New York 13-3156768
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
85 Fifth Avenue, New York, New York 10003
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(Address of principal executive offices) (Zip 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 shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
See notes to consolidated condensed financial statements.
See notes to consolidated condensed financial statements.
ARK RESTAURANTS CORP. AND SUBSIDIARIES
1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The consolidated condensed financial statements have been prepared by Ark
Restaurants Corp. (the "Company"), without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position at March 27, 2004, results of operations
for the 13-week and 26-week periods ended March 27, 2004 and March 29, 2003, and
cash flows for the 26-week periods ended March 27, 2004 and March 29, 2003, have
been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted. These consolidated
condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K for the year ended September 27, 2003. The results of
operations for interim periods are not necessarily indicative of the operating
results to be expected for the full year.
Certain reclassifications have been made to the 2003 financial statements
to conform to the 2004 presentation.
2. RECENT RESTAURANT DISPOSITIONS
In fiscal 2003, the Company determined that its restaurant, Lutece, located
in New York City, had been impaired by the events of September 11th and the
continued weakness in the economy. Based upon the sum of the future undiscounted
cash flows related to the Company's long-lived fixed assets at Lutece, the
Company determined that impairment had occurred. To estimate the fair value of
such long-lived fixed assets, for determining the impairment amount, the Company
used the expected present value of the future cash flows. The Company projected
continuing negative operating cash flow for the foreseeable future with no value
for subletting or assigning the lease for the premises. As a result, the Company
determined that there was no value to the long-lived fixed assets. The Company
had an investment of $667,000 in leasehold improvements, furniture fixtures and
equipment. The Company believed that these assets would have nominal value upon
disposal and recorded an impairment charge of $667,000 during fiscal 2003. Due
to continued weak sales, the Company closed Lutece during the second quarter of
2004. The Company recorded net operating losses of $765,000 and $691,000,
respectively, during the 26-week and 13-week periods ended March 27, 2004. These
losses are included in losses from discontinued operations. The Company also
incurred a one-time charge of $470,000 related to pension plan contributions
required in connection with the closing of Lutece which is payable monthly over
a nine year period beginning May 17, 2004 and bears interest at a rate of
8% per annum.
On December 1, 2003, the Company sold a restaurant, Lorelei, for
approximately $850,000. The book value of inventory, fixed assets, intangible
assets and goodwill related to this entity was approximately $625,000. The
Company recorded a gain on the sale of approximately $225,000 during the first
quarter of fiscal 2004 which is included in losses from discountinued
operations. Net operating losses of $145,000 were recorded in discontinued
operations in the 26-week period ended March 27, 2004. Net operating losses of
$2,000 were recorded in losses from discontinued operations during the quarter
ended March, 27, 2004.
The Company's restaurant Ernie's, located on the upper west side of
Manhattan opened in 1982. As a result of a steady decline in sales, the Company
felt that a new concept was needed at this location. The restaurant was closed
June 16, 2003 and reopened in August 2003. Total conversion costs were
approximately $350,000. Sales at the new restaurant, La Rambla, failed to reach
the level sufficient to achieve the results the Company required. As a result,
the Company sold this restaurant on January 1, 2004 and realized a gain on the
sale of this restaurant of approximately $107,000. Net operating losses of
$116,000 were included in losses from discontinued operations during the during
the 26-week period ended March 27, 2004. Net operating losses of $55,000 were
recorded in discontinued operations during the 13-week period ended March 27,
2004.
The Company's restaurant Jack Rose located on the west side of Manhattan
has experienced weak sales for several years. In addition, this restaurant did
not fit the Company's desired profile of being in a landmark destination
location. As a result, the Company sold this restaurant on February 23, 2004.
The Company realized a loss on the sale of this restaurant of $175,000 which was
recorded during the second quarter of fiscal 2004. The Company recorded net
operating losses of $24,000 and $156,000, respectively, during the 26-week and
13-week periods ended March 27, 2004. These losses are included in losses from
discontinued operations.
3. LONG-TERM DEBT
As of March 27, 2004 the Company's Revolving Credit and Term Loan Facility
(the "Facility") with its main bank (Bank Leumi USA), included a $8,500,000
credit line to finance the development and construction of new restaurants and
for working capital purposes at the Company's existing restaurants. The credit
line has a maturity date of February 12, 2005. The Company had borrowings of
$2,925,000 outstanding on this facility at March 27, 2004. The loan bears
interest at 1/2% above the bank's prime rate and at March 27, 2004 the interest
rate on outstanding loans was 4.50%. The Facility also includes a $500,000
letter of credit facility for use in lieu of lease security deposits. The
Company had delivered $245,000 in irrevocable letters of credit on this
Facility. The Company generally is required to pay commissions of 1 1/2% per
annum on outstanding letters of credit.
The Company's subsidiaries each guaranteed the obligations of the Company
under the foregoing Facility and granted security interests in their respective
assets as collateral for such guarantees. In addition, the Company pledged stock
of such subsidiaries as security for obligations of the Company under such
Facility.
