<PAGE> 1
================================================================================
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, 1998
[ ] 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, 1998 were $6,777,100.
As of February 27, 1999 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, 1999, was approximately $153,125. 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]
================================================================================
<PAGE> 2
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 $5.26 to $9.80.
Alcoholic beverages, which are served primarily with meals (as opposed to bar
service) generated approximately 26% and 27% of all restaurant revenues for 1998
and 1997. 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, 1998, the Company employed five persons in its
corporate headquarters and approximately 164 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,
service, atmosphere, and location. The Company believes that its competitive
position is enhanced by its quality food, up-scale atmosphere and moderately
priced menu.
2
<PAGE> 3
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 nondiscriminating 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 $4.75 to $5.15 for non-service personnel effective
September 1, 1997 and remained at that level to present day.
ITEM 2. DESCRIPTION OF PROPERTIES
As of December 31, 1998, the Company owned two restaurants, each
located in a strip shopping center. The Patrizio I lease expired in February,
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. Its lease expired in March,
1998 and was not renewed. The Company now rents the same space on a
month-to-month basis from its majority shareholder at the price paid by the
Company's majority shareholder.
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.
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
3
<PAGE> 4
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>
- --------------------------------------------------------------------------------------------------------------------
1998: High Bid Low Bid
First Quarter .75 .53
Second Quarter .81 .50
Third Quarter .53 .34
Fourth Quarter .31 .06
1997:
First Quarter 3.00 2.00
Second Quarter 2.25 1.63
Third Quarter 2.25 1.25
Fourth Quarter 1.38 .50
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
As of February 27, 1999, there were approximately 1,945 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.
CAPITAL RESOURCES AND LIQUIDITY
As of December 31, 1998, the Company's cash was $127,400. Management
believes that sales at the current annual levels will provide sufficient cash
flow to fund operations at existing restaurants for the foreseeable future.
Effective January 1, 1997, the $579,640 outstanding in notes to the
majority 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%. Total borrowings from and repayments to stockholders were $130,000 and
$160,000 respectively during 1997. In May 1998 the Company repaid $130,000 of
the notes to stockholder and accrued interest thereon. On October 1, 1998 all
notes to stockholder were modified to bear interest at 8.0% per annum.
RESULTS OF OPERATIONS
The Company's restaurant revenues decreased 1% from $6,842,300 to
$6,777,100 for the years ended December 31, 1997 and 1998, respectively; loss
from operations decreased 56.1% from $235,500 in 1997 to $103,300 in 1998; and
net loss decreased 49.0% from $291,600 in 1997 to $148,600 in 1998.
Restaurant revenues for the year ended December 31, 1998 decreased
$65,200 (1.0%) from the same period in 1997, primarily due to 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 54.2% of
annual revenues in 1998.
Cost of sales as a percent of restaurant revenues increased from 29.3%
for the year ended December 31, 1997 to 29.6% for the same period in 1998.
Restaurant expenses totaled $3,738,200 for the year ended December 31, 1998, a
0.5% increase over 1997. Restaurant expenses were 53.8% of revenue at Patrizio I
compared to 51.6% in the prior year primarily due to increases in restaurant
operating supplies and rent. Patrizio II's restaurant expenses were 57.4% of
revenue in 1998 compared to 57.5% in 1997.
Depreciation and amortization was $364,600 for the year ended December
31, 1998 and $377,500 for the year ended December 31, 1997. General and
administrative expenses were $770,900 for the year ended December 31, 1998,
compared to $979,900 in 1997. The decrease in general and administrative expense
of 21.3% or $209,000 can be largely
4
<PAGE> 5
attributed to an increase in 1998 of approximately $200,000 in reimbursements to
the Company for office and administration expenses by its affiliates.
Interest expense-stockholder of $43,600 reflects a decrease of $16,400
over the 1997 expense of $60,000 as a result of decreased principal amounts
outstanding in 1998 and the modification of the interest rate from 9.5% to 8.0%
effective October 1, 1998.
Other income (expense) was ($1,700) for the year ended December 31,1998
and other income was $3,800 for the year ended December 31, 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 were provided for in the consolidated financial
statements.
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.
