Prospectus
Supplement
(To
Prospectus dated October 7, 2005)
|
Filed
Pursuant to Rule 424(b)(3) and 424(c)
Commission
File No. 333-126487
|
27,772,411
Shares
Common
Stock
This
prospectus supplement supplements the prospectus dated October 7, 2005, which
relates to the shares of our common stock that may be sold by the selling
stockholders named therein.
This
prospectus supplement should be read in connection with, and may not be
delivered or utilized without, the prospectus dated October 7, 2005, and
the
prospectus supplements dated November 2, 2005, December 1, 2005, December
2,
2005, March 23, 2006, April 7, 2006, April 27, 2006, May 1, 2006, August
2,
2006, August 3, 2006, August 4, 2006, August 28, 2006, August 29, 2006 and
August 30, 2006. This prospectus supplement is qualified by reference to
the
prospectus and the prospectus supplements, except to the extent that the
information in this prospectus supplement updates or supersedes the information
contained in the prospectus dated October 7, 2005, or the prospectus supplements
dated November 2, 2005, December 1, 2005, December 2, 2005, March 23, 2006,
April 7, 2006, April 27, 2006, May 1, 2006, August 2, 2006, August 3, 2006,
August 4, 2006, August 28, 2006, August 29, 2006, August 30,
2006, April 10, 2007, and May 10, 2007.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
supplement is truthful or complete. Any representation to the contrary is
a
criminal offense.
The
date
of this prospectus supplement is May 17, 2007
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 1,
2007
o |
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 o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (check
one):
Large
Accelerated Filer o
Accelerated
Filer o Non-accelerated
filer x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No x
|
|
Outstanding
at May 1, 2007
|
Common
stock, $0.01 par value
|
|
18,871,308
|
FORWARD
LOOKING STATEMENTS
When
used
in this Quarterly Report on Form 10-Q, the words "believes", "anticipates",
"expects", and similar expressions are intended to identify forward-looking
statements. These statements are subject to certain risks and uncertainties,
which could cause actual results to differ materially from those
projected.
In
addition to seasonal fluctuations, our quarterly and annual operating results
are affected by a wide variety of other factors that could materially and
adversely affect revenues and profitability, including changes in consumer
preferences, tastes and eating habits; increases in food, labor and other
operating costs; the availability of food acceptable to our quality standards
at
acceptable prices; the availability of qualified labor; national, regional
and
local economic and weather conditions; promotional timings and seasonality;
demographic trends and traffic patterns; changes in travel and tourism
tendencies, particularly in light of world events; competition from other
restaurants and food service establishments; availability of third party
financing to fund capital or operating activities, if required; and the timing,
costs and charges relating to restaurant openings, closings and remodelings.
As
a result of these and other factors, we may experience material fluctuations
in
future operating results on a quarterly or annual basis, which could materially
and adversely affect its business, financial condition, operating results,
and
stock price. Furthermore, this document and other documents filed by us with
the
Securities and Exchange Commission (“SEC”) contain certain forward-looking
statements with respect to our business and the industry in which we operate.
These forward-looking statements are subject to certain risks and uncertainties,
including those mentioned above, which may cause results to differ significantly
from these forward-looking statements. We undertake no obligation to update
these forward looking statements on a regular basis. An investment in our
company involves various risks, including those mentioned above and those that
are detailed from time-to-time in our other filings with the SEC.
Any
forward-looking statements included in this Quarterly Report reflect our beliefs
only as of the date of this document. We do not undertake any obligation to
publicly release the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances after the date
of this document or to reflect the occurrence of unanticipated
events.
SHELLS
SEAFOOD RESTAURANTS, INC.
AND
SUBSIDIARIES
Index
|
|
Page
Number
|
Part
I.
|
Financial
Information
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
Consolidated
Balance Sheets
|
4
|
|
|
|
|
Consolidated
Statements of Operations (Unaudited)
|
5
|
|
|
|
|
Consolidated
Statement of Stockholders’ Equity (Unaudited)
|
6
|
|
|
|
|
Consolidated
Statements of Cash Flow (Unaudited)
|
7-8
|
|
|
|
|
Notes
to Consolidated Financial Statements - (Unaudited)
|
9-12
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition
and Results of Operations
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
18
|
|
|
|
Item
4.
|
Controls
and Procedures
|
18
|
|
|
|
Part
II.
