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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 April 2, 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 April 2, 2005
- ------------------------------ -----------------------------------
(Common stock, $.01 par value) 3,456,549
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars and shares in Thousands)
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April 2, October 2,
2005 2004
---- ----
(unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash $ 560 $ 4,435
Accounts receivable 3,297 2,171
Employee receivables 151 330
Current portion of long-term receivables 222 208
Inventories 1,660 1,731
Prepaid expenses and other current assets 1,766 1,615
Assets held for sale -- 128
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Total current assets 7,656 10,618
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LONG-TERM RECEIVABLES 1,606 1,082
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FIXED ASSETS
Leasehold improvements 30,911 29,720
Furniture, fixtures and equipment 27,603 27,178
Leasehold improvements in progress 106 --
------- -------
58,620 56,898
Less accumulated depreciation and
amortization 35,167 33,437
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23,453 23,461
INTANGIBLE ASSETS, NET 3,722 3,739
DEFERRED INCOME TAXES 5,813 5,221
OTHER ASSETS 1,238 773
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TOTAL ASSETS $43,488 $44,894
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 2,267 $ 2,230
Accrued expenses and other current
liabilities 4,323 4,781
Current maturities of long-term debt 32 251
Accrued income taxes 827 2,093
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Total current liabilities 7,449 9,355
OPERATING LEASE DEFERRED CREDIT 825 899
LIABILITIES HELD FOR DISPOSITION 403 440
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TOTAL LIABILITIES 8,677 10,694
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share -
authorized, 10,000 shares;
issued, 5,524 and 5,462 shares 55 54
Additional paid-in capital 18,260 17,202
Treasury stock, 2,068 shares (8,386) (8,386)
Receivables from employees from
stock option exercises (166) (364)
Retained earnings 25,048 25,694
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Total shareholders' equity 34,811 34,200
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $43,488 $44,894
======= =======
See notes to consolidated condensed financial statements.
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ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands, Except per share amounts)
- --------------------------------------------------------------------------------
13 Weeks Ended 26 Weeks Ended
-------------- --------------
April 2, March 27, April 2, March 27,
2005 2004 2005 2004
---- ---- ---- ----
TOTAL REVENUES $ 24,792 $ 24,864 $ 51,674 $ 49,524
-------- -------- -------- --------
COST AND EXPENSES:
Food and beverage cost of sales 6,492 6,442 13,177 12,784
Payroll expenses 8,632 8,426 17,285 16,611
Occupancy expenses 3,807 3,831 7,924 7,804
Other operating costs and expenses 3,383 3,010 6,489 6,097
General and administrative expenses 1,734 1,487 3,554 2,960
Depreciation and amortization 800 1,026 1,748 2,021
-------- -------- -------- --------
Total costs and expenses 24,848 24,222 50,177 48,277
-------- -------- -------- --------
OPERATING INCOME (LOSS) (56) 642 1,497 1,247
-------- -------- -------- --------
OTHER (INCOME) EXPENSE:
Interest (income) expense, net (28) 55 (53) 113
Other income (226) (172) (295) (268)
-------- -------- -------- --------
Total other (income) expense (254) (117) (348) (155)
-------- -------- -------- --------
Income from continuing operations
before income taxes 198 759 1,845 1,402
Provision for income taxes 63 266 541 491
-------- -------- -------- --------
Income from continuing operations 135 493 1,304 911
-------- -------- -------- --------
DISCONTINUED OPERATIONS:
Income (loss) from operations of discontinued restaurants
(including gains on disposal of $644,000 for the 13-weeks and 26-weeks
ended 4/2/05 and 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) 593 (936) 615 (723)
Provision (benefit) for income taxes 174 (328) 180 (253)
-------- -------- -------- --------
Income (loss) from discontinued operations 419 (608) 435 (470)
-------- -------- -------- --------
NET INCOME (LOSS) $ 554 $ (115) $ 1,739 $ 441
======== ======== ======== ========
PER SHARE INFORMATION - BASIC AND DILUTED:
Continuing operations basic $ .04 $ .15 $ .38 $ .28
Discontinued operations basic $ .12 $ (.19) $ .13 $ (.14)
-------- -------- -------- --------
Net basic $ .16 $ (.04) $ .51 $ .14
======== ======== ======== ========
Continuing operations diluted $ .04 $ .15 $ .37 $ .27
Discontinued operations diluted $ .12 $ (.19) $ .12 $ (.14)
-------- -------- -------- --------
Net diluted $ .16 $ (.04) $ .49 $ .13
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES-BASIC 3,433 3,267 3,414 3,224
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES-DILUTED 3,586 3,267 3,560 3,371
======== ======== ======== ========
See notes to consolidated condensed financial statements.
