SHELLS SEAFOOD RESTAURANTS INC - 10-Q Quarterly Report

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 September 26, 2004

¨	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

incorporation or organization)

(IRS) Employer

Identification Number

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 ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨ No x


Class		Outstanding at October 25, 2004
Common stock, $0.01 par value		4,812,740

SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES

Index


		Page Number

Part I.	Financial Information

Item 1. Financial Statements

	Consolidated Balance Sheets	3

	Consolidated Statements of Operations (Unaudited)	4-5

	Consolidated Statements of Cash Flows (Unaudited)	6-7

	Consolidated Statement of Stockholders’ Equity (Unaudited)	8

	Notes to Consolidated Financial Statements (Unaudited)	9-11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12-18

Item 3. Quantitative and Qualitative Disclosures About Market Risk		18

Item 4. Controls and Procedures		18

Part II.	Other Information	19-20

Signatures		21

SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	September 26, 2004			December 28, 2003
ASSETS
Cash	$	385,342		$	723,939
Inventories		406,124			382,549
Other current assets		749,133			265,891
Receivables from related parties		102,276			110,147

Total current assets		1,642,875			1,482,526

Property and equipment, net		6,543,806			6,996,095
Other assets		597,779			663,189
Goodwill		2,474,407			2,474,407

TOTAL ASSETS	$	11,258,867		$	11,616,217

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	2,003,203		$	2,390,685
Accrued expenses		2,500,101			2,295,290
Sales tax payable		118,145			168,385
Current portion of long-term debt		239,447			234,247

Total current liabilities		4,860,896			5,088,607

Deferred rent		873,212			1,053,531
Long-term debt, less current portion		1,567,919			1,558,245
Notes and deferred interest payable to related parties		2,217,104			2,267,416

Total liabilities		9,519,131			9,967,799

Minority partner interest		436,058			465,836

STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; authorized 2,000,000 shares; 35,275 and 63,548 shares issued and outstanding, respectively		353			635
Common stock, $.01 par value; authorized 20,000,000 shares; 4,812,740 and 4,631,375 shares issued and outstanding, respectively		48,128			46,314
Additional paid-in-capital		14,318,419			14,303,151
Accumulated deficit		(13,063,222	)		(13,167,518	)

Total stockholders’ equity		1,303,678			1,182,582

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	11,258,867		$	11,616,217

See accompanying notes to consolidated financial statements.

SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


	13 Weeks Ended
	September 26, 2004			September 28, 2003
REVENUES	$	8,682,534		$	10,125,143

COST AND EXPENSES:
Cost of revenues		2,957,369			3,319,468
Labor and other related expenses		2,902,216			3,407,219
Other restaurant operating expenses		2,440,345			2,847,323
General and administrative expenses		770,571			903,564
Depreciation and amortization		271,793			275,793

		9,342,294			10,753,367

LOSS FROM OPERATIONS		(659,760	)		(628,224	)

OTHER INCOME (EXPENSE):
Interest expense		(552,481	)		(112,668	)
Interest income		107			3,072
Other income (expense), net		464,636			(40,727	)

		(87,738	)		(150,323	)

LOSS BEFORE ELIMINATION OF MINORITY PARTNER INTEREST AND INCOME TAXES		(747,498	)		(778,547	)

ELIMINATION OF MINORITY PARTNER INTEREST		(51,006	)		(54,373	)

LOSS BEFORE PROVISION FOR INCOME TAXES		(798,504	)		(832,920	)

PROVISION FOR INCOME TAXES		—			—

NET LOSS	$	(798,504	)	$	(832,920	)

NET LOSS PER SHARE OF COMMON STOCK:
Basic	$	(0.17	)	$	(0.18	)

Diluted	$	(0.17	)	$	(0.18	)

AVERAGE WEIGHTED NUMBER OF COMMON SHARES OUTSTANDING:
Basic		4,812,740			4,631,375

Diluted		4,812,740			4,631,375

See accompanying notes to consolidated financial statements.

SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Continued)


	39 Weeks Ended
	September 26, 2004			September 28, 2003
REVENUES	$	32,270,804		$	35,038,465

COST AND EXPENSES:
Cost of revenues		10,798,148			11,469,034
Labor and other related expenses		9,900,136			10,759,888
Other restaurant operating expenses		7,761,611			8,557,059
General and administrative expenses		2,430,128			2,617,318
Depreciation and amortization		850,579			799,879

		31,740,602			34,203,178

INCOME FROM OPERATIONS		530,202			835,287

OTHER INCOME (EXPENSE):
Interest expense		(759,605	)		(358,333	)
Interest income		2,301			11,217
Other income (expense), net		521,956			(94,097	)

		(235,348	)		(441,213	)

INCOME BEFORE ELIMINATION OF MINORITY PARTNER INTEREST AND INCOME TAXES		294,854			394,074

ELIMINATION OF MINORITY PARTNER INTEREST		(190,558	)		(198,730	)

INCOME BEFORE PROVISION FOR INCOME TAXES		104,296			195,344

PROVISION FOR INCOME TAXES		—			—

NET INCOME	$	104,296		$	195,344

NET INCOME PER SHARE OF COMMON STOCK:
Basic	$	0.02		$	0.04

Diluted	$	0.01		$	0.02

AVERAGE WEIGHTED NUMBER OF COMMON SHARES OUTSTANDING:
Basic		4,722,503			4,559,502

Diluted		11,124,583			11,168,456

See accompanying notes to consolidated financial statements.

SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	39 Weeks Ended
	September 26, 2004			September 28, 2003
OPERATING ACTIVITIES:
Net income	$	104,296		$	195,344
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		850,579			799,879
Interest expense on warrants issued		446,000			—
Insurance proceeds net of hurricane-related expenses		(497,242	)		—
(Gain) loss on sale of assets		(98,023	)		2,874
Loss on sale of assets applied against reserves		24,776			—
Minority partner interest		(29,778	)		29,385
Changes in current assets and liabilities		(579,224	)		(1,176,756	)
Decrease (increase) in other assets		30,035			(167,810	)
Changes in other liabilities:
Decrease in income taxes payable		—			(3,300	)
Increase in accrued interest to related parties		115,003			105,839
Decrease in deferred rent		(60,005	)		(21,771	)

Total adjustments		202,121			(431,660	)

Net cash provided by (used in) operating activities		306,417			(236,316	)

INVESTING ACTIVITIES:
Proceeds from sale of assets		88,776			500
Purchase of property and equipment		(600,148	)		(611,084	)

Net cash used in investing activities		(511,372	)		(610,584	)

FINANCING ACTIVITIES:
Proceeds from debt financing		162,292			578,585
Repayment of debt		(312,734	)		(935,548	)
Proceeds from issuance of stock		16,800			—

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