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<TITLE>Form 10-Q for March 30, 2003</TITLE>
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 <hr size="4" width="100%" noshade color=black> <p align="center"><font size="5" face="Times New Roman"><b>SECURITIES AND EXCHANGE COMMISSION</b></font></p> <p align="center"> <font size="3"
face="Times New Roman"><b>WASHINGTON, D.C.&#160; 20549</b></font></p> <p align="center"> <font size="5" face="Times New Roman"><b>FORM 10-Q</b></font></p>
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<td width="3%" valign="top"> <p> <font size="3" face="Wingdings">x</font></p> </td>
<td width="96%" valign="top"> <p> <font size="3" face="Times New Roman"><b>Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934</b></font></p> </td> </tr>
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<td width="3%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="96%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
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<td width="100%" colspan="2" valign="top"> <p align="center"> <font size="2" face="Times New Roman"><b>For the Quarterly Period Ended March 30, 2003</b></font></p> </td> </tr>
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<td width="100%" colspan="2" valign="top"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="3%" valign="top"> <p> <font size="3" face="Wingdings">o</font></p> </td>
<td width="96%" valign="top"> <p> <font size="3" face="Times New Roman"><b>Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934</b></font></p> </td> </tr>
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<td width="100%" colspan="2" valign="top"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="100%" colspan="2" valign="top"> <p align="center"> <font size="2" face="Times New Roman"><b>For the Transition Period from _____________ to _____________</b></font></p> </td> </tr>
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<td width="100%" colspan="2" valign="top"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="100%" colspan="2" valign="top"> <p align="center"> <font size="2" face="Times New Roman"><b>Commission File No. 0-28258</b></font></p> </td> </tr> </table> <BR>
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<td width="100%" colspan="3" valign="bottom"> <p align="center"> <font size="6" face="Times New Roman"><b>SHELLS SEAFOOD RESTAURANTS, INC.</b></font></p> </td> </tr>
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<td width="100%" colspan="3" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td> </tr>
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<td width="100%" colspan="3" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>(Exact name of registrant as specified in its charter)</b></font></p> </td> </tr>
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<td width="100%" colspan="3" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="49%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>DELAWARE</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="49%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>65-0427966</b></font></p> </td> </tr>
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<td width="49%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="49%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td> </tr>
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<td width="49%" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(State or other jurisdiction of incorporation or organization)</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="49%" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(IRS) Employer Identification Number</b></font></p> </td> </tr>
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<td width="49%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="49%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="100%" colspan="3" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>16313 North Dale Mabry Highway, Suite 100,&#160; Tampa, FL 33618</b></font></p> </td> </tr>
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<td width="100%" colspan="3" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td> </tr>
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<td width="100%" colspan="3" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(Address of principal executive offices)&nbsp;&nbsp;(zip code)</b></font></p> </td> </tr>
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<td width="100%" colspan="3" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="100%" colspan="3" valign="bottom"> <p align="center"><font size="2" face="Times New Roman"><b>(813) 961-0944</b></font></p> </td> </tr>
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<td width="100%" colspan="3" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td> </tr>
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<td width="100%" colspan="3" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(Registrant&#146;s telephone number, including area code)</b></font></p> </td> </tr> </table> <p> <font size="2"
face="Times New Roman"><b>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.</b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="13%">
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<td width="7%" valign="top"> <p> <font size="2" face="Times New Roman">Yes&nbsp;&nbsp;</font> <font size="2" face="Wingdings">x</font></p> </td>
<td width="6%" valign="top"> <p> <font size="2" face="Times New Roman">No&nbsp;&nbsp;</font> <font size="2" face="Wingdings">o</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman"><b>Indicate by check mark whether the Registrant
is an accelerated filer (as defined in Rule 12b-2 of the Act).</b></font></p>
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<td width="7%" valign="top"> <p><font size="2" face="Times New Roman">Yes&nbsp;&nbsp;</font> <font size="2" face="Wingdings">o</font></p> </td>
<td width="6%" valign="top"> <p><font size="2" face="Times New Roman">No&nbsp;&nbsp;</font> <font size="2" face="Wingdings">x</font></p> </td> </tr> </table> <BR>
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<tr>
<td width="49%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="49%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="49%" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>Class</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="49%" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>Outstanding at April 30, 2003</b></font></p> </td> </tr>
<tr>
<td width="49%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="49%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td> </tr>
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<td width="49%" valign="bottom"> <p align="center"><font size="2" face="Times New Roman"><b>Common stock, $0.01 par value</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="49%" valign="bottom"> <p align="center"><font size="2" face="Times New Roman"><b>4,631,375</b></font></p> </td> </tr> </table> <BR> <hr size="4" width="100%" noshade color=black>

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<h5 align="left"><a href="#toc">Table of Contents</a></h5>

<a name="toc">&nbsp;</a> <p align="center"> <font size="2" face="Times New Roman"><b>SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES<br> Index</b></font></p>
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<td width="90%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Page Number</b></font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td> </tr>
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<td width="90%" valign="bottom"> <p> <font size="2" face="Times New Roman"><b>Part I - Financial Information</b></font></p> </td>
<td width="9%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman"><b>Item 1 - Financial Statements</b></font></p> </td>
<td width="9%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"><font size="2" face="Times New Roman"><b>
<a href="#tx262_1">Consolidated Balance Sheets as of March 30, 2003 (Unaudited) and December 29, 2002</a></b></font></p> </td>
<td width="9%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>3</b></font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman"><b>
<a href="#tx262_2">Consolidated Statements of Income (Unaudited) for the 13 weeks ended March 30, 2003 and March 31, 2002</a></b></font></p> </td>
<td width="9%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>4</b></font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman"><b>
<a href="#tx262_3">Consolidated Statements of Cash Flows (Unaudited) for the 13 weeks ended March 30, 2003 and March 31, 2002</a></b></font></p> </td>
<td width="9%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>5</b></font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman"><b>
<a href="#tx262_4">Consolidated Statement of Stockholders&#146; Equity (Unaudited) for the 13 weeks ended March 30, 2003</a></b></font></p> </td>
<td width="9%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>6</b></font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em">&nbsp;</p> </td>
<td width="9%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman"><b>
<a href="#tx262_5">Notes to Consolidated Financial Statements &#150; (Unaudited)</a></b></font></p> </td>
<td width="9%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>7</b></font></p> </td> </tr>
<tr>
<td width="90%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman"><b>Item 2 -
<a href="#tx262_6">Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</a></b></font></p> </td>
<td width="9%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>10-14</b></font></p> </td> </tr>
<tr>
<td width="90%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman"><b>Item 3 -
<a href="#tx262_7">Quantitative and Qualitative Disclosures About Market Risk</a></b></font></p> </td>
<td width="9%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>14</b></font></p> </td> </tr>
<tr>
<td width="90%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman"><b>Item 4 -
<a href="#tx262_8">Controls and Procedures</a></b></font></p> </td>
<td width="9%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>14</b></font></p> </td> </tr>
<tr>
<td width="90%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
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<td width="90%" valign="bottom"> <p> <font size="2" face="Times New Roman"><b>Part II -
<a href="#tx262_9">Other Information</a></b></font></p> </td>
<td width="9%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>15</b></font></p> </td> </tr>
<tr>
<td width="90%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="90%" valign="bottom"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx262_10">Signatures</a></b></font></p> </td>
<td width="9%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>16</b></font></p> </td> </tr>
<tr>
<td width="90%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="90%" valign="bottom"> <p align="left"><font size="2" face="Times New Roman"><b>
<a href="#tx262_11">Certifications</a></b></font></p> </td>
<td width="9%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>17-18</b></font></p> </td> </tr>
<tr>
<td width="90%" valign="bottom">&nbsp;</td>
<td width="9%" valign="bottom">&nbsp;</td> </tr>
<tr>
<td width="90%" valign="bottom"><font size="2"><b>
<a href="#tx262_12">Exhibit</a></b></font></td>
<td width="9%" valign="bottom"> <center> <font size="2"><b>19 </b></font> </center> </td> </tr> </table> <p align="center"> <font size="2" face="Times New Roman">2</font></p>

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 <p align="center"> <font size="2" face="Times New Roman"><b>SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES<br>
<a name="tx262_1"></a>CONSOLIDATED BALANCE SHEETS</b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>March 30, 2003</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="11%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>December 29, 2002</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="11%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(Unaudited)</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="11%" colspan="2" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">ASSETS</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Cash</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,772,198</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,468,809</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Inventories</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">415,432</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">356,434</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Other current assets</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">781,818</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">266,228</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Receivables from related parties</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">71,843</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">105,353</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Deferred tax asset, net</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Total current assets</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,041,291</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">3,196,824</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Property and equipment, net</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">7,630,260</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">7,682,892</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Prepaid rent</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">87,293</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">97,431</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Other assets</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">409,991</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">407,098</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Goodwill</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,474,407</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,474,407</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Deferred tax asset, net</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">TOTAL ASSETS</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">14,643,242</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">13,858,652</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">LIABILITIES