Management has completed its assessment of its point-of-sale systems and is in
the preliminary stage of assessing its internal computer systems and believes
they are Year 2000 compliant. The Company is in the process of evaluating the
impact that the Year 2000 will have on its non IT systems, which include
microwaves, dishwashers, and other kitchen appliances, and 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 legislation increased
the minimum wage by $0.40 per hour effective September 1, 1997. Operating
margins at the restaurant level have been maintained through rigorous food cost
control, procurement efficiencies and minimal menu price adjustments. The cost
of taxes, maintenance and insurance all have an impact on the Company's
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.
5
<PAGE> 6
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 15, 1999, although early
adoption is allowed. The Company does not expect the adoption of this Statement
to have a material impact on the Company's financial condition or reported
results of operations.
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:
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
Jack D. Knox 61 Chairman of the Board,
President and Director
Dorothy L. Douglas 54 Secretary and Treasurer
G. Michael Boswell 58 Director
R. Ted Enloe, Jr. 60 Director
Richard Mullen 59 Director
</TABLE>
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
three years, all directors' terms expire in May 1999 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.
6
<PAGE> 7
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.
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. From 1975 to August 1986 he served
as President, and from April 1992 to August 1996 as Chief Executive Officer, of
Liberte Investors. He was President of L&N Housing Corp. from 1981 to April 1992
and a director of that entity from 1981 to 1996. From 1975 to September 1991 he
served as President of Lomas Financial Corporation, and as a director of that
company from 1970 to 1991. Mr. Enloe serves as a director of Compaq Computer
Corporation, a computer manufacturer, Leggett & Platt, Inc., a manufacturer of
components primarily for the furnishings and bedding industries, Liberte
Investors, Inc., a holding company seeking acquisitions of operating companies,
First Sierra Financial, Inc., a commercial leasing firm, and The Rubenstein
Company, L.P., a private REIT that owns office buildings in the Mid-Atlantic
region.
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. He also serves as a director of Targeted Marketing
Systems, Inc., a privately-held firm specializing in customer loyalty programs.
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 1998 all filing requirements applicable to its officers, directors,
and greater than 10-percent beneficial owners were complied with.
7
<PAGE> 8
ITEM 10. EXECUTIVE COMPENSATION
The total compensation paid during 1998, 1997, and 1996 to the Chief
Executive Officer of the Company, Jack D. Knox, is set forth below in the
following Summary Compensation Table:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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 1998 $ -- (1) $-- $1,909(2) -- $4,310(3)
Chairman of the Board 1997 $ -- (1) $-- $1,227(2) -- $2,755(3)
and President (Chief 1996 $ -- (1) $-- $3,436(2) -- $2,545(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 1998, 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 $600 and $1,800 for the
years ended December 31, 1998 and 1996, 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 1998
and 1997 and a life insurance policy on the life of Mr. Knox, the
beneficiary of which is Mr. Knox's estate, in 1998, 1997 and 1996.
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>
<CAPTION>
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
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.
8
<PAGE> 9
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
1998, this fee has been 1/2 of 1%.
Pursuant to these agreements, Mr. Knox earned consulting and royalty
fees of approximately $135,500 and $136,800 in 1998 and 1997, respectively. The
fees are included in general and administrative expenses. No payment of the 1998
or 1997 fees earned were made and, accordingly, they are included in payable to
affiliates.
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 $237,600 and $36,000
for years ended December 31, 1998 and December 31, 1997, respectively.
The notes payable to Mr. Knox are unsecured and payable on demand.
Notes totaling $549,600, bearing interest at a rate of 9.5% per annum, were
outstanding at December 31, 1997. 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 $419,600 were outstanding at December 31, 1998. Effective October
1 1998, the interest rates of all notes were modified to 8.0%. Interest expense
for such notes aggregated approximately $42,900 and $59,500 in 1998 and 1997,
respectively. The unpaid interest is included in payable to affiliates at
December 31, 1998 and 1997.
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:
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).
9
<PAGE> 10
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.
10
<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.
