<PAGE>
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 29, 1997
__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.
----------------------------------------------------------
(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
-----------------------------------------------------------------
(Address of principal executive offices) (zip code)
(813) 961-0944
---------------------
(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 8, 1997
- ---------------------------- -----------------------------
Common stock, $.01 par value 4,214,587
<PAGE>
SHELLS SEAFOOD RESTAURANTS, INC.
Index
Part I - Financial Information Page Number
Item 1 - Financial Statements
Consolidated Balance Sheets as of June 29, 1997 and
December 29, 1996 3
Consolidated Statements of Income for the 13 weeks and 26 weeks
ended June 29, 1997 and June 30, 1996 4
Consolidated Statements of Cash Flows for the 26 weeks
ended June 29, 1997 and June 30, 1996 5
Notes to Consolidated Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Part II - Other Information 12
Signatures 13
2
<PAGE>
SHELLS SEAFOOD RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 29, 1997 December 29, 1996
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 3,421,489 $ 3,033,851
Inventories 769,059 663,563
Other current assets 2,044,265 1,455,405
Receivables from related parties 118,712 132,048
------------ ------------
Total current assets 6,353,525 5,284,867
Property and equipment, net 11,114,863 8,655,149
Prepaid rent 349,521 374,721
Other assets 408,548 346,707
Goodwill 3,608,485 3,711,583
------------ ------------
TOTAL ASSETS $ 21,834,942 $ 18,373,027
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,899,253 $ 2,486,943
Accrued expenses 2,618,580 2,159,788
Sales tax payable 397,812 282,966
Income taxes payable 356,716 496,216
Current portion of notes payable - stockholders 1,000,000 1,000,000
Current portion of long-term debt 291,415 276,765
------------ ------------
Total current liabilities 7,563,776 6,702,678
Deferred rent 1,012,009 857,830
Long-term debt, less current portion 1,583,006 1,160,513
------------ ------------
Total liabilities 10,158,791 8,721,021
------------ ------------
Minority partner interest 477,805 511,810
------------ ------------
Shells, Inc. preferred shares subject to redemption,
$10 par value; authorized 10,000,000 shares; 148,250 and
185,312 issued and outstanding as of June 29, 1997 and
December 29, 1996, respectively 1,334,852 1,668,476
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; authorized
2,000,000 shares; none issued or outstanding -- --
Common stock, $.01 par value; authorized 20,000,000
shares; 3,429,551 and 3,297,436 shares issued and outstanding
as of June 29, 1997 and December 29, 1996, respective 34,296 32,975
Additional paid-in-capital 8,233,917 7,480,548
Retained earnings (deficit) 1,595,281 (41,803)
------------ ------------
Total stockholders' equity 9,863,494 7,471,720
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 21,834,942 $ 18,373,027
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
SHELLS SEAFOOD RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 13 WEEKS AND 26 WEEKS ENDED JUNE 29, 1997 AND JUNE 30, 1996
(Unaudited)
13 Weeks Ended 26 Weeks Ended
June 29, 1997 June 30, 1996 June 29, 1997 June 30, 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Restaurant sales $ 16,387,076 $ 10,276,270 $ 33,253,191 $ 20,782,593
Management fees from related parties 105,341 103,626 215,254 210,320
--------------- --------------- --------------- ---------------
16,492,417 10,379,896 33,468,445 20,992,913
--------------- --------------- --------------- ---------------
COST AND EXPENSES:
Cost of restaurant sales 5,721,103 3,616,774 11,723,746 7,284,018
Labor and other related expenses 4,299,265 2,589,726 8,690,812 5,117,604
Other restaurant operating expenses 3,178,983 2,074,601 6,434,306 4,184,597
General and administrative expenses 1,308,602 900,878 2,425,878 1,713,406
Depreciation 333,030 147,867 655,183 294,131
Amortization 410,738 119,719 775,064 265,603
