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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 1, 2005
Commission file number 0-14030
ARK RESTAURANTS CORP.
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(Exact name of registrant as specified in its charter)
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)
Registrant's telephone number, including area code: (212) 206-8800
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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
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Class Outstanding shares at
February 3, 2004 (Common stock, $.01 par value) 3,415,199
Class Outstanding shares at February 3, 2004
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(Common stock, $.01 par value) 3,415,199
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ARK RESTAURANTS CORP. AND SUBSIDIARIES
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CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars and shares in Thousands)
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January 1, October 2,
2005 2004
ASSETS (unaudited)
CURRENT ASSETS:
Cash $ 1,375 $ 4,435
Accounts receivable 3,576 2,171
Employee receivables 227 330
Current portion of long-term receivables 182 208
Inventories 1,724 1,731
Prepaid expenses and other current assets 1,650 1,615
Assets held for sale 125 128
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Total current assets 8,859 10,618
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LONG-TERM RECEIVABLES 1,028 1,082
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FIXED ASSETS
Leasehold improvements 30,194 29,720
Furniture, fixtures and equipment 27,245 27,178
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57,439 56,898
Less accumulated depreciation and
amortization 34,321 33,437
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23,118 23,461
INTANGIBLE ASSETS, NET 3,676 3,739
DEFERRED INCOME TAXES 5,413 5,221
OTHER ASSETS 751 773
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TOTAL ASSETS $42,845 $44,894
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable-trade $ 1,853 $ 2,230
Accrued expenses and other current liabilities 4,307 4,781
Accrued income taxes 733 2,093
Current maturities of long-term debt 220 251
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Total current liabilities 7,113 9,355
OPERATING LEASE DEFERRED CREDIT 862 899
LIABILITIES HELD FOR DISPOSITION 418 440
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TOTAL LIABILITIES 8,393 10,694
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, per value $.01 per share -
authorized, 10,000 shares
issued, 5,476 and 5,462 shares 55 54
Additional paid-in capital 17,401 17,202
Treasury stock, 2,068 shares (8,386) (8,386)
Receivables from employees from stock option exercises (309) (364)
Retained earnings 25,691 25,694
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Total shareholders' equity 34,452 34,200
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $42,845 $44,894
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See notes to consolidated condensed financial statements.
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ARK RESTAURANTS CORP. AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands, Except per share amounts)
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13 Weeks Ended
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January 1, December 27,
2005 2003
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TOTAL REVENUES $26,882 $24,672
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COST AND EXPENSES:
Food and beverage cost of sales 6,686 6,342
Payroll expenses 8,653 8,185
Occupancy expenses 4,117 3,972
Other operating costs and expenses 3,106 3,087
General and administrative expenses 1,820 1,473
Depreciation and amortization 947 996
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Total costs and expenses 25,329 24,055
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OPERATING INCOME 1,553 617
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OTHER (INCOME) EXPENSE:
Interest (income) expense, net (25) 58
Other income (69) (84)
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Total other (income) expense (94) (26)
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Income from continuing operations
before income taxes 1,647 643
Provision for income taxes 478 225
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Income from continuing operations 1,169 418
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DISCONTINUED OPERATIONS:
Income from operations of discontinued restaurants
(including gain on disposal of $225,000 for the 13-weeks ended 21 213
12/27/2003)
Provision for income taxes 6 75
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Income from discontinued operations 15 138
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NET INCOME $ 1,184 $ 556
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PER SHARE INFORMATION - BASIC AND DILUTED
Continuing operations basic $ .34 $ .13
Discontinued operations basic $ .01 $ .05
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Basic $ .35 $ .18
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Continuing operations diluted $ .33 $ .13
Discontinued operations diluted $ .01 $ .04
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Diluted $ .34 $ .17
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WEIGHTED AVERAGE NUMBER OF SHARES-BASIC 3,395 3,181
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES-DILUTED 3,533 3,322
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See notes to consolidated condensed financial statements.