-3-
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
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26 Weeks Ended
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April 2, March 27,
2005 2004
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 1,304 $ 911
Adjustments to reconcile income from continuing operations to
net cash (used in) provided by operating activities:
Deferred income taxes 67 128
Depreciation and amortization 1,748 2,021
Operating lease deferred credit (74) (7)
Changes in operating assets and liabilities:
Accounts receivables (1,126) (112)
Employee receivables 179 37
Inventories 71 59
Prepaid expenses and other current assets (151) (614)
Other assets (465) (213)
Accounts payable - trade 37 309
Accrued income taxes (1,266) (1,198)
Accrued expenses and other current liabilities (458) 543
------- -------
Net cash (used in) provided by operating activities (134) 1,864
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (1,723) (844)
Payments received on long-term receivables 162 106
------- -------
Net cash used in investing activities (1,561) (738)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (219) (4,221)
Dividends paid (2,385) --
Exercise of stock options 404 228
Proceeds from stock option receivables 198 1,648
------- -------
Net cash used in financing activities (2,002) (2,345)
------- -------
NET CASH USED IN CONTINUING OPERATIONS (3,697) (1,219)
NET CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS (178) 984
------- -------
NET DECREASE IN CASH (3,875) (235)
CASH, Beginning of period 4,435 486
------- -------
CASH, End of period $ 560 $ 251
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ -- $ 113
======= =======
Income taxes $ 1,920 $ 1,198
======= =======
See notes to consolidated condensed financial statements
-4-
ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
April 2, 2005
(Unaudited)
- --------------------------------------------------------------------------------
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 April 2, 2005, results of
operations for the 13-week and 26-week periods ended April 2, 2005 and March 27,
2004, and cash flows for the 26-week periods ended April 2, 2005 and March 27,
2004, 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 an operating loss
of $54,000 and $765,000 during the 26-week periods ended April 2, 2005 and March
27, 2004, respectively. These losses are included in loss 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 loss 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. The Company recorded an operating loss of $14,000 and $116,000
during the 26-week periods ended April 2, 2005 and March 27, 2004, respectively.
These losses are included in loss 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
recorded an operating loss of $19,000 and $24,000 during the 26-week periods
ended April 2, 2005 and March 27, 2004, respectively. These losses are included
in loss from discontinued operations.
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 which
closed on March 15, 2005. The Company
-5-
realized a pre-tax gain of $644,000 on the sale of this restaurant. The Company
recorded income of $58,000 and a loss of $15,000, respectively, during the
26-week and 13-week periods ended April 2, 2005. The gain on sale and income and
loss are included in discontinued operations.
3. LONG-TERM DEBT
The Company's Revolving Credit and Term Loan Facility with its main
bank (Bank Leumi USA), which 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, matured on March 12, 2005. The Company
does not currently plan to enter into another credit facility and expects
required cash to be provided by operations.
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 $166,000 at April 2,
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 April 2,
2005).
5. INCOME (LOSS) PER SHARE AND ISSUANCES 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 and 26-week periods ended April 2, 2005 options to
purchase 330,000 shares of common stock at a price range of $6.30 to $29.60 were
included in diluted earnings per share.
During the 26-week period ended April 2, 2005 employees exercised
options to purchase 62,250 shares of common stock at a price of $6.30 and 10,000
shares of common stock at a price of $7.50. The Company received $404,000 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 $659,000 during the period
ended April 2, 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 of accounting for
employee stock options pursuant to APB 25, "Accounting for 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 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 April 2,
2005 and March 27, 2004.
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 Company
did not record any intrinsic value for these options. The assumptions used for
the 13-week and 26-week periods ended April 2, 2005 for the pro forma effects of
the options granted on December 21, 2004 included a risk-free interest rate of
3.37%, volatility of 37%, and a dividend yield of 3% and an expected life of
three years.