|
Other
Information
|
19
|
|
|
|
Signatures
|
|
21
|
SHELLS
SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
(Unaudited)
|
|
|
|
|
|
April
1, 2007
|
|
December
31, 2006
|
|
ASSETS
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,047,444
|
|
$
|
734,122
|
|
Inventories
|
|
|
554,889
|
|
|
543,183
|
|
Other
current assets
|
|
|
838,394
|
|
|
383,598
|
|
Receivables
from related parties
|
|
|
86,287
|
|
|
34,305
|
|
Total
current assets
|
|
|
2,527,014
|
|
|
1,695,208
|
|
Property
and equipment, net
|
|
|
8,781,836
|
|
|
9,170,821
|
|
Goodwill
|
|
|
2,474,407
|
|
|
2,474,407
|
|
Other
assets
|
|
|
577,042
|
|
|
481,641
|
|
Prepaid
rent
|
|
|
13,974
|
|
|
14,629
|
|
TOTAL
ASSETS
|
|
$
|
14,374,273
|
|
$
|
13,836,706
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,700,165
|
|
$
|
3,248,031
|
|
Accrued
expenses
|
|
|
2,239,088
|
|
|
2,043,678
|
|
Sales
tax payable
|
|
|
393,386
|
|
|
225,639
|
|
Current
portion of long-term debt
|
|
|
1,046,060
|
|
|
623,526
|
|
Total
current liabilities
|
|
|
6,378,699
|
|
|
6,140,874
|
|
Notes
and deferred interest payable to related parties
|
|
|
1,551,815
|
|
|
1,527,453
|
|
Long-term
debt, less current portion
|
|
|
161,430
|
|
|
171,847
|
|
Deferred
rent
|
|
|
1,171,426
|
|
|
1,135,873
|
|
Total
liabilities
|
|
|
9,263,370
|
|
|
8,976,047
|
|
|
|
|
|
|
|
|
|
Minority
partner interest
|
|
|
557,176
|
|
|
521,876
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY:
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value; authorized 2,000,000 shares;
|
|
|
|
|
|
|
|
Series
A - 22,694 shares issued and outstanding
|
|
|
227
|
|
|
227
|
|
Series
B - 322,551 and 373,849 shares issued and outstanding
|
|
|
3,225
|
|
|
3,738
|
|
Common
stock, $0.01 par value; authorized 58,000,000 shares;
|
|
|
|
|
|
|
|
18,837,968
and 17,586,988 shares issued and outstanding
|
|
|
188,380
|
|
|
175,870
|
|
Additional
paid-in-capital
|
|
|
25,427,735
|
|
|
25,259,714
|
|
Accumulated
deficit
|
|
|
(21,065,840
|
)
|
|
(21,100,766
|
)
|
Total
stockholders’ equity
|
|
|
4,553,727
|
|
|
4,338,783
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
14,374,273
|
|
$
|
13,836,706
|
|
See
accompanying notes to consolidated financial statements.
SHELLS
SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS (Unaudited)
|
|
Quarter
Ended
|
|
|
|
April
1, 2007
|
|
April
2, 2006
|
|
REVENUES
|
|
$
|
13,434,904
|
|
$
|
14,586,546
|
|
|
|
|
|
|
|
|
|
COST
AND EXPENSES:
|
|
|
|
|
|
|
|
Food
and beverage
|
|
|
4,355,512
|
|
|
4,643,458
|
|
Labor
|
|
|
3,890,188
|
|
|
4,356,608
|
|
Other
restaurant operating expenses
|
|
|
3,521,298
|
|
|
3,434,654
|
|
General
and administrative expenses
|
|
|
1,024,873
|
|
|
1,178,400
|
|
Depreciation
and amortization
|
|
|
506,334
|
|
|
498,094
|
|
|
|
|
13,298,205
|
|
|
14,111,214
|
|
|
|
|
|
|
|
|
|
INCOME
FROM OPERATIONS
|
|
|
136,699
|
|
|
475,332
|
|
|
|
|
|
|
|
|
|
OTHER
(EXPENSE) INCOME:
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(65,927
|
)
|
|
(70,876
|
)
|
Other
income (expense), net
|
|
|
39,230
|
|
|
(56,269
|
)
|
|
|
|
(26,697
|
)
|
|
(127,145
|
)
|
INCOME
BEFORE ELIMINATION OF MINORITY PARTNER INTEREST
|
|
|
110,002
|
|
|
348,187
|
|
|
|
|
|
|
|
|
|
ELIMINATION
OF MINORITY PARTNER INTEREST
|
|
|
(75,076
|
)
|
|
(86,966
|
)
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
34,926
|
|
$
|
261,221
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER SHARE OF COMMON STOCK:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
$
|
0.02
|
|
Diluted
|
|
$
|
0.00
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
Basic
|
|
|
17,843,426
|
|
|
16,179,515
|
|
Diluted
|
|
|
25,475,353
|
|
|
26,563,004
|
|
See
accompanying notes to consolidated financial statements.
SHELLS
SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
|
|
PREFERRED
STOCK
|
|
|
|
|
|
ADDITIONAL
|
|
|
|
|
|
|
|
Series
A
|
|
Series
B
|
|
COMMON
STOCK
|
|
PAID-IN
|
|
ACCUMULATED
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
CAPITAL
|
|
DEFICIT
|
|
TOTAL
|
|
Balance
at December 31, 2006
|
|
|
22,694
|
|
$
|
227
|
|
|
373,849
|
|
$
|
3,738
|
|
|
17,586,988
|
|
$
|
175,870
|
|
$
|
25,259,714
|
|
$
|
(21,100,766
|
)
|
$
|
4,338,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,926
|
|
|
34,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for extension of line of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
224,000
|
|
$
|
2,240
|
|
$
|
98,560
|
|
|
|
|
|
100,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option expense under SFAS 123R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,498
|
|
|
|
|
|
78,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
$
|
10
|
|
|
710
|
|
|
|
|
|
720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock converted
|
|
|
|
|
|
|
|
|
(51,298
|
)
|
|
(513
|
)
|
|
1,025,980
|
|
|
10,260
|
|
|
(9,747
|
)
|
|
|
|
|
(0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at April 1, 2007
|
|
|
22,694
|
|
$
|
227
|
|
|
322,551
|
|
$
|
3,225
|
|
|
18,837,968
|
|
$
|
188,380
|
|
$
|
25,427,735
|
|
$
|
(21,065,840
|
)
|
$
|
4,553,727
|
|
See
accompanying notes to consolidated financial statements.