--------------- --------------- --------------- ---------------
15,251,721 9,449,565 30,704,989 18,859,359
--------------- --------------- --------------- ---------------
INCOME FROM OPERATIONS 1,240,696 930,331 2,763,456 2,133,554
--------------- --------------- --------------- ---------------
OTHER INCOME (EXPENSE):
Interest income 45,844 54,889 84,014 54,889
Interest expense (88,747) (71,570) (178,748) (189,708)
Other income (expense), net 3,080 (162,942) (23,833) (311,425)
--------------- --------------- --------------- ---------------
(39,823) (179,623) (118,567) (446,244)
--------------- --------------- --------------- ---------------
INCOME BEFORE ELIMINATION OF MINORITY
PARTNER INTEREST AND INCOME TAXES 1,200,873 750,708 2,644,889 1,687,310
ELIMINATION OF MINORITY PARTNER INTEREST (55,722) (57,024) (107,805) (112,426)
--------------- --------------- --------------- ---------------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,145,151 693,684 2,537,084 1,574,884
PROVISION FOR INCOME TAXES (390,000) (215,000) (863,000) (488,000)
--------------- --------------- --------------- ---------------
NET INCOME 755,151 478,684 1,674,084 1,086,884
PREFERRED SHARES ACCRETION (18,500) (29,250) (37,000) (58,500)
--------------- --------------- --------------- ---------------
NET INCOME APPLICABLE TO COMMON STOCK $ 736,651 $ 449,434 $ 1,637,084 $ 1,028,384
=============== =============== =============== ===============
NET INCOME PER SHARE OF COMMON STOCK $ 0,16 $ 0.13 $ 0.36 $ 0.38
=============== =============== =============== ===============
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 4,539,413 3,558,139 4,532,976 2,724,256
=============== =============== =============== ===============
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
SHELLS SEAFOOD RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 26 WEEKS ENDED JUNE 29, 1997 AND JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
26 Weeks Ended
-----------------------------------
June 29, 1997 June 30, 1996
---------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,674,084 $ 1,086,884
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,430,247 559,734
Minority partner interest (34,005) 69,495
Changes in assets and liabilities:
(Increase) decrease in inventories (105,496) 3,206
Decrease in receivables from related parties 13,336 41,370
Increase in other assets (1,322,667) (352,631)
Decrease in prepaid rent 25,200 25,199
Increase (decrease) in accounts payable 412,310 (608,307)
Increase in accrued expenses 458,792 609,002
Decrease in payable to related parties -- (98,927)
Increase in sales tax payable 114,846 39,761
(Decrease) increase in income taxes payable (139,500) 488,000
Increase in deferred rent 154,179 81,232
----------- -----------
Total adjustments 1,007,242 857,134
----------- -----------
Net cash provided by operating activities 2,681,326 1,944,018
----------- -----------
INVESTING ACTIVITIES:
Purchase of investment securities -- (5,110,000)
Purchase of property and equipment (3,114,897) (746,709)
----------- -----------
Net cash used in investing activities (3,114,897) (5,856,709)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from the issuance of debt 576,050 108,090
Repayment of debt (138,907) (1,412,737)
Redemption of preferred shares (370,624) --
Proceeds from the issuance of common stock and
warrants 754,690 6,124,455
----------- -----------
Net cash provided by financing activities 821,209 4,819,808
----------- -----------
Net increase in cash 387,638 907,117
CASH AT BEGINNING OF PERIOD 3,033,851 776,779
----------- -----------
CASH AT END OF PERIOD $ 3,421,489 $ 1,683,896
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest: $ 177,644 $ 403,097
Cash paid for income taxes: $ 1,002,500 $ --
</TABLE>
Effective April
23, 1996, the Company issued 200,000 shares of common stock and
100,000 warrants upon the conversion of $750,000 of related party debt and
$159,000 of minority partner interest.
See notes to consolidated financial statements.