The Facility includes restrictions relating to, among other things,
indebtedness for borrowed money, capital expenditures, mergers, sale of assets,
dividends and liens on the property of the Company. The Facility also requires
the Company to comply with certain financial covenants at the end of each
quarter such as minimum cash flow in relation to the Company's debt service
requirements, ratio of debt to equity, and the maintenance of minimum
shareholders' equity. In December 2001 and April 2002, certain covenants in the
Facility were modified for fiscal 2002 and beyond. The Company violated a
covenant related to a limitation on cash flow during the quarter ended March 27,
2004. The Company received a waiver through June 26, 2004 from Bank Leumi USA
for the covenant with which it was not in compliance. The Company has
historically received waivers for any covenant violation.
In September 2001, a subsidiary of the Company entered into a lease
agreement with World Entertainment Centers LLC regarding the leasing of premises
at the Neonopolis Center at Freemont Street for the restaurant Saloon. The
Company provided a lease guaranty ("Guaranty") to induce the landlord to enter
into the lease agreement. The Guaranty is for a term of two years from the date
of the opening of the Saloon, May 2002, and during the first year of the
Guaranty is in the amount of $350,000. Upon the first anniversary of the opening
of the Saloon, May 2003, the Guaranty was reduced to $175,000 and will expire in
May 2004. As of March 27, 2004 the maximum potential amount of future payments
the Company could be required to make as a result of the Guaranty was $175,000.
4. RECEIVABLES FROM EMPLOYEES IN RESPECT OF STOCK OPTION EXERCISES
Receivables from employees in respect of stock option exercises includes
amounts due from officers and directors totaling $427,000 at March 27, 2004 and
$655,000 at September 27, 2003. Such amounts, which are due from the exercise of
stock options in accordance with the Company's Stock Option Plan are payable on
demand with interest at 1/2% above prime (4.5% at March 27, 2004).
5. INCOME (LOSS) PER SHARE OF COMMON STOCK
Net income (loss) per share is computed in accordance with SFAS No. 128,
Earnings Per Share, and is calculated on the basis of the weighted average
number of common shares outstanding during each period plus, for diluted
earnings per share, the additional dilutive effect of potential common stock.
Potential common stock using the treasury stock method consists of dilutive
stock options and warrants.
For the 13-week period ended March 27, 2004 options to purchase 320,000
shares of common stock at a price range of $6.30 to $10.00 were not included in
diluted earnings per share as their impact was antidilutive. For the 26-week
period ended March 27, 2004, options to purchase 320,000 shares of common stock
at a price range of $6.30 to $10.00 were included in diluted earnings per share.
For the 13-week period ended March 29, 2003, options to purchase 215,000 shares
of common stock at a price of $6.30 were included in diluted earnings per share.
Options to purchase 178,000 shares of common stock at a price range of $7.50 to
$10.00 were not included as their impact was antidilutive. For the 26-week
period ended March 29, 2003, options to purchase 393,000 shares of common stock
at a price range of $6.30 to $10.00 were not included as their impact was
antidilutive.
During the quarter ended March 27, 2004 employees exercised options to
purchase 147,000 shares of common stock at a price of $10.00 and 28,000 shares
of common stock at a price of $6.30. The Company received $1,648,000 as a result
of the exercise of these options. In accordance with the exercise of the stock
options, the Company derived a tax benefit of $304,000 during the period ended
March 27, 2004. Accordingly, the Company reduced its tax liability and increased
additional paid in capital for the same amount.
6. STOCK OPTIONS
SFAS No. 123, Accounting for Stock-Based Compensation, requires the Company
to disclose pro forma net income (loss) and pro forma earnings (loss) per share
information for employee stock option grants to employees as if the fair-value
method defined in SFAS No. 123 had been applied. The Company utilized the
Black-Scholes option-pricing model to quantify the pro forma effects on net
income (loss) and earnings (loss) per share of the options granted for the
quarters ended March 27, 2004 and March 29, 2003.
The weighted-average assumptions used for the 13-week and 26-week periods
ended March 27, 2004 and March 29, 2003 include risk free interest rates of
The pro forma impact is as follows:
7. RELATED PARTY TRANSACTIONS
Receivables due from officers and employees, excluding stock option
receivables, totaled $218,000 at March 27, 2004 and $255,000 at September 27,
2003. Such loans bear interest at the minimum statutory rate (1.58% at March 27,
2004).
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements. Certain of these risks and
uncertainties are discussed under the heading "forward looking statements" in
the Company's Annual Report on Form 10-K for the fiscal year ended September 27,
2003.
During the Company's second fiscal quarter ended March 27, 2004, the
Company sold or disposed of three restaurants. All revenue, cost and expense
items associated with these restaurants for the relevant periods of fiscal 2004
and 2003 have been reclassified in the Company's financial statements to
discontinued operations. These dispositions are discussed below in "Recent
Restaurant Dispositions."