SHELLS
SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOW (Unaudited)
|
|
Quarter
Ended
|
|
|
|
|
April
1, 2007
|
|
|
April
2, 2006
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
34,926
|
|
$
|
261,221
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
506,334
|
|
|
499,500
|
|
Stock
compensation expense
|
|
|
720
|
|
|
-
|
|
Stock
option expense
|
|
|
78,498
|
|
|
72,805
|
|
Minority
partner net income allocation
|
|
|
75,076
|
|
|
86,966
|
|
Gain
on disposal of assets
|
|
|
(2,775
|
)
|
|
-
|
|
Changes
in current assets and liabilities
|
|
|
(698,905
|
)
|
|
(151,659
|
)
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Decrease
in prepaid rent
|
|
|
655
|
|
|
9,269
|
|
Decrease
in other assets
|
|
|
1,304
|
|
|
51,261
|
|
Increase
in accrued interest to related parties
|
|
|
24,362
|
|
|
13,655
|
|
Increase
in deferred rent
|
|
|
35,553
|
|
|
30,376
|
|
Total
adjustments
|
|
|
20,822
|
|
|
612,173
|
|
Net
cash provided by operating activities
|
|
|
55,748
|
|
|
873,394
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
from sale of assets
|
|
|
21,967
|
|
|
-
|
|
Purchase
of property and equipment
|
|
|
(136,734
|
)
|
|
(768,699
|
)
|
Net
cash used in investing activities
|
|
|
(114,767
|
)
|
|
(768,699
|
)
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
from debt financing
|
|
|
614,561
|
|
|
33,425
|
|
Repayment
of debt
|
|
|
(202,444
|
)
|
|
(83,638
|
)
|
Distributions
to minority partner
|
|
|
(39,776
|
)
|
|
(78,916
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
372,341
|
|
|
(129,129
|
)
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
313,322
|
|
|
(24,434
|
)
|
|
|
|
|
|
|
|
|
CASH
AT BEGINNING OF PERIOD
|
|
|
734,122
|
|
|
1,360,740
|
|
|
|
|
|
|
|
|
|
CASH
AT END OF PERIOD
|
|
$
|
1,047,444
|
|
$
|
1,336,306
|
|
See
accompanying notes to consolidated financial statements.
SHELLS
SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOW (Unaudited)
(continued)
|
|
Quarter
Ended
|
|
|
|
April
1, 2007
|
|
April
2, 2006
|
|
Cash
(outflows) flows from changes in current assets and
liabilities:
|
|
|
|
Inventories
|
|
$
|
(11,706
|
)
|
$
|
(17,023
|
)
|
Receivables
from related parties
|
|
|
(51,982
|
)
|
|
18,336
|
|
Other
current assets
|
|
|
(454,796
|
)
|
|
113,040
|
|
Accounts
payable
|
|
|
(547,866
|
)
|
|
(506,954
|
)
|
Accrued
expenses
|
|
|
199,698
|
|
|
70,720
|
|
Sales
tax payable
|
|
|
167,747
|
|
|
170,222
|
|
Change
in current assets and liabilities
|
|
$
|
(698,905
|
)
|
$
|
(151,659
|
)
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
44,656
|
|
$
|
57,223
|
|
Non-cash
operating and financing activities:
|
·
|
Financing
costs of $100,800 for the issuance of 224,000 shares of our common
stock
relating to the extension of the related party line of credit was
applied
to Common Stock and Paid in Capital in the first quarter of
2007.
|
|
·
|
Accrued
bonuses of $4,288 and $1,406 were used to reduce depreciation expense
in
the first quarter of 2007 and 2006,
respectively.
|
See
accompanying notes to consolidated financial statements.
SHELLS
SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
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 accounting
principles generally accepted in the United States of America for audited
financial statements. Our
management believes that
all
disclosures contained herein are sufficient for interim financial reporting
purposes and that 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, as amended, for the
year ended December 31, 2006 filed with the Securities and Exchange
Commission. Certain
prior year amounts have been reclassified in the accompanying condensed
consolidated financial statements to conform to the current year
presentation.
NOTE
2. EARNINGS
PER SHARE
The
following table represents the computation of basic and diluted earnings per
share of common stock as required by Financial Accounting Standards Board
(“FASB”) Statement No. 128, “Earnings Per Share”:
|
|
Quarter
Ended
|
|
|
|
April
1, 2007
|
|
April
2, 2006
|
|
Net
income applicable to common stock
|
|
$
|
34,926
|
|
$
|
261,221
|
|
|
|
|
|
|
|
|
|
Weighted
common shares outstanding
|
|
|
17,843,426
|
|
|
16,179,515
|
|
Basic
net income per share of common stock
|
|
$
|
0.00
|
|
$
|
0.02
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
7,342,072
|
|
|
8,950,957
|
|
Warrants
|
|
|
154,708
|
|
|
803,930
|
|
Stock
options
|
|
|
135,147
|
|
|
628,602
|
|
Diluted
weighted common shares outstanding
|
|
|
25,475,353
|
|
|
26,563,004
|
|
Diluted
net income per share of common stock
|
|
$
|
0.00
|
|
$
|
0.01
|
|
The
net
income per share calculations for the quarters ended April 1, 2007 and April
2,
2006 excluded warrants and options to purchase an aggregate of 12,380,000 and
5,994,000 shares of common stock, respectively, as the exercise prices of the
warrants and options were greater than the average market price of the common
shares.
