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, 1996
Commission File No. 0-28258
DELAWARE 59-3372414
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS) Employer Identification Number
incorporation or organization)
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Class Outstanding at August 9, 1996
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Common stock $.01 par value 3,297,436
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SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
Index
Part I - Financial Information Page Number
Item 1 - Financial Statements
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 3
Consolidated Statements of Operations for the 13 weeks
and 26 weeks ended June 30, 1996 and July 2, 1995 4
Consolidated Statements of Stockholders' Equity (Deficiency)
for the 26 weeks ended June 30, 1996 and July 2, 1995 5
Consolidated Statements of Cash Flows for the 26 weeks
ended June 30, 1996 and July 2, 1995 6
Notes to Consolidated Financial Statements 7-8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
Part II - Other Information 13
Signatures 14
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SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
June 30, 1996 December 31, 1995
(Unaudited)
CURRENT ASSETS:
Cash $ 1,683,896 $ 776,779
Short-term investment securities 5,110,000 --
Inventories 393,913 397,119
Other current assets 882,197 885,489
Receivables from related parties 104,364 62,994
----------- -----------
Total current assets 8,174,370 2,122,381
Property and equipment, net 4,027,109 3,577,097
Prepaid rent 399,921 425,120
Other assets 508,831 395,587
Goodwill 3,814,681 3,917,779
----------- -----------
TOTAL ASSETS $16,924,912 $10,437,964
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY):
CURRENT LIABILITIES:
Accounts payable $ 1,914,866 $ 2,523,173
Accrued expenses 2,412,205 1,803,203
Payable to related parties -- 98,927
Sales tax payable 269,292 229,531
Income taxes payable 488,000 --
Current portion of notes payable - stockholders 15,407 2,108,214
Current portion of long-term debt 147,508 81,499
----------- -----------
Total current liabilities 5,247,278 6,844,547
Deferred rent 732,366 651,134
Notes payable - stockholders, less current portion 1,000,000 1,000,000
Long-term debt, less current portion 677,967 705,816
----------- -----------
Total liabilities 7,657,611 9,201,497
----------- -----------
Minority partner interest 484,786 574,291
----------- -----------
Shells, Inc.. preferred shares subject to redemption,
$10 par value; authorized 10,000,000 shares; 185,312
issued and outstanding 1,609,976 1,551,476
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY):
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; 3,297,436 and 1,462,684 shares issued and outstanding
as of June 30, 1996 and December 31, 1995, respectively 32,975 14,627
Additional paid-in-capital 7,538,448 581,841
Accumulated deficit (398,884) (1,485,768)
----------- -----------
Total stockholders' equity (deficiency) 7,172,539 (889,300)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $16,924,912 $10,437,964
=========== ===========
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See notes to consolidated financial statements.
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE 13 WEEKS AND 26 WEEKS ENDED JUNE 30, 1996 AND JULY 2, 1995
(Unaudited)
13 weeks ended 26 weeks ended
June 30, 1996 July 2, 1995 June 30, 1996 July 2, 1995
REVENUES:
Restaurant sales $10,276,270 $ 7,704,361 $20,782,593 $14,793,524
Management fees from related parties 103,626 93,925 210,320 188,530
----------- ----------- ----------- -----------
10,379,896 7,798,286 20,992,913 14,982,054
----------- ----------- ----------- -----------
COST AND EXPENSES:
Cost of restaurant sales 3,616,774 3,161,330 7,284,018 5,993,875
Labor and other related expenses 2,589,726 2,044,287 5,117,604 3,878,644
Other restaurant operating expenses 2,074,601 1,668,505 4,184,597 3,124,769
General and administrative expenses 900,878 542,605 1,713,406 1,077,709
Depreciation and amortization 267,586 210,263 559,734 460,244
----------- ----------- ----------- -----------
9,449,565 7,626,990 18,859,359 14,535,241
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 930,331 171,296 2,133,554 446,813
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net (16,681) (99,243) (134,819) (192,119)