-3-
ARK RESTAURANTS CORP. AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
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13 Weeks Ended
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January 1, December 27,
2005 2003
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 1,169 $ 418
Adjustments to reconcile net income from continuing operations to net
cash used in operating activities:
Deferred income taxes (79) 177
Depreciation and amortization 947 996
Operating lease deferred credit (37) (116)
Changes in operating assets and liabilities:
Receivables (1,405) (604)
Employee receivables 103 3
Inventories 7 172
Prepaid expenses and other current assets (35) 3
Other assets 22 (5)
Accounts payable - trade (377) 296
Accrued income taxes (1,360) (987)
Accrued expenses and other current liabilities (474) (582)
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Net cash used in operating activities (1,519) (229)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (542) (65)
Additions to intangible assets (28)
Payments received on long-term receivables 80 45
Advances to affiliates - (1,000)
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Net cash used in investing activities (462) (1,048)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - 801
Principal payments on long-term debt (31) (85)
Dividends paid (1,187) -
Exercise of stock options 88 -
Proceeds from stock option receivables 55 4
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Net cash provided by (used in) in financing activities (1,075) 720
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NET CASH USED IN CONTINUING OPERATIONS (3,056) (557)
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS (4) 500
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NET DECREASE IN CASH (3,060) (57)
CASH, Beginning of period 4,435 486
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CASH, End of period $ 1,375 $ 429
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 3 $ 95
======= =======
Income taxes $ 1,920 $ 1,105
======= =======
See notes to consolidated condensed financial statements.
-4-
ARK RESTAURANTS CORP. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
January 1, 2005
(Unaudited)
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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 January 1, 2005, results
of operations and cash flows for the 13-week periods ended January 1, 2005 and
December 27, 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 October 2, 2004. 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 2004 financial
statements to conform to the 2005 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 operating losses
of $55,000 during the 13-week period ended January 1, 2005 and $74,000 in the
comparable prior year period. These losses are included in income from
discontinued operations.
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 income from discontinued operations.
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 $214,000 during the second quarter of
fiscal 2004 which is included in income from discontinued operations.
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 $137,000
which was recorded during the second quarter of fiscal 2004.
The Company's restaurant America, located in New York City, has
experienced declining sales for several years. In March 2004, the Company
entered into a new lease for this restaurant at a significantly increased rent.
The Company entered into this lease with the belief that due to the location and
the uniqueness of the space the lease had value. On January 19, 2005, the
Company signed a definitive agreement for the sale of this restaurant and
scheduled a closing of this sale in March 2005. The carrying amount of the fixed
assets held for sale was approximately $125,000 as of January 1, 2005. Net
income of $76,000 has been included in discontinued operations for the 13-week
period ended January 1, 2005 and $155,000 in the comparable prior year quarter.
The Company expects the sale of this restaurant to be completed during the
second quarter of fiscal 2005.
-5-
3. CREDIT FACILITY
As of January 1, 2005, the Company's Revolving Credit and Term Loan
Facility (the "Facility") with its main bank (Bank Leumi USA), included an
$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 matured on February 12, 2005. The Company had no
borrowings outstanding on this facility at January 1, 2005. Borrowings on the
Facility bore interest at 1/2% above the bank's prime rate. The Facility also
included a $500,000 letter of credit facility for use in lieu of lease security
deposits. The Company had delivered $354,000 in irrevocable letters of credit on
this Facility. The Company is currently negotiating a new facility with its main
bank which will only be a letter of credit facility. The Company generally has
been required to pay commissions of 1 1/2% per annum on outstanding letters of
credit.
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 $309,000 at January 1,
2005 and $364,000 at October 2, 2004. 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 (5.25% at January 1,
2005).
5. INCOME PER SHARE OF COMMON STOCK
Basic net income 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. Diluted net income
per share reflects the additional dilutive effect of potential common stock.
Potential common stock is computed using the treasury stock method for dilutive
stock options and warrants.
For the 13-week period ended January 1, 2005 options to purchase
358,000 shares of common stock at a price range of $6.30 to $29.60 were included
in diluted income per share. For the 13-week period ended December 27, 2003,
options to purchase 393,000 shares of common stock at a price of $6.30 to $10.00
were included in diluted income per share.
During the quarter ended January 1, 2005, employees exercised options
to purchase 14,000 shares of common stock at a price of $6.30. The Company
received $88,000 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
$112,000 during the period ended January 1, 2005. Accordingly, the Company
reduced its tax liability and increased additional paid-in capital for the same
amount.
6. STOCK OPTIONS
The Company uses the intrinsic value-based method for employee 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 and earnings per share of the options granted for the quarters ended
January 1, 2005 and December 27, 2003.
-6-
On December 21, 2004, the Company granted options to employees to
purchase 194,000 shares of common stock at $29.60 per share. These options will
vest after two years and expire ten years after the date of grant. The
assumptions used for the 13-week period ended January 1, 2005 for options
granted on December 21, 2004 included a risk-free interest rate of 3.37%,
volatility of 37%, a dividend yield of 3% and an expected life of three
years.