NOTE
3. STOCK
COMPENSATION PLANS
During
November 2005, we entered into a Stock Option Agreement with Leslie J. Christon,
President and Chief Executive Officer, concurrent with her amended and restated
employment agreement. The Stock Option Agreement granted options to purchase
903,528 shares of common stock at an exercise price of $0.85, the market value
of our common stock on the date of the grant. The options vested as to 353,844
shares on December 31, 2005, and vest as to 274,842 on each of July 1, 2007
and
July 1, 2008. Additionally, Mrs. Christon was awarded a stock option to purchase
158,007 shares of common stock from the stock compensation plans described
below
at an exercise price of $0.85 per share, with vesting ratably in July 2007
and
July 2008.
SHELLS
SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
At
April
1, 2007, we had one stock-based employee compensation plan, as two plans had
previously expired.
During
the first quarter of fiscal 2006, we adopted the fair value recognition
provisions of FASB Statement No. 123R, Share-Based
Payment,
effective as of the beginning of the fiscal year. Under the modified prospective
method of adoption selected by the company, stock-based employee compensation
cost recognized is the same as that which would have been recognized had the
fair value recognition provisions of Statement 123R been applied to all awards
granted after October 1, 1995.
Stock
option grants were valued based upon the Black Scholes option-pricing model
for
calculation of a grant date fair-value. The assumptions used were as
follows:
|
|
Quarter
Ended
|
|
Assumptions
used in computing
fair
value of option grants:
|
|
July
2, 2006
|
|
October
1, 2006
|
|
December
31, 2006
|
|
April
1, 2007
|
|
Volatility
|
|
|
20.3
|
%
|
|
24.2
|
%
|
|
30.0
|
%
|
|
26.6
|
%
|
Weighted-average
estimated life
|
|
|
3.5
years
|
|
|
3.5
years
|
|
|
3.5
years
|
|
|
3.5
years
|
|
Weighted-average
risk-free interest rate
|
|
|
4.87
|
%
|
|
5.00
|
%
|
|
4.68
|
%
|
|
4.68
|
%
|
Dividend
yield
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
NOTE
4. NEW
ACCOUNTING PRONOUNCEMENTS
In
February 2006, the FASB issued Statement No. 155, “Accounting for Certain Hybrid
Financial Instruments − an amendment of FASB Statements No. 133 and 140.” The
purpose of SFAS 155 is to simplify the accounting for certain hybrid financial
instruments by permitting fair value re−measurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require
bifurcation. SFAS 155 is effective for all financial instruments acquired or
issued after the beginning of an entity’s first fiscal year that begins after
September 15, 2006. Our adoption of SFAS 155 on January 1, 2007 did not have
a
material impact on our consolidated financial statements.
In
March
2006, the FASB issued SFAS 156, “Accounting for Servicing Financial Assets - an
amendment of FASB Statement No. 140.” SFAS 156 requires separate recognition of
a servicing asset and a servicing liability each time an entity undertakes
an
obligation to service a financial asset by entering into a servicing contract.
This statement also requires that servicing assets and liabilities be initially
recorded at fair value and subsequently be adjusted to the fair value at the
end
of each reporting period. SFAS 156 is effective for an entity’s first fiscal
year that begins after September 15, 2006. Our adoption of SFAS 156 on January
1, 2007 did not have a material impact on our consolidated financial
statements.
In
March
2006, the FASB’s Emerging Issues Task Force (EITF) issued Issue 06−3, “How Sales
Taxes Collected From Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement “ (EITF 06−3). A consensus was reached that
entities may adopt a policy of presenting sales taxes in the income statement
on
either a gross or net basis. If taxes are significant, an entity should disclose
its policy of presenting taxes and the amounts of taxes. The guidance is
effective for periods beginning after December 15, 2006. We present our sales
net of sales taxes. We believe we currently satisfy the requirements of EITF
06−3 for recording these sales taxes in our consolidated financial
statements.
SHELLS
SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In
June
2006, the FASB issued Interpretation 48, “Accounting for Uncertainty in Income
Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in accordance with FASB Statement No. 109, “Accounting for Income
Taxes.” This Interpretation prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This Interpretation
also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. This Interpretation
is effective for fiscal years beginning after December 15, 2006. Clarifications
found in FIN 48 did not have a material impact on our consolidated financial
statements.
In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” SFAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. SFAS 157 applies under other accounting pronouncements
that require or permit fair value measurements, the FASB having previously
concluded in those accounting pronouncements that fair value is the relevant
measurement attribute. Accordingly, SFAS 157 does not require any new fair
value
measurements. However, for some entities, the application of this Statement
will
change current practice. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. Definitions found in SFAS 157 are not expected to have a
material impact on our consolidated financial statements.
In
June
2006, the EITF reached a consensus on EITF Issue No. 06-4, “Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements” (“EITF 06-4”), which requires the
application of the provisions of SFAS No. 106, “Employers’ Accounting for
Postretirement Benefits Other Than Pensions” to endorsement split-dollar life
insurance arrangements. This would require recognition of a liability for the
discounted future benefit obligation owed to an insured employee by the
insurance carrier. EITF 06-4 is effective for fiscal years beginning after
December 15, 2007. Our adoption of EITF 06-4 is not expected to have a material
impact on our consolidated financial statements.
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements” (“SAB 108”). SAB 108 requires companies to
evaluate the materiality of identified unadjusted errors on each financial
statement and related financial statement disclosure using both the rollover
approach and the iron curtain approach, as those terms are defined in SAB 108.