Other income (expense) (162,942) 13,046 (311,425) 8,936
----------- ----------- ----------- -----------
(179,623) (86,197) (446,244) (183,183)
----------- ----------- ----------- -----------
INCOME BEFORE ELIMINATION OF MINORITY
PARTNER INTEREST AND INCOME TAXES 750,708 85,099 1,687,310 263,630
ELIMINATION OF MINORITY PARTNER INTEREST (57,024) (25,879) (112,426) (55,430)
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 693,684 59,220 1,574,884 208,200
PROVISION FOR INCOME TAXES (215,000) -- (488,000) --
----------- ----------- ----------- -----------
NET INCOME 478,684 59,220 1,086,884 208,200
PREFERRED SHARES ACCRETION (29,250) (41,556) (58,500) (83,112)
----------- ----------- ----------- -----------
NET INCOME APPLICABLE TO COMMON STOCK $ 449,434 $ 17,664 $ 1,028,384 $ 125,088
=========== =========== =========== ===========
NET INCOME PER SHARE OF COMMON STOCK $ 0.13 $ 0.01 $ 0.38 $ 0.09
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 3,558,139 1,462,684 2,724,256 1,462,684
=========== =========== =========== ===========
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See notes to consolidated financial statements
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE 26 WEEKS ENDED JUNE 30, 1996 AND JULY 2, 1995
(Unaudited)
ADDITIONAL UNAMORTIZED ACCUMULATED
COMMON STOCK PAID-IN DEFERRED DEFICIT TOTAL
Shares Amount CAPITAL COMPENSATION
Balance at December 31, 1995 1,462,684 $14,627 $581,841 $ -- $(1,485,768) $ (889,300)
Shells Inc. preferred shares accretion (58,500) (58,500)
Issuance of common stock and warrants 1,834,752 18,348 7,015,107 7,033,455
Net Income 1,086,884 1,086,884
--------- ------- ---------- -------- ----------- ----------
Balance at June 30, 1996 3,297,436 $32,975 $7,538,448 $ -- $ (398,884) $7,172,539
========= ======= ========== ======== =========== ==========
Balance at January 1, 1995 1,462,684 $14,627 $ 748,070 $(34,125) $(1,082,326) $ (353,754)
Shells Inc. preferred shares accretion (83,112) (83,112)
Amortization of deferred compensation 25,350 25,350
Net Income 208,200 208,200
--------- ------- ---------- -------- ----------- ----------
Balance at July 2, 1995 1,462,684 $14,627 $ 664,958 $ (8,775) $ (874,126) $ (203,316)
========= ======= ========== ======== =========== ==========
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See notes to consolidated financial statements.
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 26 WEEKS ENDED JUNE 30, 1996 AND JULY 2, 1995
(Unaudited)
26 Weeks Ended
June 30, 1996 July 2, 1995
OPERATING ACTIVITIES:
Net income $ 1,086,884 $ 208,200
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 559,734 460,244
Amortization of deferred compensation -- 25,350
Minority partner interest 69,495 55,430
Changes in assets and liabilities:
Decrease (increase) in inventories 3,206 (37,576)
Decrease (increase) in receivables from related parties 41,370 (115,365)
Increase in other current assets and other assets (352,631) (148,615)
Decrease in prepaid rent 25,199 122,504
Decrease in accounts payable (608,307) (150,568)
Increase (decrease) in accrued expenses 609,002 (36,770)
Decrease in payable to related parties (98,927) --
Increase in sales tax payable 39,761 65,273
Increase in income taxes payable 488,000 --
Increase in deferred rent 81,232 100,019
----------- -----------
Total adjustments 857,134 339,926
----------- -----------
Net cash provided by operating activities 1,944,018 548,126
----------- -----------
INVESTING ACTIVITIES:
Purchase of investment securities (5,110,000) --
Purchase of property and equipment (746,709) (764,867)
----------- -----------
Net cash used in investing activities (5,856,709) (764,867)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of debt 108,090 1,000,000
Repayment of debt (1,412,737) (448,850)
Proceeds from issuance of common stock and warrants 6,124,455 --
----------- -----------
Net cash provided by financing activities 4,819,808 551,150
----------- -----------
Net increase in cash 907,117 334,409
CASH AT BEGINNING OF PERIOD 776,779 472,535
----------- -----------
CASH AT END OF PERIOD $ 1,683,896 $ 806,944
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest: $ 403,097 $ 134,743
200,000 shares of common stock and 100,000 warrants were issued upon the
conversion of $750,000 of related party debt and $159,000 of minority
partner interest.
