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 July 1, 2001
___ 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 15, 2001
----- ------------------------------
Common stock, $.01 par value 4,454,015
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
Index
Part I - Financial Information Page Number
Item 1 - Financial Statements
Consolidated Balance Sheets as of July 1, 2001 (Unaudited)
and December 31, 2000 3
Consolidated Statements of Income (Unaudited) for the 13 and
26 weeks ended July 1, 2001 and July 2, 2000 4
Consolidated Statements of Cash Flows (Unaudited) for the 26
weeks ended July 1, 2001 and July 2, 2000 5
Notes to Consolidated Financial Statements - (Unaudited) 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-11
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 11
Part II - Other Information 12
Signatures 13
2
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 1, 2001 December 31, 2000
------------------ --------------------
ASSETS
Cash 1,259,174 $ 1,261,937
Inventories 604,319 1,007,520
Other current assets 411,015 495,506
Receivables from related parties 31,615 196,155
Deferred tax asset, net 542,000 638,000
------------------ --------------------
Total current assets 2,848,123 3,599,118
Property and equipment, net 11,139,984 14,165,527
Prepaid rent 147,922 173,122
Other assets 378,437 418,945
Goodwill 2,783,700 2,886,799
Deferred tax asset, net 84,939 217,000
------------------ --------------------
TOTAL ASSETS $ 17,383,105 $ 21,460,511
================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 4,807,413 $ 3,445,541
Accrued expenses 4,930,190 5,312,219
Sales tax payable 292,310 356,039
Current portion of long-term debt 2,241,425 1,985,447
------------------ --------------------
Total current liabilities 12,271,338 11,099,246
Deferred rent 1,255,996 1,783,994
Long-term debt, less current portion 1,940,992 3,714,316
------------------ --------------------
Total liabilities 15,468,326 16,597,556
Minority partner interest 412,120 449,011
------------------ --------------------
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) (12,702,891) (9,791,606)
------------------ --------------------
Total stockholders' equity 1,502,659 4,413,944
------------------ --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,383,105 $ 21,460,511
================== ====================
See Notes to Consolidated Financial Statements.
3
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
13 Weeks Ended 26 Weeks Ended
--------------------------- ----------------------------
July 1, 2001 July 2, 2000 July 1, 2001 July 2, 2000
------------ ------------ ------------ ------------
REVENUES: $ 14,997,727 $ 24,460,211 $ 36,652,317 $ 50,311,130
------------ ------------ ------------ ------------
COST AND EXPENSES:
Cost of revenues 5,685,237 9,142,357 13,828,916 18,403,525
Labor and other related expenses 4,563,775 7,380,213 11,019,324 14,780,224
Other restaurant operating expenses 2,962,983 5,109,952 7,561,227 10,040,078
General and administrative expenses 1,077,894 1,831,306 2,772,048 3,643,743
Depreciation and amortization 418,437 680,647 954,459 1,357,196
Provision for impairment of assets - - 1,582,137
Provision for store closings - - 1,333,271 -
------------ ------------ ------------ ------------
14,708,326 24,144,475 39,051,382 48,224,766
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 289,401 315,736 (2,399,065) 2,086,364
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (131,021) (261,900) (317,807) (488,512)
Interest income 463 65,452 1,710 100,949
Other income (expense), net (14,775) 205,848 (80,514) 194,485
------------ ------------ ------------ ------------
(145,333) 9,400 (396,611) (193,078)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE ELIMINATION OF MINORITY
PARTNER INTEREST AND INCOME TAXES 144,068 325,136 (2,795,676) 1,893,286
ELIMINATION OF MINORITY PARTNER INTEREST (36,902) (71,830) (115,609) (167,793)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 107,166 253,306 (2,911,285) 1,725,493
PROVISION FOR INCOME TAXES - (84,000) - (570,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 107,166 $ 169,306 $ (2,911,285) $ 1,155,493
============ ============ ============ ============
BASIC NET INCOME (LOSS) PER SHARE OF COMMON STOCK $ 0.02 $ 0.04 $ (0.65) $ 0.26
============ ============ ============ ============
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 $ 0.02 $ 0.04 $ (0.65) $ 0.26
============ ============ ============ ============
DILUTED WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 4,633,009 4,462,099 4,454,015 4,457,001
============ ============ ============ ============
See Notes to Consolidated Financial Statements.