The rollover approach quantifies misstatements based on the impact of the
misstatement, whereas the iron curtain approach quantifies misstatements based
on the effects of correcting the misstatement existing in the balance sheet
at
the end of the current year, irrespective of the reversing effect of prior
year
misstatements on the income statement. Financial statements would require
adjustment when either approach results in quantifying a misstatement that
is
material. Correcting prior year financial statements for immaterial errors
would
not require previously filed reports to be amended. If a company determines
that
an adjustment to prior year financial statements is required upon adoption
of
SAB 108 and does not elect to restate its previous financial statements, then
it
must recognize the cumulative effect of applying SAB 108 in fiscal 2006
beginning balances of the affected assets and liabilities with a corresponding
adjustment to the fiscal 2006 opening balance in retained earnings. SAB 108
is
effective for the first fiscal year ending after November 15, 2006. The adoption
of SAB 108 did not have a material impact on our consolidated financial
statements.
In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides companies with
an option to report selected financial assets and financial liabilities at
fair
value. Unrealized gains and losses on items for which the fair value option
has
been elected are reported in earnings at each subsequent reporting date. SFAS
159 is effective for fiscal years beginning after November 15, 2007, the
year beginning December 31, 2007 for the Company. Adoption of SFAS No. 159
on
December 31, 2007 is not expected to have a material impact on our consolidated
financial statements.
SHELLS
SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
5. INCOME
TAXES
There
were no provisions for income taxes for the quarters ended April 1, 2007 and
April 2, 2006 due to the anticipated utilization of net operating loss and
general business credit carryforwards.
As
of
December 31, 2006, we had net operating loss carryforwards for federal income
tax purposes of approximately $10,769,000 which expire between 2007 and 2021.
We
also had approximately $3,593,000 of general business credits to carry forward,
which expire by 2026. We had an ownership change in 2002 and 2005 as defined
by
Internal Revenue Code Section 382, which limits a portion of the amount of
net
operating loss and credit carryforwards that may be used against taxable income.
This limitation is approximately $75,000 per year for net operating losses
incurred prior to the 2002 ownership change, and $665,000 per year for net
operating losses incurred prior to the 2005 ownership change. Any portion of
the
annual limitation amount not utilized in any year will carry forward to the
following year subject to a 15 to 20 year limitation. Approximately $7,200,000
of our net operating loss carryforwards and approximately $3,082,000 of credits
are subject to the annual limitation. Assuming maximum utilization in future
years, we expect that approximately $3,300,000 in net operating loss
carryforwards and approximately $2,700,000 in credits will expire without
benefit to us.
Item
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
In
the
first quarter of 2007, we continued to experience an ever-challenging operating
environment throughout our Florida markets. Our revenues for the quarter
decreased in comparison to the prior year; we believe due to a combination
of
slowing growth rates in both tourism and the state economy, a strong same store
sales trend last year and substantial discounting in offerings by many of our
casual dining competitors.The sales slowdown appears to be affecting casual
dining competitors operating throughout the State of Florida.
Despite
the unfavorable comparable sales trends, our guest satisfaction scores, derived
from our mystery shopper program, continued to rise during the first quarter
of
2007, which has been a consistent quarterly trend over the last two years.
We
believe the changes we have made to enhance our menu, service and atmosphere
will lead to improving guest acceptance of the revitalized Shells.
In
addition to the recent softening in sales, we continued to generally experience
higher costs of doing business, which included the annual increase in the
Florida minimum wage and increases in insurance and occupancy costs. We were
generally successful in minimizing this loss of operating leverage through
careful control of our operating and overhead costs. Aggregate food and labor
costs were lower as a percentage of sales compared to the prior year. Our energy
management program, implemented chain wide in 2006, helped to more than offset
rising energy prices. We also reduced our general and administrative expenses
from last year. However, in an effort to boost guest traffic, we increased
our
advertising expenditures in the first quarter of 2007 over the prior year.
Our
key
challenge continues to be building customer traffic, attracting new and lapsed
guests to experience the major concept enhancements that have been made over
recent years. We believe consumers are retrenching in their spending patterns,
which affect dining out decisions, due to the continually escalating costs
of
energy, and its trickle down effect on other areas of cost of living, as well
as
sharply increasing costs of insurance and property taxes. Given the operating
environment, our focus will be to create value for our guests by improving
menu
offerings and service enhancements. We continue to fine-tune our marketing
strategies to accomplish this, while regularly adding new and exciting menu
items, as well as, promoting compelling value items, aimed at increasing
frequency of guest traffic.
Our
management remains committed to our turnaround strategy launched over three
years ago. We will continue to aggressively address both our top and bottom
line
pressures.
The
following table sets forth, for the periods indicated the percentages that
the
items in our Consolidated Statements of Operations represent of total revenues
or, where indicated, restaurant sales.