5
<PAGE>
SHELLS SEAFOOD RESTAURANTS, INC.
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 financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto contained in the Form 10-K
filed with the Securities and Exchange Commission.
2. OTHER CURRENT ASSETS
Other current assets consist of the following:
June 29, 1997 December 29, 1996
------------- -----------------
Preopening costs $ 946,601 $1,050,898
Prepaid expenses 693,892 259,721
Accounts receivable 403,772 131,400
Other current assets - 13,386
---------- ----------
$2,044,265 $1,455,405
========== ==========
3. PUBLIC OFFERING
The Company completed an initial public offering of 1,400,000 shares of common
stock and 700,000 warrants on April 29, 1996 raising net proceeds of $5,090,000.
Concurrent with the Offering, the Company converted $750,000 of outstanding debt
and $159,000 in minority partner interest into 200,000 shares of common stock
and 100,000 warrants at $4.50 per share and $0.09 per warrant, respectively,
which represented the initial public offering price net of underwriter's
discount. In connection with the conversion of debt, the lender was also granted
an option (the "Lender's Option") to purchase additional shares and warrants at
$4.50 per share and $0.09 per warrant simultaneously with and in the same
proportion to which the underwriter exercised its over-allotment option. The
Lender's Option was exercised simultaneously with the underwriter's
over-allotment option effective May 13, 1996 resulting in an additional
$1,035,000 in net proceeds. Upon completion of the Offering, the Company repaid
a $1,310,000 principal amount loan plus accrued and unpaid interest thereon of
$307,000 to a stockholder.
Effective June 16,1997, the Company issued a Notice of Redemption of Common
Stock Purchase Warrants. This notice resulted in the exercise by holders of
warrants to purchase approximately 917,000 shares of common stock prior to the
warrant redemption date of July 16, 1997, providing net proceeds to the Company
of approximately $5,300,000. The warrants exercised and the net proceeds
received therefrom through the second quarter ended June 29, 1997 were
approximately 132,000 and $755,000, respectively.
6
<PAGE>
The exercise of warrants prior to June 29, 1997 increased the pro forma weighted
average number of shares outstanding to 4,604,000 for the 13 and 26 weeks ended
June 29, 1997 and to 4,228,000 and 4,168,000 for the 13 and 26 weeks ended June
30, 1996, respectively. The pro forma weighted average number of shares assumes
the additional shares issued through June 29, 1997 were outstanding since
January 1, 1996. The pro forma earnings per share reflecting the increased pro
forma weighted average number of shares outstanding were $0.16 and $0.36 for the
13 and 26 weeks ended June 29, 1997, respectively, as compared with $0.11 and
$0.25 for the 13 and 26 weeks ended June 30, 1996, respectively.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board Issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", which
will be effective for the Company in the fourth quarter of 1997. SFAS No. 128
simplifies the computation for earnings per share by excluding the dilutive
effect of common stock equivalents from basic earnings per share and makes the
earnings per share calculation comparable to international standards. Early
adoption of this statement prior to the end of 1997 is not allowed.
The following table (in thousands except per share data) presents the effect of
SFAS No. 128 on the Company's net income per share applicable to common share
owners as if adopted for current period disclosure.
<TABLE>
<CAPTION>
13 weeks ended 26 weeks ended
June 29, 1997 June 30, 1996 June 29, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Income $ 755 $ 479 $1,674 $1,087
Preferred share accretion (18) (29) (37) (59)
-------------------------------------------------------------------
Net Income Applicable to Common Share
Owners $ 737 $ 449 $1,637 $1,028
===================================================================
Basic Average Common Shares Outstanding 3,367 2,800 3,361 2,135
Basic Net Income Per Share Applicable to
Common Share Owners $ 0.22 $ 0.16 $ 0.49 $ 0.48
Effect of Dilutive Securities:
Stock Options 134 68 133 33
Warrants 1,039 690 1,039 556
Diluted Average Common Shares
Outstanding 4,540 3,558 4,533 2,724
Diluted Net Income Per Share Applicable to
Common Share Owners $ 0.16 $ 0.13 $ 0.36 $ 0.38
</TABLE>
7
<PAGE>
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, or where indicated, restaurant sales.
