Effective July 1, 1997, the
interest rates of all notes were modified to 9.50%. Notes totaling
$549,600 were outstanding at December 31, 1997. Interest expense for
such notes aggregated approximately $59,500 and $25,900 in 1997 and 1996,
respectively. The unpaid accrued interest is included in payable to
affiliates at December 31, 1997 and 1996.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, payables and accrued
liabilities approximate fair value due to the short maturity of those
instruments.
Notes payable to stockholder (see note 9) have an aggregate fair value of
approximately $487,800 and $511,800 at December 31, 1997 and 1996,
respectively. The fair values are based on discounted future cash flows
over an estimated four year period outstanding, respectively, using an
estimated 9.50% and 9.25% incremental borrowing rate, respectively. Such
estimates were determined by the Company based on future operating cash
flow and market interest rate assumptions.
F-14 (Continued)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 66,200
<SECURITIES> 0
<RECEIVABLES> 56,900
<ALLOWANCES> 0
<INVENTORY> 76,400
<CURRENT-ASSETS> 260,200
<PP&E> 3,689,900
<DEPRECIATION> (1,922,700)
<TOTAL-ASSETS> 2,039,200
<CURRENT-LIABILITIES> 1,144,200
<BONDS> 0
0
0
<COMMON> 13,600
<OTHER-SE> 850,000
<TOTAL-LIABILITY-AND-EQUITY> 2,039,200
<SALES> 6,842,300
<TOTAL-REVENUES> 6,842,300
<CGS> 2,002,400
<TOTAL-COSTS> 7,113,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,000
<INCOME-PRETAX> (291,600)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (291,600)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
