<PAGE>
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, 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 October 31, 1999, 1,359,273 common shares of the registrant were issued
and outstanding.
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PART I. FINANCIAL INFORMATION
The consolidated financial statements of Sixx Holdings, Incorporated
and its subsidiaries (the "Company") included herein have been prepared by the
registrant in conformity with generally accepted accounting principles. The
consolidated financial statements and information included herein are unaudited;
however, they reflect all adjustments which are, in the opinion of management,
necessary to reflect a fair presentation of the Company's financial position as
of September 30, 1999 and the results of operations for the interim three-month
and nine-month periods ending September 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 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.
2
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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,
1999 1998
------------ -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
CASH $ 122,400 $ 127,400
ACCOUNTS RECEIVABLE 108,400 112,500
INVENTORIES 87,100 84,300
PREPAID EXPENSES 65,600 66,300
----------- -----------
TOTAL CURRENT ASSETS 383,500 390,500
----------- -----------
PROPERTY AND EQUIPMENT (NET) 1,377,400 1,540,500
OTHER ASSETS 11,800 11,800
----------- -----------
$ 1,772,700 $ 1,942,800
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 45,300 $ 34,600
ACCRUED LIABILITIES 251,000 213,400
PAYABLE TO AFFILIATES 524,100 530,100
NOTES PAYABLE TO STOCKHOLDER 100,000 419,600
----------- -----------
TOTAL CURRENT LIABILITIES 920,400 1,197,700
----------- -----------
CAPITAL LEASE OBLIGATIONS --- 1,200
DEFERRED RENT LIABILITIES 27,200 28,900
----------- -----------
TOTAL LIABILITIES 947,600 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) (3,597,400) (3,707,500)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 825,100 715,000
----------- -----------
$ 1,772,700 $ 1,942,800
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
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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,
1999 1998 1999 1998
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
RESTAURANT REVENUES $ 1,870,000 $ 1,671,300 $ 5,432,900 $ 5,089,300
COSTS AND EXPENSES:
COST OF SALES 560,800 501,900 1,584,000 1,509,500
RESTAURANT EXPENSES 1,024,300 946,400 2,974,900 2,813,500
DEPRECIATION AND AMORTIZATION 36,900 66,600 222,100 246,500
GENERAL AND ADM. EXPENSES 160,300 195,700 524,800 566,300
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES 1,782,300 1,710,600 5,305,800 5,135,800
----------- ----------- ----------- -----------
INCOME (LOSS)
FROM OPERATIONS 87,700 (39,300) 127,100 (46,500)
NONOPERATING INCOME (EXPENSE)
INTEREST EXPENSE - STOCKHOLDER (2,900) (13,200) (17,000) (38,600)
OTHER INCOME (EXPENSE), NET (300) 100 --- 100
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 84,500 $ (52,400) $ 110,100 $ (85,000)
=========== =========== =========== ===========
INCOME (LOSS) PER COMMON SHARE -
BASIC AND DILUTED $ 0.06 ($ 0.04) $ 0.08 ($ 0.06)
=========== =========== =========== ===========
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.
4
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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,
1999 1998
------------------ -----------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 110,100 $ (85,000)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 222,100 246,500
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE 4,100 (3,100)
INVENTORIES (2,800) (2,800)
PREPAID EXPENSES 700 (7,300)
ACCOUNTS PAYABLE 10,700 139,200
ACCRUED LIABILITIES 37,600 21,200
PAYABLE TO AFFILIATES (6,000) 109,100
DEFERRED RENT LIABILITIES (1,700) 1,100
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 374,800 418,900
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
ADDITIONS TO PROPERTY AND EQUIPMENT (59,000) (155,600)
--------- ---------
CASH FLOWS USED IN FINANCING ACTIVITIES:
REPAYMENT OF NOTES PAYABLE TO STOCKHOLDER, NET (319,600) (130,000)
PAYMENTS OF CAPITAL LEASE OBLIGATIONS (1,200) (2,000)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (320,800) (132,000)
--------- ---------
NET INCREASE (DECREASE) IN CASH (5,000) 131,300
CASH AT BEGINNING OF PERIOD 127,400 66,200
--------- ---------
CASH AT END OF PERIOD $ 122,400 $ 197,500
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
5
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SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 general and administrative expenses by
$178,200 for both of the nine month periods ended September 30, 1999
and 1998. In addition, on May 1, 1998, the corporate office lease
expired and was not renewed; instead, the Company leases the same
office space on a month-to-month basis from the majority shareholder.
