<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 X NO
--- ---
As of April 30, 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 March 31, 1999 and the results of operations for the interim three-month
periods ending March 31, 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.
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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>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH $ 198,800 $ 127,400
ACCOUNTS RECEIVABLE 40,900 62,400
RECEIVABLE FROM AFFILIATE 50,100 50,100
INVENTORIES 82,500 84,300
PREPAID EXPENSES 62,000 66,300
------------ ------------
TOTAL CURRENT ASSETS 434,300 390,500
PROPERTY AND EQUIPMENT (NET) 1,463,800 1,540,500
OTHER ASSETS 11,800 11,800
------------ ------------
$ 1,909,900 $ 1,942,800
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 78,600 $ 34,600
ACCRUED LIABILITIES 247,800 213,400
PAYABLE TO AFFILIATES 535,000 530,100
NOTES PAYABLE TO STOCKHOLDER 334,600 419,600
------------ ------------
TOTAL CURRENT LIABILITIES 1,196,000 1,197,700
CAPITAL LEASE OBLIGATIONS 300 1,200
DEFERRED RENT LIABILITIES 28,900 28,900
------------ ------------
TOTAL LIABILITIES 1,225,200 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) (3,737,800) (3,707,500)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 684,700 715,000
------------ ------------
$ 1,909,900 $ 1,942,800
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
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<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
ENDED ENDED
MARCH 31, MARCH 31,
1999 1998
<S> <C> <C>
RESTAURANT REVENUES $ 1,626,800 $ 1,588,800
COSTS AND EXPENSES:
COST OF SALES 467,800 470,700
RESTAURANT EXPENSES 917,400 886,500
DEPRECIATION AND AMORTIZATION 91,000 92,700
GENERAL AND ADMINISTRATIVE EXPENSES 172,400 176,400
------------ ------------
TOTAL COSTS AND EXPENSES 1,648,600 1,626,300
LOSS FROM OPERATIONS (21,800) (37,500)
NONOPERATING INCOME (EXPENSE):
INTEREST EXPENSE - STOCKHOLDER (8,100) (13,100)
OTHER INCOME (EXPENSE) (400) --
------------ ------------
NET LOSS $ (30,300) $ (50,600)
============ ============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.02) $ (0.04)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,359,273 1,359,273
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
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SIXX HOLDINGS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(ROUNDED TO NEAREST HUNDRED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1999 1998
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
NET LOSS $ (30,300) $ (50,600)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 91,000 92,700
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE 21,500 (8,500)
INVENTORIES 1,800 500
PREPAID EXPENSES 4,300 (5,000)
OTHER ASSETS -- --
ACCOUNTS PAYABLE 44,000 56,700
ACCRUED LIABILITIES 34,400 10,200
PAYABLE TO AFFILIATES 4,900 (7,400)
DEFERRED RENT LIABILITIES -- 400
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 171,600 89,000
------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES -
ADDITIONS TO PROPERTY AND EQUIPMENT (14,300) (9,200)
CASH FLOWS USED IN FINANCING ACTIVITIES:
REPAYMENT OF NOTES PAYABLE TO STOCKHOLDER, NET (85,000) --
PAYMENTS OF CAPITAL LEASE OBLIGATIONS (900) (700)
------------ ------------
(85,900) (700)
NET INCREASE IN CASH 71,400 79,100
CASH AT BEGINNING OF PERIOD 127,400 66,200
------------ ------------
CASH AT END OF PERIOD $ 198,800 $ 145,300
============ ============
</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
MARCH 31, 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 financials 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
$59,400 and $59,300 for the three months ended March 31, 1999 and 1998,
respectively. In addition, on April 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.
For the three-month period ended March 31, 1999, $24,900 was paid to
the majority shareholder under this arrangement.
As of March 31, 1999, notes payable to the majority shareholder had a
balance of $334,600. Subsequent to March 31, 1999, the Company repaid
notes totaling $50,000 and the related accrued interest of
approximately $16,000.
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(4) 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company owns and operates two upscale Italian restaurants. Patrizio
I, located in Dallas, Texas, was opened in 1989 and Patrizio II, located in
Plano, Texas was opened in 1994.
CAPITAL RESOURCES AND LIQUIDITY:
As of March 31, 1999 and 1998 the Company's cash was approximately
$198,800 and $145,300 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 $1,588,800 to
$1,626,800 (2.4%) for the three months ended March 31, 1998 and 1999,
respectively; loss from operations decreased 41.9% from $37,500 in 1998 to
$21,800 in 1999; and net loss decreased 40.3% from $50,600 in 1998 to $30,200 in
1999.
Restaurant revenues for the three-month period ended March 31, 1999
increased $38,000 (2.4%) from the same period in 1998, primarily because of
increased revenues generated by Patrizio I's increased cover count and a 2% menu
price increase in the fourth quarter of 1998. Patrizio I accounted for 55.0% and
53.4% of the revenues for the three-month periods ended March 31, 1999 and 1998,
respectively.
Depreciation and amortization was $91,000 for the three-month period
ended March 31, 1999 and $92,700 for the three-month period ended March 31,
1998. Restaurant expenses for the three-month period ended March 31, 1999
increased $30,900 (3.4%) from the same period in 1998 primarily because of the
increase in sales volume. Cost of sales as a percent of restaurant revenues
decreased from 29.6% in 1998 to 28.8% in 1999 primarily due to the decreases in
the cost of meat products.
General and administrative expenses for the three-month period ended
March 31, 1999 did not change significantly from the prior year.
Interest expense - stockholder decreased $5,000 during the first three
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.
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<PAGE> 9
YEAR 2000 ISSUE
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. 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 increases 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
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the opinion of management," "believes," and similar phrases. Among the factors
that could cause actual results to differ materially from the statements made
are the following: general business conditions in the local market served by the
Company's restaurants, competitive factors such as changes in the locations,
menus, pricing or other aspects of competitors' operations, the weather in each
of the locations, expense pressures relating to labor and supplies, and
unanticipated general and administrative expenses, including the costs of
additional acquisitions, expansion or financing.
ACCOUNTING MATTERS
In June 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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K: None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIXX HOLDINGS, INCORPORATED
By: /s/ Jack D. Knox
-----------------------------
Jack D. Knox, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
the dates indicated.
SIGNATURE TITLE DATE
Chairman of the Board, May 14, 1999
/s/ Jack D. Knox President and Director
- ---------------------------- (Principal Executive
Jack D. Knox Officer)
/s/ Wendy W. Hackemack Chief Financial Officer May 14, 1999
- ---------------------------- (Principal Financial and
Wendy W. Hackemack Accounting Officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 198,800
<SECURITIES> 0
<RECEIVABLES> 91,000
<ALLOWANCES> 0
<INVENTORY> 82,500
<CURRENT-ASSETS> 434,300
<PP&E> 3,842,000
<DEPRECIATION> (2,378,200)
<TOTAL-ASSETS> 1,909,900
<CURRENT-LIABILITIES> 1,196,000
<BONDS> 0
0
0
<COMMON> 13,600
<OTHER-SE> 671,100
<TOTAL-LIABILITY-AND-EQUITY> 1,909,900
<SALES> 1,626,800
<TOTAL-REVENUES> 1,626,800
<CGS> 467,800
<TOTAL-COSTS> 1,648,600
<OTHER-EXPENSES> 400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,100
<INCOME-PRETAX> (30,300)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,300)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
