<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 JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-16808
SIXX HOLDINGS, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 75-2222883
(State of Incorporation) (IRS Employer Identification No.)
300 Crescent Court, Suite 1630
Dallas, Texas 75201
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (214) 855-8800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [XX] NO [ ]
As of July 31, 1999, 1,359,273 common shares of the registrant were issued and
outstanding.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
The consolidated financial statements of Sixx Holdings, Incorporated and
its subsidiaries (the "Company") included herein have been prepared by the
registrant in conformity with generally accepted accounting principles. The
consolidated financial statements and information included herein are
unaudited; however, they reflect all adjustments which are, in the opinion of
management, necessary to reflect a fair presentation of the Company's financial
position as of June 30, 1999 and the results of operations for the interim
three-month and six-month periods ending June 30, 1999 and 1998. 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 of 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 11
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(ROUNDED TO NEAREST HUNDRED, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
(UNAUDITED)
----------- -----------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
CASH $ 83,000 $ 127,400
ACCOUNTS RECEIVABLE 106,200 112,500
INVENTORIES 89,100 84,300
PREPAID EXPENSES 59,300 66,300
----------- -----------
TOTAL CURRENT ASSETS 337,600 390,500
----------- -----------
PROPERTY AND EQUIPMENT (NET) 1,382,200 1,540,500
OTHER ASSETS 11,800 11,800
----------- -----------
$ 1,731,600 $ 1,942,800
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 18,500 $ 34,600
ACCRUED LIABILITIES 220,400 213,400
PAYABLE TO AFFILIATES 536,700 530,100
NOTES PAYABLE TO STOCKHOLDER 187,600 419,600
----------- -----------
TOTAL CURRENT LIABILITIES 963,200 1,197,700
----------- -----------
CAPITAL LEASE OBLIGATIONS -- 1,200
DEFERRED RENT LIABILITIES 27,800 28,900
----------- -----------
TOTAL LIABILITIES 991,000 1,227,800
----------- -----------
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) (3,681,900) (3,707,500)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 740,600 715,000
----------- -----------
$ 1,731,600 $ 1,942,800
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
Page 3 of 11
<PAGE> 4
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 SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
RESTAURANT REVENUES $ 1,936,100 $ 1,829,200 $ 3,562,900 $ 3,418,000
COSTS AND EXPENSES:
COST OF SALES 555,400 536,900 1,023,200 1,007,600
RESTAURANT EXPENSES 1,033,200 980,600 1,950,600 1,867,100
DEPRECIATION AND AMORTIZATION 94,200 87,200 185,200 179,900
GENERAL AND ADMIN. EXPENSES 192,100 194,200 364,500 370,600
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES 1,874,900 1,798,900 3,523,500 3,425,200
----------- ----------- ----------- -----------
INCOME (LOSS)
FROM OPERATIONS 61,200 30,300 39,400 (7,200)
NONOPERATING INCOME (EXPENSE):
INTEREST EXPENSE - STOCKHOLDER (6,000) (12,300) (14,100) (25,400)
OTHER INCOME, NET 700 -- 300 --
NET INCOME (LOSS) $ 55,900 $ 18,000 $ 25,600 $ (32,600)
=========== =========== =========== ===========
INCOME (LOSS) PER COMMON SHARE -
BASIC AND DILUTED $ 0.04 $ 0.01 $ 0.02 $ (0.02)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 1,359,273 1,359,273 1,359,273 1,359,273
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
Page 4 of 11
<PAGE> 5
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(ROUNDED TO NEAREST HUNDRED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 25,600 $ (32,600)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 185,200 179,900
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE 6,300 (2,800)
INVENTORIES (4,800) 7,100
PREPAID EXPENSES 7,000 (10,500)
ACCOUNTS PAYABLE (16,100) 76,300
ACCRUED LIABILITIES 7,000 60,600
PAYABLE TO AFFILIATES 6,600 39,800
DEFERRED RENT LIABILITIES (1,100) 800
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 215,700 318,600
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
ADDITIONS TO PROPERTY AND EQUIPMENT (26,900) (99,700)
--------- ---------
CASH FLOWS USED IN FINANCING ACTIVITIES:
REPAYMENT OF NOTES PAYABLE TO STOCKHOLDER, NET (232,000) (130,000)
PAYMENTS OF CAPITAL LEASE OBLIGATIONS (1,200) (1,400)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (233,200) (131,400)
--------- ---------
NET INCREASE (DECREASE) IN CASH (44,400) 87,500
CASH AT BEGINNING OF PERIOD 127,400 66,200
--------- ---------
CASH AT END OF PERIOD $ 83,000 $ 153,700
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE> 6
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(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. The
Company's interim 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 1998 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 the Company's general and administrative
expenses by $118,800 for both of the six month periods ended June 30,
1999 and 1998. In addition, on May 1, 1998, the corporate office lease
expired and was not renewed by the Company; instead, the Company leases
the same office space on a month-to-month basis from the majority
shareholder. Under this arrangement, the Company paid $49,800 and
$16,600 to the majority shareholder for the six months ended June 30,
1999 and 1998, respectively.
As of June 30, 1999, accounts receivable from a related party had a
balance of $2,700. The balance of the account as of December 31, 1998
was $300.
The Company repaid $232,000 of notes payable to stockholder during the
six months ended June 30, 1999. As of June 30, 1999, notes payable to
the majority shareholder had a balance of $187,600. Subsequent to June
30, 1999, the Company repaid notes totaling $75,000 and the related
accrued interest of approximately $22,000.