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
--------------------------------- ---------------------------------
June 29, 1997 June 29, 1996 June 29, 1997 June 29, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Restaurant sales 99.4% 99.0% 99.4% 99.0%
Management fees from related parties 0.6% 1.0% 0.6% 1.0%
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
COST AND EXPENSES:
Cost of restaurant sales (1) 34.9% 35.2% 35.3% 35.0%
Labor and other related expenses (1) 26.2% 25.2% 26.1% 24.6%
Other restaurant operating expenses (1) 19.4% 20.2% 19.3% 20.2%
----- ----- ----- -----
Total restaurant costs and expenses (1) 80.5% 80.6% 80.7% 79.8%
----- ----- ----- -----
General and administrative expenses 7.9% 8.7% 7.2% 8.2%
Depreciation 2.0% 1.4% 2.0% 1.4%
Amortization 2.5% 1.2% 2.3% 1.3%
----- ----- ----- -----
INCOME FROM OPERATIONS 7.5% 9.0% 8.3% 10.2%
----- ----- ----- -----
OTHER INCOME (EXPENSE):
Interest income 0.3% 0.5% 0.3% 0.3%
Interest expense -0.5% -0.7% -0.5% -1.0%
Other expense, net 0.0% -1.6% -0.1% -1.5%
----- ----- ----- -----
-0.2% -1.8% -0.3% -2.2%
----- ----- ----- -----
INCOME BEFORE ELIMINATION OF MINORITY
PARTNER INTEREST AND INCOME TAXES 7.3% 7.2% 8.0% 8.0%
ELIMINATION OF MINORITY PARTNER INTEREST -0.3% -0.5% -0.3% -0.5%
----- ----- ----- -----
INCOME BEFORE PROVISION FOR INCOME TAXES 7.0% 6.7% 7.7% 7.5%
PROVISION FOR INCOME TAXES -2.4% -2.1% -2.7% -2.3%
----- ----- ----- -----
NET INCOME 4.6% 4.6% 5.0% 5.2%
===== ===== ===== =====
</TABLE>
(1) As a percentage of restaurant sales.
8
<PAGE>
13 weeks ended June 29, 1997 and June 30, 1996
Revenues. Total revenues for the13 weeks ended June 29, 1997 were $16,492,000 as
compared to $10,380,000 for the 13 weeks ended June 30, 1996. The increase in
revenues was due to the opening of nine new restaurants during the fourth
quarter of 1996, and the opening of four new restaurants during the first six
months of 1997. Same store sales for the 13 weeks ended June 29, 1997 were
unchanged from the comparable period in 1996.
Cost of restaurant sales. The cost of restaurant sales as a percentage of
restaurant sales decreased to 34.9% for the 13 weeks ended June 29, 1997 from
35.2% for the 13 weeks ended June 30,1996. This decrease was attributed
primarily to commodity cost savings on food purchases, particularly snow crab,
versus the comparable period in 1996. The availability of certain types of
seafood fluctuates from time to time, resulting in corresponding fluctuations in
prices. The Company has been able to anticipate and react to fluctuations in
food costs through 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.
Labor and other related expenses. Labor and other related expenses as a
percentage of restaurant sales increased to 26.2% during the 13 weeks ended June
29,1997 as compared to 25.2% for 13 weeks ended June 30,1996. This increase was
primarily attributable to the initial higher hourly labor costs associated with
the opening of the new restaurants, including those in the Midwest markets. The
Company expects to incur higher hourly labor costs as it expands into the
Midwest markets.