AND STOCKHOLDERS&#146; EQUITY</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Accounts payable</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,361,468</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,554,854</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Accrued expenses</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,846,214</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">3,033,086</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Sales tax payable</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">329,157</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">191,853</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Current portion of long-term debt</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">767,964</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">532,857</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Total current liabilities</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">6,304,803</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">6,312,650</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Deferred rent</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">1,068,464</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">1,082,761</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Long-term debt, less current portion</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1,735,234</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1,760,054</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Notes and deferred interest payable to related parties</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,152,477</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,123,335</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Total liabilities</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">11,260,978</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">11,278,800</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Minority partner interest</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">446,180</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">427,852</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">STOCKHOLDERS&#146; EQUITY:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Preferred stock, $0.01 par value; authorized 2,000,000 shares; 63,548 and 66,862 shares issued and outstanding,
respectively</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">635</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">669</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Common stock, $0.01 par value; authorized 20,000,000 shares; 4,470,585 and 4,454,015 shares issued and
outstanding, respectively</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">44,706</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">44,540</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Additional paid-in-capital</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">14,240,444</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">14,240,576</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Retained earnings (deficit)</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(11,349,701</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(12,133,785</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Total stockholders&#146; equity</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,936,084</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,152,000</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">TOTAL LIABILITIES AND STOCKHOLDERS&#146; EQUITY</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">14,643,242</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">13,858,652</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p align="center"><font size="2" face="Times New Roman"><b>See accompanying notes to consolidated financial statements.</b></font></p> <p
align="center"> <font size="2" face="Times New Roman">3</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"> <font size="2" face="Times New Roman"><b>SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES<br>
<a name="tx262_2"></a>CONSOLIDATED STATEMENTS OF INCOME (Unaudited)</b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="21%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>13 Weeks Ended</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="21%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>March 30, 2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>March 31, 2002</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">REVENUES</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">13,011,985</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">14,128,869</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">COST AND EXPENSES:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Cost of revenues</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">4,222,839</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">4,669,777</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Labor and other related expenses</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">3,856,608</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,095,418</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Other restaurant operating expenses</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,829,525</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">3,032,825</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">General and administrative expenses</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">839,739</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">824,803</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Depreciation and amortization</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">260,793</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">275,240</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Provision for impairment of goodwill</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">51,549</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">12,009,504</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">12,949,612</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">INCOME FROM OPERATIONS</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1,002,481</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1,179,257</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">OTHER INCOME (EXPENSE):</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Interest expense</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(126,822</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(195,842</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Interest income</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,614</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">5,820</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Other expense, net</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(21,785</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">800</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right><font size="2" face="Times New Roman">(143,993</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(189,222</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">INCOME BEFORE ELIMINATION OF MINORITY PARTNER INTEREST AND INCOME TAXES</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">858,488</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">990,035</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">ELIMINATION OF MINORITY PARTNER INTEREST</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(74,404</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(64,364</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">INCOME BEFORE PROVISION FOR INCOME TAXES</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">784,084</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">925,671</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">PROVISION FOR INCOME TAXES</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">NET INCOME</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">784,084</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">925,671</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">NET INCOME PER SHARE OF COMMON STOCK:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Basic</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">0.18</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">0.21</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Diluted</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">0.07</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">0.11</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Basic</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">4,468,764</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">4,454,015</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Diluted</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">11,790,878</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">8,451,979</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p align="center"><font size="2" face="Times New Roman"><b>See accompanying notes to consolidated financial statements.</b></font></p> <p
align="center"> <font size="2" face="Times New Roman">4</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"> <font size="2" face="Times New Roman"><b>SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES<br>
<a name="tx262_3"></a>CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)</b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="21%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>13 Weeks Ended</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="21%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>March 30, 2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>March 31, 2002</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">OPERATING ACTIVITIES:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Net income</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">784,084</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">925,671</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Adjustments to reconcile net income to net cash provided by operating activities:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"><font size="2" face="Times New Roman">Loss on disposal of assets</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,352</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Depreciation and amortization</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">260,793</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">275,240</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Provision for impairment of goodwill</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">51,549</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Minority partner interest</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">18,328</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">12,624</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Changes in assets and liabilities:</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Increase in inventories</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(58,998</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(77,780</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Decrease in receivables from related parties</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">33,510</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">18,152</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Increase in other assets</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(526,974</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(353,218</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"><font size="2" face="Times New Roman">Decrease in prepaid rent</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">10,138</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">12,600</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Decrease in income tax refunds receivable</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">40,000</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Decrease in deferred tax asset</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Decrease in accounts payable</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(193,386</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(753,435</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"><font size="2" face="Times New Roman">(Decrease) increase in accrued expenses</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(161,033</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">114,133</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Increase in sales tax payable</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">137,304</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">165,497</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Decrease in deferred rent</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(14,297</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(6,897</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em">&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Total adjustments</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(492,263</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(501,535</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em">&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Net cash provided by operating activities</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">291,821</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">424,136</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em">&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">INVESTING ACTIVITIES:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Purchase of property and equipment</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(198,719</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(112,463</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em">&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Net cash used in investing activities</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(198,719</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(112,463</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em">&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">FINANCING ACTIVITIES:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Proceeds from debt financing</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">506,585</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,304,317</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Repayment of debt</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(296,298</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(254,356</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em">&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Net cash provided by financing activities</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">210,287</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,049,961</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em">&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Net increase in cash</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">303,389</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,361,634</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">CASH AT BEGINNING OF PERIOD</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,468,809</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">969,680</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em">&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">CASH AT END OF PERIOD</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,772,198</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">3,331,314</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Supplemental disclosure of cash flow information:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Cash paid for interest</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">97,678</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">88,637</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Cash refunds received for income taxes</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(40,000</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Note receivable on sale of assets</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">100,000</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p align="center"><font size="2" face="Times New Roman"><b>See accompanying notes to consolidated financial statements.</b></font></p> <p