4
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
26 Weeks Ended
------------------------------------
July 1, 2001 July 2, 2000
---------------- ----------------
Cash flows from operating activities:
Net income (loss) $ (2,911,285) $ 1,155,493
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Minority partner interest (36,891) (97,207)
Depreciation and amortization 954,460 1,357,196
(Gain) Loss on sale of assets (5,249) -
Provision for impairment of assets 1,582,137 -
Change in assets and liabilities:
Decrease (increase) in inventories 403,201 (142,939)
Decrease (increase) in other assets 289,539 (373,997)
Decrease in prepaid rent 25,200 39,138
Increase in accounts payable 1,361,872 412,823
(Decrease) increase in accrued expenses (385,757) 743,021
(Decrease) increase in sales tax payable (63,729) 19,018
Decrease in income tax payable 228,061 489,500
(Decrease) increase in deferred rent (527,998) 128,462
-------------- --------------
Total adjustments 3,824,846 2,575,015
-------------- --------------
Net cash provided by operating activities 913,561 3,730,508
Cash flows from investing activites:
Net proceeds from sale of assets 1,089,421 -
Purchase of property and equipment (488,400) (445,400)
-------------- --------------
Net cash provided by (used in) investing activities 601,021 (445,400)
-------------- --------------
Cash flows from financing activities:
Proceeds from debt financing 227,636 245,532
Repayments of debt (1,744,981) (516,096)
-------------- --------------
Net cash (used in) financing activities (1,517,345) (270,564)
-------------- --------------
Net (decrease) increase in cash and cash equivalents (2,763) 3,014,544
Cash, beginning of period 1,261,937 2,940,919
-------------- --------------
Cash, end of period 1,259,174 5,955,463
============== ==============
Supplemental disclosure of cash flow information:
Cash paid for interest 579,751 469,851
Cash paid (refunds received) for income taxes (211,283) 88,710
See Notes to Consolidated Financial Statements.
5
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 31, 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 26 Weeks Ended
--------------------------- ----------------------------
July 1, 2001 July 2, 2000 July 1, 2001 July 2, 2000
------------ ------------- -------------- ------------
Net income (loss) $ 107,166 $ 169,306 $(2,911,285) $ 1,155,493
=========== =========== =========== ===========
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 $ 0.02 $ 0.04 $ (0.65) $ 0.26
=========== =========== =========== ===========
Effect of dilutive securities:
Warrants - - - -
Stock Options 178,994 8,084 - 2,986
----------- ----------- ------------ -----------
Diluted weighted common shares outstanding 4,633,009 4,462,099 4,454,015 4,457,001
----------- ----------- ------------ -----------
Diluted net income (loss) per share of common stock $ 0.02 $ 0.04 $ (0.65) $ 0.26
=========== =========== =========== ===========
The earnings per share calculations excluded options and warrants to purchase an
aggregate of 1,011,858 and 1,444,376 shares of common stock during the 13 weeks
ended July 1, 2001 and July 2, 2000, respectively, and options and warrants to
purchase an aggregate of 1,587,358 and 1,615,376 shares of common stock during
the 26 weeks ended July 1, 2001 and July 2, 2000, 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
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
--------------------------- ---------------------------
July 1, 2001 July 2, 2000 July 1, 2001 July 2, 2000
------------- ------------ ------------- ------------
REVENUES
Restaurant sales 99.5% 99.6% 99.5% 99.6%
Management fees 0.5% 0.4% 0.5% 0.4%
-------- ------- ------- --------
Total revenues 100.0% 100.0% 100.0% 100.0%
COSTS AND EXPENSES:
Cost of revenues 37.9% 37.4% 37.7% 36.6%
Labor and other related expenses 30.4% 30.2% 30.1% 29.4%
Other restaurant operating expenses 19.8% 20.9% 20.6% 20.0%
General and administrative expenses 7.2% 7.5% 7.6% 7.2%
Depreciation and amortization 2.8% 2.8% 2.6% 2.7%
Provision for impairment of assets - - 4.3% -
Provision for store closings - - 3.6% -
-------- ------- ------- --------
INCOME (LOSS) FROM OPERATIONS 1.9% 1.3% -6.5% 4.1%
OTHER INCOME (EXPENSE):
Interest expense -0.9% -1.1% -0.9% -1.0%
Interest income 0.0% 0.3% 0.0% 0.2%
Other income (expense), net -0.1% 0.8% -0.2% 0.4%
-------- ------- ------- --------
INCOME (LOSS) BEFORE ELIMINATION OF MINORITY
PARTNER INTEREST AND INCOME TAXES 1.0% 1.3% -7.6% 3.8%
ELIMINATION OF MINORITY PARTNER INTEREST -0.2% -0.3% -0.3% -0.3%
-------- ------- ------- --------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 0.7% 1.0% -7.9% 3.4%
PROVISION FOR INCOME TAXES - -0.3% - -1.1%
-------- ------- ------- --------
NET INCOME (LOSS) 0.7% 0.7% -7.9% 2.3%
======== ======= ======= ========
7
13 weeks ended July 1, 2001 and July 2, 2000
Revenues. Total revenues for the second quarter of 2001 were $14,998,000 as
compared to $24,460,000 for the second quarter of 2000, a $9,462,000, or 38.7%
decrease. The Company operated 30 restaurants as of the second quarter ended
July 1, 2001 versus 49 restaurants at the comparable period ended in 2000. The
Company discontinued its Midwest operations in April 2001, closing six
restaurants and licensing to an unaffiliated third party the right to continue
to operate the remaining three restaurants as Shells units. Same store sales for
the second quarter of 2001 were 10.6% below the comparable period in 2000.