Other restaurant operating expenses. Other restaurant operating expenses as a
percentage of sales improved to 19.4% for the 13 weeks ended June 29, 1997 as
compared with 20.2% for the 13 weeks ended June 30, 1996. The lower operating
expenses as a percentage of sales were attributed primarily to lower occupancy
costs related to two restaurants that were purchased subsequent to June 30, 1996
as well as lower advertising expenses in 1997. The advertising expenses were
higher during the 13 weeks ended June 30, 1996 due to advertising production
costs.
General and administrative expenses. General and administrative expenses
decreased to 7.9% as a percentage of revenues for the 13 weeks ended June 29,
1997 as compared with 8.7% for the 13 weeks ended June 30, 1996. The improvement
of 0.8% for the 13 weeks ended June 29, 1997 is attributed to efficiencies
realized through higher sales levels attributed to restaurants opened since June
30, 1996.
Depreciation. Depreciation increased to 2.0% for the 13 weeks ended June, 29
1997 from 1.4% for the same period in 1996. The increase was primarily due to
the larger number of new restaurant openings, the remodeling of existing
restaurants during the second half of fiscal 1996 as well as the purchase of two
units subsequent to June 30, 1996.
Amortization. Amortization increased to 2.5% for the 13 weeks ended June 29,
1997 from 1.2% for the comparable period in 1996. The increase is due to
pre-opening amortization related to 14 restaurants during the 13 weeks ended
June 29, 1997 as compared with pre-opening amortization of four restaurants
during the same period in 1996.
Other income (expenses). Other income for the 13 weeks ended June 29, 1997 was
$3,000 as compared to other expense of $163,000 for the same period in 1996. The
decrease was primarily attributable to a non-recurring expense during the 13
weeks ended June 30, 1996 related to an arbitration hearing.
Provision for income taxes. A provision for income taxes of $390,000 was
recognized for the 13 weeks ended June 29, 1997 as compared to $215,000 during
the comparable period in 1996. The increase in the provision for income taxes
was attributed to higher income before taxes as well as to an increase in the
effective tax rate being utilized by the Company to 34% in Fiscal 1997 from 31%
in Fiscal 1996. The effective tax rates are based on federal statutory rates and
state income tax rates coupled with the timing of the recognition of tax assets
and the utilization of the available net operating loss carryforward.
9
<PAGE>
Income from operations and net income. Income from operations increased $311,000
or 33% to $1,241,000 for the 13 weeks ended June 29, 1997 from $930,000 for the
13 weeks ended June 30, 1996. Net income increased $276,000 or 58% to $755,000
for the 13 weeks ended June 29, 1997 from $479,000 for the 13 weeks ended June
30, 1996.
26 weeks ended June 29, 1997 and June 30, 1996
Revenues. Total revenues for the 26 weeks ended June 29, 1997 were $33,468,000
as compared to $20,993,000 for the 26 weeks ended June 30, 1996. The increase
was due to the opening of nine restaurants during the fourth quarter of 1996
along with the opening of four restaurants during the 26 weeks ended June
29,1997 as well as a 2.3% increase in same store sales during the 26 weeks ended
June 29, 1997. To the extent that the Company has already recognized significant
gains from improved operating efficiencies, the Company may not experience same
store sales increases at the same rate in the future.
Cost of restaurant sales. Cost of restaurant sales as a percentage of restaurant
sales increased to 35.3% for the 26 weeks ended June 29, 1997 as compared to
35.0% for the same period in 1996. This increase was primarily attributable to
commodity cost savings on food purchases, primarily shrimp, during the first
quarter of 1996. The availability of certain types of seafood fluctuates from
time to time, resulting in corresponding fluctuations in prices. The Company has
been able to anticipate and react to fluctuations in food costs through
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.
