SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
__x__ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended June 30, 2002
____ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period from ______to ______
Commission File No. 0-28258
SHELLS SEAFOOD RESTAURANTS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 65-0427966
- ------------------------------- -----------------------------------
(State or other jurisdiction of (IRS) Employer Identification Number
incorporation or organization)
16313 North Dale Mabry Highway, Suite 100, Tampa, FL 33618
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(Address of principal executive offices) (zip code)
(813) 961-0944
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(Registrant's telephone number, including area code)
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 ____
Class Outstanding at August 14, 2002
- ---------------------------------- --------------------------------
Common stock, $0.01 par value 4,454,015
Preferred stock, $0.01 par value 66,862
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
Index
Part I - Financial Information Page Number
Item 1 - Financial Statements
Consolidated Balance Sheets as of
June 30, 2002 (Unaudited)
and December 30, 2001 3
Consolidated Statements of Income (Unaudited)
for the 13 and 26 weeks ended June 30, 2002
and July 1, 2001 4
Consolidated Statements of Cash Flows(Unaudited)
for the 26 weeks ended June 30, 2002 and
July 1, 2001 5
Notes to Consolidated Financial
Statements - (Unaudited) 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk 12
Part II - Other Information 13
Signatures 14
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2002 December 30, 2001
------------------ ---------------------
ASSETS
Cash $ 2,627,542 $ 969,680
Inventories 503,484 457,610
Other current assets 463,540 84,465
Receivables from related parties 48,124 78,137
Income tax refund receivable 1,177,411 898,338
------------------ ---------------------
Total current assets 4,820,101 2,488,230
Property and equipment, net 7,799,318 8,106,500
Property held for sale, net - 1,022,060
Other assets 479,124 549,492
Goodwill 2,577,505 2,680,603
------------------ ---------------------
TOTAL ASSETS $ 15,676,048 $ 14,846,885
================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 2,439,623 $ 4,079,396
Accrued expenses 3,737,332 3,872,266
Sales tax payable 254,034 207,913
Current portion of long-term debt 1,168,517 1,908,379
------------------ ---------------------
Total current liabilities 7,599,506 10,067,954
Deferred rent 1,228,930 1,243,057
Long-term debt, less current portion 3,346,813 1,633,073
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Total liabilities 12,175,249 12,944,084
Minority partner interest 440,579 427,642
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STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value;
authorized 2,000,000 shares;
66,862 shares issued and outstanding 669 669
Common stock, $0.01 par value;
authorized 20,000,000 shares;
4,454,015 shares issued and
outstanding 44,540 44,540
Additional paid-in-capital 14,240,576 14,240,576
Retained earnings (deficit) (11,225,565) (12,810,626)
------------------ ---------------------
Total stockholders' equity 3,060,220 1,475,159
------------------ ---------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 15,676,048 $ 14,846,885
================== =====================
See notes to consolidated financial statements.
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
13 Weeks Ended 26 Weeks Ended
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June 30, 2002 July 1, 2001 June 30, 2002 July 1, 2001
--------------- -------------- --------------- --------------
REVENUES $ 12,508,630 $ 4,997,727 $ 26,637,499 $ 36,652,317
--------------- -------------- --------------- --------------
COST AND EXPENSES:
Cost of revenues 4,244,906 5,685,237 8,914,683 13,828,916
Labor and other related expenses 3,743,467 4,563,775 7,838,885 11,019,324
Other restaurant operating expenses 2,682,438 2,962,983 5,715,263 7,561,227
General and administrative expenses 962,831 1,077,894 1,787,634 2,772,048
Depreciation and amortization 330,715 418,437 657,504 954,459
Provision for impairment of assets - - - 1,582,137
Provision for store closings - - - 1,333,271
--------------- -------------- --------------- --------------
11,964,357 14,708,326 24,913,969 39,051,382
--------------- -------------- --------------- --------------
INCOME (LOSS) FROM OPERATIONS 544,273 289,401 1,723,530 (2,399,065)
--------------- -------------- --------------- --------------
OTHER INCOME (EXPENSE):