Revenues
During the Company's second fiscal quarter of 2004, total revenues of $25,732,000
increased 10.0% compared to total revenues of $23,392,000 in the second fiscal
quarter of 2003. Revenues for the second fiscal quarter of 2004 were reduced
by $481,000 and revenues for the second fiscal quarter of 2003 were reduced
by $2,610,000 as a result of the sale of three restaurants and the closure
of one restaurant and their reclassification to discontinued operations. The
Company had a net loss of $114,000 in the second fiscal quarter of 2004 compared
to net income of $30,000 in the second fiscal quarter of 2003. Net income
was positively effected in the second fiscal quarter of 2003 due to the recovery
during this period of $366,000 in insurance proceeds for repairs to The Grill
Room, a restaurant located in the World Financial Center, which was damaged
in the attack on the World Trade Center on September 11, 2001, while net income
during the second fiscal quarter of 2004 was negatively effected by a one-time
charge of $470,000 related to pension plan contributions required in connection
with the closing of the Company's Lutece restaurant in New York City. These
items effecting net income are discussed below in "Costs and Expenses"
and "Recent Restaurant Dispositions".
Same store sales in Las Vegas increased by $1,735,000 or 11.1% in the second
fiscal quarter of 2004 compared to the second fiscal quarter of 2003 as a
result of continued strong business in Las Vegas, coupled with the addition
of 90 seats at Gallagher's Steakhouse in the New York - New York Hotel and
Casino and the opening of a new tower of hotel rooms at the Venetian Casino
Resort. Same store sales in New York increased $301,000 or 5.7% during the
second quarter as the New York market showed signs of recovery. Same store
sales in Washington D.C. increased by $314,000 or 13.1% during the second
quarter as tourism has shown improvement in that market. Company-wide same
store sales increased 10.1% for the second quarter.
During the Company's 26-week period ended March 27, 2004, total revenues
of $51,485,000 increased 9.4% compared to total revenues of $47,055,000 in
the 26-week period ended March 29, 2003. Revenues for this 26-week period
ended March 27, 2004 were reduced by $2,872,000 and revenues for the 26-week
period ended March 29, 2003 were reduced by $5,238,000 as a result of the
sale or closure of four restaurants and their reclassification to discontinued
operations. The Company had net income of $441,000 in the 26-week period ended
March 27, 2004 compared to a net loss of $85,000 for the 26-week period ended
March 29, 2003. Net income during these periods were likewise effected due
to the insurance recovery and required pension plan contributions discussed
above. During this period, same store sales in Las Vegas increased by 11.7%
compared to the 26-week period ended March 29, 2003, while same store sales
in New York and Washington DC increased by 1.6% and 9.1% respectively.
Costs and Expenses
Food and beverage costs for the second quarter of 2004 as a percentage of
total revenues were 26.0% compared to 24.4% in the second quarter of 2003.
These costs for the 26-weeks ended March 27, 2004 as a percentage of total
revenues were 25.8% compared to 24.6% in the 26-week period ended March 29,
2003. Increased food costs during this period had a negative effect on this
category of expenses. Although the Company had not raised the price of menu
items offered to its customers for several years due to business conditions,
the impact of the increase in food costs has caused the Company to review
the price of menu items offered to its customers. The Company has determined
to increase the price of menu items offered to its customers and the impact
of these price increases will be realized in the later half of the third quarter
of 2004 in specific locations where the Company believes consumer demand has
created some elasticity.
Payroll expenses as a percentage of total revenues were 34.0% for the second
quarter of 2004 as compared to 34.7% in the second quarter of 2003. Payroll
expenses as a percentage of total revenues were 33.6% for the 26-week period
ended March 27, 2004 as compared to 34.6% in the 26-week period ended March
29, 2003. Due to the increase in sales during the Company's second fiscal
quarter of 2004, the Company had increased its payroll expenses incrementally
during this same period. The Company continually evaluates its payroll expenses
as they relate to sales. Occupancy expenses as a percentage of total revenues
were 15.4% during the second fiscal quarter of 2004 compared to 16.0% in the
second quarter of 2003. Occupancy expenses as a percentage of total revenues
were 15.7% during the 26-week period ended March 27, 2004 compared to 16.3%
in the 26-week period ended March 29, 2003. Other operating costs and expenses
as a percentage of total revenues were 12.2% for the second quarter of 2004,
which is the same percentage as in the second quarter of 2003. These costs
and expenses as a percentage of total revenues were 12.4% for the 26-week
period ended March 27, 2004 compared to 12.7% during the 26-week period ended
March 29, 2003. These expenses increased $470,000 during the second fiscal
quarter of 2004 due to a one-time expense related to pension plan contributions
the Company is required to make in connection with the closing of the Company's
Lutece restaurant in New York City. In contrast, these expenses were decreased
by $366,000 during the second quarter of 2003 due to insurance proceeds recovered
by the Company for repairs to The Grill Room, a restaurant located in the
World Financial Center, which was damaged in the attack on the World Trade
Center on September 11, 2001. General and administrative expenses as a percentage
of total revenues were 5.8% in the second quarter of 2004 compared to 5.7%
in last year's second quarter. These expenses as a percentage of total revenues
were 5.7% in the 26-week period ended March 27, 2004 compared to 6.2% in the
26-week period ended March 29, 2003. The decrease in payroll, occupancy and
other operating costs and expenses as a percentage of total revenues is primarily
due to the respective 10.0% and 9.4% increases in total revenues during the
13-week and 26-week periods ended March 27, 2004. The Company expects to see
continued favorable trends in these and other expense items with increased
sales.