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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 financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the initial public offering prospectus dated April 23, 1996 which is part of the Company's registration statement on Form S-1, as amended (Registration Number 333-1600).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Initial Public Offering - The Company has raised capital through an initial public offering (the "Offering") effective April 23, 1996. On May 13, 1996, the Company obtained additional capital as the underwriter's over-allotment option and the Lender's Option (See Note 5 - PUBLIC OFFERING) were exercised . A portion of these proceeds were used to partially repay outstanding indebtedness and to partially finance the Company's proposed expansion, complete the remodeling of existing restaurants and purchase and install point-of-sale accounting systems. The Company believes that the proceeds of the Offering together with projected cash flow from operations, will be sufficient to satisfy its contemplated cash requirements for at least 12 months from the Offering. The Company's expansion strategy, however, is significantly dependent upon obtaining third party financing ("Third Party Financing") and/or achieving projected cash flow from operations. Third Party Financing may include, but is not limited to, traditional lending sources such as bank lines of credit, equipment leasing, and/or restaurant sales/leaseback arrangements that may be available to the Company. The Company is seeking to obtain Third Party Financing as required from time to time to fully implement its expansion strategy. In the event the Company's plans change or its assumptions prove to be inaccurate (due to unanticipated expenses or construction or other delays or otherwise) or, if Third Party Financing or projected cash flows prove to be insufficient to fund operations and fully implement the Company's expansion strategy, the Company could be required to seek additional financing from sources not currently anticipated.
Going Concern from Fiscal 1995 Financial Statements - The Company's annual consolidated financial statements as of and for the year ended December 31, 1995 were prepared assuming that the Company would continue as a going concern which contemplated the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had incurred net losses for the period from April 29, 1993 (date of inception) through January 2, 1994 and the years (52 weeks) ended January 1, 1995 and December 31, 1995. Additionally, the Company had a deficiency in working capital of $4,722,000 and a total stockholders' deficiency of $889,000 at December 31, 1995. These factors among others raised substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time. The consolidated financial statements as of and for the year ended December 31, 1995 did not include any adjustments that might result from the outcome of this uncertainty. During the 26 weeks ended June 30, 1996, the Company successfully completed its Offering and the underwriter's over-allotment option and the Lender's Option were exercised as discussed above. In addition, net income for the 26 weeks ended June 30, 1996 was $1,087,000. As a result, working capital improved to a positive $2,927,000 and stockholders' equity was $7,173,000 as of June 30, 1996.
3. MARKETABLE SECURITIES
The Company has invested available funds in variable rate demand notes. The notes are fully secured by letters of credit from the financial institution through which they were purchased. The notes can be put to the financial institution upon seven days notice.
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
June 30, 1996 December 31, 1995
Accrued payroll $1,012,494 $ 760,930
Accrued interest 61,883 330,161
Accrued rent 227,491 157,891
Workman's compensation 223,350 120,598
Unearned revenue 109,276 172,302
Other 777,711 261,321
---------- ----------
$2,412,205 $1,803,203
========== ==========
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5. 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 an additional 24,752 shares and 12,376 warrants at $4.50 per share and $0.09 per warrant simultaneously with and in the same proportion to which the underwriter exercises its over-allotment option. The underwriter exercised its over-allotment option effective May 13, 1996 resulting in the issuance of an additional 210,000 shares of common stock and 105,000 warrants, plus the issuance of 24,752 shares of common stock and 12,376 warrants through the Lender's Option generating 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.