Interest expense (127,936) (131,021) (323,778) (317,807)
Interest income 10,290 463 16,110 1,710
Other expense, net (28,082) (14,775) (27,282) (80,514)
--------------- -------------- --------------- --------------
(145,728) (145,333) (334,950) (396,611)
--------------- -------------- --------------- --------------
INCOME (LOSS) BEFORE ELIMINATION OF MINORITY
PARTNER INTEREST AND INCOME TAXES 398,545 144,068 1,388,580 (2,795,676)
ELIMINATION OF MINORITY PARTNER INTEREST (57,532) (36,902) (121,896) (115,609)
--------------- -------------- --------------- --------------
INCOME (LOSS) BEFORE BENEFIT FROM INCOME TAXES 341,013 107,166 1,266,684 (2,911,285)
BENEFIT FROM INCOME TAXES 318,377 - 318,377 -
--------------- -------------- --------------- --------------
NET INCOME (LOSS) $ 659,390 $ 107,166 $ 1,585,061 $ (2,911,285)
=============== ============== =============== ==============
BASIC NET INCOME (LOSS) PER SHARE OF COMMON STOCK $ 0.15 $ 0.02 $ 0.36 $ (0.65)
=============== ============== =============== ==============
BASIC WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 4,454,015 4,454,015 4,454,015 4,454,015
=============== ============== =============== ==============
DILUTED NET INCOME (LOSS) PER SHARE OF COMMON STOCK $ 0.06 $ 0.02 $ 0.16 $ (0.65)
=============== ============== =============== ==============
DILUTED WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 11,194,642 4,633,009 9,789,563 4,454,015
=============== ============== =============== ==============
See notes to consolidated financial statements.
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
26 Weeks Ended
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June 30, 2002 July 1, 2001
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OPERATING ACTIVITIES:
Net income (loss) $ 1,585,061 $ (2,911,285)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Provision for impairment of assets - 1,582,137
Depreciation and amortization 657,503 954,460
Loss (gain) on sale of assets 2,616 (5,249)
Minority partner interest 12,937 (36,891)
Changes in assets and liabilities:
(Increase) decrease in inventories (45,874) 403,201
(Increase) decrease in other assets (219,836) 289,539
Decrease in prepaid rent 25,200 25,200
Increase in income tax refunds receivable (279,073) -
Decrease in deferred tax asset - 228,061
(Decrease) increase in accounts payable (1,639,773) 1,361,872
Decrease in accrued expenses (264,984) (385,757)
Increase (decrease) in sales tax payable 46,121 (63,729)
Decrease in deferred rent (14,127) (527,998)
--------------- ---------------
Total adjustments (1,719,290) 3,824,846
--------------- ---------------
Net cash (used in) provided by operating
activities (134,229) 913,561
--------------- ---------------
INVESTING ACTIVITIES:
Proceeds from the sale of assets, net 1,091,324 1,089,421
Purchase of property and equipment (252,151) (488,400)
--------------- ---------------
Net cash provided by investing activities 839,173 601,021
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FINANCING ACTIVITIES:
Proceeds from debt financing 2,304,317 227,636
Repayment of debt (1,351,399) (1,744,981)
--------------- ---------------
Net cash provided by (used in)financing
activities 952,918 (1,517,345)
--------------- ---------------
Net increase (decrease) in cash 1,657,862 (2,763)
CASH AT BEGINNING OF PERIOD 969,680 1,261,937
--------------- ---------------
CASH AT END OF PERIOD $ 2,627,542 $ 1,259,174
=============== ===============
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 289,692 $ 579,751
Cash refunds received for income taxes $ 40,000 $ 211,283
Note receivable on sale of assets $ 100,000 $ -
See notes to consolidated financial statements.
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and, therefore,
these statements do not include all of the information and footnotes required
by generally accepted accounting principles for annual financial statements.
In the opinion of management, all material adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included.
The consolidated financial statements of Shells Seafood Restaurants, Inc.
(the "Company") should be read in conjunction with the audited consolidated
financial statements and notes thereto contained in the Form 10-K for the
year ended December 30, 2001 filed with the Securities and Exchange
Commission. Company management believes that the disclosures are sufficient
for interim financial reporting purposes. Certain prior year amounts have
been reclassified in the accompanying condensed consolidated financial
statements to conform with the current year presentation.