Under this arrangement, the Company paid $74,700 and $41,500 to the
majority shareholder for the nine months ended September 30, 1999 and
1998, respectively.
The Company repaid $319,640 of notes payable to the majority
shareholder during the nine months ended September 30, 1999. As of
September 30, 1999, notes payable to the majority shareholder had a
balance of $100,000. Subsequent to September 30, 1999, the Company
repaid notes totaling $50,000 and the related interest.
(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.
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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.
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, 1999 and 1998 the Company's cash was approximately
$122,400 and $197,500 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 for the nine months ended September
30, 1999 were $5,432,900, representing a 6.8% increase over the same period in
the prior year. This increase was 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 55.75%
and 53.81% of the total revenues for the nine month periods ended September 30,
1999 and 1998, respectively.
Cost of sales as a percent of restaurant revenues was 29.2% for the
nine months ended September 30, 1999 compared to 29.7% in 1998. The decrease
from the prior year was due to the lower cost of produce and meat products
during the nine months ended September 30, 1999 as compared to the same period
in the prior year.
Restaurant expenses for the nine-month period ended September 30, 1999
increased $161,400, or 5.7%, over the same period in 1998. This increase was
primarily due to increased sales volumes as well as increased labor costs.
Depreciation and amortization were $222,100 for the nine months ended
September 30, 1999 and $246,500 for the nine months ended September 30, 1998.
General and administrative expenses for the nine months ended September
30, 1999 decreased $41,500, or 7.3%, over the same period in 1998. This decrease
was due to the reduced expenditures for contract labor during the nine months
ended September 30, 1999 as compared to the same period in the prior year.
7
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Interest expense - stockholder decreased $21,600 during the first nine
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 nine months ended September 30, 1999 was
$127,100 compared to a loss of $46,500 for the same period in the prior year.
Net income (loss) increased from a loss of $85,000 in 1998 to net income of
$110,100 in 1999 primarily due to increased revenues.
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 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 November 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, the Company sent letters to a majority of its vendors
inquiring as to their readiness. 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 November 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 cost of taxes,
8
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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.
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 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.
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
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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.
SIGNATURE TITLE DATE
Chairman of the Board, November 12, 1999
/s/ Jack D. Knox President and Director
- ------------------------ (Principal Executive
Jack D. Knox (Officer)
/s/Wendy W. Hackemack Controller November 12, 1999
- ------------------------ (Principal Financial and
Wendy W. Hackemack Accounting Officer)
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INDEX TO EXHIBITS
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 122,400
<SECURITIES> 0
<RECEIVABLES> 108,400
<ALLOWANCES> 0
<INVENTORY> 87,100
<CURRENT-ASSETS> 383,500
<PP&E> 3,886,800
<DEPRECIATION> (2,509,400)
<TOTAL-ASSETS> 1,772,700
<CURRENT-LIABILITIES> 920,400
<BONDS> 0
0
0
<COMMON> 13,600
<OTHER-SE> 811,500
<TOTAL-LIABILITY-AND-EQUITY> 1,772,700
<SALES> 5,432,900
<TOTAL-REVENUES> 5,432,900
<CGS> 1,584,000
<TOTAL-COSTS> 5,305,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,000
<INCOME-PRETAX> 110,100
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 110,100
<EPS-BASIC> .08
<EPS-DILUTED> .08
</TABLE>