Labor and other related expenses. Labor and other related expenses as a
percentage of restaurant sales increased to 26.1% for the 26 weeks ended June
29,1997 as compared to 24.6% during the comparable period in 1996. This increase
was primarily attributable to the initial higher hourly labor costs with the
opening of the newest restaurants, including those in the Midwest markets.
Other restaurant operating expenses. Other restaurant operating expenses as a
percentage of sales improved to 19.3% for the 26 weeks ended June 29, 1997 as
compared with 20.2% for the comparable period in 1996. The improvement was
attributed to lower occupancy costs related to two restaurants that were
purchased during the second half of 1996 as well as lower advertising expenses
during the 26 weeks ended June 29,1997 attributed to advertising production
costs incurred during the 13 weeks ended June 30,1996.
General and administrative expenses. General and administrative expenses as a
percentage of revenues decreased to 7.2% for the 26 weeks ended June 29, 1997 as
compared to 8.2% for the same period during 1996 due to efficiencies realized
through higher sales levels associated with the increase in the number of
restaurants as well as same store sales increases.
Other income (expenses). Other expenses were $24,000 for the 26 weeks ended June
29, 1997 as compared to $311,000 for the comparable period in 1996. The decrease
was primarily attributable to non-recurring expenses during the 26 weeks ended
June 30, 1996 related to an arbitration hearing and the recognition of
compensatory expense related to stock warrants issued during the first quarter
of 1996.
Provision for income taxes. A provision for income taxes of $863,000 was
recorded for the 26 weeks ended June 29, 1997 as compared to $488,000 during the
comparable period in 1996. The increase in the provision for income taxes was
attributed to higher income before taxes as well as to an increase in the
effective tax rate for the Company to 34% in Fiscal 1997 from 31% in Fiscal
1996. The effective tax rates are based on federal statutory rates and state
income tax rates coupled with the timing of the recognition of tax assets and
the utilization of the available net operating loss carryforward.
10
<PAGE>
Income from operations and net income. Income from operations increased $629,000
or 29% to $2,763,000 for the 26 weeks ended June 29, 1997 from $2,134,000 for
the comparable period in 1996. Net income increased $587,000 or 54% to
$1,674,000 for the 26 weeks ended June 30, 1997 from $1,087,000 for the
comparable period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
At June 29, 1997, the Company's current liabilities of $7,564,000 exceeded its
current assets of $6,354,000, resulting in a working capital deficiency of
$1,210,000. As is customary in the restaurant industry, the Company has
generally operated with negative working capital as a result of the investing of
current assets into property and equipment as well as the turnover of restaurant
inventory relative to more favorable vendor terms in accounts payable.
Cash provided by operating activities for the first six months of 1997 was
$2,681,000 as compared with $1,944,000 for the same period in 1996. The increase
of $737,000 is primarily attributable to improved operating results for the 26
weeks ended June 29, 1997 over the comparable period in 1996, as reflected by
the $587,000 increase in net income.
The cash used in purchasing property and equipment was $3,115,000 for the 26
weeks ended June 29, 1997 as compared with $747,000 for the same period in1996.
The increase of $2,368,000 was attributable to the Company engaging in one
remodeling, four restaurant openings, and construction costs incurred on other
restaurants which will open subsequent to June, 1997, during the 26 weeks ended
June 29, 1997 as compared to one remodeling and one opening during the same
period during 1996.
SEASONALITY
The restaurant industry in general is seasonal depending on the location and
type of food served. The Company has experienced fluctuations in its quarter to
quarter operating results due to various factors, including the seasonal nature
of its business, weather conditions in Florida and the health of Florida's
economy in general and the tourism industry in particular. The Company's sales
are generally higher from January through April and June through August, the
peaks of the Florida tourism season. Seasonality at the Company's restaurants is
magnified due to its present concentration in Florida and, in many cases,
locations are in coastal cities. Because of the seasonality of the Company's
business and the impact of new restaurant openings, 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.