The pro forma impact is as follows:
(in thousands, except per share amounts)
----------------------------------------
13 Weeks ended 13 Weeks ended
January 1, 2005 December 27, 2003
Net income as reported $ 1,184 $ 556
Deduct stock based employee compensation expense
computed under the fair value method $ (38) $ (19)
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Net income - pro forma $ 1,146 $ 537
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Earnings per share as reported -basic $ 0.35 $ 0.18
Earnings per share as reported - diluted $ 0.34 $ 0.17
Earnings per share pro forma - basic $ 0.34 $ 0.17
Earnings per share pro forma - diluted $ 0.32 $ 0.16
As a result of amendments to SFAS 123, the Company will be required to expense
the fair value of employee stock options beginning with its fiscal quarter
ending September 30, 2005.
7. DIVIDENDS
A quarterly cash dividend in the amount of $1,187,000, or $0.35 per share, was
paid on November 1, 2004. In addition, another quarterly cash dividend in the
amount of $0.35 per share was paid on February 1, 2005.
8. RELATED PARTY TRANSACTIONS
Receivables due from officers and employees, excluding stock option
receivables, totaled $227,000 at January 1, 2005 and $330,000 at October 2,
2004. Such loans bear interest at the minimum statutory rate, 2.75% at
January 1, 2005.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contain 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 October 2,
2004.
In connection with the consummated sale of three of the Company's
restaurants, the closure of one restaurant and the pending sale of another
restaurant, the operations of these restaurants have been presented as
discontinued operations for the 13-week period ended January 1, 2005, and the
Company has reclassified its statements of operations and cash flow data for the
prior periods presented below, in accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("FAS 144") based on the fact that the Company has met the
criteria under FAS 144. These dispositions are discussed below in "Recent
Restaurant Dispositions."
Revenues
During the Company's first fiscal quarter of 2005, total revenues of
$26,882,000 increased 9.0% compared to total revenues of $24,672,000 in the
first fiscal quarter of 2004. Revenues for the first fiscal quarter of 2005 were
reduced by $1,109,000 and revenues for the first fiscal quarter of 2004 were
reduced by $3,430,000 as a result of the sale of three restaurants, the closure
of one restaurant and the proposed sale of another restaurant and their
reclassification to discontinued
-7-
operations. The Company had net income of $1,184,000 in the first fiscal quarter
of 2005 compared to net income of $556,000 in the first fiscal quarter of 2004.
Same store sales in Las Vegas increased by $973,000 or 6.6% in the
first fiscal quarter of 2005 compared to the first fiscal quarter of 2004 as a
result of continued strong business in Las Vegas. Same store sales in the
Company's Las Vegas operations were negatively affected by the closure of the
Company's "Venus" bar/nightclub facility for re-concepting during a portion of
the first fiscal quarter of 2005. This bar/nightclub facility re-opened as
"Vivid" on February 4, 2005. Same store sales in New York increased $796,000 or
10.5% during the first quarter. Same store sales in Washington D.C. increased by
$355,000 or 10.7% during the first quarter. The increases in New York and
Washington D.C. were principally due to the a general improvement in economic
conditions, the public's willingness and inclination to resume vacation and
convention travel and increases in the price of menu items offered to the
Company's customers, in specific locations where the Company believed consumer
demand has created some elasticity, instituted by the Company in 2004 to offset
increased food costs during portions of 2004. Company-wide same store sales
increased 8.3% for the first quarter.
Costs and Expenses
Food and beverage costs for the first quarter of 2005 as a percentage
of total revenues were 24.9% compared to 25.7% in the first quarter of 2004.
Increases in the price of menu items offered to the Company's customers, in
specific locations where the Company believed consumer demand has created some
elasticity, instituted by the Company in 2004 to offset increased food costs
during portions of 2004 had a positive effect on this category of expenses.
Payroll expenses as a percentage of total revenues were 32.2% for the
first quarter of 2005 as compared to 33.2% in the first quarter of 2004.
Occupancy expenses as a percentage of total revenues were 15.3% during the first
fiscal quarter of 2005 compared to 16.1% in the first quarter of 2004. Other
operating costs and expenses as a percentage of total revenues were 11.6% for
the first quarter of 2005 as compared to 12.5% in the first quarter of 2004.