The effect of these transactions was to increase the pro forma weighted average number of shares outstanding to 4,160,000 and 4,076,000 for the 13 and 26 weeks ending June 30, 1996, respectively, and to increase the pro forma weighted average number of shares to 3,297,436 for both the 13 and 26 weeks ended July 2, 1995. The pro forma weighted average number of shares assumes the additional shares were outstanding for the entire period. The pro forma earnings per share reflecting the increased pro forma weighted average number of shares outstanding were $0.11 and $0.25 for the 13 and 26 weeks ended June 30, 1996, respectively, as compared with $0.01 and $0.04 for the 13 and 26 weeks ended July 2, 1995, respectively.
6. RECAPITALIZATION
Prior to the effective date of the Offering of the Company's common stock, the Company was reincorporated under the laws of the State of Delaware. The Company's common stock, at a par value of $0.001 with 50,000,000 shares authorized, were converted into shares of the Company's common stock registered under the laws of the State of Delaware, at a par value of $0.01 with 20,000,000 shares authorized, on a share-for-share basis. At June 30, 1996, 3,297,436 shares of the Company's common stock were issued and outstanding. In addition, the certificate of incorporation authorizes 2,000,000 shares of preferred stock, $0.01 par value per share, none of which were issued or outstanding at June 30, 1996.
The accompanying balance sheet gives retroactive effect to the recapitalization.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following table set forth, for the periods indicated, the percentages which the items in the Company's Consolidated Statements of Operations bear to total revenues, or where indicated, restaurant sales. The subsequent table sets forth, for the periods indicated, certain operating data:
13 weeks ended 26 weeks ended
June 30, 1996 July 2, 1995 June 30, 1996 July 2, 1995
Revenues:
Restaurant sales 99.0% 98.8% 99.0% 98.7%
Management fees from related parties 1.0 1.2 1.0 1.3
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Costs and expenses:
Cost of restaurant sales (1) 35.2 41.0 35.0 40.5
Labor and other related expenses (1) 25.2 26.5 24.6 26.2
Other restaurant operating expenses (1) 20.2 21.7 20.2 21.2
----- ----- ----- -----
Total restaurant costs and expenses (1) 80.6% 89.2% 79.8% 87.9%
----- ----- ----- -----
General and administrative expenses 8.7 7.0 8.2 7.2
Depreciation and amortization 2.6 2.7 2.7 3.1
Income from operations 9.0 2.2 10.2 3.0
Interest expense, net -0.2 -1.3 -0.6 -1.3
Other income (expense) -1.6 0.2 -1.5 0.1
----- ----- ----- -----
Income before elimination of minority
partner interest and income taxes 7.2 1.1 8.0 1.8
Elimination of minority partner interest -0.5 -0.3 -0.5 -0.4
----- ----- ----- -----
Income before provision for income taxes 6.7 0.8 7.5 1.4
Provision for income taxes -2.1 - -2.3 -
----- ----- ----- -----
Net income 4.6% 0.8% 5.2% 1.4%
===== ===== ===== =====
Operating Data:
Number of restaurants at end of period:
Company-owned restaurants (2) 17 14
Joint venture restaurant 1 1
Licensed restaurants 4 4
---------------------------
22 19
===========================
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(1) As a percentage of restaurant sales
(2) Includes one Company-owned restaurant which until July 14, 1995 was owned
by a joint venture.
13 weeks ended June 30, 1996 and July 2, 1995
Revenues. Total revenues for the 13 weeks ended June 30, 1996 were $10,380,000 as compared to $7,798,000 for the 13 weeks ended July 2, 1995. The increase was due to a 16.5% increase in same store sales during the 13 weeks ended June 30, 1996, the opening of two new restaurants during the second half of 1995, and the opening of one restaurant in June 1996. The increase in same store sales was primarily attributable to an increase in the number of customers served, resulting from expanded advertising which began in the fourth quarter of 1995, remodeling of certain of these restaurants, and, to a lesser extent, from selected menu price adjustments. 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. The cost of restaurant sales as a percentage of restaurant sales improved to 35.2% for the second quarter of 1996 as compared to 41.0% for the second quarter in 1995. This improvement resulted primarily from commodity cost savings on food purchases, primarily shrimp. The availability of certain types of seafood fluctuates from time to time, resulting in corresponding fluctuations in prices. While the Company has benefited from a favorable fluctuation in prices during the second quarter of 1996, the Company may not experience the same prices in the future. 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 improved to 25.2% during the second quarter of 1996 as compared to 26.5% for the second quarter in 1995. This improvement was primarily attributable to efficiencies realized through higher sales volume and the continuing implementation of operations management procedures and controls.