align="center"> <font size="2" face="Times New Roman">5</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"> <font size="2" face="Times New Roman"><b>SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES<br>
<a name="tx262_4"></a>CONSOLIDATED STATEMENT OF STOCKHOLDERS&#146; EQUITY (Unaudited)</b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="14%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="22%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>PREFERRED STOCK</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="21%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>COMMON STOCK</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" rowspan="3" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>ADDITIONAL<br> PAID-IN<br> CAPITAL</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" rowspan="3" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>RETAINED<br> EARNINGS<br> (DEFICIT)</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" rowspan="3" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>TOTAL</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="14%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="22%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="21%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="14%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>Shares</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Amount</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Shares</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Amount</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="14%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="10%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="14%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Balance at December 29, 2002</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">66,862</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">669</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,454,015</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">44,540</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">14,240,576</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(12,133,785</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,152,000</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="14%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Net income</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">784,084</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">784,084</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="14%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Preferred stock converted to common stock</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(3,314</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(34</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">16,570</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">166</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(132</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="14%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="14%" valign="bottom" bgcolor="#cceeff" nowrap> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Balance at<br> March 30, 2003</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">63,548</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">635</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,470,585</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">44,706</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">14,240,444</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(11,349,701</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="9%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,936,084</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="14%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="9%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p align="center"><font size="2" face="Times New Roman"><b>See accompanying notes to consolidated financial statements.</b></font></p> <p
align="center"> <font size="2" face="Times New Roman">6</font></p>

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<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"><font size="2" face="Times New Roman"><b>SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES<br>
<a name="tx262_5"></a>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br> (UNAUDITED)</b></font></p> <p> <font size="2" face="Times New Roman"><b>NOTE 1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BASIS OF PRESENTATION</b></font></p> <p> <font size="2"
face="Times New Roman">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 complete financial statements.&#160; In the opinion of management, all material adjustments (consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included.</font></p> <p> <font size="2" face="Times New Roman">The consolidated financial statements of Shells Seafood Restaurants, Inc. (the &#147;Company&#148;) 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 29, 2002 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.</font></p> <p> <font size="2" face="Times New Roman"><b>NOTE
2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EARNINGS PER SHARE</b></font></p> <p> <font size="2" face="Times New Roman">The following table represents the computation of basic and diluted earnings per share of common stock as required by Financial Accounting
Standards Board (&#147;FASB&#148;) Statement No. 128, &#147;Earnings Per Share&#148;:&#160; </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="28%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>13 Weeks Ended</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="28%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="13%" colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>March 30, 2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="13%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>March 31, 2002</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="13%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="13%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Net income applicable to common stock</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">784,084</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">925,671</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Weighted common shares outstanding</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,468,764</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,454,015</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Basic net income per share of common stock</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="12%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">0.18</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="12%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">0.21</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Effect of dilutive securities:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Warrants</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">6,715,284</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">3,915,618</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Stock options</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">606,830</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">82,346</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Diluted weighted common shares outstanding</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">11,790,878</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">8,451,979</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Diluted net income per share of common stock</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">0.07</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">0.11</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman">The earnings per share calculation excluded 770,423 and 630,894 options during the first quarter
of 2003 and 2002, respectively, as the exercise price of the options were greater than the average market price of the common shares.&#160; </font></p> <p> <font size="2" face="Times New Roman"><b>NOTE 3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;STOCK
COMPENSATION PLANS</b></font></p> <p> <font size="2" face="Times New Roman">At March 30, 2003, we have four stock-based employee compensation plans.&#160; We account for these plans under the recognition and measurement principles of Accounting
Principles Board Opinion 25, &#147;Accounting for Stock Issued to Employees,&#148; and related interpretations.&#160; No stock-based compensation cost is reflected in</font></p> <p align="center"> <font size="2" face="Times New Roman">7</font></p>

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<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p> <font size="2" face="Times New Roman">net income, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant.&#160; Had
compensation cost for our stock option plans been determined based on the fair value at the grant dates consistent with recognition provisions of FASB Statement No. 123, &#147;Accounting for Stock-Based Compensation,&#148; the effect on net income
and earnings per share on a pro forma basis would have been immaterial.</font></p> <p> <font size="2" face="Times New Roman"><b>NOTE 4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEW ACCOUNTING PRONOUNCEMENTS</b></font></p> <p> <font size="2"
face="Times New Roman">In April 2002, the FASB issued Statement No. 145, &#147;Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.&#148; The Statement updates, clarifies and simplifies
existing accounting pronouncements.&#160; Statement No. 145 rescinds Statement No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax
effect. As a result, the criteria in Opinion 30 will now be used to classify those gains and losses. Statement No. 64 amended Statement No. 4, and is no longer necessary because Statement No. 4 has been rescinded.&#160; Statement No. 44 was issued
to establish accounting requirements for the effects of transition to the provisions of the Motor Carrier Act of 1980. Because the transition has been completed, Statement No. 44 is no longer necessary.&#160;&#160; Statement No.145 also amends
Statement No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This amendment is consistent with the FASB&#146;s goal
of requiring similar accounting treatment for transactions that have similar economic effects.&#160; Statement No. 145 also makes technical corrections to existing pronouncements. The adoption of Statement No. 145 did not materially affect our
consolidated financial statements.</font></p> <p><font size="2" face="Times New Roman">In June 2002, the FASB issued Statement No. 146, &#147;Accounting for Costs Associated with Exit or Disposal Activities.&#148;&#160; The Statement addresses costs
that are a result of exiting an activity, such as termination benefits, costs to terminate a contract that is not a capital lease, and costs to consolidate facilities or relocate employees. Under the Statement, in general, a company may recognize
costs related to a restructuring only when the liability is incurred. Under previous US GAAP, a liability for such costs was recognized on the date when a company committed to an exit plan. The provisions of this statement are effective for exits
and disposal activities that are initiated after December 31, 2002.&#160; The adoption of Statement No. 146 did not materially affect our consolidated financial statements.</font></p> <p> <font size="2" face="Times New Roman">In November 2002, the
FASB issued Interpretation No. 45,&#160; &#147;Guarantor&#146;s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others.&#148;&#160; Interpretation No.&#160; 45 supersedes Interpretation No.
34,&#160; &#147;Disclosure of Indirect Guarantees of Indebtedness of Others,&#148; and provides guidance on the recognition and disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain
guarantees.&#160; The initial recognition and measurement provisions of Interpretation No. 45 are effective for guarantees issued or modified after December 31, 2002, and are to be applied prospectively.&#160; The disclosure requirements are
effective for financial statements for interim or annual periods ending after December 15, 2002.&#160; The adoption of Interpretation No. 45 did not materially affect our consolidated financial statements.</font></p> <p> <font size="2"