Page 6 of 11
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(4) SEGMENT INFORMATION
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 131, "Disclosures about Segment of an Enterprise
and Related Information" which requires that public enterprises disclose
certain information about their operating segments and the geographic
areas in which the enterprise operates.
The Company has identified its two Italian concept restaurants as
operating segments and aggregates those segments and its corporate
operations into a single reporting segment.
Page 7 of 11
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company owns and operates two upscale Italian restaurants. Patrizio
I, located in Dallas, Texas, was opened in 1989 and Patrizio II, located in
Plano, Texas was opened in 1994.
CAPITAL RESOURCES AND LIQUIDITY
As of June 30, 1999 and 1998 the Company's cash was approximately
$83,000 and $153,700, 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 $3,418,000 to
$3,562,900, or 4.2%, for the six months ended June 30, 1999 and 1998,
respectively. This increase is primarily attributable to increased cover counts
generated by Patrizio I and a 2% menu price increase at both Patrizio I and
Patrizio II in the fourth quarter of 1998. Patrizio I accounted for 55.7% and
54.2% of the total revenues for the six month periods ended June 30, 1999 and
1998, respectively.
Cost of sales as a percent of restaurant revenues decreased from 29.5%
in 1998 to 28.7% in 1999. This decrease was due to the lower cost of meat
products during the first six months of 1999 as compared to the same period in
the prior year.
Restaurant expenses for the six-month period ended June 30, 1999
increased $83,500, or 4.5%, over the same period in 1998. This increase was
primarily due to increased sales volumes and labor costs.
Depreciation and amortization were $185,200 for the six months ended
June 30, 1999 and $179,900 for the six months ended June 30, 1998.
General and administrative expenses for the six month period ended June
30, 1999 did not change significantly from the prior year.
Interest expense - stockholder decreased $11,300 during the first six
months of 1999 compared to the same period of 1998 primarily due to the lower
average principal balance of the loans outstanding. In addition, the interest
rates were modified from 9.50% per annum at January 1, 1998 to 8.00% per annum
effective October 1, 1998.
Income from operations for the six months ended June 30, 1999 was
$39,400 compared to a loss of $7,200 for the same period in the prior year. Net
income (loss) increased from a loss of $32,600 in 1998 to net income of $25,600
in 1999 due to increased revenues.
Page 8 of 11
<PAGE> 9
YEAR 2000 ISSUE
The Company uses 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 technology to properly
recognize and process date-sensitive information as the year 2000 approaches. A
review of the Company's information systems has been completed, and a
comprehensive program is currently in process to modify or replace those
systems that are not year 2000 compliant. Management believes that all Company
systems that are not year 2000 compliant will be modified or replaced by
September 1999. Validation and testing of the Company's information systems
will be conducted during the remainder of 1999.
In addition to the assessment of in-house systems, the Company has been
assessing the readiness of its vendors for the Year 2000 issue. To determine
the status of third parties, letters inquiring as to their readiness were sent
to a majority of the Company's vendors. The Company is currently assessing the
vendors' responses and prioritizing them in order of significance to the
business of the Company. Contingency plans will be developed in the event that
business-critical vendors do not provide the Company with satisfactory evidence
of their readiness to handle Year 2000 issues. Management is continuing to
review its non IT systems, which include microwaves, dishwashers, and other
kitchen appliances, and contingency plans will be developed if it is determined
that any of these systems are not year 2000 compliant. The Company anticipates
that these contingency plans will be in place by October 1999.
All maintenance and modification costs are being expensed as incurred,
while the cost of new software, if material, is being capitalized and
depreciated over its expected useful life. Expenditures to date relating to the
Year 2000 have been insignificant, and management believes that future costs
will not be significant to the Company's financial position or results of
operation.
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. Operating margins at the
restaurant level have been maintained through rigorous food cost control,
procurement efficiencies and infrequent menu price adjustments. The costs of
taxes, maintenance and insurance all have an impact on the Company's occupancy
costs, which continue 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 are the most effective
means to manage the effects of inflation, including increases in the minimum
wage.
Page 9 of 11
<PAGE> 10
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.
ACCOUNTING MATTERS
In June 1998, Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities," was
issued. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The provisions of SFAS No. 133 are
effective for fiscal years beginning after June 14, 2000, although early
adoption is allowed. The Company is currently not involved in derivative
instruments or hedging activities and therefore, will measure the impact of
this statement as it becomes necessary.
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 forwardlooking 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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Ex 27 Financial Data Schedule
(b) Reports on Form 8-K: None
Page 10 of 11
<PAGE> 11
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, August 12, 1999
/s/ Jack D. Knox President and Director
- ----------------------- (Principal Executive
Jack D. Knox Officer)
/s/ Wendy W. Hackemack Chief Financial Officer August 12, 1999
- ----------------------- (Principal Financial and
Wendy W. Hackemack Accounting Officer)
</TABLE>
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<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
EX 27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 83,000
<SECURITIES> 0
<RECEIVABLES> 106,200
<ALLOWANCES> 0
<INVENTORY> 89,100
<CURRENT-ASSETS> 337,600
<PP&E> 3,854,800
<DEPRECIATION> (2,472,600)
<TOTAL-ASSETS> 1,731,600
<CURRENT-LIABILITIES> 963,200
<BONDS> 0
0
0
<COMMON> 13,600
<OTHER-SE> 727,000
<TOTAL-LIABILITY-AND-EQUITY> 1,731,600
<SALES> 3,562,900
<TOTAL-REVENUES> 3,562,900
<CGS> 1,023,200
<TOTAL-COSTS> 3,523,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,100
<INCOME-PRETAX> 25,600
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,600
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