Date: March 30, 1999
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>
<CAPTION>
Signatures Titles Date
---------- ------ ----
<S> <C> <C>
/s/ Jack D. Knox Chairman of the Board, President, March 30, 1999
------------------------------ and Director (Principal Executive
Jack D. Knox Officer)
/s/ Anne B. Pullen Chief Financial Officer (Principal March 30, 1999
------------------------------ Financial and Accounting Officer)
Anne B. Pullen
/s/ G. Michael Boswell Director March 30, 1999
------------------------------
G. Michael Boswell
/s/ Robert Ted Enloe III Director March 30, 1999
------------------------------
Robert Ted Enloe III
/s/ Richard T. Mullen Director March 30, 1999
------------------------------
Richard T. Mullen
</TABLE>
11
<PAGE> 12
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
F-1
<PAGE> 13
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Six Holdings, Incorporated:
We have audited the accompanying consolidated balance sheets of Six Holdings,
Incorporated and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. 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 Six Holdings,
Incorporated and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
KPMG LLP
Dallas, Texas
February 12, 1999
F-2
<PAGE> 14
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
(Rounded to nearest hundred, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS 1998 1997
------------ -----------
<S> <C> <C>
Current assets:
Cash $ 127,400 66,200
Accounts receivable 62,400 56,900
Receivable from affiliate (note 7) 50,100 --
Inventories 84,300 76,400
Prepaid expenses 66,300 60,700
----------- -----------
Total current assets 390,500 260,200
Net property and equipment (note 2) 1,540,500 1,767,200
Other assets 11,800 11,800
----------- -----------
$ 1,942,800 2,039,200
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 34,600 37,000
Accrued liabilities (note 3) 213,400 198,500
Payable to affiliates (note 7) 530,100 359,100
Notes payable to stockholder (notes 7 and 8) 419,600 549,600
----------- -----------
Total current liabilities 1,197,700 1,144,200
Capital lease obligations (note 5) 1,200 4,000
Deferred rent liabilities (note 4) 28,900 27,400
----------- -----------
Total liabilities 1,227,800 1,175,600
----------- -----------
Stockholders' equity:
Common stock of $.01 par value. Authorized 12,000,000
shares; 1,359,273 shares in 1998 and
1997 issued and outstanding 13,600 13,600
Additional paid-in capital 4,408,900 4,408,900
Accumulated deficit (since August 1, 1989) (3,707,500) (3,558,900)
----------- -----------
Total stockholders' equity 715,000 863,600
Commitments (note 5)
----------- -----------
$ 1,942,800 2,039,200
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 15
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1998 and 1997
(Rounded to nearest hundred, except per share amounts)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Restaurant revenues $ 6,777,100 6,842,300
----------- -----------
Costs and expenses:
Cost of sales 2,006,700 2,002,400
Restaurant expenses 3,738,200 3,717,900
Depreciation and amortization 364,600 377,500
General and administrative expenses (note 7) 770,900 979,900
----------- -----------
Total costs and expenses 6,880,400 7,077,700
----------- -----------
Loss from operations (103,300) (235,400)
Nonoperating income (expense):
Interest expense - stockholder (note 7) (43,600) (60,000)
Other income (expense) (1,700) 3,800
----------- -----------
Net loss $ (148,600) (291,600)
=========== ===========
Loss per common share - basic and diluted $ (.11) (.21)
=========== ===========
Weighted average common shares outstanding $ 1,359,273 1,359,273
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 16
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998 and 1997
(Rounded to nearest hundred, except share amounts)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 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
Net loss -- -- -- (148,600) (148,600)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 1,359,273 $ 13,600 4,408,900 (3,707,500) 715,000
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 17
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998 and 1997
(Rounded to nearest hundred)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (148,600) (291,600)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 364,600 377,500
Changes in assets and liabilities:
Accounts receivable (5,500) 500
Receivable from affiliate (50,100) --
Inventories (7,900) (600)
Prepaid expenses (5,600) (4,300)
Other assets -- 1,900
Accounts payable (2,400) (225,500)
Accrued liabilities 14,900 500
Payable to affiliates 171,000 179,900
Deferred rent liabilities 1,500 (3,800)
---------- ----------
Net cash provided by operating activities 331,900 34,500
---------- ----------
Cash flows used in investing activities:
Additions to property and equipment, net (137,900) (55,500)
---------- ----------
Cash flows from financing activities:
Additions to notes payable to stockholder -- 130,000
Repayments of notes payable to stockholder (130,000) (160,000)
Payments of capital lease obligations (2,800) (900)
---------- ----------
Net cash provided used in financing activities (132,800) (30,900)
---------- ----------
Net increase (decrease) in cash 61,200 (51,900)
Cash at beginning of year 66,200 118,100
---------- ----------
Cash at end of year $ 127,400 66,200
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 18
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(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,
1998 and 1997. The Company paid no income taxes during the years
presented. Interest of $18,100 and $10,600 was paid during the
years ended December 31, 1998 and 1997, respectively. 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.