Interest expense was $85,000 for the second quarter of 2004 compared to $206,000
for the second quarter of 2003 and was $178,000 for the 26-week period ended
March 27, 2004 compared to $428,000 for the 26-week period ended March 29, 2003.
The decrease is due to lower outstanding borrowings on the Company's credit
facility. As of March 27, 2004 the Company had borrowings of $2,925,000 on its
credit facility compared to $16,008,000 as of March 29, 2003.
Income Taxes
The provision for income taxes reflects Federal income taxes calculated
on a consolidated basis and state and local income taxes calculated by each
New York subsidiary on a non-consolidated basis. Most of the restaurants owned
or managed by the Company are owned or managed by separate subsidiaries.
For state and local income tax purposes, the losses incurred by a subsidiary
may only be used to offset that subsidiary's income, with the exception of
the restaurants operating in the District of Columbia. Accordingly, the Company's
overall effective tax rate has varied depending on the level of losses incurred
at individual subsidiaries.
The Company's overall effective tax rate in the future will be affected
by factors such as the level of losses incurred at the Company's New York
facilities, which cannot be consolidated for state and local tax purposes,
pre-tax income earned outside of New York City, the utilization of state and
local net operating loss carryforwards and the utilization of FICA tax credits.
Nevada has no state income tax and other states in which the Company operates
have income tax rates substantially lower in comparison to New York. In order
to utilize more effectively tax loss carry forwards at restaurants that were
unprofitable, the Company has merged certain profitable subsidiaries with
certain loss subsidiaries.
The Revenue Reconciliation Act of 1993 provides tax credits to the Company
for FICA taxes paid by the Company on tip income of restaurant service personnel.
The Company estimates that this credit will be approximately $500,000 in the
2004 fiscal year.
Liquidity and Resources of Capital
The Company's primary source of capital has been cash provided by operations
and funds available from its main bank, Bank Leumi USA. The Company from time
to time also utilizes equipment financing in connection with the construction
of a restaurant and seller financing in connection with the acquisition of
a restaurant. The Company utilizes capital primarily to fund the cost of developing
and opening new restaurants, acquiring existing restaurants owned by others
and remodeling existing restaurants owned by the Company.
The Company had a working capital deficit of $6,701,000 at March 27, 2004
as compared to a working capital deficit of $4,802,000 at September 27, 2003.
The restaurant business does not require the maintenance of significant inventories
or receivables; thus the Company is able to operate with negative working
capital.
As of March 27, 2004 the Company's Revolving Credit and Term Loan Facility
(the "Facility") with its main bank (Bank Leumi USA), included a
$8,500,000 credit line to finance the development and construction of new
restaurants and for working capital purposes at the Company's existing restaurants.
The credit line has a maturity date of February 12, 2005. The Company had
borrowings of $2,925,000 outstanding on this Facility at March 27, 2004. The
loan bears interest at 1/2% above the bank's prime rate and at March 27, 2004
the interest rate on outstanding loans was 4.50%. The Facility also includes
a $500,000 letter of credit facility for use in lieu of lease security deposits.
The Company had delivered $245,000 in irrevocable letters of credit on this
Facility. The Company generally is required to pay commissions of 1 1/2% per
annum on outstanding letters of credit.
The Company's subsidiaries each guaranteed the obligations of the Company
under the foregoing Facility and granted security interests in their respective
assets as collateral for such guarantees. In addition, the Company pledged
stock of such subsidiaries as collateral for obligations of the Company under
such Facility.
The Facility includes restrictions relating to, among other things, indebtedness
for borrowed money, capital expenditures, mergers, sale of assets, dividends
and liens on the property of the Company. The Facility also requires the Company
to comply with certain financial covenants at the end of each quarter such
as minimum cash flow in relation to the Company's debt service requirements,
ratio of debt to equity, and the maintenance of minimum shareholders' equity.
In December 2001 and April 2002, certain covenants in the Facility were modified
for fiscal 2002 and beyond. The Company violated a covenant related to cash
flow and a covenant related to consolidated indebteness during the quarter
ended March 27, 2004. The Company received a waiver through May 11, 2004 from
Bank Leumi USA for the covenants with which it was not in compliance. The
Company has historically received waivers for any covenant violation.
In April 2000, the Company borrowed $1,570,000 from its main bank at an
interest rate of 8.8% to refinance the purchase of various restaurant equipment
at the Venetian. The note, which is payable in 60 equal monthly installments
through May 2005, is secured by such restaurant equipment. At March 27, 2004
the Company had $430,000 outstanding on this note.