General and administrative expenses. General and administrative expenses as a percentage of revenues increased to 8.7% during the second quarter of 1996 as compared to 7.0% for the second quarter in 1995 due to the accrual for management compensation and incentives related to improved operating performance.
Other income (expenses). Other expenses were $163,000 for the second quarter of 1996 as compared to income of $13,000 for the second quarter in 1995. The expense in 1996 was attributable to an accrual of non-recurring expenses related to a pending arbitration.
Provision for income taxes. A provision for income taxes of $215,000 was recognized for the second quarter of 1996 based on an effective rate of 31%. The 1996 effective rate is based on federal statutory rates and state income tax rates coupled with the utilization of the available net operating loss carryforward. There was no income tax provision for the second quarter in 1995 as the net operating loss carryforward offset taxable income.
Income from operations and net income. As a result of the increase in revenues and the decrease in food and labor costs as a percentage of restaurant sales, the income from operations increased $759,000 or 444% to $930,000 for the second quarter of 1996 as compared to $171,000 for the second quarter in 1995. Net income increased $420,000 or 712% to $479,000 for the second quarter of 1996 as compared to $59,000 for the second quarter of 1995.
26 weeks ended June 30, 1996 and July 2, 1995
Revenues. Total revenues for the 26 weeks ended June 30, 1996 were $20,993,000 as compared to $14,982,000 for the 26 weeks ended July 2, 1995. The increase was due to the opening of four new restaurants and the relocation of one existing restaurant during 1995, the opening of one restaurant in June 1996 as well as a 16.5% increase in same store sales during the 26 weeks ended June 30, 1996. The increase in same store sales was primarily attributable to an increase in the number of customers served, resulting from expanded advertising which began in the fourth quarter of 1995, remodeling of certain of these restaurants, and, to a lesser extent, from selected menu price adjustments. 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. The cost of restaurant sales as a percentage of restaurant sales improved to 35.0% for the first half of 1996 as compared to 40.5% for the first half in 1995. This improvement resulted primarily from commodity cost savings on food purchases, primarily shrimp. The availability of certain types of seafood fluctuates from time to time, resulting in corresponding fluctuations in prices. While the Company has benefited from a favorable fluctuation in prices during the first half of 1996, the Company may not experience the same prices in the future. 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 improved to 24.6% during the first half of 1996 as compared to 26.2% for the first half in 1995. This improvement was primarily attributable to efficiencies realized through higher sales volume and the continuing implementation of operations management procedures and controls.
General and administrative expenses. General and administrative expenses as a percentage of revenues increased to 8.2% during the first half of 1996 as compared to 7.2% for the first half of 1995 due to the accrual for management compensation and incentives related to improved operating performance.
Other income (expenses). Other expenses were $311,000 for the first half of 1996 as compared to $9,000 other income for the first half in 1995. The increase was primarily attributable to an accrual for a pending arbitration and non-recurring compensatory expense related to stock warrants issued during the first half of 1996.
Provision for income taxes. A provision for income taxes of $488,000 was recognized for 1996 based on an effective rate of 31%. The 1996 effective rate is based on federal statutory rates and state income tax rates coupled with the utilization of the available net operating loss carryforward. There was no income tax provision for the first half in 1995 as the net operating loss carryforward offset taxable income.
Income from operations and net income. As a result of the increase in revenues and the decrease in food and labor costs as a percentage of restaurant sales, the income from operations increased $1,687,000 or 377% to $2,134,000 for the first half of 1996 as compared to $447,000 for the first half in 1995. Net income increased $879,000 or 423% to $1,087,000 for the first half of 1996 as compared to $208,000 for the first half of 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company's working capital was $2,927,000 as compared with a working capital deficiency of $4,722,000 at December 31, 1995. The working capital deficiency was eliminated upon the Company's initial public offering completed April 29, 1996. As is customary in the restaurant industry, the Company had generally operated with negative working capital as a result of pre-opening expenses associated with new restaurants, the turnover of restaurant inventory relative to more favorable vendor terms in accounts payable and the Company refurbishing locations for new restaurants and remodeling existing restaurants prior to obtaining the long-term financing to pay for such expenditures.
