<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 October 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 (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary to reflect a
fair presentation of the Company's financial position as of September 30, 1998
and the results of operations for the interim three-month and nine-month periods
ending September 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.
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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>
September 30, December 31,
1998 1997
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 197,500 $ 66,200
Accounts receivable 60,000 56,900
Inventories 79,200 76,400
Prepaid expenses 68,000 60,700
----------- -----------
Total current assets 404,700 260,200
Property and equipment (net) 1,676,300 1,767,200
Other assets 11,800 11,800
----------- -----------
$ 2,092,800 $ 2,039,200
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 176,200 $ 37,000
Accrued liabilities 219,700 198,500
Payable to affiliates 468,200 359,100
Notes payable to stockholder 419,600 549,600
----------- -----------
Total current liabilities 1,283,700 1,144,200
Capital lease obligations 2,000 4,000
Deferred rent liabilities 28,500 27,400
----------- -----------
Total liabilities 1,314,200 1,175,600
----------- -----------
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) (3,643,900) (3,558,900)
----------- -----------
Total stockholders' equity 778,600 863,600
----------- -----------
$ 2,092,800 $ 2,039,200
=========== ===========
</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>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Restaurant revenues $ 1,671,300 $ 1,787,700 $ 5,089,300 $ 5,170,000
Costs and expenses:
Cost of sales 501,900 531,600 1,509,500 1,513,800
Restaurant expenses 946,400 949,400 2,813,500 2,793,600
Depreciation and amortization 66,600 96,200 246,500 282,100
General and administrative expenses 195,700 213,600 566,300 743,700
----------- ----------- ----------- -----------
Total costs and expenses 1,710,600 1,790,800 5,135,800 5,333,200
----------- ----------- ----------- -----------
Income (loss)
from operations (39,300) (3,100) (46,500) (163,200)
Nonoperating income, expense
Interest expense - stockholder (13,200) (16,000) (38,600) (46,200)
Other income, net 100 9,800 100 30,600
----------- ----------- ----------- -----------
Net income (loss) ($ 52,400) ($ 9,300) ($ 85,000) ($ 178,800)
=========== =========== =========== ===========
Income (loss) per common share -
basic and diluted ($ 0.04) ($ 0.01) ($ 0.06) ($ 0.13)
=========== =========== =========== ===========
Weighted average common
shares outstanding -
basic and diluted 1,359,273 1,359,273 1,359,273 1,359,273
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(ROUNDED TO NEAREST HUNDRED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1998 1997
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss ($ 85,000) ($178,800)
Adjustments To Reconcile Net Loss To Net Cash From
operating activities:
Depreciation and amortization 246,500 282,100
Changes in assets and liabilities:
Accounts receivable (3,100) 5,900
Inventories (2,800) (1,700)
Prepaid expenses (7,300) (20,800)
Other assets -- 1,900
Accounts payable 139,200 (190,900)
Accrued liabilities 21,200 35,900
Payable to affiliates 109,100 137,700
Deferred rent liabilities 1,100 (4,100)
--------- ---------
Net cash provided by (used in) operating activities 418,900 67,200
--------- ---------
Cash flows provided by (used in) investing activities -
Additions to property and equipment (155,600) (48,300)
--------- ---------
Cash flows provided by (used in) financing activities:
Additions to (payments of) notes payable to stockholder, net (130,000) 10,000
Additions to (payments of) capital lease obligations (2,000) 6,500
--------- ---------
Net cash provided by (used in) financing activities (132,000) 16,500
--------- ---------
Net increase (decrease) in cash 131,300 35,400
Cash at beginning of period 66,200 118,100
--------- ---------
Cash at end of period $ 197,500 $ 153,500
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 in
accordance with Generally Accepted Accounting Principles. The Company's
financial statements should be read in conjunction with its annual
financial statements included on Form 10-KSB.
(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
$178,200 and $27,000 for the nine months ended September 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 nine
months ended September 30, 1998, $41,500 was paid to the majority
shareholder under this arrangement.
During 1998, the Company repaid notes to its majority shareholder
totaling $130,000 and the related accrued interest of approximately
$18,100.
The interest rate on the note payable to the majority shareholder was
changed from 9.5% per annum to 8% per annum effective October 1, 1998.
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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 September 30, 1998 and 1997 the Company's cash was approximately
$197,500 and $153,500 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 decreased from $5,170,000 to
$5,089,300 (1.6%) for the nine months ended September 30, 1997 and 1998,
respectively; loss from operations decreased 71.5% from $163,200 in 1997 to
$46,500 in 1998; and net loss decreased 52.5% from $178,800 in 1997 to $85,000
in 1998.
Restaurant revenues for the nine-month period ended September 30, 1998
decreased $80,700 (1.6%) from the same period in 1997, primarily because of an
unusually long stretch of extremely hot and humid weather from June through
September 1998. This uncomfortable weather greatly reduced the number of
customers dining outdoors on the patio at both locations. Patrizio I accounted
for 53.8% and 54.0% of the revenues for the nine-month periods ended September
30, 1998 and 1997, respectively.
Cost of sales as a percent of restaurant revenues increased from 29.3%
in 1997 to 29.7% in 1998 primarily due to the increases in the cost of food
sold. Restaurant expenses for the nine-month period ended September 30, 1998
increased $19,900 (.7%) from the same period in 1997 primarily because of an
increased usage of restaurant supplies.
Depreciation and amortization decreased from $282,100 to $246,500 for
the nine months ended September 30, 1997 and 1998, respectively. General and
administrative expenses for the nine-month period ended September 30, 1998
decreased $177,400 (23.9%) from the nine-month period ended September 30, 1997
primarily because of the increase in the charge to affiliates for shared
resources and the Company's continued cost control measures.
Interest expense - stockholder decreased $7,600 during the first nine
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
The Company uses computer software, hardware and related technologies
in the day to day operation of its business that may be affected by the arrival
of the year 2000. The significance of the year 2000, which is common to most
businesses, concerns the inability of computer based
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technology to properly recognize and process date-sensitive information as the
year 2000 approaches. Management has completed a preliminary assessment of its
internal computer systems and credit card processors and believes they are Year
2000 compliant, although no assurances can be made in this regard. The Company
is in the process of evaluating the impact that the Year 2000 will have on its
product suppliers and expects to be complete with this assessment in the second
quarter of 1999. Expenditures to date relating to the year 2000 have been
insignificant and 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. To date management
has not yet developed a contingency plan or a timetable for doing so.
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 infrequent 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.
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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
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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>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the Board, November 11, 1998
/s/ Jack D. Knox President and Director
- ------------------------- (Principal Executive
Jack D. Knox Officer)
/s/ Anne B. Pullen Controller November 11, 1998
- ------------------------- (Principal Financial and
Anne B. Pullen Accounting Officer)
</TABLE>
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INDEX TO EXHIBITS
Exhibit
No. Description
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 197,500
<SECURITIES> 0
<RECEIVABLES> 60,000
<ALLOWANCES> 0
<INVENTORY> 79,200
<CURRENT-ASSETS> 404,700
<PP&E> 3,845,500
<DEPRECIATION> (2,169,200)
<TOTAL-ASSETS> 2,092,800
<CURRENT-LIABILITIES> 1,283,700
<BONDS> 0
0
0
<COMMON> 13,600
<OTHER-SE> 765,000
<TOTAL-LIABILITY-AND-EQUITY> 2,092,800
<SALES> 5,089,300
<TOTAL-REVENUES> 5,089,300
<CGS> 1,509,500
<TOTAL-COSTS> 5,135,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,600
<INCOME-PRETAX> (85,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (85,000)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