The Company entered into a sale and leaseback agreement with GE Capital
for $1,652,000 in November 2000 to refinance the purchase of various restaurant
equipment at its food and beverage facilities at the Aladdin hotel in Las
Vegas, Nevada. The lease bears interest at 8.65% per annum and is payable
in 48 equal monthly installments of $31,785 until maturity in November 2004
at which time the Company has an option to purchase the equipment for $519,440.
Alternatively, the Company can extend the lease for an additional 12 months
at the same monthly payment until maturity in November 2005 and repurchase
the equipment at such time for $165,242. The Company originally accounted
for this agreement as an operating lease and did not record the assets or
the lease liability in the financial statements. During the year ended September
29, 2001, the Company recorded the entire amount payable under the lease as
a liability of $1,600,000 based on the anticipated abandonment of the Aladdin
operations. In 2002, the operations at the Aladdin were abandoned and at March
27, 2004, $717,000 remains in accrued expenses and other current liabilities
representing future operating lease payments.
During the 26-week period ended March 27, 2004 the Company issued 175,000
shares of common stock to various employees upon their exercise of outstanding
stock options. The Company realized proceeds of $1,646,000 from these issuances
of common stock.
Restaurant Expansion
The Company has committed to build and operate fast food facilities at two
casino properties operated by the Seminole Indian Tribe in Tampa and Hollywood,
Florida. On February 27, 2004 the Company opened five fast food facilities
at the Tampa property. On May 7, 2004 the Company opened eight fast food facilities
at the Hollywood property. The Company has partners in this venture who assumed
the financial risk.
Recent Restaurant Dispositions
In fiscal 2003, the Company determined that its restaurant, Lutece, located
in New York City, had been impaired by the events of September 11th and the
continued weakness in the economy. Based upon the sum of the future undiscounted
cash flows related to the Company's long-lived fixed assets at Lutece, the
Company determined that impairment had occurred. To estimate the fair value
of such long-lived fixed assets, for determining the impairment amount, the
Company used the expected present value of the future cash flows. The Company
projected continuing negative operating cash flow for the foreseeable future
with no value for subletting or assigning the lease for the premises. As a
result, the Company determined that there was no value to the long-lived fixed
assets. The Company had an investment of $667,000 in leasehold improvements,
furniture, fixtures and equipment. The Company believed that these assets
would have nominal value upon disposal and recorded an impairment charge of
$667,000 during fiscal 2003. Due to continued weak sales, the Company closed
Lutece during the second quarter of 2004. The Company recorded net operating
losses of $765,000 and $691,000, respectively, during the 26-week and 13-week
periods ended March 27, 2004. These losses are included in losses from discontinued
operations. The Company also incurred a one-time charge of $470,000 related
to pension plan contributions required in connection with the closing of Lutece
which is payable monthly over a nine year period beginning May 17, 2004 and
bears interest at a rate of 8% per annum.
On December 1, 2003, the Company sold a restaurant, Lorelei, for approximately
$850,000. The book value of inventory, fixed assets, intangible assets and
goodwill related to this entity was approximately $625,000. The Company recorded
a gain on the sale of approximately $225,000 during the first quarter of fiscal
2004 which is included in losses from discountinued operations. Net operating
losses of $145,000 were recorded in discountinued operations in the in the
26-week period ended March 27, 2004. Net operating losses of $2,000 were recorded
in losses from discontinued operations during the quarter ended March, 27,
2004.
The Company's restaurant Ernie's, located on the upper west side of Manhattan
opened in 1982. As a result of a steady decline in sales, the Company felt
that a new concept was needed at this location. The restaurant was closed
June 16, 2003 and reopened in August 2003. Total conversion costs were approximately
$350,000. Sales at the new restaurant, La Rambla, failed to reach the level
sufficient to achieve the results the Company required. As a result, the Company
sold this restaurant on January 1, 2004 and realized a gain on the sale of
this restaurant of approximately $107,000. Net operating losses of $116,000
were included in losses from discontinued operations during the during the
26-week period ended March 27, 2004. Net operating losses of $55,000 were
recorded in discountinued operations during the 13-week period ended March
27, 2004.
The Company's restaurant Jack Rose located on the west side of Manhattan has
experienced weak sales for several years. In addition, this restaurant did not
fit the Company's desired profile of being in a landmark destination location.
As a result, the Company sold this restaurant on February 23, 2004. The Company
realized a loss on the sale of this restaurant of $175,000 which was recorded
during the second quarter of fiscal 2004. The Company recorded net operating
losses of $24,000 and $156,000 respectively, during the 26-week and 13-week
periods ended March 27, 2004. These losses are included in losses from discontinued
operations.
Terrorism, International Unrest and Decline in Tourism
The terrorist attacks on the World Trade Center in New York and the Pentagon
in Washington, D.C. on September 11, 2001 had a material adverse effect on
the Company's revenues. As a result of the attacks, one Company restaurant,
The Grill Room, located at 2 World Financial Center, which is adjacent to
the World Trade Center, experienced some damage. The Grill Room was closed
from September 11, 2001 and reopened in early December 2002.
