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 APRIL 2, 2000
[ ] 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 MAY 11, 2000
- ---------------------------- ---------------------------
COMMON STOCK, $.01 PAR VALUE 4,454,015
<PAGE>
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF APRIL 2, 2000 (UNAUDITED)
AND JANUARY 2, 2000 3
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE 13 WEEKS
ENDED APRIL 2, 2000 AND APRIL 4, 1999 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE 13
WEEKS ENDED APRIL 2, 2000 AND APRIL 4, 1999 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7-9
PART II - OTHER INFORMATION 10
SIGNATURES 11
2
<PAGE>
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 2, 2000 JANUARY 2, 2000
------------- ---------------
<S> <C> <C>
ASSETS
Cash $ 5,311,079 $ 2,940,919
Inventories 1,104,631 1,029,324
Other current assets 1,511,633 703,548
Receivables from related parties 213,268 191,528
Deferred tax asset, net 314,551 94,551
------------ ------------
Total current assets 8,455,162 4,959,870
Property and equipment, net 17,934,097 18,314,555
Prepaid rent 524,524 544,093
Other assets 687,676 691,894
Goodwill 3,041,446 3,092,995
Deferred tax asset, net 2,360,159 3,064,449
------------ ------------
TOTAL ASSETS $ 33,003,064 $ 30,667,856
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 4,611,317 $ 3,755,225
Accrued expenses 3,999,198 3,742,582
Sales tax payable 658,516 469,061
Current portion of long-term debt 920,227 917,728
------------ ------------
Total current liabilities 10,189,258 8,884,596
Deferred rent 1,872,627 1,791,625
Long-term debt, less current portion 5,638,887 5,656,493
------------ ------------
Total liabilities 17,700,772 16,332,714
Minority partner interest 570,546 589,583
------------ ------------
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; 4,454,015 shares issued and outstanding 44,540 44,540
Additional paid-in-capital 14,161,010 14,161,010
Retained earnings (deficit) 526,196 (459,991)
------------ ------------
Total stockholders' equity 14,731,746 13,745,559
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 33,003,064 $ 30,667,856
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
13 WEEKS ENDED
--------------------------------
APRIL 2, 2000 APRIL 4, 1999
------------- -------------
<S> <C> <C>
REVENUES $ 25,850,919 $ 26,618,667
------------ ------------
COST AND EXPENSES:
Cost of revenues 9,261,168 9,254,340
Labor and other related expenses 7,400,011 7,581,150
Other restaurant operating expenses 4,930,126 5,449,543
General and administrative expenses 1,812,437 1,789,992
Depreciation and amortization 676,549 786,545
Pre-opening expenses -- 214,864
------------ ------------
24,080,291 25,076,434
------------ ------------
INCOME FROM OPERATIONS 1,770,628 1,542,233
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (226,612) (225,106)
Interest income 35,497 38,416
Other expense, net (11,363) (29,466)
------------ ------------
(202,478) (216,156)
------------ ------------
INCOME BEFORE ELIMINATION OF MINORITY
PARTNER INTEREST AND INCOME TAXES 1,568,150 1,326,077
ELIMINATION OF MINORITY PARTNER INTEREST (95,963) (63,337)
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,472,187 1,262,740
PROVISION FOR INCOME TAXES (486,000) (464,000)
------------ ------------
NET INCOME $ 986,187 $ 798,740
============ ============
BASIC NET INCOME PER SHARE OF COMMON STOCK $ 0.22 $ 0.18
============ ============
BASIC WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 4,454,015 4,454,015
============ ============
DILUTED NET INCOME PER SHARE OF COMMON STOCK $ 0.22 $ 0.17
============ ============
DILUTED WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 4,454,083 4,602,738
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
13 WEEKS ENDED
-------------------------------
APRIL 2, 2000 APRIL 4, 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 986,187 $ 798,740
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 676,549 786,545
Minority partner interest (19,037) (65,920)
Changes in assets and liabilities:
Increase in inventories (75,307) (102,470)
Increase in receivables from related parties (21,740) (94,189)
Increase in other assets (803,867) (219,060)
Decrease in prepaid rent 19,569 19,568
Decrease in deferred tax asset 484,290 16,000
Increase (decrease) in accounts payable 856,092 (1,380,892)
Increase in accrued expenses 256,616 432,357
Increase in sales tax payable 189,455 233,465