|
|
Quarter
Ended
|
|
|
|
April
1, 2007
|
|
April
2, 2006
|
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Restaurant
sales
|
|
$
|
13,396
|
|
|
99.7
|
%
|
$
|
14,545
|
|
|
99.7
|
%
|
Management
fees
|
|
|
39
|
|
|
0.3
|
%
|
|
41
|
|
|
0.3
|
%
|
Total
revenues
|
|
|
13,435
|
|
|
100.0
|
%
|
|
14,586
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant
operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food
and beverage (1)
|
|
|
4,356
|
|
|
32.5
|
%
|
|
4,643
|
|
|
31.9
|
%
|
Labor
(1)
|
|
|
3,890
|
|
|
29.0
|
%
|
|
4,357
|
|
|
30.0
|
%
|
Other
(1)
|
|
|
3,521
|
|
|
26.3
|
%
|
|
3,436
|
|
|
23.6
|
%
|
Total
restaurant operating costs (1)
|
|
|
11,767
|
|
|
87.8
|
%
|
|
12,436
|
|
|
85.5
|
%
|
General
and administrative expenses
|
|
|
1,025
|
|
|
7.6
|
%
|
|
1,177
|
|
|
8.1
|
%
|
Depreciation
and amortization
|
|
|
506
|
|
|
3.8
|
%
|
|
498
|
|
|
3.4
|
%
|
Total
costs and expense
|
|
|
13,298
|
|
|
99.0
|
%
|
|
14,111
|
|
|
96.7
|
%
|
Income
from operations
|
|
|
137
|
|
|
1.0
|
%
|
|
475
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense
|
|
|
(36
|
)
|
|
-0.2
|
%
|
|
(143
|
)
|
|
-1.0
|
%
|
Interest
expense, net
|
|
|
(66
|
)
|
|
-0.5
|
%
|
|
(71
|
)
|
|
-0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
35
|
|
|
0.3
|
%
|
$
|
261
|
|
|
1.8
|
%
|
(1)
as a
percentage of restaurant sales
RESULTS
OF OPERATIONS
13
weeks ended April 1, 2007 and April 2, 2006
Revenues.
Total
revenues for the first quarter of 2007 were $13,435,000 as compared to
$14,586,000 for the first quarter of 2006. The $1,151,000, or 7.9% decrease
in
revenues, was primarily a result of a 6.8% decrease in same store sales. As
of
the end of the first quarter of 2007, we had 25 restaurants in operation, the
same as a year-ago. 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.
Food
and beverage costs.
Food
and beverage costs as a percentage of restaurant sales increased to 32.5% for
the first quarter of 2007 from 31.9% for the first quarter of 2006. This 0.6%
percentage increase mostly related to the introduction of improved menu
offerings. We are continually attempting to anticipate and react 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.
Labor
costs.
Labor
costs as a percentage of restaurant sales decreased to 29.0% during the first
quarter of 2007 as compared to 30.0% for the first quarter of 2006, mostly
due
to the improvement in operational efficiencies, partially offset by an annual
increase in the Florida minimum wage.
Other
restaurant operating expenses. Other
restaurant operating expenses of $3,521,000 for the first quarter of 2007
increased by $85,000, or 2.7% of restaurant sales, compared to the first quarter
of 2006, primarily due to increased occupancy, insurance, and advertising
expenses.
General
and administrative expenses.
General
and administrative expenses of $1,025,000, or 7.6% of revenues, for the first
quarter of 2007 decreased from $1,177,000, or 8.1% of revenues, for the first
quarter of 2006, primarily due to a reduction in overhead expenses, including
recruiting, training, and operations management.
Depreciation
and amortization.
Depreciation and amortization expense increased to $506,000, or 3.8% of
revenues, for the first quarter of 2007 from $498,000, or 3.4% of revenues,
in
the first quarter of 2006. The increase was due to the impact of 2006 restaurant
remodels, partially offset by the effect of a sale of a restaurant property
and
the impairment of assets in the fourth quarter of 2006.
Interest
expense, net.
Interest expense, net was $66,000 in the first quarter of 2007 compared to
$71,000 in the first quarter of 2006. The decrease in interest expense, net
was
primarily related to the retirement of debt related to the sale of a restaurant
property in the fourth quarter of 2006.
Other
expense, net. Other
expense was $36,000 for the first quarter of 2007 compared to $143,000 for
the
comparable period in 2006. Included in other expense is minority interest of
$75,000 and $87,000 for the first quarter of 2007 and 2006, respectively. The
decrease in total other expense from the prior year primarily was due to
non-recurring items in the first quarter of 2007 consisting of proceeds of
$85,000 from the VisaCheck/MasterMoney Antitrust Settlement, partially offset
by
lease transaction costs of $39,000. A non-recurring expense of $23,000 in the
first quarter of 2006 related to lease termination costs. Exclusive of these
non-recurring items, other expense would have been $82,000 in the first quarter
of 2007 and $120,000 in the first quarter of 2006.
Income
from operations and net income.
As a
result of the factors discussed above, we had income from operations of $137,000
in the first quarter of 2007, compared to $475,000 in the first quarter of
2006.
Our net income was $35,000 in the first quarter of 2007, compared to $261,000
in
the first quarter of 2006. Exclusive of the non-recurring items discussed above,
we had a net loss in the first quarter of 2007 of $11,000, and net income of
$284,000 in the first quarter of 2006.
LIQUIDITY
AND CAPITAL RESOURCES
In
March
2005, our investors provided us a $1,600,000 revolving line of credit, which
was
originally due to mature on the earlier of March 31, 2006 or the closing of
a
financing providing us not less than $1,600,000 of net proceeds. The investors
received a fee of $80,000 for extending the credit line. Amounts drawn under
the
line of credit bear interest at the rate of 15% per annum, payable 8% monthly
in
arrears and 7% deferred until the maturity date. Upon completion of a financing
in May 2005, the maturity date was extended to May 23, 2007. In October 2005,
we
utilized $800,000 of the line of credit to fund the acquisition and opening
costs of two new restaurant locations. In June 2006, we utilized an additional
$640,000 of the revolving line of credit to fund remaining remodeling costs
and
working capital requirements. It is not expected that we will be able to borrow
the remaining $160,000 under the credit line. On March 30, 2007, the maturity
date was further extended to May 23, 2008 at an extension fee based on 7% of
the
amount borrowed of $1,440,000, payable in shares of common stock. On the date
the extension was entered into, we issued 224,000 shares of our common stock
as
payment for the extension fee based upon the fair market value of our common
stock of $0.45 on such date, and recognized a transaction cost of
$101,000.