The Company's restaurants in New York, Las Vegas, Washington D.C. and Florida
benefit from tourist traffic. Though the Las Vegas market has shown resiliency,
the sluggish economy and the lingering effects of September 11, 2001 have
had an adverse effect on the Company's restaurants. Recovery depends upon
a general improvement in economic conditions and the public's willingness
and inclination to resume vacation and convention travel. Additional acts
of terrorism in the United States or substantial international unrest may
have a material adverse effect on the Company's business and revenues.
Critical Accounting Policies
The preparation of financial statements requires the application of certain
accounting policies, which may require the Company to make estimates and assumptions
of future events. In the process of preparing its consolidated financial statements,
the Company estimates the appropriate carrying value of certain assets and
liabilities, which are not readily apparent from other sources. The primary
estimates underlying the Company's financial statements include allowances
for potential bad debts on accounts and notes receivable, the useful lives
and recoverability of its assets, such as property and intangibles, fair values
of financial instruments, the realizable value of its tax assets and other
matters. Management bases its estimates on certain assumptions, which they
believe are reasonable in the circumstances, and actual results, could differ
from those estimates. Although management does not believe that any change
in those assumptions in the near term would have a material effect on the
Company's consolidated financial position or the results of operation, differences
in actual results could be material to the financial statements.
The Company's critical accounting policies are described in the Company's
Form 10-K for the year ended September 27, 2003. There have been no significant
changes to such policies during fiscal 2004.
Recent Accounting Developments
The Financial Accounting Standards Board has recently issued the following
accounting pronouncements:
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
supersedes existing accounting literature dealing with impairment and disposal
of long-lived assets, including discontinued operations. It addresses financial
accounting and reporting for the impairment of long-lived assets and for long-lived
assets to be disposed of and expands current reporting for discontinued operations
to include disposals of a "component" of an entity that has been
disposed of or is classified as held for sale. The Company adopted this standard
in the first quarter of fiscal year 2003. The adoption of this standard did
not have a material impact on the Company's financial statements; however,
the Company will be required to separately disclose the results of closed
restaurants as discontinued operations in the future.
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities,
was issued in July 2002. SFAS No. 146 replaces current accounting literature
and requires the recognition of costs associated with exit or disposal activities
when they are incurred rather than at the date of commitment to an exit or
disposal plan. The provisions of the statement are effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of this
statement did not have a material effect on the Company's financial statements.
FIN No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, was issued in November
2002. This interpretation elaborates on the disclosures to be made by a guarantor
in its interim and annual financial statements about its obligations under
certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for
the fair value of the obligation undertaken in issuing the guarantee. The
initial recognition and initial measurement provisions of FIN No. 45 are applicable
on a prospective basis to guarantees issued or modified after December 31,
2002, while disclosure requirements are effective for interim or annual periods
ending after December 15, 2002. The Company adopted this standard in the first
quarter of fiscal year 2003. The adoption of this standard did not have a
material impact on the Company's financial statements.
SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure
was issued in December 2002. This statement amends SFAS No. 123, Accounting
for Stock-Based Compensation, providing alternative methods of transition
for a voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure requirements
of SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
has adopted the disclosure-only provisions of SFAS No. 123.
FIN No. 46, Consolidation of Variable Interest Entities, was issued on January
17, 2003. Such Interpretation addresses consolidation of entities that are
not controllable through voting interests or in which the equity investors
do not bear the residual economic risks and rewards. The Interpretation provides
guidance related to identifying variable interest entities and determining
whether such entities should be consolidated. In October 2003, the effective
date of FIN No. 46 was deferred for variable interests held by public companies
in all entities that were acquired prior to February 1, 2003. The deferral
revised the effective date for consolidation of these entities for the Company
to the quarter ended December 27, 2003. The adoption of this standard did
not have a material effect on the Company's financial statements.
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments
and Hedging Activities" amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other contracts,
and for hedging activities under SFAS No. 133. SFAS No. 149 is generally effective
for contracts entered into or modified after June 30, 2003 (with a few exceptions)
and for hedging relationships designated after June 30, 2003. The adoption
of this statement did not have a material impact on the Company's financial
statements.
SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity" improves the accounting for certain financial
instruments that, under previous guidance, issuers could account for as equity.
The new statement requires that those instruments be classified as liabilities
in statements of financial position. This statement was adopted by the Company
in the quarter ended September 27, 2003, and it did not have a material impact
on the Company's financial statements.
The Company is exposed to market risk from changes in interest rates with
respect to its outstanding credit agreement with its main bank, Bank Leumi
USA. Outstanding loans under the agreement bear interest at prime plus one-half
percent. Based upon a $2,925,000 (the outstanding balance at March 27, 2004)
term loan and a 100 basis point change in interest rates, annual interest
expense would change by $29,256.
Based on their evaluation, the Company's principal executive officer and
principal financial officer have concluded that the Company's disclosure controls
and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) are effective
as of March 27, 2004 to ensure that information required to be disclosed by
the Company in reports that the Company files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
There were no changes in the Company's internal control over financial reporting
during the second quarter of fiscal year 2004 that materially affected or
are reasonably likely to materially affect the Company's internal control
over financial reporting.