Increase in income taxes payable -- 329,903
Increase in deferred rent 81,002 100,546
----------- -----------
Total adjustments 1,643,622 55,853
----------- -----------
Net cash provided by operating activities 2,629,809 854,593
----------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment (244,542) (815,322)
----------- -----------
Net cash used in investing activities (244,542) (815,322)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from debt financing 245,432 --
Repayment of debt (260,539) (232,109)
----------- -----------
Net cash used in financing activities (15,107) (232,109)
----------- -----------
Net increase (decrease) in cash 2,370,160 (192,838)
CASH AT BEGINNING OF PERIOD 2,940,919 4,723,121
----------- -----------
CASH AT END OF PERIOD $ 5,311,079 $ 4,530,283
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 224,451 $ 183,106
Cash paid for income taxes $ 1,710 $ 7,500
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
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
January 2, 2000 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 Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share":
13 WEEKS ENDED
------------------------------
APRIL 2, 2000 APRIL 4, 1999
------------- -------------
Net income applicable to common stock $ 986,187 $ 798,840
========== ==========
Weighted common shares outstanding 4,454,015 4,454,015
Basic net income per share of common stock $ 0.22 $ 0.18
Effect of dilutive securities:
Warrants -- 148,298
Stock options 68 425
---------- ----------
Diluted weighted common shares outstanding 4,454,083 4,602,738
---------- ----------
Diluted net income per share of common stock $ 0.22 $ 0.17
========== ==========
The earnings per share calculations excluded 1,400,125 options and warrants and
604,460 options and warrants during the first quarters of 2000 and 1999,
respectively, as the exercise price of the options and warrants were greater
than the average market price of the common shares.
3. NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative (that is gains and
losses) depends upon the intended use of the derivative and the resulting
designation. SFAS No. 133, as amended, will be effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133 is
not expected to materially affect the Company's consolidated financial
statements.
6
<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.
13 WEEKS ENDED
------------------------------
APRIL 2, 2000 APRIL 4, 1999
------------- -------------
REVENUES 100.0% 100.0%
----- -----
COST AND EXPENSES:
Cost of revenues 35.8% 34.8%
Labor and other related expenses 28.6% 28.5%
Other restaurant operating expenses 19.1% 20.5%
----- -----
Total restaurant costs and expenses 83.5% 83.8%
----- -----
General and administrative expenses 7.0% 6.7%
Depreciation and amortization 2.6% 3.0%
Pre-opening expenses 0.0% 0.8%
Income from operations 6.8% 5.8%
----- -----
Interest expense, net -0.7% -0.8%
Other expense, net 0.0% -0.1%
Elimination of minority partner interest -0.4% -0.2%
----- -----
Income before provision for taxes 5.7% 4.7%
Provision for income taxes -1.9% -1.7%
----- -----
Net income 3.8% 3.0%
===== =====
7
<PAGE>
13 WEEKS ENDED APRIL 2, 2000 AND APRIL 4, 1999
REVENUES. Total revenues for the first quarter of 2000 were $25,851,000 as
compared to $26,619,000 for the first quarter of 1999. The $768,000, or 2.9%
decrease in revenues was due to the decrease in sales per unit in the Midwest
restaurants and the closing of one restaurant in September 1999, partially
offset by a 1.6% increase in comparable store sales. 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 increased to
35.8% for the first quarter of 2000 from 34.8% for the first quarter of 1999.
This increase primarily was due to rising shrimp costs coupled with the
implementation, during the second half of 1999, of happy hour discounting for
alcoholic beverages throughout the chain. The Company is continually
anticipating and reacting 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 control the cost of revenues.
LABOR AND OTHER RELATED EXPENSES. Labor and other related expenses as a
percentage of revenues increased slightly to 28.6% during the first quarter of
2000 as compared to 28.5% for the first quarter of 1999. This increase was
primarily attributable to labor inefficiencies in the Company's Midwest
restaurants and general increases in hourly wage rates.