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
37.9% for the second quarter of 2001 from 37.4% for the second quarter of 2000.
This increase was due primarily to rising shrimp and crab costs. The Company is
continually attempting to anticipate 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 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 increased to 30.4% during the second quarter of 2001 as
compared to 30.2% for the second quarter of 2000. This increase was primarily
attributable to labor inefficiencies resulting from lower sales volumes.
Other restaurant operating expenses. Other restaurant operating expenses as a
percentage of revenues decreased to 19.8% for the second quarter of 2001 as
compared with 20.9% for the second quarter of 2000. The decrease primarily was
due to decreased media advertising costs, partially offset by an increase in
utility costs associated with fuel prices.
General and administrative expenses. General and administrative expenses as a
percentage of revenues decreased to 7.2% for the second quarter of 2001 as
compared with 7.5% for the second quarter of 2000. The decrease was primarily
due to a reduction in corporate overhead and manager training wages related to
the discontinuation of Midwest operations and the consolidation of corporate
support functions.
Depreciation and amortization. Depreciation and amortization expense as a
percentage of revenues were 2.8% for the second quarter of 2001 and 2000.
Provision for income taxes. No provision for income taxes was recognized for the
second quarter of 2001 as compared to a provision of $84,000 during the same
quarter in 2000. The decrease related to the net loss before the provision for
income taxes incurred for the first quarter of 2001.
Income from operations and net income. As a result of the factors discussed
above, income from operations was $289,000 for the second quarter of 2001
compared to $316,000 for the second quarter of 2000. Net income was $107,000 for
the second quarter of 2001 compared to $169,000 for the second quarter of 2000.
26 weeks ended July 1, 2001 and July 2, 2000
Revenues. Total revenues for the 26 weeks ended July 1, 2001 were $36,652,000 as
compared to $50,311,000 for the 26 weeks ended July 2, 2000. The $13,659,000 or
27.1% decrease primarily was due to the discontinuation of 17 Midwest operating
units and the closure of two Florida restaurants between October 2000 and April
2001. Same store sales decreased 7.1% compared to the same period in 2000.
8
Cost of revenues. The cost of revenues as a percentage of revenues increased to
37.7% for the 26 weeks ended July 1, 2001 from 36.6% for the same period in
2000. This increase primarily was due to the rising commodity costs of shrimp
and crab.
Labor and other related expenses. Labor and other related expenses increased to
30.1% as a percentage of revenues for the 26 weeks ended July 1, 2001 as
compared to 29.4% for the same period in 2000. This increase was primarily
attributable to labor inefficiencies resulting from lower sales volumes.
Other restaurant operating expenses. Other restaurant operating expenses
increased to 20.6% as a percentage of revenues for the 26 weeks ended July 1,
2001 as compared with 20.0% for the same period in 2000. The increase was
primarily related to the increase in utility costs associated with fuel prices,
partially offset by a reduction in media advertising costs.
General and administrative expenses. General and administrative expenses
increased to 7.6% as a percentage of revenues for the 26 weeks ended July 1,
2001 as compared with 7.2% for the same period in 2000. This increase was
primarily attributable to inefficiencies resulting from lower sales volumes.
Depreciation and amortization. Depreciation and amortization expenses as a
percentage of revenues decreased to 2.6% for the 26 weeks ended July 1, 2001 as
compared with 2.7% for the same period in 2000. The decrease primarily was due
to the reduced basis of property and equipment resulting from the recognition of
asset impairment in prior years.