The Company held its annual meeting of stockholders on March 11, 2004. The
following matters were submitted to a vote of the Company's stockholders:
(i) The election of seven directors;
(ii) The approval of the Company's 2004 Stock Option Plan; and
(iii) The ratification of the appointment of JH Cohn LLP as independent
auditors for the 2004 fiscal year.
The Company's stockholders elected a Board of Directors consisting of Ernest
Bogen, Michael Weinstein, Robert Towers, Bruce Lewin, Marcia Allen, Paul Gordon
and Steven Shulman. Each director received at least 90% of the votes cast
at the meeting.
The Company's stockholders approved the Company's 2004 Stock Option Plan
by a vote of 1,574,981 for, 470,062 against, 1,023,537 non-votes and 750 abstentions.
The Company's stockholders ratified the Board of Director's appointment
of JH Cohn LLP as the Company's independent auditors for the 2004 fiscal year
by a vote of 3,063,670 for, 5,010 against and 650 abstentions.
(a) Exhibits
31.1 Certification of Principal Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32 Certificate of Chief Executive and Chief Financial Officers
(b) Reports on Form 8-K
A Current Report on Form 8-K with a report date of February 9, 2004 was
filed during the second quarter of fiscal 2004 to provide the full text of
the press release announcing the Company's first quarter financial results
for 2004.
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.
Date: May 11, 2004
Class Outstanding shares at April 29, 2004
----- ------------------------------------
(Common stock, $.01 par value) 3,382,399
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars and shares in Thousands)
March 27, September 27,
2004 2003
----------- -------------
ASSETS (unaudited)
CURRENT ASSETS:
Cash $ 251 $ 486
Accounts receivable 1,810 1,677
Employee receivables 218 255
Inventories 1,820 1,997
Current portion of long-term receivables 202 193
Prepaid expenses and other current assets 1,097 886
Prepaid income taxes 117 --
Deferred income taxes 281 281
------- -------
Total current assets 5,796 5,775
------- -------
LONG-TERM RECEIVABLES 1,176 1,291
------- -------
FIXED ASSETS
Leasehold improvements 31,424 34,385
Furniture, fixtures and equipment 27,677 29,427
------- -------
59,101 63,812
Less accumulated depreciation and
amortization 34,671 36,748
------- -------
24,430 27,064
INTANGIBLE ASSETS, NET 3,992 3,988
DEFERRED INCOME TAXES 4,494 4,622
OTHER ASSETS 972 895
------- -------
TOTAL ASSETS $40,860 $43,635
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 3,661 $ 3,443
Accrued expenses and other current
liabilities 5,545 5,586
Accrued income taxes -- 1,198
Current maturities of long-term debt 3,291 350
------- -------
Total current liabilities 12,497 10,577
LONG-TERM DEBT - net of current maturities 64 7,226
OPERATING LEASE DEFERRED CREDIT 852 1,006
------- -------
TOTAL LIABILITIES 13,413 18,809
------- -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share -
authorized, 10,000 shares; issued,
5,424 and 5,249 shares 55 52
Additional paid-in capital 16,692 14,743
Treasury stock, 2,068 shares (8,351) (8,351)
Receivables from Employees from stock
option exercises (427) (655)
Retained earnings 19,478 19,037
------- -------
Total shareholders' equity 27,447 24,826
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $40,860 $43,635
======= =======
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands, Except per share amounts)
13 Weeks Ended 26 Weeks Ended
--------------------- ---------------------
March 27, March 29, March 27, March 29,
2004 2003 2004 2003
--------- --------- --------- ---------
TOTAL REVENUES $25,732 $23,392 $51,485 $47,055
------- ------- ------- -------
COST AND EXPENSES:
Food and beverage cost of sales 6,692 5,715 13,306 11,584
Payroll expenses 8,751 8,111 17,297 16,287
Occupancy expenses 3,962 3,751 8,069 7,647
Other operating costs and expenses 3,143 2,862 6,376 5,989
General and administrative expenses 1,487 1,344 2,960 2,934
Depreciation and amortization expenses 1,039 1,017 2,048 2,023
------- ------- ------- -------
Total costs and expenses 25,074 22,800 50,056 46,464
------- ------- ------- -------
OPERATING INCOME 658 592 1,429 591
------- ------- ------- -------
OTHER (INCOME) EXPENSE:
Interest expense, net 54 122 113 337
Other income (171) (1) (256) (267)
------- ------- ------- -------
Total other (income) expense (117) 121 (143) 70
------- ------- ------- -------
Income from continuing operations
before income taxes 775 471 1,572 521
Provision for income taxes 271 179 550 198
------- ------- ------- -------
Income from continuing operations 504 292 1,022 323
DISCONTINUED OPERATIONS:
Loss from operations of discountinued restaurants
(including gains on disposal of $108,000 for the
13-weeks ended 3/27/2004 and $332,000 for the
26-weeks ended 3/27/2004, respectively) (951) (422) (893) (659)
Benefit for income taxes (333) (160) (312) (251)
------- ------- ------- -------
Loss from discontinued operations (618) (262) (581) (408)
NET INCOME (LOSS) $ (114) $ 30 $ 441 $ (85)
======= ======= ======= =======
PER SHARE INFORMATION - BASIC AND DILUTED:
Continuing operations basic $ .15 $ .09 $ .32 $ .10