face="Times New Roman">In November 2002, the FASB&#146;s Emerging Issues Task Force (EITF) discussed Issue No. 02-16,&#160; &#147;Accounting by a Reseller for Cash Consideration Received from a Vendor.&#148;&#160; Issue No. 02-16 provides guidance
on the recognition of cash consideration received by a customer from a vendor. The consensus reached by the EITF in November 2002 is effective for fiscal periods beginning after December 15, 2002. Income statements for prior periods are required to
be reclassified to comply with the consensus.&#160; Adoption of the consensus reached in November 2002 related to Issue No. 02-16 did not materially affect our consolidated financial statements.</font></p> <p align="center"><font size="2"
face="Times New Roman">8</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p> <font size="2" face="Times New Roman">In December 2002, the Company adopted FASB Statement No. 148, &#147;Accounting for Stock-Based Compensation-Transition and Disclosure.&#148;&#160; Statement No. 148 amends
Statement No. 123, &#147;Accounting for Stock-Based Compensation,&#148; and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation.&#160; Statement No. 148
also amends the disclosure requirements of Statement No. 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation.&#160; The transition guidance and annual disclosure provisions of
Statement No.148 are effective for financial statements issued for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after
December 15, 2002.&#160; See Note 3 for disclosure under Statement No. 148.</font></p> <p> <font size="2" face="Times New Roman">In January 2003, the FASB issued a pronouncement, Financial Interpretation Number 46 (&#147;FIN 46&#148;),
&#147;Consolidation of Variable Interest Entities.&#148; This FIN deals with Off-Balance Sheet Assets, Liabilities, and Obligations and gives guidance for determining which entities should consolidate the respective assets and liabilities associated
with the obligations. Corporations must fully consolidate assets and liabilities covered by FIN 46 in their Financial Statements in the first fiscal year or interim period beginning after June 15, 2003. Full disclosure, as well as consolidation, if
applicable, of any newly created agreements after January 31, 2003 must begin immediately.&#160; Adoption of FIN 46 is not expected to materially impact our consolidated financial statements.</font></p> <p> <font size="2" face="Times New Roman">In
April 2003, the FASB issued Statement No. 149, &#147;Amendment of Statement 133 on Derivative Instruments and Hedging Activities,&#148; This Statement amends and clarifies financial accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.&#160; This Statement is
effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. In addition, all provisions of this Statement should be applied prospectively.&#160;&#160; Adoption of FASB Statement
149 is not expected to materially impact our consolidated financial statements.</font></p> <p><font size="2" face="Times New Roman"><b>NOTE 5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SUBSEQUENT EVENTS</b></font></p> <p> <font size="2" face="Times New Roman">On
April 28, 2003, the Company awarded 160,790 shares of common stock to key management personnel under a management incentive plan relating to fiscal 2002 performance pursuant to the 2002 Equity Incentive Plan.</font></p> <p align="center"> <font
size="2" face="Times New Roman">9</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p>
<a name="tx262_6"></a> <font size="2" face="Times New Roman"><b>Item 2.&nbsp;&nbsp;&nbsp;MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</b></font></p> <p> <font size="2" face="Times New Roman">The
following table sets forth, for the periods indicated, the percentages which the items in the Company&#146;s Consolidated Statements of Income bear to total revenues.</font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="28%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>13 Weeks Ended</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="28%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="13%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>March 30, 2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="13%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>March 31, 2002</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="13%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="13%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">REVENUES</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">100.0</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">100.0</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">COST AND EXPENSES:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Cost of revenues</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">32.5</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">33.1</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Labor and other related expenses</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">29.6</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">29.0</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Other restaurant operating expenses</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">21.7</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">21.5</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Total restaurant costs and expenses</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">83.8</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">83.6</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">General and administrative expenses</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">6.5</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">5.8</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Depreciation and amortization</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2.0</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">1.9</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Provision for impairment of goodwill</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">0.0</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">0.4</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Income from operations</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">7.7</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">8.3</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Interest expense, net</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">-0.9</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">-1.3</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Other expense, net</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">-0.2</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">0.0</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Elimination of minority partner interest</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">-0.6</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">-0.5</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Income before provision for taxes</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">6.0</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">6.5</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Provision for income taxes</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">0.0</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">0.0</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Net income</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">6.0</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="12%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">6.5</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="68%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="12%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p align="center"> <font size="2" face="Times New Roman">10</font></p>

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 <p> <font size="2" face="Times New Roman"><b>RESULTS OF OPERATIONS</b></font></p> <p> <font size="2" face="Times New Roman"><b>13 weeks ended March 30, 2003 and March 31, 2002</b></font></p> <p> <font size="2"
face="Times New Roman"><i>Revenues.</i> Total revenues for the first quarter of 2003 were $13,012,000 as compared to&#160; $14,129,000 for the first quarter of 2002.&#160; The $1,117,000, or 7.9% decrease in revenues was primarily due to a 5.7%
decrease in comparable store sales, and to a lesser extent the closing of one restaurant during the third quarter of 2002.&#160; 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.</font></p> <p><font size="2" face="Times New Roman"><i>Cost of revenues</i>.&#160; The cost of revenues as a
percentage of revenues decreased to 32.5% for the first quarter of 2003 from 33.1% for the first quarter of 2002.&#160; This decrease primarily was due to favorable food costs, operational improvements and lower distribution costs.&#160; 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.</font></p> <p> <font size="2" face="Times New Roman"><i>Labor and other related expenses</i>.&#160; Labor and other related expenses as a percentage of revenues increased to 29.6%
during the first quarter of 2003 as compared to 29.0% for the first quarter of 2002.&#160; This increase was primarily due to a reduction in operating leverage caused by lower sales volumes and increases in health insurance costs.</font></p> <p>
<font size="2" face="Times New Roman"><i>Other restaurant operating expenses.&#160; </i>&#160;Other restaurant operating expenses as a percentage of revenues increased to 21.7% for the first quarter of 2003 as compared with 21.5% for the first
quarter of 2002.&#160; The increase primarily was due to a reduction in operating leverage caused by lower sales volumes and increases in general liability and property insurance costs.</font></p> <p> <font size="2" face="Times New Roman"><i>General
and administrative expenses</i>.&#160; General and administrative expenses of $840,000 or 6.5% of revenues for the first quarter of 2003 increased from $825,000 or 5.8% of revenues for the first quarter of 2002, primarily due to increases in
consulting fees.</font></p> <p> <font size="2" face="Times New Roman"><i>&#160;Depreciation and amortization.</i>&#160;Depreciation and amortization expense as a percentage of revenues increased to 2.0% for the first quarter of 2003 from 1.9% in the
first quarter of 2002.&#160; The percentage increase primarily was due to the reduction in sales volume.</font></p> <p> <font size="2" face="Times New Roman"><i>Provision for impairment of goodwill</i>.&#160;&#160; There was no provision for
impairment of goodwill in the first quarter of 2003.&#160; The provision for impairment of goodwill was $52,000 or 0.4% of revenues during the first quarter of 2002; goodwill was evaluated for impairment and written down in accordance with FASB
Statement No. 142 which the Company adopted in 2002.</font></p> <p><font size="2" face="Times New Roman"><i>Interest expense</i>.&#160; Interest expense was $127,000 in the first quarter of 2003 compared to $196,000 in the first quarter of
2002.&#160; The Company recorded a non-recurring charge of $106,000 in the first quarter of 2002 relating to the issuance of warrants on January 31, 2002 as part of the $2,000,000 financing transaction.&#160; Exclusive of the non-recurring charge,
interest expense was $127,000 for the first quarter of 2003 compared to $90,000 for the first quarter 2002.&#160; The increase was primarily related to larger loan balances outstanding.</font></p> <p> <font size="2"
face="Times New Roman"><i>Provision for income taxes</i>.&#160; No provision for income taxes was recognized for the first quarter of 2003 or 2002.</font></p> <p align="center"> <font size="2" face="Times New Roman">11</font></p>

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 <p> <font size="2" face="Times New Roman"><i>Income from operations and net income</i>.&#160; As a result of the factors discussed above, the Company had income from operations of $1,002,000 for the first quarter of
2003 compared to $1,179,000 for the first quarter of 2002. The Company had net income of $784,000 for the first quarter of 2003 compared to $926,000 for the first quarter of 2002.&#160; Exclusive of nonrecurring charges of $106,000 in the first
quarter of 2002, net income was $1,032,000 for the first quarter of 2002.</font></p> <p> <font size="2" face="Times New Roman"><b>13 weeks ended March 31, 2002 and April 1, 2001 </b></font></p> <p> <font size="2"
face="Times New Roman"><i>Revenues.</i> Total revenues for the first quarter of 2002 were $14,129,000 as compared to&#160; $21,655,000 for the first quarter of 2001.&#160; The $7,526,000, or 34.8% decrease in revenues was due to the closing of six
restaurants in the first quarter of 2001 and an additional 10 restaurants in the second and third quarters of 2001, and by a 14.2% decrease in comparable store sales.&#160; </font></p> <p> <font size="2" face="Times New Roman"><i>Cost of
revenues</i>.&#160; The cost of revenues as a percentage of revenues decreased to 33.1% for the first quarter of 2002 from 37.6% for the first quarter of 2001.&#160; This decrease primarily was due to operational improvements and lower shrimp and
crab costs.&#160; </font></p> <p> <font size="2" face="Times New Roman"><i>Labor and other related expenses</i>.&#160; Labor and other related expenses as a percentage of revenues decreased to 29.0% during the first quarter of 2002 as compared to
29.8% for the first quarter of 2001.&#160; This decrease was due to a decrease in employee turnover and a one-time nonrecurring charge in the first quarter of 2001 of $102,000 for severance pay primarily related to store closings in the
Midwest.</font></p> <p><font size="2" face="Times New Roman"><i>Other restaurant operating expenses.&#160; </i>&#160;Other restaurant operating expenses as a percentage of revenues increased to 21.5% for the first quarter of 2002 as compared with
21.2% for the first quarter of 2001.&#160; The increase primarily was due to a reduction in operating leverage related to lower sales volumes.</font></p> <p> <font size="2" face="Times New Roman"><i>General and administrative expenses</i>.&#160;