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 Statement of Financial Accounting
Standards No. 121. The asset impairment charge related to 14 of the 15
restaurants closed on licensed, 13 restaurants in the Midwest and one restaurant
in Florida. Eleven of the 14 restaurants had incurred previous write-downs in
the third quarter of 2000. The Company closed most of these under-performing
units in which six units were closed during the first quarter of 2001. An
additional six units were closed and three units were licensed during the second
quarter of 2001.
Provision for store closings. The Company recorded a one-time charge of
$1,333,000 relating to store closing costs primarily related to restaurants in
the Midwest. The Midwest restaurants were closed during the first and second
quarters of 2001 due to poor operating results. 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 net interest expense decreased to $316,000 from
$388,000 during the 26 weeks ended July 1, 2001 as compared with the same period
in 2000. The decrease was due to the retirement of debt associated with closed
units.
Other income (expense), net. The other expense of $81,000 for the 26 weeks ended
July 1, 2001 as compared with other income of $194,000 for the same period in
2000 is primarily attributable to the $238,000 gain realized upon the
disposition of a leasehold interest in the Company's Western Hills restaurant
during 2000. The restaurant was closed during September 1999 with the
corresponding leasehold interest being transferred during the second quarter of
2000.
Provision for income taxes. No provision for income taxes was recognized for the
26 weeks ended July 1, 2001 as compared to a provision of $570,000 during the
same period in 2000. The decrease was directly attributable to the loss before
taxes for the 26 weeks ended July 1, 2001.
Income (loss) from operations and net income (loss). As a result of the factors
discussed above, the Company's loss from operations was $2,399,000 for the 26
weeks ended July 1, 2001 compared to income from operations of $2,086,000 for
the same period in 2000. Exclusive of the provisions for impairment of assets
and store closings, the
9
Company's income from operations was $516,000 for the 26 weeks ended July 1,
2001 compared to $2,086,000 for the same period in 2000. The Company's net loss
for the 26 weeks ended July 1, 2001 was $2,911,000 compared to net income of
$1,155,000 in the same period in 2000. 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 compared to $1,155,000 for the same period in
2000.
LIQUIDITY AND CAPITAL RESOURCES
As of July 1, 2001, the Company's current liabilities of $12,271,000 exceeded
its current assets of $2,848,000, resulting in a working capital deficiency of
$9,423,000. A decrease in revenues resulting from fewer restaurants in operation
and a decrease in comparable store sales, coupled by increased operating costs
and costs incurred to discontinue operations in 15 restaurants during the
first and second quarters of 2001, negatively affected cash. 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.
The Company is currently negotiating modified payment terms with many of its
creditors and key vendors as an integral process in its turnaround plan. Through
this plan, it is contemplated that a substantial portion of these liabilities
will be deferred until a future date and/or be converted for shares of Shells'
preferred stock. The Company anticipates requiring additional outside financing
during the third and fourth quarters of 2001. There can be no assurance that any
such financing, or restructuring of indebtedness, will be available to the
Company on terms acceptable to the Company, or at all. The failure of the
Company to successfully negotiate such debt restructuring and obtain the
necessary funding may impact on the Company's ability to continue its
operations.
Cash provided by operating activities for the 26 weeks ended 2001 was $914,000
as compared to $3,731,000 for the same period in 2000. The net decrease of
$2,817,000 primarily was attributable to less favorable store operating results
in addition to costs incurred to close the Midwest restaurants.
The cash provided by investing activities increased $1,046,000 for the 26 weeks
ended July 1, 2001 compared to the same period in 2000. The increase was due to
the sale of real estate in the Midwest.
The cash used in financing activities increased $1,247,000 for the 26 weeks
ended July 1, 2001 compared to the same period last year. The increase was
primarily due to debt repayments associated with the sale of a restaurant
property then owned by the Company in the Midwest.
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 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
10
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 $2,235,000 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. There is also one loan that is based on 225 basis points over the
30 day London Interbank Offered Rate which was 3.64% in August 7, 2001.
11
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 Manufacturers Bank of Florida,
consisting of 3 notes with a total principal balance, as of July 1, 2001, of
$1,613,000. The loans, which were used to finance the purchase of certain
restaurant locations and 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 through December 2001. The Company expects to reduce the outstanding
indebtedness owed to the bank with the proceeds from any sale of the financed
property.
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
12
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
____________________________ ------------------------------------------
Date August 15, 2001 David W. Head
President and Chief Executive Officer
/s/ Warren R. Nelson
____________________________ ------------------------------------------
Date August 15, 2001 Warren R. Nelson
Executive Vice President and
Chief Financial Officer
13