(Continued)
F-7
<PAGE> 19
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(rounded to nearest hundred, except share amounts)
(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 $43,500 and $55,600 in 1998 and 1997, 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
Basic earnings per share (EPS) is computed by dividing income
(loss) 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. The Company has no such
securities or other contracts in 1998 and 1997. Loss per share is
computed by dividing net loss by the weighted average number of
common shares outstanding in 1998 and 1997.
(Continued)
F-8
<PAGE> 20
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(rounded to nearest hundred, except share amounts)
(i) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future
undiscounted 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.
(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 1998 presentation.
(l) SEGMENT INFORMATION
In 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 131, "Disclosures about Segments 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. The Company's
operations are all domestic.
(Continued)
F-9
<PAGE> 21
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(rounded to nearest hundred, except share amounts)
(2) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Leasehold improvements $ 2,231,900 2,205,800
Furniture, fixtures and equipment 1,595,900 1,484,100
----------- -----------
3,827,800 3,689,900
Less accumulated depreciation
and amortization (2,287,300) (1,922,700)
----------- -----------
$ 1,540,500 1,767,200
=========== ===========
</TABLE>
The gross amounts of furniture, fixtures and equipment and related
accumulated amortization recorded under capital leases were $6,800 and
$1,400 in 1998 and $6,800 and $700 in 1997, respectively.
(3) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
------- -------
<S> <C> <C>
Current portion - capital lease obligation $ 2,400 $ 1,900
Current portion - deferred rent liabilities 3,500 8,600
Labor and related costs 56,600 48,300
Franchise, sales, liquor and property taxes 67,000 64,700
Gift certificate obligation 80,095 66,728
Other 3,805 8,272
--------- ---------
$ 213,400 $ 198,500
========= =========
</TABLE>
(Continued)
F-10
<PAGE> 22
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(rounded to nearest hundred, except share amounts)
(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 expired and was not renewed; instead the Company
is leasing the same office space on a month-to-month basis from the
majority shareholder (see note 7). The storage lease expires in March
1999. A summary of rent expense follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
Minimum rentals $ 420,200 337,800
Contingent rentals 43,300 99,300
--------- ---------
$ 463,500 437,100
========= =========
</TABLE>
In addition, the Company is obligated under capital leases for certain
equipment that expire through 2000.
(Continued)
F-11
<PAGE> 23
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(rounded to nearest hundred, except share amounts)
As of December 31, 1998, 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>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------------- -----------------
<S> <C> <C>
1999 $ 336,300 2,900
2000 335,400 1,400
2001 345,300 --
2002 348,600 --
2003 348,600 --
Thereafter 243,700 --
----------- -------
Total minimum lease payments $ 1,957,900 4,300
===========
Less amount representing interest at 9.5% (700)
-------
Present value of net minimum capital
lease payments 3,600
Less current portion of obligations
under capital leases 2,400
-------
Obligation under capital leases, excluding
current portion $ 1,200
=======
</TABLE>
(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.
(Continued)
F-12
<PAGE> 24
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(rounded to 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>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Computed "expected" tax benefit $ (50,500) (99,100)
Change in valuation allowance for deferred tax
assets allocated to income tax expense 21,600 124,100
Losses with no tax benefit 45,000 --
FICA tip tax credit (19,100) (23,100)
Disallowed expenses and other 3,000 (1,900)
--------- ---------
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>
<CAPTION>
DECEMBER 31
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Preopening costs capitalized for tax purposes $ -- 14,200
Deferred rent costs in excess of rent paid 2,500 12,200
Net operating loss carryforwards 1,401,200 1,446,400
Capital loss carryforwards -- 45,000
Alternative minimum tax credit carryforwards 716,000 716,000
Consulting and developer's royalty fees and
interest accrued for stockholder 177,300 122,900
FICA tip tax credit carryforwards 126,200 97,200
Basis in property and equipment 75,800 18,200
Other 15,500 20,800
----------- -----------
Total gross deferred tax assets 2,514,500 2,492,900
Less valuation allowance (2,514,500) (2,492,900)
----------- -----------
Net deferred taxes $ -- --
=========== ===========
</TABLE>
(Continued)
F-13
<PAGE> 25
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(rounded to nearest hundred, except share amounts)
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.