General and administrative expenses of $825,000 or 5.8% of revenues for the first quarter of 2002 decreased from $1,694,000 or 7.8% of revenues for the first quarter of 2001.&#160; The decrease relates to the downsizing of administrative and
supervisory staff in the second quarter of 2001 associated with the discontinuance of the Midwest operations along with a one-time nonrecurring charge of $150,000 for severance pay in the first quarter of 2001.</font></p> <p> <font size="2"
face="Times New Roman"><i>Depreciation and amortization.</i>&#160; Depreciation and amortization expense as a percentage of revenues decreased to 1.9% for the first quarter of 2002 from 2.5% in the first quarter of 2001.&#160; The decrease primarily
was due to the reduced basis of property and equipment resulting from the recognition of asset impairments in the first and fourth quarters of 2001 and the discontinuance of goodwill amortization in 2002.</font></p> <p> <font size="2"
face="Times New Roman"><i>Provision for impairment of goodwill</i>.&#160;&#160; The provision for impairment of goodwill was $52,000 or 0.4% of revenues during the first quarter of 2002; goodwill was evaluated for impairment and written down in
accordance with FASB Statement No. 142 which the Company adopted in 2002.</font></p> <p> <font size="2" face="Times New Roman"><i>Provision for impairment of assets</i>.&#160;&#160; The Company recorded a $1,582,000 charge in the first quarter 2001
relating to the write-down of impaired assets to the estimated fair value in accordance with Financial Accounting Standards Board Statement No. 121.&#160; The asset impairment charge related to 14 restaurants, 13 restaurants in the Midwest and one
restaurant in Florida.&#160; The Company closed most of these under-performing units in the first seven months of 2001.</font></p> <p> <font size="2" face="Times New Roman"><i>Provision for store closings</i>.&#160;&#160; The Company recorded a
one-time charge in the first quarter of 2001 of $1,333,000 relating to store closing costs primarily related to restaurants in the Midwest.&#160; The Midwest</font></p> <p align="center"><font size="2" face="Times New Roman">12</font></p>

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 <p> <font size="2" face="Times New Roman">restaurants were closed during the first and second quarters of 2001 due to poor operating results.&#160; Store closing costs consisted primarily of real estate lease
obligations incurred or anticipated to complete lease terminations or continuing costs while new tenants were located. </font></p> <p> <font size="2" face="Times New Roman"><i>Interest expense</i>.&#160; The Company recorded a non-recurring charge
of $106,000 in the first quarter of 2002 relating to the issuance of warrants on January 31, 2002 as part of the $2,000,000 financing transaction.&#160; Exclusive of the non-recurring charge, interest expense was $90,000 for the first quarter of
2002 compared to $187,000 in the first quarter of 2001.&#160; The reduction was primarily related to debt repayments associated with stores closed in 2001.</font></p> <p> <font size="2" face="Times New Roman"><i>Provision for income taxes</i>.&#160;
No provision for income taxes was recognized for the first quarter of 2002 or 2001.</font></p> <p> <font size="2" face="Times New Roman"><i>Income (loss) from operations and net income (loss)</i>.&#160; As a result of the factors discussed above,
the Company had income from operations of $1,179,000 for the first quarter of 2002 compared to a loss from operations of $2,688,000 for the first quarter of 2001. The Company had net income of $926,000 for the first quarter of 2002 compared to a net
loss of $3,018,000 for the first quarter of 2001.&#160; Exclusive of nonrecurring charges of $106,000 and $3,167,000, first quarter 2002 and 2001 net income was $1,032,000 and $149,000, respectively.</font></p> <p> <font size="2"
face="Times New Roman"><b>LIQUIDITY AND CAPITAL RESOURCES</b></font></p> <p> <font size="2" face="Times New Roman">As of March 30, 2003, the Company&#146;s current liabilities of $6,305,000 exceeded its current assets of $4,041,000, resulting in a
working capital deficiency of $2,264,000.&#160; In comparison, the December 29, 2002 working capital deficiency was $3,116,000.&#160;&#160; The improvement in the working capital deficiency was primarily related to the favorable operating results in
the first quarter of 2003.&#160; </font></p> <p> <font size="2" face="Times New Roman">The Company was negatively impacted in Fiscal 2002 by the ongoing costs of divestiture of its Midwest locations.&#160; Such divestiture costs had an adverse
affect on the Company&#146;s cash position. Historically, the Company has generally operated with minimal or negative working capital as a result of the investment 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.&#160; </font></p> <p><font size="2" face="Times New Roman">Cash provided by operating activities for the 13 weeks ended March 30, 2003 was $292,000 compared to&#160;
$424,000 for the comparable period in 2002.&#160; The net decrease of $132,000 was primarily due to a decrease in net income.</font></p> <p> <font size="2" face="Times New Roman">The cash used in investing activities was $199,000 for the 13 weeks
ended March 30, 2003 compared to&#160; $112,000 for the same period in 2002; or a net increase of $87,000 due to an increase in expenditures for capital improvements.</font></p> <p> <font size="2" face="Times New Roman">The cash provided by
financing activities was $210,000 for the 13 weeks ended March 30, 2003 compared to $2,050,000 for the comparable period in 2002.&#160; In 2002, the Company completed a $2 million private financing transaction, consisting of secured promissory notes
and warrants to purchase shares of our Common Stock.</font></p> <p align="center"> <font size="2" face="Times New Roman">13</font></p>

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 <p> <font size="2" face="Times New Roman"><b>SEASONALITY</b></font></p> <p> <font size="2" face="Times New Roman">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.&#160; 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., the health of Florida&#146;s economy and the effect of world events in general and on the tourism industry in particular.&#160; The Company&#146;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.&#160; </font></p> <p> <font size="2" face="Times New Roman">In addition, quarterly results have been, and in the future could be, affected by the timing and conditions under which
restaurants are closed.&#160; Because of the seasonality of the Company&#146;s business and the impact of restaurant closures and openings, if applicable, 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.</font></p> <p>
<a name="tx262_7"></a><font size="2" face="Times New Roman"><b>Item 3. - Quantitative and Qualitative Disclosures About Market Risk </b></font></p> <p> <font size="2" face="Times New Roman">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 $1,267,000 in outstanding debt with banks that is based on variable rates.&#160; Borrowings under the loan agreements bear interest at the rate equal to
the applicable bank&#146;s base rate. &#160;&#160;</font></p> <p>
<a name="tx262_8"></a> <font size="2" face="Times New Roman"><b>Item 4. &#150; Controls and Procedures</b></font></p> <p> <font size="2" face="Times New Roman">During the 90-day period prior to the filing date of this report, management, including
the Company&#146;s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company&#146;s disclosure controls and procedures.&#160; Based upon, and as of the date of that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required.</font></p> <p> <font size="2" face="Times New Roman">There have been no significant changes in the Corporation&#146;s internal controls
or in other factors known to us that could significantly affect internal controls subsequent to the date of such evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.</font></p> <p
align="center"> <font size="2" face="Times New Roman">14</font></p>

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 <p>
<a name="tx262_9"></a> <font size="2" face="Times New Roman"><b>Part II - OTHER INFORMATION</b></font></p> <p> <font size="2" face="Times New Roman">Item 1 &#150; Legal Proceedings</font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May 29, 2001, a lawsuit was filed in the Court of Common Pleas of Clermont County, Ohio by Cin-Beech, LLC, the
landlord of a closed restaurant located in Cincinnati.&#160; This restaurant was closed in April 2001.&#160; In July 2001, the Company entered into a lease termination agreement with the landlord.&#160;&#160; Pursuant to the lease termination
agreement, we paid $50,000 in termination fees and $39,000 for rents and real estate taxes owed; and were obligated to pay an additional $50,000 within 30 days in exchange for a simultaneous written release from the landlord. The landlord refused to
provide the written release as required and, therefore, Shells did not pay the additional $50,000 for which it was prepared to pay. The landlord has since demanded $236,000.&#160; The landlord sold the property in October 2002 to an unrelated third
party.&#160; We believe the demand for additional damages is inappropriate and we intend to vigorously defend our position.</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="100%" colspan="2" valign="top"> <p><font size="2" face="Times New Roman">Item 2 &#150; Changes in Securities and Use of Proceeds</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="100%" colspan="2" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During January 2003, investors converted 3,314 shares of Preferred Stock
into 16,570 shares of Common Stock.&#160; This was a stock for stock transaction.</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="100%" colspan="2" valign="top"> <p> <font size="2" face="Times New Roman">Item 3 &#150; Defaults Upon Senior Securities</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">None</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="100%" colspan="2" valign="top"> <p> <font size="2" face="Times New Roman">Item 4 - Submission of Matters to a Vote of Security Holders</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">None</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="100%" colspan="2" valign="top"> <p> <font size="2" face="Times New Roman">Item 5 - Other Information</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="2" face="Times New Roman">None</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="100%" colspan="2" valign="top"> <p> <font size="2" face="Times New Roman">Item 6 - Exhibits and Reports on Form 8-K</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exhibits</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;99.1&nbsp;&nbsp;&nbsp;Officer Certification under Section 906 of the Sarbanes-Oxley Act of 2002</font></p> </td>
</tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reports on Form 8-K filed during the current quarter</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company filed a current report on Form 8-K, Item 12, regarding a press release on May 2, 2003 announcing
operating results for the quarter ended March 30, 2003.</font></p> </td> </tr> </table> <p align="center"> <font size="2" face="Times New Roman">15</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center">
<a name="tx262_10"></a> <font size="2" face="Times New Roman"><b>SIGNATURES</b></font></p> <p> <font size="2" face="Times New Roman">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.</font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="55%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="11%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="33%" valign="bottom"> <p><font size="2" face="Times New Roman">S<small>HELLS</small> S<small>EAFOOD</small> R<small>ESTAURANTS</small>, I<small>NC</small>.</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="11%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="33%" valign="bottom"> <p align="left"> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Registrant)</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="11%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="33%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="11%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="33%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="11%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="33%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman">/s/ D<small>AVID</small> W. H<small>EAD</small></font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="11%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="33%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td> </tr>
<tr>
<td width="55%" valign="top"> <p> <font size="2" face="Times New Roman">Date&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;May 13, 2003</font></p> </td>
<td width="11%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="33%" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>David W. Head<br> President and Chief Executive Officer</b></font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="11%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="33%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="11%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="33%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="11%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="33%" valign="bottom"> <p align="center"><font size="2" face="Times New Roman">/s/ W<small>ARREN</small> R. N<small>ELSON</small></font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="11%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="33%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td> </tr>
<tr>
<td width="55%" valign="top"> <p> <font size="2" face="Times New Roman">Date&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;May 13, 2003</font></p> </td>
<td width="11%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="33%" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Warren R. Nelson<br> Executive Vice President and Chief Financial Officer</b></font></p> </td> </tr> </table> <p align="center"> <font size="2"
face="Times New Roman">16</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center">
<a name="tx262_11"></a> <font size="2" face="Times New Roman"><b>CERTIFICATIONS</b></font></p> <p> <font size="2" face="Times New Roman">I, David W. Head, certify that:</font></p> <p> <font size="2"