Cash provided by operating activities for the first half of 1996 was $1,944,000 as compared with $548,000 for the first half of 1995. The increase of $1,396,000 was primarily attributable to improved operating results for the first half of 1996 as reflected in the year-to-date net income.
Cash used in investing activities was $5,857,000 for the first half of 1996 as compared with the $765,000 for the first half of 1995. The increase of $5,092,000 was primarily attributable to the purchase of investment securities with the proceeds from the Company's initial public offering of common stock and warrants pending the use of these proceeds to open new restaurants, remodel existing restaurants and use for working capital purposes. The use of funds for capital improvements in the first half of 1996 related to the opening of one new restaurant and the remodeling of two existing restaurants as compared with 1995 which related to the opening of two new restaurants and the relocation of one restaurant.
Through its initial public offering, completed on April 29, 1996, the Company raised net proceeds of $5,090,000. The Company repaid a $1,310,000 principal amount loan plus accrued and unpaid interest thereon of $307,000 to a stockholder. Effective May 13, 1996, the underwriter also exercised its over-allotment option purchasing 210,000 shares of common stock and 105,000 warrants which, coupled with the exercise of the Lender's Option for 24,752 shares of common stock and 12,376 warrants, generated an additional $1,035,000 in net proceeds.
Cash provided by financing activities was $4,820,000 for the first half of 1996 compared to $551,000 for the first half of 1995. The source of funds during 1996 included the proceeds from the common stock and warrant offering less debt repayments totaling $1,413,000 as compared with 1995 which related to a $1,000,000 bridge loan from stockholders, less the scheduled repayment of existing debt.
SEASONALITY
The restaurant industry in general is seasonal depending on the location and type of food served. Seasonality at the Company's restaurants is magnified due to its present exclusivity to Florida and, in many cases, locations which are in coastal communities, where sales are partially dependent on tourism and its seasonality patterns. Historically, the largest sales volumes of the Company's restaurants occur during the first and second quarters of the fiscal year, the peak tourist seasons in Florida.
Part II - OTHER INFORMATION
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
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 9, 1996 /s/ WILLIAM E. HATTAWAY
- ------------------------- ------------------------------------------
Date William E. Hattaway
President and Chief Executive Officer
August 9, 1996 /s/ WARREN R. NELSON
- ------------------------- ------------------------------------------
Date Warren R. Nelson
Vice President and Chief Financial Officer
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| ARTICLE 5 |
| 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. |
| PERIOD TYPE | 6 MOS |
| FISCAL YEAR END | DEC 29 1996 |
| PERIOD START | JAN 01 1996 |
| PERIOD END | JUN 30 1996 |
| CASH | 1,683,896 |
| SECURITIES | 5,110,000 |
| RECEIVABLES | 104,364 |
| ALLOWANCES | 0 |
| INVENTORY | 393,913 |
| CURRENT ASSETS | 8,174,370 |
| PP&E | 6,236,239 |
| DEPRECIATION | (2,209,130) |
| TOTAL ASSETS | 16,924,912 |
| CURRENT LIABILITIES | 5,247,278 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 1,609,976 |
| COMMON | 32,975 |
| OTHER SE | 7,139,564 |
| TOTAL LIABILITY AND EQUITY | 16,924,912 |
| SALES | 20,782,593 |
| TOTAL REVENUES | 20,992,913 |
| CGS | 7,284,018 |
| TOTAL COSTS | 18,859,359 |
| OTHER EXPENSES | (423,851) |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | (134,819) |
| INCOME PRETAX | 1,574,884 |
| INCOME TAX | (488,000) |
| INCOME CONTINUING | 1,086,884 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 1,086,884 |
| EPS PRIMARY | 0.39 |
| EPS DILUTED | 0.38 |