2. EARNINGS PER SHARE
The following table represents the computation of basic and diluted earnings
per share of common stock as required by Financial Accounting Standards Board
("FASB") Statement No. 128, "Earnings Per Share":
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13 Weeks Ended 26 Weeks Ended
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June 30, 2002 July 1, 2001 June 30, 2002 July 1, 2001
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Net income (loss) applicable to common stock $ 659,390 $ 107,166 $ 1,585,061 $(2,911,285)
============================== ==============================
Weighted common shares outstanding 4,454,015 4,454,015 4,454,015 4,454,015
Basic net income (loss) per share of common stock $ 0.15 $ 0.02 $ 0.36 $ (0.65)
Effect of dilutive securities:
Warrants 6,344,568 - 5,110,959 -
Stock options 396,059 178,994 224,589 -
------------------------------ ------------------------------
Diluted weighted common shares outstanding 11,194,642 4,633,009 9,789,563 4,454,015
------------------------------ ------------------------------
Diluted net income (loss) per share of common stock $ 0.06 $ 0.02 $ 0.16 $ (0.65)
============================== ==============================
The earnings per share calculations excluded warrants and options to purchase
an aggregate of 310,827 and 1,011,858 shares of common stock during the 13
weeks ended June 30, 2002 and July 1, 2001, respectively, and warrants and
options to purchase an aggregate of 2,193,248 and 1,587,358 shares of common
stock during the 26 weeks ended June 30, 2002 and July 1, 2001, respectively,
as the exercise price of the warrants and options were greater than the
average market price of the common shares.
3. NEW ACCOUNTING PRONOUNCEMENT
In July 2001, the FASB issued Statement No. 141, "Accounting for Business
Combinations," and Statement No. 142, "Goodwill and Other Intangible Assets."
These Statements modify accounting for business combinations after June 30,
2001. The Statements require that goodwill existing at the date of adoption
be reviewed for possible impairment and that impairment tests be periodically
repeated, with impaired assets written-down to fair value. Additionally,
existing goodwill and intangible assets must be assessed and classified
consistent with the Statements' criteria. Intangible assets with estimated
useful lives will continue to be amortized over those periods. Amortization
of goodwill and intangible assets with indeterminate lives will cease. The
adoption of Statement No. 142 is not expected to materially affect our
consolidated financial statements.
In July 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations." This Statement requires capitalizing any retirement
costs as part of the total cost of the related long-lived asset and
subsequently allocating the total expense to future periods using a
systematic and rational method. Adoption of this Statement is
required for fiscal years beginning after June 15, 2002. The adoption of
Statement No. 143 is not expected to materially affect our consolidated
financial statements.
In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement supersedes
Statement No. 121 but retains many of its fundamental provisions.
Additionally, this Statement expands the scope of discontinued operations to
include more disposal transactions. The provisions of this Statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The adoption of Statement No. 144 is not expected to
materially affect our consolidated financial statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages
which the items in the Company's Consolidated Statements of Income bear to
total revenues.
13 Weeks Ended 26 Weeks Ended
--------------------------------- ---------------------------------
June 30, 2002 July 1, 2001 June 30, 2002 July 1, 2001
--------------- -------------- --------------- --------------
REVENUES 100.0% 100.0% 100.0% 100.0%
--------------- -------------- --------------- --------------
COST AND EXPENSES:
Cost of revenues 33.9% 37.9% 33.4% 37.7%
Labor and other related expenses 29.9% 30.4% 29.4% 30.1%
Other restaurant operating expenses 21.4% 19.8% 21.4% 20.6%
--------------- -------------- --------------- --------------
Total restaurant costs and expenses 85.2% 88.1% 84.2% 88.4%
--------------- -------------- --------------- --------------
General and administrative expenses 7.7% 7.2% 6.7% 7.6%
Depreciation and amortization 2.6% 2.8% 2.6% 2.6%
Provision for impairment of assets 0.0% 0.0% 0.0% 4.3%
Provision for store closings 0.0% 0.0% 0.0% 3.6%
--------------- -------------- --------------- --------------
Income (loss) from operations 4.5% 1.9% 6.5% -6.5%
--------------- -------------- --------------- --------------
Interest expense, net -1.0% -0.9% -1.1% -0.9%
Other expense, net -0.2% -0.1% -0.1% -0.2%
Elimination of minority partner interest -0.5% -0.2% -0.5% -0.3%
--------------- -------------- --------------- --------------
Income (loss) before benefit from taxes 2.8% 0.7% 4.8% -7.9%
Benefit from income taxes 2.5% 0.0% 1.2% 0.0%
--------------- -------------- --------------- --------------
Net income (loss) 5.3% 0.7% 6.0% -7.9%
--------------- -------------- --------------- --------------
13 weeks ended June 30, 2002 and July 1, 2001
Revenues. Total revenues for the second quarter of 2002 were $12,509,000 as
compared to $14,998,000 for the second quarter of 2001, a $2,489,000, or
16.6% decrease. Same store sales for the second quarter of 2002 were 11.1%
below the comparable period in 2001 due to declines in both check average and
customer counts. The Company discontinued its Midwest operations in April
2001, with the closure of nine units. The Company operated 29 restaurants as
of the second quarter ended June 30, 2002 versus 30 restaurants at the
comparable period ended in 2001. Comparisons of same store sales include
only stores, which were open during the entire periods being compared and,
due to the time needed for a restaurant to become established and fully
operational, at least six months prior to the beginning of that period.