11
<PAGE>
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May 20, 1997, the
stockholders voted (i) to amend the Company's 1995 Stock Option Plan to increase
the aggregate number of shares of Common Stock which may be issued thereunder
from 240,000 shares to 340,000 shares, and, (ii) to adopt the Stock Option Plan
for Non-Employee Directors. The adoption of the amendment to the Company's 1995
Stock Option Plan was approved by the vote of 2,071,547 shares for, and 28,479
shares against, 11,975 shares abstaining and 928,840 shares representing broker
non-votes. The adoption of the Stock Option Plan for Non-Employee Directors was
approved by the vote of 2,062,030 shares for, 37,096 shares against, 12,875
shares abstaining and 928,840 shares representing broker non-votes.
In addition, at the Annual Meeting of Stockholders held on May 20, 1997,
the following directors were nominated and elected by the votes indicated:
Frederick R. Adler: 3,037,306 For, 3,535 Against or Withheld, 0 Abstaining
William E. Hattaway: 3,037,020 For, 3,821 Against or Withheld, 0 Abstaining
Philip R. Chapman: 3,031,217 For, 9,624 Against or Withheld, 0 Abstaining
Kamal Mustafa: 3,031,570 For, 9,271 Against or Withheld, 0 Abstaining
Jay S. Nickse: 3,032,217 For, 8,624 Against or Withheld, 0 Abstaining
Edwin F. Russo: 3,030,353 For, 10,488 Against or Withheld, 0 Abstaining
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
99. Notice of Redemption of Common Stock Purchase Warrants,
dated June 16, 1997.
(b) On June 16, 1997 the Registrant gave notice to the holders of all of
its outstanding publicly registered Common Stock Purchase Warrants
(the "Public Warrants") that the Company would redeem the Public
Warrants on July 16, 1997 (the "Redemption Date"), at a redemption
price of $0.10 per Warrant. In addition, simultaneous with the
delivery of notice to the holders of the Public Warrants, the
Company gave notice of redemption to holders of warrants to purchase
an additional 112,376 shares of Common Stock at an exercise price of
$6.00 per share (the "Private Warrants" and together with the Public
Warrants, the "Warrants"). The Warrants were exercisable at any time
up to and including 5:00 p.m., Eastern Standard Time, on July 16,
1997 (the "Exercise Termination Time"), at a redemption price of
$0.10 per Warrant. The notice of redemption sent to the holders of
the Public Warrants was attached as an exhibit to the Form 8-K and
detailed the procedures for exercising the Public Warrants.
12
<PAGE>
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)
August 12, 1997 /s/ William E. Hattaway
- ----------------------------- ------------------------------------
Date William E. Hattaway
President and Chief Executive Officer
August 12, 1997 /s/ Warren R. Nelson
- ---------------------------- ------------------------------------
Date Warren R. Nelson
Vice President and Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and the consolidated statements of income and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> JUN-29-1997
<CASH> 3,421,489
<SECURITIES> 0
<RECEIVABLES> 118,712
<ALLOWANCES> 0
<INVENTORY> 769,059
<CURRENT-ASSETS> 2,044,265
<PP&E> 14,315,400
<DEPRECIATION> (3,200,537)
<TOTAL-ASSETS> 21,834,942
<CURRENT-LIABILITIES> 7,563,776
<BONDS> 0
0
1,334,852
<COMMON> 34,296
<OTHER-SE> 9,829,198
<TOTAL-LIABILITY-AND-EQUITY> 21,834,942
<SALES> 33,253,191
<TOTAL-REVENUES> 33,468,445
<CGS> 11,723,746
<TOTAL-COSTS> 30,704,989
<OTHER-EXPENSES> (131,638)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (94,734)
<INCOME-PRETAX> 2,537,084
<INCOME-TAX> (863,000)
<INCOME-CONTINUING> 1,674,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,674,084
<EPS-PRIMARY> $0.36
<EPS-DILUTED> $0.36
</TABLE>