In
December 2005, we secured a six-month, $500,000 bank credit facility for which
the full amount was immediately drawn on to fund remodeling. In April 2006,
we
recognized $212,000 in net cash proceeds related to the sale of an option
embedded in the lease agreement of our restaurant property in Ocala, Florida.
In
October 2006, we completed a sale and simultaneous leaseback of our restaurant
property in New Smyrna Beach, Florida in which we received net cash proceeds
of
$885,000. We also simultaneously retired the $500,000 bank credit facility,
which had at that time been extended in anticipation of the New Smyrna
transaction being completed. We anticipate refinancing our Melbourne, Florida
joint venture restaurant property, with a principal balance of $427,000 as
of
April 1, 2007 and which matures in September 2007. We anticipate refinancing
the
current principal balance owed, as well as restaurant remodeling costs estimated
at approximately $425,000.
As
of
April 1, 2007, our current liabilities of $6,379,000 exceeded our current assets
of $2,527,000, resulting in a working capital deficiency of $3,852,000. In
comparison, as of December 31, 2006, our current liabilities of $6,141,000
exceeded our current assets of $1,695,000, resulting in a working capital
deficiency of $4,446,000. Our operating leverage marginally improved, primarily
due to increases in other current assets and cash of $455,000 and $313,000,
respectively, and a decrease in accounts payable of $548,000; partially offset
by increases in current maturities of long-term debt, accrued expenses and
sales
tax payable of $423,000, $195,000 and $168,000, respectively. We may encounter
operating pressures from declining sales, increasing food, labor or other
operating costs or additional restaurant restoration or disposition costs.
Historically, we have generally operated with negative working capital as a
result of investing 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
following table presents a summary of our cash flows for the fiscal quarters
ended April 1, 2007 and April 2, 2006 (in thousands):
|
|
Quarter
Ended
|
|
|
|
April
1, 2007
|
|
April
2, 2006
|
|
Net
cash provided by operating activities
|
|
$
|
56
|
|
$
|
873
|
|
Net
cash used in investing activities
|
|
|
(115
|
)
|
|
(768
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
372
|
|
|
(129
|
)
|
Net
increase (decrease) in cash
|
|
$
|
313
|
|
$
|
(24
|
)
|
Cash
provided by operating activities for the quarter ended April 1, 2007 was
$56,000, compared to cash provided by operations of $873,000 for the comparable
period in 2006. The net decrease of $817,000 primarily related to an increase
in
other assets of $568,000, relating to an increase in prepaid insurance as
affected by the timing of securing our annual policies for property insurance,
and net income of $226,000.
The
cash
used in investing activities was $115,000 for the quarter ended April 1, 2007,
compared to $768,000 for the comparable period in 2006. The decrease in cash
used in investing activities of $653,000 was due primarily to a $632,000
reduction in capital expenditures, as we were remodeling several restaurants
during the first quarter of 2006.
The
cash
provided by financing activities was $372,000 for the quarter ended April 1,
2007, compared to cash used in financing activities of $129,000 for the
comparable period in 2006. The net increase of $501,000 primarily related to
a
net increase in proceeds from the issuances of debt of $581,000, partially
offset by a net increase in the repayment of debt of $119,000.
There
are
no assurances that our operational strategies will drive improvements in sales
and customer traffic needed to meet anticipated cash flow requirements, and,
in
the event that our plans change, our assumptions prove to be inaccurate, and
projected cash flow or third party financing otherwise prove to be insufficient
to fund operations, we could be required to seek additional financing from
sources not currently anticipated. There can be no assurance that third party
financing will be available to us when needed, on acceptable terms, or at all.
QUARTERLY
FLUCTUATION OF FINANCIAL RESULTS
The
restaurant industry in general is seasonal, depending on restaurant location
and
the type of food served. In addition, we have experienced fluctuations in our
quarter-to-quarter operating results due, in large measure, to our full
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 and the effect of world events in general and the tourism
industry in particular. In addition, in recent years, our operating results
have
been significantly affected by hurricanes. Our 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.
Many of our restaurant locations are in coastal cities, where sales are
significantly dependent on tourism and its seasonality patterns.
In
addition, quarterly results have been substantially affected by the timing
of
restaurant openings or closings. Because of the seasonality of our business
and
the impact of restaurant openings or closings, 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.
Item
3.
Quantitative and Qualitative Disclosures About Market Risk
We
are
exposed to market risk from changes in interest rates on debt and changes in
commodity prices. Our exposure to interest rate risk relates to the $427,000
in
outstanding debt with banks that is based on variable rates. Borrowings under
the loan agreements bear interest at the rate equal to the applicable bank’s
base rate.
Item
4. Controls
and Procedures
We
maintain "disclosure controls and procedures," as defined under Securities
Exchange Act Rule 13a-15(e), that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed,
summarized, and reported within the time periods specified in the SEC's rules
and forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosures. In designing and
evaluating the disclosure controls and procedures, our management recognized
that any controls and procedures, no matter how well designed and operated,
can
provide only reasonable assurance of achieving the desired control objectives
and our management necessarily was required to apply its judgment in evaluating
the cost-benefit relationship of possible controls and procedures. As required
by SEC Rule 13a-15(b), we have carried out an evaluation, as of the end of
the
period covered by this report, under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based upon their evaluation and subject to the
foregoing, our management with the participation of the Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures were effective (as such term is defined under Securities Exchange
Act
Rule 13a-15(e)) as of the end of the period covered by this report.