Cost of revenues. The cost of revenues as a percentage of revenues decreased
to 33.9% for the second quarter of 2002 from 37.9% for the second quarter of
2001. This decrease was due primarily to lowered protein costs, mostly
shrimp and crab, greater focus on in-store cost control, and implementation
of a new menu, which spotlights more favorable margin items. The Company is
continually attempting to anticipate and react to fluctuations in food costs
by purchasing seafood directly from numerous suppliers, promoting certain
alternative menu selections in response to price and availability of supply
and adjusting its menu prices accordingly to help control the cost of
revenues, both in absolute dollars and as a percentage of revenues.
Labor and other related expenses.
Labor and other related expenses as a percentage of revenues decreased to
29.9% during the second quarter of 2002 as compared to 30.4% for the second
quarter of 2001. This decrease was primarily attributable to a reduction in
hourly labor costs, as related to revenues.
Other restaurant operating expenses. Other restaurant operating expenses as
a percentage of revenues increased to 21.4% for the second quarter of 2002 as
compared with 19.8% for the second quarter of 2001. The increase primarily
was due to increased media advertising and local store marketing costs.
General and administrative expenses. General and administrative expenses as
a percentage of revenues increased to 7.7% for the second quarter of 2002 as
compared with 7.2% for the second quarter of 2001. This increase was
primarily due to a second quarter of 2002 increase in salaries for additional
full-time staff along with an increase in consulting fees relating to the
Company's strategic initiatives and marketing plan development.
Depreciation and amortization. Depreciation and amortization expense as a
percentage of revenues were 2.6% and 2.8% for the second quarter of 2002 and
2001, respectively.
Benefit from income taxes. A benefit from income taxes was recognized for
the second quarter of 2002 of $318,000 compared to no benefit for the same
quarter in 2001. The increase relates to the applicable portion of a refund
application to recover tax payments of $1,176,000 from prior years, resulting
from the Economic Stimulus Package signed into law in March 2002. The refund
was received in July 2002.
Income from operations and net income. As a result of the factors discussed
above, income from operations was $544,000 for the second quarter of 2002
compared to $289,000 for the second quarter of 2001. Net income was $659,000
for the second quarter of 2002 compared to $107,000 for the second quarter of
2001. Exclusive of the non-recurring benefit from income taxes, the
Company's net income for the second quarter of 2002 was $341,000.
26 weeks ended June 30, 2002 and July 1, 2001
Revenues. Total revenues for the 26 weeks ended June 30, 2002 were
$26,637,000 as compared to $36,652,000 for the 26 weeks ended July 1, 2001.
The $10,015,000 or 27.3% decrease primarily was due to the discontinuation of
operations in 15 restaurants, 14 of which were Midwest units, during the 26
weeks ending July 1, 2001. Same store sales decreased 12.7% compared to the
same period in 2001 due to declines in both check average and customer
counts.
Cost of revenues. The cost of revenues as a percentage of revenues decreased
to 33.4% for the 26 weeks ended June 30, 2002 from 37.7% for the same period
in 2001. This decrease primarily was due to lower protein costs and the
effect of our new menu that has generated improvements in margins.
Labor and other related expenses. Labor and other related expenses decreased
to 29.4% as a percentage of revenues for the 26 weeks ended June 30, 2002 as
compared to 30.1% for the same period in 2001. This decrease was primarily
attributable to a decrease in hourly labor partially offset by an increase in
manager wages.
Other restaurant operating expenses. Other restaurant operating expenses
increased to 21.4% as a percentage of revenues for the 26 weeks ended June
30, 2002 as compared with 20.6% for the same period in 2001. The increase
was primarily related to an increase in media advertising and local store
marketing costs.