Discountinued operations basic $ (.19) $ (.08) $ (.18) $ (.13)
------- ------- ------- -------
Net basic $ (.04) $ .01 $ .14 $ (.03)
======= ======= ======= =======
Continuing operations diluted $ .15 $ .09 $ .30 $ .10
Discontinued operations diluted $ (.19) $ (.08) $ (.17) $ (.13)
------- ------- ------- -------
Net diluted $ (.04) $ .01 $ .13 $ (.03)
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF SHARES-BASIC 3,267 3,181 3,224 3,181
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF SHARES-DILUTED 3,267 3,188 3,371 3,181
======= ======= ======= =======
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
26 Weeks Ended
---------------------
March 27, March 29,
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 1,022 $ 323
Adjustments to reconcile net income from continuing operations
to net cash provided by (used in) operating activities:
Deferred income taxes 128 --
Depreciation and amortization 2,048 2,023
Operating lease deferred credit (7) 9
Changes in operating assets and liabilities:
Receivables (112) (60)
Employee receivables 37 91
Inventories 59 (39)
Prepaid expenses and other current assets (497) (428)
Prepaid income taxes 187 (307)
Other assets (213) (62)
Accounts payable - trade 309 (551)
Accrued income taxes (1,198) --
Accrued expenses and other current liabilities 239 (1,666)
------- -------
Net cash provided by (used in) operating activities 2,002 (667)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (872) (592)
Payments received on long-term receivables 106 72
------- -------
Net cash used in investing activities (766) (520)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt -- 1,778
Principal payments on long-term debt (4,221) (836)
Exercise of stock options 1,648 --
Proceeds from stock option receivables 228 10
------- -------
Net cash provided by (used in) in financing activities (2,345) 952
------- -------
NET CASH USED IN CONTINUING OPERATIONS (1,109) (235)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS 874 7
------- -------
NET DECREASE IN CASH (235) (228)
CASH, Beginning of period 486 819
------- -------
CASH, End of period $ 251 $ 591
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 113 $ 428
======= =======
Income taxes $ 1,198 $ 125
======= =======
March 27, 2003
(Unaudited)
4.25%, volatility of 35% and no dividends. An expected life of four years for
all options was used. The weighted average grant date fair value of options
granted and outstanding during all the above mentioned periods was $2.05.
(in Thousands, Except per Share Amounts)
-----------------------------------------------------------------
13 Weeks ended 13 Weeks ended 26 Weeks ended 26 Weeks ended
March 27, 2004 March 29, 2003 March 27, 2004 March 29, 2003
-------------- -------------- -------------- --------------
Net income (loss) as reported $ (114) $ 30 $ 441 $ (85)
Deduct stock based employee compensation expense
computed under the fair value method $ (19) $ (28) $ (39) $ (55)
Net income (loss) - pro forma $ (133) $ 2 $ 402 $ (140)
Earnings (loss) per share as reported - net basic $(0.04) $0.01 $0.14 $(0.03)
Earnings (loss) per share as reported - net
diluted $(0.04) $0.01 $0.12 $(0.04)
Earnings (loss) per share pro forma - net basic $(0.04) $0.00 $0.12 $(0.04)
Earnings (loss) per share pro forma - net diluted $(0.04) $0.00 $0.12 $(0.04)
By: /s/ Michael Weinstein
-------------------------------------
Michael Weinstein
President & Chief Executive Officer
By: /s/ Robert J. Stewart
-------------------------------------
Robert Stewart
Chief Financial Officer
I, Michael Weinstein, President and Chief Executive Officer of Ark Restaurants Corp., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ark Restaurants Corp.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's accountants and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: May 11, 2004
/s/ MICHAEL WEINSTEIN ----------------------------------------- Michael Weinstein President and Chief Executive Officer |
I, Robert Stewart, Chief Financial Officer of Ark Restaurants Corp., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ark Restaurants Corp.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's accountants and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: May 11, 2004
/s/ Robert Stewart ----------------------------------------- Robert Stewart Chief Financial Officer |
The following statement is being made to the Securities and Exchange Commission solely for purposes of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), which carries with it certain criminal penalties in the event of a knowing or willful misrepresentation.
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re: Ark Restaurants Corp.
Ladies and Gentlemen:
In accordance with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 USC 1350), each of the undersigned hereby certifies that:
(i) this report on Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(ii) the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Ark Restaurants Corp.
Dated as of this 11th day of May 2004.
/s/ Michael Weinstein /s/ Robert Stewart -------------------------------------- -------------------------- Michael Weinstein Robert Stewart President and Chief Executive Officer Chief Financial Officer |