The pro forma impact is as follows:
-6-
(in Thousands, Except per Share Amounts)
----------------------------------------
13 Weeks ended 13 Weeks ended 26 Weeks ended 26 Weeks ended
April 2, 2005 March 27, 2004 April 2, 2005 March 27, 2004
Net income (loss) as reported $ 554 $ (115) $1,739 $ 441
Deduct stock based employee compensation expense
computed under the fair value method $ (160) $ (19) $ (198) $ (39)
------ ------- ------ ------
Net income (loss) - pro forma $ 394 $ (134) $1,541 $ 402
====== ======= ====== ======
Earnings (loss) per share as reported - net basic $ 0.16 $ (0.04) $ 0.51 $ 0.14
Earnings (loss) per share as reported - net diluted $ 0.16 $ (0.04) $ 0.49 $ 0.13
Earnings (loss) per share pro forma - net basic $ 0.11 $ (0.04) $ 0.45 $ 0.12
Earnings (loss) per share pro forma - net diluted $ 0.11 $ (0.04) $ 0.43 $ 0.12
As a result of amendments to SFAS 123, the Company will be required to
expense all options granted to employees over the service period beginning with
the quarter ending December 31, 2006
7. DIVIDENDS
A quarterly cash dividend in the amount of $1,195,000, or $0.35 per
share, was paid on February 1, 2005. A quarterly cash dividend in the amount of
$0.35 per share was paid on May 2, 2005.
8. RELATED PARTY TRANSACTIONS
Receivables due from officers and employees, excluding stock option
receivables, totaled $151,000 at April 2, 2005 and $330,000 at October 2, 2004.
Such loans bear interest at the minimum statutory rate (2.75% at April 2, 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 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 October 2,
2004.
In connection with the sale of four and the closure of one restaurant
of the Company's restaurants, the operations of these restaurants have been
presented as discontinued operations for the 13-week and 26-week periods ended
April 2, 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 second fiscal quarter of 2005, total revenues
of $24,792,000 decreased less than 1% compared to total revenues of $24,864,000
in the second fiscal quarter of 2004. Revenues for the second fiscal quarter of
2005 were reduced by $1,671,000 and revenues for the second fiscal quarter of
2004 were reduced by $4,778,000 as a result of the sale of four restaurants and
the closure of one restaurant and their reclassification to discontinued
operations. The Company had net income of $554,000 in the second fiscal quarter
of 2005 compared to a net loss of $115,000 in the second fiscal quarter of 2004.
Net income was positively affected during this period by the $644,000 pre-tax
gain on sale realized as a result of the sale of the Company's America
restaurant.
-7-
Same store sales in Las Vegas decreased by $646,000 or 3.7% in the
second fiscal quarter of 2005 compared to the second fiscal quarter of 2004
primarily due to less than expected business at the Venetian Casino Resort and
by the closure of the Company's "Venus" bar/nightclub facility for re-concepting
during a portion of this period. This bar/nightclub facility re-opened as
"Vivid" on February 4, 2005. Same store sales in New York increased $115,000 or
2.5% during the second quarter. Same store sales in Washington D.C. increased by
$161,000 or 5.9% during the second quarter. The increases in New York and
Washington D.C. were principally due to 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
decreased 1.9% for the second quarter fiscal quarter of 2005 compared to the
second fiscal quarter of 2004. The decrease in company-wide same store sales was
primarily a result of the decrease in same store sales at the Company's Las
Vegas operations described above.
During the Company's 26-week period ended April 2, 2005, total revenues
of $51,674,000 increased 4.3% compared to total revenues of $49,524,000 in the
26-week period ended March 27, 2004. Revenues for this 26-week period ended
April 2, 2005 were reduced by $1,671,000 and revenues for the 26-week period
ended March 27, 2004 were reduced by $4,802,000 as a result of the sale or
closure of five restaurants and their reclassification to discontinued
operations. The Company had net income of $1,739,000 in the 26-week period ended
April 2, 2005 compared to net income of $441,000 for the 26-week period ended
March 27, 2004. Net income was, likewise, positively affected during this period
by the $644,000 pre-tax gain on sale realized as a result of the sale of the
Company's America restaurant. During this period, same store sales in Las Vegas,
New York and Washington DC increased by 1.1%, 7.9% and 8.5%, respectively,
compared to the 26-week period ended March 27, 2004. Sales in restaurants
managed by the Company increased by $4,188,000 during the this period as a
result of the opening of the fast food facilities at the Tampa and Hollywood,
Florida, discussed above.
Costs and Expenses
Food and beverage costs for the second quarter of 2005 as a percentage
of total revenues were 26.2% compared to 25.9% in the second quarter of 2004.
These costs for the 26-weeks ended April 2, 2005 as a percentage of total
revenues were 25.5% compared to 25.8% in the 26-week period ended March 27,
2004.
Payroll expenses as a percentage of total revenues were 34.8% for the
second quarter of 2005 as compared to 33.9% in the second quarter of 2004.