General and administrative expenses. General and administrative expenses
decreased to 6.7% as a percentage of revenues for the 26 weeks ended June 30,
2002 as compared with 7.6% for the same period in 2001. This decrease
was primarily attributable to reductions in legal and professional expenses.
Also included in 2001is a one-time nonrecurring charge of $150,000 for
severance pay related to reorganization and downsizing of administrative and
supervisory staff.
Depreciation and amortization. Depreciation and amortization expenses as a
percentage of revenues was 2.6% for the 26 weeks ended June 30, 2002 and July
1, 2001.
Provision for impairment of assets. The Company recorded a $1,582,000
charge in the 26 weeks ended July 1, 2001 relating to the write-down of
impaired assets to their estimated fair value in accordance with FASB
Statement No. 121. The asset impairment charge related to the
discontinuation of Midwest operations as well as reserving for certain
under-performing Florida units.
Provision for store closings. The Company recorded a one-time charge of
$1,333,000 relating to store closing costs primarily from the Midwest
restaurant closures during the 26 weeks ended July 1, 2001. Store closing
costs consist primarily of real estate lease obligations incurred or
anticipated to complete lease terminations or continuing costs while new
tenants are located.
Interest expenses, net. The Company recorded a non-recurring charge of
$106,000 in the first quarter of 2002 relating to the issuance of warrants on
January 31, 2002 as part of the previously reported $2,000,000 financing
transaction. Exclusive of the non-recurring charge, net interest expense was
$201,000 for the 26 weeks ending June 30, 2002 compared to $316,000 in the
comparable period in 2001. The reduction was primarily related to debt
repayments associated with store closures in 2001 and related property
dispositions through 2002.
Benefit from income taxes. A benefit from income taxes of $318,000 was
recognized in the 26 weeks ended June 30, 2002 compared to no benefit for the
same period in 2001. The increase relates to a refund application to recover
tax payments of $1,176,000 from prior years, resulting from the Economic
Stimulus Package signed into law in March 2002. The refund was received in
July 2002.
Income (loss) from operations and net income (loss). As a result of the
factors discussed above, the Company's income from operations was $1,724,000
for the 26 weeks ended June 30, 2002 compared to a loss from operations of
$2,399,000 for the 26 weeks ended July 1, 2001. Exclusive of the provisions
for impairment of assets and store closings, the Company's income from
operations was $516,000 for the 26 weeks ended July 1, 2001. The Company's
net income for the 26 weeks ended June 30, 2002 was $1,585,000 compared to a
net loss of $2,911,000 in the same period in 2001. Exclusive of the income
tax benefit and interest expense on warrants, the Company's net income was
$1,373,000 for the 26 weeks ended June 30, 2002. Exclusive of the provisions
for impairment of assets and store closings, the Company's net income was
$4,000 for the 26 weeks ended July 1, 2001.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2002, the Company's current liabilities of $7,600,000 exceeded
its current assets of $4,820,000, resulting in a working capital deficiency
of $2,780,000. In comparison, the December 30, 2001 working capital
deficiency was $7,580,000. The improvement in the working capital
deficiency is primarily related to the cash received from the previously
reported $2,000,000 financing transaction, which closed in the first quarter
of 2002, and favorable operating results in the first and second quarters of
2002. In addition, as a result of the Economic Stimulus Package signed into
law in March 2002, the Company recognized an income tax benefit in the fourth
quarter of 2001 and the second quarter of 2002. A federal income tax refund
of $1,176,000 for taxes paid in fiscal years 1996 and 1997 was received in
July 2002.
The Company continues to be negatively impacted by the closure and ongoing
divestiture of its Midwest locations. Such divestiture has had and, in the
near term, will continue to have an adverse affect on the Company's cash
position. Historically, the Company has generally operated with minimal or
negative working capital as a result of the investing of current assets into
non-current property and equipment as well as the turnover of restaurant
inventory relative to more favorable vendor terms in accounts payable.
Cash used by operating activities for the 26 weeks ended June 30, 2002 was
$134,000 compared to cash provided by operating activities of $914,000 for
the comparable period in 2001. The net decrease of $1,048,000 primarily was
attributable to the payoff of accounts payable and accrued expenses during
2002 compared to 2001.
The cash provided by investing activities increased to $839,000 for the 26
weeks ended June 30, 2002 from $601,000 for the same period in 2001,
representing a net increase of $238,000 due to a reduction in expenditures
for capital improvements.