OTHER RESTAURANT OPERATING EXPENSES. Other restaurant operating expenses as a
percentage of revenues decreased to 19.1% for the first quarter of 2000 as
compared with 20.5% for the first quarter of 1999. The decrease primarily was
due to reduced advertising expenses throughout the various markets in which the
Company operates. The Company is continuing to evaluate its advertising expenses
and strategies in all markets which are not media efficient.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses as a
percentage of revenues increased to 7.0% for the first quarter of 2000 as
compared with 6.7% for the first quarter of 1999. The increase was due to the
addition of two area supervisors during the second half of 1999 and, to a lesser
extent, severance expense that was recognized during the first quarter of 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense as a
percentage of revenues decreased to 2.6% for the first quarter of 2000 from 3.0%
in the first quarter of 1999. The decrease primarily was due to the reduced
basis of property and equipment resulting from the recognition of an asset
impairment in the fourth quarter of 1999.
PROVISION FOR INCOME TAXES. A provision for income taxes of $486,000 was
recognized for the first quarter of 2000 as compared to $464,000 during the same
quarter in 1999. The increase related to an increase in income before the
provision for income taxes, offset in part by a reduced effective tax rate of
33% in 2000 as compared with 36% in 1999.
INCOME FROM OPERATIONS AND NET INCOME. As a result of the factors discussed
above, the Company's income from operations increased $229,000 to $1,771,000 for
the first quarter of 2000 from $1,542,000 for the first quarter of 1999. Net
income increased to $986,000 from $799,000 for the first quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of April 2, 2000, the Company's current liabilities of $10,189,000 exceeded
its current assets of $8,455,000, resulting in a working capital deficiency of
$1,734,000. 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.
8
<PAGE>
Cash provided by operating activities for the first quarter of 2000 was
$2,630,000 as compared with $855,000 for the first quarter of 1999. The net
increase of $1,775,000 primarily was attributable to increases in accounts
payable as well as decreases in deferred tax assets, partially offset by
increases in other assets.
The cash used in investing activities decreased to $245,000 for the first
quarter of 2000 as compared with $815,000 for the first quarter of 1999. The
decrease of $570,000 was due to the Company opening one new restaurant during
the first quarter of 1999 as compared with remodeling and equipment replacement
costs during the first quarter of 2000.
The cash used in financing activities was $15,000 in the first quarter of 2000
as compared with $232,000 cash used in financing activities for the first
quarter of 1999. The decrease in cash used in financing activities primarily was
due to $245,000 in new borrowings during the first quarter of 2000.
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. and the health of Florida's economy
in general and the tourism industry in particular. The Company's Midwest
restaurants are also influenced by weather conditions and other seasonal
factors. 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 of new restaurant openings both in and outside of Florida. 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.
9
<PAGE>
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
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
10
<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)
/s/ WILLIAM E. HATTAWAY
- -------------------- -----------------------
Date May 11, 2000 William E. Hattaway
President
/s/ WARREN R. NELSON
- -------------------- ------------------------
Date May 11, 2000 Warren R. Nelson
Vice President and Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-03-2000
<PERIOD-END> APR-02-2000
<CASH> 5,311,079
<SECURITIES> 0
<RECEIVABLES> 213,268
<ALLOWANCES> 0
<INVENTORY> 1,104,631
<CURRENT-ASSETS> 8,455,162
<PP&E> 28,162,618
<DEPRECIATION> (10,228,519)
<TOTAL-ASSETS> 33,003,064
<CURRENT-LIABILITIES> 10,189,258
<BONDS> 0
0
0
<COMMON> 44,540
<OTHER-SE> 14,161,010
<TOTAL-LIABILITY-AND-EQUITY> 33,003,064
<SALES> 25,735,901
<TOTAL-REVENUES> 25,850,919
<CGS> 9,261,168
<TOTAL-COSTS> 24,080,291
<OTHER-EXPENSES> (107,326)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 191,115
<INCOME-PRETAX> 1,472,187
<INCOME-TAX> (486,000)
<INCOME-CONTINUING> 986,187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 986,187
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.22
</TABLE>