Payroll expenses as a percentage of total revenues were 33.5% for the 26-week
period ended April 2, 2005 as compared to 33.5% in the 26-week period ended
March 27, 2004. 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 2005, which is the same percentage of total
revenues as in the second quarter of 2004. Occupancy expenses as a percentage of
total revenues were 15.3% during the 26-week period ended April 2, 2005 compared
to 15.8% in the 26-week period ended March 27, 2004. Other operating costs and
expenses as a percentage of total revenues were 13.6% for the second quarter of
2005 as compared to 12.1% in the second quarter of 2004. These costs and
expenses as a percentage of total revenues were 12.6% for the 26-week period
ended April 2, 2005 compared to 12.3% during the 26-week period ended March 27,
2004. General and administrative expenses as a percentage of total revenues were
7.0% in the second quarter of 2005 compared to 6.0% in last year's second
quarter. These expenses as a percentage of total revenues were 6.9% in the
26-week period ended April 2, 2005 compared to 6.0% in the 26-week period ended
March 27, 2004.
There was no interest expense for the second quarter of 2005 compared
to an interest expense of $85,000 for the second quarter of 2004. There was no
interest expense for the 26-week period ended April 2, 2005 compared to an
interest expense of $178,000 for the 26-week period ended March 27, 2004. The
lack of interest expense during the 13-week and 26-week periods ended April 2,
2005 is due to lower outstanding borrowings on the Company's credit facility. As
of April 2, 2005 the Company had no outstanding borrowings on its credit
facility compared to $2,925,000 as of March 27, 2004.
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 can be consolidated for state and local tax purposes, pre-tax
income earned outside of
-8-
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 state tax loss carry forwards at restaurants that were unprofitable,
the Company has merged certain profitable subsidiaries with certain loss
subsidiaries.
Liquidity and Resources of Capital
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.
The Company had a working capital surplus of $207,000 at April 2, 2005
as compared to a working capital surplus of $1,263,000 at October 2, 2004.
The Company's Revolving Credit and Term Loan Facility with its main
bank (Bank Leumi USA), which 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, matured on March 12, 2005. The Company
does not currently plan to enter into another credit facility and expects
required cash to be covered by operations.
During the 26-week period ended April 2, 2005 the Company issued 62,250
shares of common stock to various employees upon their exercise of outstanding
stock options. The Company realized proceeds of $404,000 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 an operating loss
of $54,000 and $765,000 during the 26-week periods ended April 2, 2005 and March
27, 2004, respectively. This loss is included in loss 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 losses 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. The Company recorded an operating loss of $14,000 and $116,000
during the 26-week periods ended April 2, 2005 and March 27, 2004, respectively.
These losses are included in loss from discontinued operations.
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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
recorded an operating loss of $19,000 and $24,000 during the 26-week periods
ended April 2, 2005 and March 27, 2004, respectively. These losses are included
in loss from discontinued operations.
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 which
closed on March 15, 2005. The Company realized a pre-tax gain of $644,000 on the
sale of this restaurant. The Company recorded income of $58,000 and a loss of
$15,000, respectively, during the 26-week and 13-week periods ended April 2,
2005. The gain on sale and the income and loss is included in discontinued
operations.
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 2005.
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 through the issuance of stock options and other share-based payment
transactions. SFAS No. 123 (R) requires that the fair value of such equity
instruments, including all options granted to employees, 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 as of the
beginning of the first annual reporting period that begins after December 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 2007.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
None.
Item 4. Controls and Procedures
Based on their evaluation of disclosure controls and procedures as of
April 2, 2005, 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 April 2, 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 second 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 4 - Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of stockholders on March 24, 2005. The
following matters were submitted to a vote of the Company's stockholders:
(i) The election of nine directors; and
(ii) The ratification of the appointment of J.H. Cohn LLP as independent
registered public accounting firm for the 2005 fiscal year.
The Company's stockholders elected a Board of Directors consisting of Michael
Weinstein, Robert Towers, Bruce Lewin, Marcia Allen, Paul Gordon, Steven
Shulman, Vincent Pascal, Arthur Stainman and Edward Lowenthal. Each director
received at least 90% of the votes cast at the meeting.
The Company's stockholders ratified the Board of Director's appointment of JH
Cohn LLP as the Company's independent auditors for the 2005 fiscal year by a
vote of 2,436,432 for, 1,400 against and 1,045 abstentions.
Item 6. 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: May 17, 2005
ARK RESTAURANTS CORP.
By: /s/ Michael Weinstein
---------------------
Michael Weinstein
President & Chief Executive Officer
By: /s/ Robert J. Stewart
---------------------
Robert Stewart
Chief Financial Officer
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