face="Times New Roman">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I have reviewed this quarterly report on Form 10-Q of Shells Seafood Restaurants, Inc.;</font></p> <p> <font size="2" face="Times New Roman">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on my
knowledge, this quarterly 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 quarterly report;</font></p> <p> <font size="2" face="Times New Roman">3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on my knowledge, the financial statements, and other financial information included in this
quarterly 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 quarterly report.</font></p> <p><font size="2"
face="Times New Roman">4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant&#146;s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:</font></p> <p> <font size="2" face="Times New Roman">(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;designed such disclosure controls and procedures 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 quarterly report is being prepared;</font></p> <p> <font size="2"
face="Times New Roman">(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the &#147;Evaluation
Date&#148;); and</font></p> <p> <font size="2" face="Times New Roman">(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;</font></p> <p> <font size="2" face="Times New Roman">5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant&#146;s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant&#146;s auditors and
the audit committee of the registrant&#146;s board of directors (or persons performing the equivalent functions):</font></p> <p> <font size="2" face="Times New Roman">(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;all significant deficiencies in the design or
operation of internal controls which could adversely affect the registrant&#146;s ability to record, process, summarize and report financial data and have identified for the registrant&#146;s auditors any material weaknesses in internal controls;
and</font></p> <p> <font size="2" face="Times New Roman">(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant&#146;s internal controls;
and</font></p> <p> <font size="2" face="Times New Roman">6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant&#146;s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.</font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="36%" valign="bottom"> <p><font size="2" face="Times New Roman">Date:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;May 13, 2003</font></p> </td>
<td width="30%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="33%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="36%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="30%" valign="bottom"> <p align="center"><font size="2" face="Times New Roman">/s/ D<small>AVID</small> W. H<small>EAD</small></font></p> </td>
<td width="33%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="36%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="30%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="33%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="36%" valign="top"> <p><font size="1">&nbsp;</font></p> </td>
<td width="30%" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>David W. Head<br> President and Chief Executive Officer</b></font></p> </td>
<td width="33%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr> </table> <p align="center"> <font size="2" face="Times New Roman">17</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"> <font size="2" face="Times New Roman"><b>CERTIFICATIONS</b></font></p> <p> <font size="2" face="Times New Roman">I, Warren R. Nelson, certify that:</font></p> <p> <font size="2"
face="Times New Roman">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I have reviewed this quarterly report on Form 10-Q of Shells Seafood Restaurants, Inc.;</font></p> <p> <font size="2" face="Times New Roman">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on my
knowledge, this quarterly 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 quarterly report;</font></p> <p> <font size="2" face="Times New Roman">3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on my knowledge, the financial statements, and other financial information included in this
quarterly 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 quarterly report.</font></p> <p><font size="2"
face="Times New Roman">4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant&#146;s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:</font></p> <p> <font size="2" face="Times New Roman">(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;designed such disclosure controls and procedures 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 quarterly report is being prepared;</font></p> <p> <font size="2"
face="Times New Roman">(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the &#147;Evaluation
Date&#148;); and</font></p> <p> <font size="2" face="Times New Roman">(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;</font></p> <p> <font size="2" face="Times New Roman">5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant&#146;s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant&#146;s auditors and
the audit committee of the registrant&#146;s board of directors (or persons performing the equivalent functions):</font></p> <p> <font size="2" face="Times New Roman">(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;all significant deficiencies in the design or
operation of internal controls which could adversely affect the registrant&#146;s ability to record, process, summarize and report financial data and have identified for the registrant&#146;s auditors any material weaknesses in internal controls;
and</font></p> <p> <font size="2" face="Times New Roman">(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant&#146;s internal controls;
and</font></p> <p> <font size="2" face="Times New Roman">6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant&#146;s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.</font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="36%" valign="bottom"> <p><font size="2" face="Times New Roman">Date:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;May 13, 2003</font></p> </td>
<td width="30%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="33%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="36%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="30%" valign="bottom"> <p align="center"><font size="2" face="Times New Roman">/s/ W<small>ARREN</small> R. N<small>ELSON</small></font></p> </td>
<td width="33%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="36%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="30%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="33%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="36%" valign="top"> <p><font size="1">&nbsp;</font></p> </td>
<td width="30%" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>Warren R. Nelson<br> Chief Financial Officer</b></font></p> </td>
<td width="33%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr> </table> <p align="center"><font size="2" face="Times New Roman">18</font></p>
</BODY></HTML>
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{"company-data": {"conformed-name": "SHELLS SEAFOOD RESTAURANTS INC", "cik": "0000935066", "assigned-sic": "5812", "irs-number": "650427966", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-28258", "film-number": "03696855"}, "business-address": {"street1": "16313 N DALE MABRY HWY", "street2": "STE 100", "city": "TAMPA", "state": "FL", "zip": "33618", "phone": "8139610944"}, "mail-address": {"street1": "16313 NORTH DALE MABRY", "street2": "SUITE 100", "city": "TAMPA", "state": "FL", "zip": "33618"}}
Form 10-Q for March 30, 2003
Table of Contents
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 March 30, 2003
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 incorporation or organization)
(IRS) Employer Identification Number
16313 North Dale Mabry Highway, Suite 100,  Tampa, FL 33618
(Address of principal executive offices)  (zip code)
(813) 961-0944
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
x
No
o
Indicate by check mark whether the Registrant
is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes
o
No
x
Class
Outstanding at April 30, 2003
Common stock, $0.01 par value
4,631,375
Table of Contents
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
Index
Page Number
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets as of March 30, 2003 (Unaudited) and December 29, 2002
3
Consolidated Statements of Income (Unaudited) for the 13 weeks ended March 30, 2003 and March 31, 2002
4
Consolidated Statements of Cash Flows (Unaudited) for the 13 weeks ended March 30, 2003 and March 31, 2002
5
Consolidated Statement of Stockholders' Equity (Unaudited) for the 13 weeks ended March 30, 2003
6
Notes to Consolidated Financial Statements – (Unaudited)
7
Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of Operations
10-14
Item 3 -
Quantitative and Qualitative Disclosures About Market Risk
14
Item 4 -
Controls and Procedures
14
Part II -
Other Information
15
Signatures
16
Certifications
17-18
Exhibit
19
2
Table of Contents
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 30, 2003
December 29, 2002
(Unaudited)
ASSETS
Cash
$
2,772,198
$
2,468,809
Inventories
415,432
356,434
Other current assets
781,818
266,228
Receivables from related parties
71,843
105,353
Deferred tax asset, net
—
—
Total current assets
4,041,291
3,196,824
Property and equipment, net
7,630,260
7,682,892
Prepaid rent
87,293
97,431
Other assets
409,991
407,098
Goodwill
2,474,407
2,474,407
Deferred tax asset, net
—
—
TOTAL ASSETS
$
14,643,242
$
13,858,652
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable
$
2,361,468
$
2,554,854
Accrued expenses
2,846,214
3,033,086
Sales tax payable
329,157
191,853
Current portion of long-term debt
767,964
532,857
Total current liabilities
6,304,803
6,312,650
Deferred rent
1,068,464
1,082,761
Long-term debt, less current portion
1,735,234
1,760,054
Notes and deferred interest payable to related parties
2,152,477
2,123,335
Total liabilities
11,260,978
11,278,800
Minority partner interest
446,180
427,852
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; authorized 2,000,000 shares; 63,548 and 66,862 shares issued and outstanding,
respectively
635
669
Common stock, $0.01 par value; authorized 20,000,000 shares; 4,470,585 and 4,454,015 shares issued and
outstanding, respectively
44,706
44,540
Additional paid-in-capital
14,240,444
14,240,576
Retained earnings (deficit)
(11,349,701
)
(12,133,785
)
Total stockholders' equity
2,936,084
2,152,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
14,643,242
$
13,858,652
See accompanying notes to consolidated financial statements.
3
Table of Contents
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
13 Weeks Ended
March 30, 2003
March 31, 2002
REVENUES
$
13,011,985
$
14,128,869
COST AND EXPENSES:
Cost of revenues
4,222,839
4,669,777
Labor and other related expenses
3,856,608
4,095,418
Other restaurant operating expenses
2,829,525
3,032,825
General and administrative expenses
839,739
824,803
Depreciation and amortization
260,793
275,240
Provision for impairment of goodwill
—
51,549
12,009,504
12,949,612
INCOME FROM OPERATIONS
1,002,481
1,179,257
OTHER INCOME (EXPENSE):
Interest expense
(126,822
)
(195,842
)
Interest income
4,614
5,820
Other expense, net
(21,785
)
800
(143,993
)
(189,222
)
INCOME BEFORE ELIMINATION OF MINORITY PARTNER INTEREST AND INCOME TAXES
858,488
990,035
ELIMINATION OF MINORITY PARTNER INTEREST
(74,404
)
(64,364
)
INCOME BEFORE PROVISION FOR INCOME TAXES
784,084
925,671
PROVISION FOR INCOME TAXES
—
—
NET INCOME
$
784,084
$
925,671
NET INCOME PER SHARE OF COMMON STOCK:
Basic
$
0.18
$
0.21
Diluted
$
0.07
$
0.11
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic
4,468,764
4,454,015
Diluted
11,790,878
8,451,979
See accompanying notes to consolidated financial statements.
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SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
13 Weeks Ended
March 30, 2003
March 31, 2002
OPERATING ACTIVITIES:
Net income
$
784,084
$
925,671
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on disposal of assets
2,352
—
Depreciation and amortization
260,793
275,240
Provision for impairment of goodwill
—
51,549
Minority partner interest
18,328
12,624
Changes in assets and liabilities:
Increase in inventories
(58,998
)
(77,780
)
Decrease in receivables from related parties
33,510
18,152
Increase in other assets
(526,974
)
(353,218
)
Decrease in prepaid rent
10,138
12,600
Decrease in income tax refunds receivable
—
40,000
Decrease in deferred tax asset
—
—
Decrease in accounts payable
(193,386
)
(753,435
)
(Decrease) increase in accrued expenses
(161,033
)
114,133
Increase in sales tax payable
137,304
165,497
Decrease in deferred rent
(14,297
)
(6,897
)
Total adjustments
(492,263
)
(501,535
)
Net cash provided by operating activities
291,821
424,136
INVESTING ACTIVITIES:
Purchase of property and equipment
(198,719
)
(112,463
)
Net cash used in investing activities
(198,719
)
(112,463
)
FINANCING ACTIVITIES:
Proceeds from debt financing
506,585
2,304,317
Repayment of debt
(296,298
)
(254,356
)
Net cash provided by financing activities
210,287
2,049,961
Net increase in cash
303,389
2,361,634
CASH AT BEGINNING OF PERIOD
2,468,809
969,680
CASH AT END OF PERIOD
$
2,772,198
$
3,331,314
Supplemental disclosure of cash flow information:
Cash paid for interest
$
97,678
$
88,637
Cash refunds received for income taxes
$
—
$
(40,000
)
Note receivable on sale of assets
$
—
$
100,000
See accompanying notes to consolidated financial statements.
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Table of Contents
SHELLS SEAFOOD RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
PREFERRED STOCK
COMMON STOCK
ADDITIONAL
PAID-IN
CAPITAL
RETAINED
EARNINGS
(DEFICIT)
TOTAL
Shares
Amount
Shares
Amount
Balance at December 29, 2002
66,862
$
669
4,454,015
$
44,540
14,240,576
$
(12,133,785
)
$
2,152,000
Net income
784,084
784,084
Preferred stock converted to common stock
(3,314
)
(34
)
16,570
166
(132
)
—
Balance at
March 30, 2003
63,548
$
635
4,470,585
$
44,706
$
14,240,444
$
(11,349,701
)
$
2,936,084
See accompanying notes to consolidated financial statements.