The cash provided by financing activities was $953,000 for the 26 weeks
ending June 30, 2002 compared to cash used in financing activities of
$1,517,000 for the comparable period in 2001. The net increase of $2,470,000
was primarily due to the $2,000,000 financing transaction in January 2002.
The Company has existing indebtedness with Colonial Bank (previously known as
Manufacturers Bank of Florida) consisting of two notes with a total principal
balance, as of June 30, 2002, of $669,000. The loans, which were used to
finance the purchase of a restaurant location and certain equipment, are
subject to compliance by the Company with specified financial covenants. The
Company is not currently in compliance with certain of these covenants, and
has received a covenant waiver from the bank until September 4, 2002.
The Company has existing indebtedness with SunTrust Bank consisting of one
note with a total principal balance, as of June 30, 2002, of $292,000. The
loan, which was used to finance the purchase of a restaurant location,
matured on August 4, 2002 and a 30-day extension has been requested to
complete refinancing arrangements.
SEASONALITY
The restaurant industry in general is seasonal, depending on restaurant
location and the type of food served. The Company has experienced
fluctuations in its quarter-to-quarter operating results due primarily to its
high concentration of restaurants in Florida. Business in Florida is
influenced by seasonality due to various factors which include but are
not limited to weather conditions in Florida relative to other areas of the
U.S., the health of Florida's economy and the effect of world events in
general and on the tourism industry in particular. The Company's restaurant
sales are generally highest from January through April and June through
August, the peaks of the Florida tourism season, and generally lower from
September through mid-December. In many cases, locations are in coastal
cities, where sales are significantly dependent on tourism and its
seasonality patterns.
In addition, quarterly results have been, and in the future could be,
affected by the timing and conditions under which restaurants are closed both
in and outside of Florida. Because of the seasonality of the Company's
business and the impact of restaurant closures and openings, if applicable,
results for any quarter are not generally indicative of the results that may
be achieved for a full fiscal year on an annualized basis and cannot be used
to indicate financial performance for the entire year.
Item 3. - Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates on debt
and changes in commodity prices. The Company's exposure to interest rate
risk relates to its $961,000 in outstanding debt with banks that is based on
variable rates. Borrowings under the loan agreements bear interest at rates
ranging from 50 basis points under the prime lending rate to 100 basis points
over the prime lending rate.
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities and Use of Proceeds
None
Item 3 - Defaults Upon Senior Securities
The Company has existing indebtedness with Colonial Bank (previously
known as Manufacturers Bank of Florida), consisting of two notes with a total
principal balance, as of June 30, 2002, of $669,000. The loans, which were
used to finance the purchase of a restaurant location and certain equipment,
are subject to compliance by the Company with specified financial covenants.
The Company is not currently in compliance with certain of these covenants,
and has received a covenant waiver from the bank until September 4, 2002.
Item 4 - Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May 21, 2002,
the stockholders voted to adopt the 2002 Equity Incentive Plan allowing for
grants of options to purchase up to 1,850,000 shares of Common Stock. The
adoption of the 2002 Equity Incentive Plan was approved by the vote of
1,668,074 shares for, 531,438 shares against, 10,009 shares abstaining and
1,586,155 shares representing shares not voted and broker non-votes.
In addition, at the Annual Meeting of Stockholders held on May 21, 2002, the
following directors were nominated and elected by the votes indicated:
Philip R. Chapman: 3,584,162 For, 211,514 Against or Withheld, 0 Abstaining
J. Stephen Gardner: 3,584,262 For, 211,414 Against or Withheld, 0 Abstaining
John N. Giordano: 3,584,162 For, 211,514 Against or Withheld, 0 Abstaining
Michael R. Golding: 3,584,162 For, 211,514 Against or Withheld, 0 Abstaining
David W. Head: 3,584,062 For, 211,614 Against or Withheld, 0 Abstaining
Christopher D. Illick:3,584,262 For, 211,414 Against or Withheld, 0
Abstaining
Thomas R. Newkirk: 3,584,262 For, 211,414 Against or Withheld, 0 Abstaining
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHELLS SEAFOOD RESTAURANTS, INC.
(Registrant)
/s/ David W. Head August 14, 2002
David W. Head
President and Chief Executive Officer
/s/ Warren R. Nelson August 14, 2002
Warren R. Nelson
Executive Vice President and Chief Financial Officer