General and administrative expenses as a percentage of total revenues were 6.8%
in the first quarter of 2005 compared to 6.0% in last year's first quarter. The
decrease in payroll, occupancy and other operating costs and expenses as a
percentage of total revenues is primarily due to increases in total revenues
during the 13-week period ended January 1, 2005.
Interest expense was $3,000 for the first quarter of 2005 compared to
$93,000 for the first quarter of 2004. The decrease is due to lower outstanding
borrowings. As of January 1, 2005, the Company had no borrowings on its credit
facility compared to $7,775,000 as of December 27, 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 carryforwards at restaurants that were
unprofitable, the Company has merged certain profitable subsidiaries with
certain loss subsidiaries.
Liquidity and Capital Resources
The Company's primary source of capital has been cash provided by
operations and the exercise of stock options. 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.
-8-
The Company had a working capital surplus of $1,746,000 at January 1,
2005 as compared to a working capital surplus of $1,263,000 at October 2, 2004.
The restaurant business does not require the maintenance of significant
inventories or receivables and the Company will be able to operate with negative
working capital.
As of January 1, 2005, the Company's Revolving Credit and Term Loan
Facility (the "Facility") with its main bank (Bank Leumi USA), included an
$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 matured on February 12, 2005. The Company had no
borrowings on this Facility at January 1, 2005. Borrowings on the Facility bore
interest at 1/2% above the bank's prime rate. The Facility also includes a
$500,000 letter of credit facility for use in lieu of lease security deposits.
As of January 1, 2005, the Company had delivered $354,000 in irrevocable letters
of credit on this Facility. The Company is currently negotiating a new facility
with its main bank which will only be a letter of credit facility. The Company
generally has been 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.
During the 13-week period ended January 1, 2005, the Company issued
14,000 shares of common stock to an officer upon his exercise of outstanding
stock options. The Company realized proceeds of $88,000 from these issuances of
common stock.
Restaurant Expansion
The Company recently entered into agreements to operate a Gallagher's
Steakhouse restaurant and a separate bar, yet to be named, to be constructed in
the Resorts Atlantic City Hotel and Casino in Atlantic City, New Jersey.
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 operating losses
of $55,000 during the 13-week period ended January 1, 2005 and $73,000 in the
comparable prior year quarter. These losses are included in income from
discontinued operations.
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 income from discontinued operations.
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
-9-
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 $214,000 during
the second quarter of fiscal 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 $137,000 which was recorded during the second quarter of fiscal 2004.
The Company's restaurant America, located in New York City, has
experienced declining sales for several years. In March 2004, the Company
entered into a new lease for this restaurant at a significantly increased rent.
The Company entered into this lease with the belief that due to the location and
the uniqueness of the space the lease had value. During fiscal 2004 the Company
identified a buyer for this restaurant and is currently completing negotiations
for its sale. The carrying amount of the fixed assets held for sale was
approximately $57,000 as of January 1, 2005 and $155,000 in the comparable prior
year quarter. Net income of $76,000 has been included in discontinued
operations. The Company expects the sale of this restaurant to be completed
during the second quarter of fiscal 2005.
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 October 2, 2004. 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 pronouncement:
In December 2004, the Financial Accounting Standards Board issued SFAS
No. 123 (R), "Accounting for Stock-Based Compensation." SFAS No. 123 (R)
establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. SFAS No. 123 (R) focuses
primarily on accounting for transactions in which an entity obtains employee
services in share-based payment transactions. SFAS No. 123 (R) requires that the
fair value of such equity instruments be recognized as expense in the historical
financial statements as services are performed. Prior to SFAS No. 123 (R), only
certain pro forma disclosures of fair value were required. SFAS No. 123 (R)
shall be effective for public entities that do not file as small business
issuers as of the beginning of the first interim or annual reporting period that
begins after June 15, 2005. The Company has not determined if the adoption of
this new accounting pronouncement is expected to have a material impact on the
financial statements of the Company for fiscal 2006.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None.
Item 4. Controls and Procedures
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 January 1, 2005 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.
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There were no changes in the Company's internal control over financial
reporting during the first quarter of fiscal year 2005 that materially affected
or are reasonably likely to materially affect the Company's internal control
over financial reporting.
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PART II
OTHER INFORMATION
Item 6. Exhibits
(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
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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.
Date: February 15, 2005
ARK RESTAURANTS CORP.
By: /s/ Michael Weinstein
---------------------------
Michael Weinstein
Chairman, President & Chief Executive Officer
By: /s/ Robert J. Stewart
---------------------------
Robert Stewart
Chief Financial Officer
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