Net operating loss carryforwards of $4,121,148 for federal income tax
purposes expire between 2004 and 2011. Capital loss carryforwards of
$132,500 expired in 1998. General business credits of $126,200 expire in
years 2009 through 2012. The alternative minimum tax credit carryforward
of $716,000 is available for an indefinite period.
(7) RELATED PARTY TRANSACTIONS
In connection with the Merger (see note 1), and effective April 25, 1994,
the Company entered into two agreements with Mr. Knox, the 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 management services to the Company in
exchange for a consulting fee of 1 1/2% of defined gross revenues in each
restaurant up to a maximum of 32 Company restaurants. In addition, a
separate agreement provides that Mr. Knox earns a developer's royalty
ranging from 1/2 of 1% to 2% of defined gross revenues of the Company
based on the number of restaurants that are opened, up to a maximum of 32
restaurants. From inception through 1998, this fee has been the minimum
1/2 of 1%.
Pursuant to these agreements, Mr. Knox earned consulting and royalty fees
of approximately $135,500 and $136,800 in 1998 and 1997, respectively.
These consulting and royalty fees are included in general and
administrative expenses. No payments of either the 1998 or the 1997 fees
earned have been made and, accordingly, they are included in payable to
affiliates.
(Continued)
F-14
<PAGE> 26
SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(rounded to nearest hundred, except share amounts)
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
$237,600 and $36,000 for years ended December 31, 1998 and December 31,
1997, respectively. At December 31, 1998, receivable from affiliate for
shared general and administrative resources amounted to $50,100.
Effective May 1, 1998, the corporate office lease expired and was not
renewed by the Company. The new lease for the same space was executed by
the majority shareholder and the Company will lease this 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 year ended December 31, 1998, $66,400 was
paid to the majority shareholder under this arrangement.
The notes payable to stockholder are unsecured and payable on demand.
Notes totaling $549,600, bearing interest at rates ranging from 6.00% to
9.25% per annum, were outstanding at December 31, 1997. Interest rates on
notes were 9.25% through June 30, 1997 and 9.50% from July 1, 1997
through September 30, 1998. Effective October 1, 1998, the interest rate
of all notes was modified to 8.00%. Notes totaling $419,600 were
outstanding at December 31, 1998. Interest expense for such notes
aggregated approximately $43,600 and $60,000 in 1998 and 1997,
respectively. The unpaid accrued interest is included in payable to
affiliates at December 31, 1998 and 1997.
(8) 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 7) have an aggregate fair value of
approximately $391,500 and $419,640 at December 31, 1998 and 1997,
respectively. The fair values are based on discounted future cash flows
over an estimated four year period outstanding, respectively, using an
estimated 8.00% and 9.50% incremental borrowing rate, respectively. Such
estimates were determined by the Company based on future operating cash
flow and market interest rate assumptions.
(Continued)
F-15
<PAGE> 27
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
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).
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 127,400
<SECURITIES> 0
<RECEIVABLES> 112,500
<ALLOWANCES> 0
<INVENTORY> 84,300
<CURRENT-ASSETS> 390,500
<PP&E> 3,827,800
<DEPRECIATION> (2,287,300)
<TOTAL-ASSETS> 1,942,800
<CURRENT-LIABILITIES> 1,197,700
<BONDS> 0
0
0
<COMMON> 13,600
<OTHER-SE> 701,400
<TOTAL-LIABILITY-AND-EQUITY> 1,942,800
<SALES> 6,777,100
<TOTAL-REVENUES> 6,777,100
<CGS> 2,006,700
<TOTAL-COSTS> 6,880,400
<OTHER-EXPENSES> 1,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,600
<INCOME-PRETAX> (148,600)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (148,600)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