There
were no changes in our internal controls over financial reporting that occurred
during our most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Part
II. OTHER
INFORMATION
Item
1.
Legal Proceedings
On
August
1, 2006, we were advised by our subtenant, Famous Dave’s RIBS-U, Inc., that they
discontinued operations of the restaurant located in Streamwood, Illinois and
have ceased remitting rent payments required by the sublease. The subtenant
has
requested discussions on settlement for a lease termination. Such restaurant
closure is a condition of default under the sublease as well as the master
lease
between Shells and the ultimate landlord, 948 Barrington Road Partnership.
In
February 2007, the parties under the lease and sublease agreed to allow the
landlord a period of six months to market the property to find a suitable
tenant. This agreement also contained a lease buy-out provision between the
landlord and Famous Dave’s. If a tenant is secured or the buy-out provision is
exercised, Famous Dave’s and Shells thereafter would be released of their
obligations under the respective leases. The financial implications to Shells
are undetermined at this time. If necessary, we intend to pursue our rights
against Famous Dave’s, as appropriate to protect our interest.
On
March
13, 2007, we received a summons from the circuit court in Kane County, Illinois,
naming the Spring Hill Mall, L.L.C., the primary landlord, as defendant. The
suit relates to a restaurant lease in Carpentersville, Illinois. Under this
lease, we are a sub-tenant to Chi-Chi’s, Inc., who filed bankruptcy in 2003 and
subsequently rejected the lease. Since 2000, we have been further subleasing
this property to Famous Dave’s RIBS-U, Inc. Under such terms, we partially
subsidize lease payments. We have been negotiating with Spring Hill Mall for
a
buyout of our obligations under the various subleases. Under the suit, Spring
Hill Mall is seeking payment of rent, occupancy, and related charges totaling
$147,000 with the addition of interest and fees related to the suit. We shall
continue to seek a financial settlement to include a full release from any
leasehold obligations.
In
the
ordinary course of business, we are and may be a party to various legal
proceedings, the outcomes of which, singly or in the aggregate, are not
currently expected to be material to our financial position, results of
operations or cash flows.
Item
1A. Risk
Factors
There
have been no material changes from the risk factors disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2006.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
On
March
30, 2007 we issued 224,000 shares of our common stock as consideration for
an
extension of the maturity date of our outstanding $1,440,000 line of credit.
The
extension fee was equal to 7% of the outstanding line of credit. The fair market
value of our common stock on the date the extension was entered into was $0.45
per share.
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
31.1
Certification of Chief Executive Officer under Rule 13a-14(a)
31.2 Certification
of Chief Financial Officer under Rule 13a-14(a)
32.1 Certification
of Chief Executive Officer and Chief Financial Officer under Section
906
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/
Leslie J. Christon
President
and Chief Executive Officer
May
16,
2007
/s/
Warren R. Nelson
Executive
Vice President and Chief Financial Officer
May
16,
2007
Exhibit
31.1
Certification
of Chief Executive Officer
I,
Leslie
J. Christon, certify that:
1.
I
have
reviewed this report on Form 10-Q of Shells Seafood Restaurants,
Inc.;
2.
Based
on
my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made,
in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based
on
my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4.
The
registrant's other certifying officer and I are responsible for establishing
and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
(a)
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b)
evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c)
disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect,
the
registrant’s internal control over financial reporting; and
5.
The
registrant's other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a)
all
significant deficiencies and material weaknesses in the design or operation
of
internal controls over financial reporting, which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b)
any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the registrant's internal control over financial
reporting.
/s/
Leslie J. Christon
President
and Chief Executive Officer
May
15,
2007
Exhibit
31.2
Certification
of Chief Financial Officer
I,
Warren
R. Nelson, certify that:
1.
I
have
reviewed this report on Form 10-Q of Shells Seafood Restaurants,
Inc.;
2.
Based
on
my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made,
in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based
on
my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4.
The
registrant's other certifying officer and I are responsible for establishing
and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
(a)
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b)
evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c)
disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect,
the
registrant’s internal control over financial reporting; and
5.
The
registrant's other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a)
all
significant deficiencies and material weaknesses in the design or operation
of
internal controls over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b)
any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the registrant's internal control over financial
reporting.
/s/
Warren R. Nelson
Executive
Vice President and Chief Financial Officer
May
15,
2007
Exhibit
32.1
Certification
of Chief Executive Officer and Chief Financial Officer
pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section
906 of the Sarbanes-Oxley Act of 2002
Securities
and Exchange Commission
Washington,
DC
The
undersigned Chief Executive Officer and Chief Financial Officer of Shells
Seafood Restaurants, Inc. do hereby certify pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
the
Quarterly Report of Shells Seafood Restaurants, Inc. on Form 10-Q for the
quarter ended April 1, 2007 fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934 and the information
contained in such Quarterly Report on Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of Shells Seafood
Restaurants, Inc.
A
signed
original of this written statement required by Section 906 has been provided
to
Shells Seafood Restaurants, Inc. and will be retained by Shells Seafood
Restaurants, Inc. and furnished to the Securities and Exchange Commission or
its
staff upon request.
/s/
Leslie J. Christon
President
and Chief Executive Officer
May
15,
2007
/s/
Warren R. Nelson
Executive
Vice President and Chief Financial Officer
May
15,
2007