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Table of Contents
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 complete 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 29, 2002 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.
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":
13 Weeks Ended
March 30, 2003
March 31, 2002
Net income applicable to common stock
$
784,084
$
925,671
Weighted common shares outstanding
4,468,764
4,454,015
Basic net income per share of common stock
$
0.18
$
0.21
Effect of dilutive securities:
Warrants
6,715,284
3,915,618
Stock options
606,830
82,346
Diluted weighted common shares outstanding
11,790,878
8,451,979
Diluted net income per share of common stock
$
0.07
$
0.11
The earnings per share calculation excluded 770,423 and 630,894 options during the first quarter
of 2003 and 2002, respectively, as the exercise price of the options were greater than the average market price of the common shares.
NOTE 3.     STOCK
COMPENSATION PLANS
At March 30, 2003, we have four stock-based employee compensation plans.  We account for these plans under the recognition and measurement principles of Accounting
Principles Board Opinion 25, "Accounting for Stock Issued to Employees," and related interpretations.  No stock-based compensation cost is reflected in
7
Table of Contents
net income, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant.  Had
compensation cost for our stock option plans been determined based on the fair value at the grant dates consistent with recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation," the effect on net income
and earnings per share on a pro forma basis would have been immaterial.
NOTE 4.     NEW ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The Statement updates, clarifies and simplifies
existing accounting pronouncements.  Statement No. 145 rescinds Statement No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax
effect. As a result, the criteria in Opinion 30 will now be used to classify those gains and losses. Statement No. 64 amended Statement No. 4, and is no longer necessary because Statement No. 4 has been rescinded.  Statement No. 44 was issued
to establish accounting requirements for the effects of transition to the provisions of the Motor Carrier Act of 1980. Because the transition has been completed, Statement No. 44 is no longer necessary.   Statement No.145 also amends
Statement No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This amendment is consistent with the FASB's goal
of requiring similar accounting treatment for transactions that have similar economic effects.  Statement No. 145 also makes technical corrections to existing pronouncements. The adoption of Statement No. 145 did not materially affect our
consolidated financial statements.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."  The Statement addresses costs
that are a result of exiting an activity, such as termination benefits, costs to terminate a contract that is not a capital lease, and costs to consolidate facilities or relocate employees. Under the Statement, in general, a company may recognize
costs related to a restructuring only when the liability is incurred. Under previous US GAAP, a liability for such costs was recognized on the date when a company committed to an exit plan. The provisions of this statement are effective for exits
and disposal activities that are initiated after December 31, 2002.  The adoption of Statement No. 146 did not materially affect our consolidated financial statements.
In November 2002, the
FASB issued Interpretation No. 45,  "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others."  Interpretation No.  45 supersedes Interpretation No.
34,  "Disclosure of Indirect Guarantees of Indebtedness of Others," and provides guidance on the recognition and disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain
guarantees.  The initial recognition and measurement provisions of Interpretation No. 45 are effective for guarantees issued or modified after December 31, 2002, and are to be applied prospectively.  The disclosure requirements are
effective for financial statements for interim or annual periods ending after December 15, 2002.  The adoption of Interpretation No. 45 did not materially affect our consolidated financial statements.
In November 2002, the FASB's Emerging Issues Task Force (EITF) discussed Issue No. 02-16,  "Accounting by a Reseller for Cash Consideration Received from a Vendor."  Issue No. 02-16 provides guidance
on the recognition of cash consideration received by a customer from a vendor. The consensus reached by the EITF in November 2002 is effective for fiscal periods beginning after December 15, 2002. Income statements for prior periods are required to
be reclassified to comply with the consensus.  Adoption of the consensus reached in November 2002 related to Issue No. 02-16 did not materially affect our consolidated financial statements.
8
Table of Contents
In December 2002, the Company adopted FASB Statement No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure."  Statement No. 148 amends
Statement No. 123, "Accounting for Stock-Based Compensation," and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation.  Statement No. 148
also amends the disclosure requirements of Statement No. 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation.  The transition guidance and annual disclosure provisions of
Statement No.148 are effective for financial statements issued for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after
December 15, 2002.  See Note 3 for disclosure under Statement No. 148.
In January 2003, the FASB issued a pronouncement, Financial Interpretation Number 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." This FIN deals with Off-Balance Sheet Assets, Liabilities, and Obligations and gives guidance for determining which entities should consolidate the respective assets and liabilities associated
with the obligations. Corporations must fully consolidate assets and liabilities covered by FIN 46 in their Financial Statements in the first fiscal year or interim period beginning after June 15, 2003. Full disclosure, as well as consolidation, if
applicable, of any newly created agreements after January 31, 2003 must begin immediately.  Adoption of FIN 46 is not expected to materially impact our consolidated financial statements.
In
April 2003, the FASB issued Statement No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," This Statement amends and clarifies financial accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.  This Statement is
effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. In addition, all provisions of this Statement should be applied prospectively.   Adoption of FASB Statement
149 is not expected to materially impact our consolidated financial statements.
NOTE 5.     SUBSEQUENT EVENTS
On
April 28, 2003, the Company awarded 160,790 shares of common stock to key management personnel under a management incentive plan relating to fiscal 2002 performance pursuant to the 2002 Equity Incentive Plan.
9
Table of Contents
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
March 30, 2003
March 31, 2002
REVENUES
100.0
%
100.0
%
COST AND EXPENSES:
Cost of revenues
32.5
%
33.1
%
Labor and other related expenses
29.6
%
29.0
%
Other restaurant operating expenses
21.7
%
21.5
%
Total restaurant costs and expenses
83.8
%
83.6
%
General and administrative expenses
6.5
%
5.8
%
Depreciation and amortization
2.0
%
1.9
%
Provision for impairment of goodwill
0.0
%
0.4
%
Income from operations
7.7
%
8.3
%
Interest expense, net
-0.9
%
-1.3
%
Other expense, net
-0.2
%
0.0
%
Elimination of minority partner interest
-0.6
%
-0.5
%
Income before provision for taxes
6.0
%
6.5
%
Provision for income taxes
0.0
%
0.0
%
Net income
6.0
%
6.5
%
10
Table of Contents
RESULTS OF OPERATIONS
13 weeks ended March 30, 2003 and March 31, 2002
Revenues.
Total revenues for the first quarter of 2003 were $13,012,000 as compared to  $14,129,000 for the first quarter of 2002.  The $1,117,000, or 7.9% decrease in revenues was primarily due to a 5.7%
decrease in comparable store sales, and to a lesser extent the closing of one restaurant during the third quarter of 2002.  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 decreased to 32.5% for the first quarter of 2003 from 33.1% for the first quarter of 2002.  This decrease primarily was due to favorable food costs, operational improvements and lower distribution 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.
Labor and other related expenses
.  Labor and other related expenses as a percentage of revenues increased to 29.6%
during the first quarter of 2003 as compared to 29.0% for the first quarter of 2002.  This increase was primarily due to a reduction in operating leverage caused by lower sales volumes and increases in health insurance costs.
Other restaurant operating expenses.
Other restaurant operating expenses as a percentage of revenues increased to 21.7% for the first quarter of 2003 as compared with 21.5% for the first
quarter of 2002.  The increase primarily was due to a reduction in operating leverage caused by lower sales volumes and increases in general liability and property insurance costs.
General
and administrative expenses
.  General and administrative expenses of $840,000 or 6.5% of revenues for the first quarter of 2003 increased from $825,000 or 5.8% of revenues for the first quarter of 2002, primarily due to increases in
consulting fees.
Depreciation and amortization.
Depreciation and amortization expense as a percentage of revenues increased to 2.0% for the first quarter of 2003 from 1.9% in the
first quarter of 2002.  The percentage increase primarily was due to the reduction in sales volume.
Provision for impairment of goodwill
.   There was no provision for
impairment of goodwill in the first quarter of 2003.  The provision for impairment of goodwill was $52,000 or 0.4% of revenues during the first quarter of 2002; goodwill was evaluated for impairment and written down in accordance with FASB
Statement No. 142 which the Company adopted in 2002.
Interest expense
.  Interest expense was $127,000 in the first quarter of 2003 compared to $196,000 in the first quarter of
2002.  The Company recorded a non-recurring charge of $106,000 in the first quarter of 2002 relating to the issuance of warrants on January 31, 2002 as part of the $2,000,000 financing transaction.  Exclusive of the non-recurring charge,
interest expense was $127,000 for the first quarter of 2003 compared to $90,000 for the first quarter 2002.  The increase was primarily related to larger loan balances outstanding.
Provision for income taxes
.  No provision for income taxes was recognized for the first quarter of 2003 or 2002.
11
Table of Contents
Income from operations and net income
.  As a result of the factors discussed above, the Company had income from operations of $1,002,000 for the first quarter of
2003 compared to $1,179,000 for the first quarter of 2002. The Company had net income of $784,000 for the first quarter of 2003 compared to $926,000 for the first quarter of 2002.  Exclusive of nonrecurring charges of $106,000 in the first
quarter of 2002, net income was $1,032,000 for the first quarter of 2002.
13 weeks ended March 31, 2002 and April 1, 2001
Revenues.
Total revenues for the first quarter of 2002 were $14,129,000 as compared to  $21,655,000 for the first quarter of 2001.  The $7,526,000, or 34.8% decrease in revenues was due to the closing of six
restaurants in the first quarter of 2001 and an additional 10 restaurants in the second and third quarters of 2001, and by a 14.2% decrease in comparable store sales.
Cost of
revenues
.  The cost of revenues as a percentage of revenues decreased to 33.1% for the first quarter of 2002 from 37.6% for the first quarter of 2001.  This decrease primarily was due to operational improvements and lower shrimp and
crab costs.
Labor and other related expenses
.  Labor and other related expenses as a percentage of revenues decreased to 29.0% during the first quarter of 2002 as compared to
29.8% for the first quarter of 2001.  This decrease was due to a decrease in employee turnover and a one-time nonrecurring charge in the first quarter of 2001 of $102,000 for severance pay primarily related to store closings in the
Midwest.
Other restaurant operating expenses.
Other restaurant operating expenses as a percentage of revenues increased to 21.5% for the first quarter of 2002 as compared with
21.2% for the first quarter of 2001.  The increase primarily was due to a reduction in operating leverage related to lower sales volumes.
General and administrative expenses
. 
General and administrative expenses of $825,000 or 5.8% of revenues for the first quarter of 2002 decreased from $1,694,000 or 7.8% of revenues for the first quarter of 2001.  The decrease relates to the downsizing of administrative and
supervisory staff in the second quarter of 2001 associated with the discontinuance of the Midwest operations along with a one-time nonrecurring charge of $150,000 for severance pay in the first quarter of 2001.
Depreciation and amortization.
Depreciation and amortization expense as a percentage of revenues decreased to 1.9% for the first quarter of 2002 from 2.5% in the first quarter of 2001.  The decrease primarily
was due to the reduced basis of property and equipment resulting from the recognition of asset impairments in the first and fourth quarters of 2001 and the discontinuance of goodwill amortization in 2002.
Provision for impairment of goodwill
.   The provision for impairment of goodwill was $52,000 or 0.4% of revenues during the first quarter of 2002; goodwill was evaluated for impairment and written down in
accordance with FASB Statement No. 142 which the Company adopted in 2002.
Provision for impairment of assets
.   The Company recorded a $1,582,000 charge in the first quarter 2001
relating to the write-down of impaired assets to the estimated fair value in accordance with Financial Accounting Standards Board Statement No. 121.  The asset impairment charge related to 14 restaurants, 13 restaurants in the Midwest and one
restaurant in Florida.  The Company closed most of these under-performing units in the first seven months of 2001.
Provision for store closings
.   The Company recorded a
one-time charge in the first quarter of 2001 of $1,333,000 relating to store closing costs primarily related to restaurants in the Midwest.  The Midwest
12
Table of Contents
restaurants were closed during the first and second quarters of 2001 due to poor operating results.  Store closing costs consisted primarily of real estate lease
obligations incurred or anticipated to complete lease terminations or continuing costs while new tenants were located.
Interest expense
.  The Company recorded a non-recurring charge
of $106,000 in the first quarter of 2002 relating to the issuance of warrants on January 31, 2002 as part of the $2,000,000 financing transaction.  Exclusive of the non-recurring charge, interest expense was $90,000 for the first quarter of
2002 compared to $187,000 in the first quarter of 2001.  The reduction was primarily related to debt repayments associated with stores closed in 2001.
Provision for income taxes
. 
No provision for income taxes was recognized for the first quarter of 2002 or 2001.
Income (loss) from operations and net income (loss)
.  As a result of the factors discussed above,
the Company had income from operations of $1,179,000 for the first quarter of 2002 compared to a loss from operations of $2,688,000 for the first quarter of 2001. The Company had net income of $926,000 for the first quarter of 2002 compared to a net
loss of $3,018,000 for the first quarter of 2001.  Exclusive of nonrecurring charges of $106,000 and $3,167,000, first quarter 2002 and 2001 net income was $1,032,000 and $149,000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of March 30, 2003, the Company's current liabilities of $6,305,000 exceeded its current assets of $4,041,000, resulting in a
working capital deficiency of $2,264,000.  In comparison, the December 29, 2002 working capital deficiency was $3,116,000.   The improvement in the working capital deficiency was primarily related to the favorable operating results in
the first quarter of 2003.
The Company was negatively impacted in Fiscal 2002 by the ongoing costs of divestiture of its Midwest locations.  Such divestiture costs had 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 investment 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.
Cash provided by operating activities for the 13 weeks ended March 30, 2003 was $292,000 compared to 
$424,000 for the comparable period in 2002.  The net decrease of $132,000 was primarily due to a decrease in net income.
The cash used in investing activities was $199,000 for the 13 weeks
ended March 30, 2003 compared to  $112,000 for the same period in 2002; or a net increase of $87,000 due to an increase in expenditures for capital improvements.
The cash provided by
financing activities was $210,000 for the 13 weeks ended March 30, 2003 compared to $2,050,000 for the comparable period in 2002.  In 2002, the Company completed a $2 million private financing transaction, consisting of secured promissory notes
and warrants to purchase shares of our Common Stock.
13
Table of Contents
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., the health of Florida's economy and the effect of world events in general and on 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.  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 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 $1,267,000 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
During the 90-day period prior to the filing date of this report, management, including
the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures.  Based upon, and as of the date of that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required.
There have been no significant changes in the Corporation's internal controls
or in other factors known to us that could significantly affect internal controls subsequent to the date of such evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
14
Table of Contents
Part II - OTHER INFORMATION
Item 1 – Legal Proceedings
On May 29, 2001, a lawsuit was filed in the Court of Common Pleas of Clermont County, Ohio by Cin-Beech, LLC, the
landlord of a closed restaurant located in Cincinnati.  This restaurant was closed in April 2001.  In July 2001, the Company entered into a lease termination agreement with the landlord.   Pursuant to the lease termination
agreement, we paid $50,000 in termination fees and $39,000 for rents and real estate taxes owed; and were obligated to pay an additional $50,000 within 30 days in exchange for a simultaneous written release from the landlord. The landlord refused to
provide the written release as required and, therefore, Shells did not pay the additional $50,000 for which it was prepared to pay. The landlord has since demanded $236,000.  The landlord sold the property in October 2002 to an unrelated third
party.  We believe the demand for additional damages is inappropriate and we intend to vigorously defend our position.
Item 2 – Changes in Securities and Use of Proceeds
During January 2003, investors converted 3,314 shares of Preferred Stock
into 16,570 shares of Common Stock.  This was a stock for stock transaction.
Item 3 – Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a)     Exhibits
99.1   Officer Certification under Section 906 of the Sarbanes-Oxley Act of 2002
(b)     Reports on Form 8-K filed during the current quarter
The Company filed a current report on Form 8-K, Item 12, regarding a press release on May 2, 2003 announcing
operating results for the quarter ended March 30, 2003.
15
Table of Contents
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.
S
HELLS
S
EAFOOD
R
ESTAURANTS
, I
NC
.
(Registrant)
/s/ D
AVID
W. H
EAD
Date     May 13, 2003
David W. Head
President and Chief Executive Officer
/s/ W
ARREN
R. N
ELSON
Date     May 13, 2003
Warren R. Nelson
Executive Vice President and Chief Financial Officer
16
Table of Contents
CERTIFICATIONS
I, David W. Head, certify that:
1.     I have reviewed this quarterly report on Form 10-Q of Shells Seafood Restaurants, Inc.;
2.     Based on my
knowledge, this quarterly 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 quarterly report;
3.     Based on my knowledge, the financial statements, and other financial information included in this
quarterly 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 quarterly 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-14 and 15d-14) for
the registrant and we have:
(a)     designed such disclosure controls and procedures 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 quarterly report is being prepared;
(b)     evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation
Date"); and
(c)     presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, 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 in the design or
operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls;
and
(b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls;
and
6.     The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date:     May 13, 2003
/s/ D
AVID
W. H
EAD
David W. Head
President and Chief Executive Officer
17
Table of Contents
CERTIFICATIONS
I, Warren R. Nelson, certify that:
1.     I have reviewed this quarterly report on Form 10-Q of Shells Seafood Restaurants, Inc.;
2.     Based on my
knowledge, this quarterly 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 quarterly report;
3.     Based on my knowledge, the financial statements, and other financial information included in this
quarterly 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 quarterly 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-14 and 15d-14) for
the registrant and we have:
(a)     designed such disclosure controls and procedures 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 quarterly report is being prepared;
(b)     evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation
Date"); and
(c)     presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, 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 in the design or
operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls;
and
(b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls;
and
6.     The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date:     May 13, 2003
/s/ W
ARREN
R. N
ELSON
Warren R. Nelson
Chief Financial Officer
18