SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
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 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 8, 2001
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(Common stock, $.01 par value) 3,181,699
ARK RESTAURANTS CORP. AND SUBSIDIARIES
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INDEX
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PAGE
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PART I - FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements:
Consolidated Condensed Balance Sheets - December 30, 2000
(Unaudited) and September 30, 2000 2
Consolidated Condensed Statements of Operations and Retained Earnings -
13-Week Periods Ended December 30, 2000 (Unaudited) and January 1, 2000
(Unaudited). 3
Consolidated Condensed Statements of Cash Flows - 13-Week Periods
Ended December 30, 2000 (Unaudited) and January 1, 2000 (Unaudited) 4
Notes to Consolidated Condensed Financial
Statements (Unaudited) 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
PART II - OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 11
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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ARK RESTAURANTS CORP. AND SUBSIDIARIES
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CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
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December 30, September 30,
2000 2000
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(Unaudited)
ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $ 1,132 $ 697
Accounts receivable 3,020 4,045
Inventories 2,331 2,133
Current portion of long-term receivables 1,424 1,427
Prepaid expenses and other current assets 448 347
Refundable and prepaid income taxes 1,335 1,308
Deferred income taxes 1,694 1,694
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Total current assets 11,384 11,651
LONG-TERM RECEIVABLES 1,065 1,130
FIXED ASSETS - At Cost:
Leasehold improvements 38,423 38,099
Furniture, fixtures and equipment 30,476 31,157
Leasehold improvements in progress 170 267
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69,069 69,523
Less accumulated depreciation and
amortization 23,656 22,325
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45,413 47,198
INTANGIBLE ASSETS - Less accumulated
amortization of $3,293 and $3,194 4,470 4,570
OTHER ASSETS 1,063 934
DEFERRED INCOME TAXES 1,533 1,533
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TOTAL ASSETS $64,928 $67,016
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable - trade $ 4,689 $ 5,293
Accrued expenses and other current
liabilities 4,820 6,206
Current maturities of long-term debt 5,994 5,073
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Total current liabilities 15,503 16,572
LONG-TERM DEBT - net of current maturities 23,203 24,447
OPERATING LEASE DEFERRED CREDIT 1,213 1,213
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share -
authorized, 10,000 shares;
issued, 5,188 shares 52 52
Additional paid-in capital 14,743 14,743
Retained earnings 18,562 18,337
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33,357 33,132
Less treasury stock, 2,068 shares 8,348 8,348
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Total shareholders' equity 25,009 24,784
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $64,928 $67,016
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See notes to consolidated condensed financial statements
2
ARK RESTAURANTS CORP. AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS & RETAINED EARNINGS (Unaudited)
(In Thousands, Except per share amounts)
13 Weeks Ended
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December 30, January 1,
2000 2000
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NET SALES $ 30,815 $ 26,957
COST OF SALES 7,854 7,060
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GROSS RESTAURANT PROFIT 22,961 19,897
MANAGEMENT FEE INCOME 138 34
JOINT VENTURE LOSS -- (160)
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23,099 19,771
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OPERATING EXPENSES
Payroll and payroll benefits 11,207 9,985
Occupancy 4,152 3,535
Depreciation and amortization 1,438 1,007
Other 3,647 3,203
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20,444 17,730
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INCOME FROM RESTAURANT OPERATIONS 2,655 2,041
GENERAL AND ADMINISTRATIVE EXPENSES 1,632 1,633
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OPERATING INCOME 1,023 408
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OTHER EXPENSE (INCOME):
Interest expense, net 710 93
Other income (50) (126)
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660 (33)
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INCOME BEFORE INCOME TAXES 363 441
PROVISION FOR INCOME TAXES 138 160
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NET INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 225 281
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- 190
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NET INCOME 225 91
RETAINED EARNINGS, Beginning of period 18,337 22,060
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RETAINED EARNINGS, End of period $ 18,562 $ 22,151
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PER SHARE INFORMATION - BASIC & DILUTED:
INCOME BEFORE ACCOUNTING CHANGE $ .07 $ .09
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- (.06)
NET INCOME $ .07 $ .03
WEIGHTED AVERAGE NUMBER OF SHARES - BASIC 3,182 3,201
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WEIGHTED AVERAGE NUMBER OF SHARES - DILUTED 3,182 3,207
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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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December 30, January 1,
2000 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Income before cumulative effect of accounting change $ 225 $ 281
Cumulative effect of accounting change -- (190)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of fixed assets 1,332 830
Amortization of intangibles 106 164
Deferred income taxes -- 111
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable 1,025 (1,005)
Decrease (Increase) in inventories (198) (271)
Decrease (Increase) in prepaid expenses & other
current assets (108) (84)
Decrease (Increase) in refundable & prepaid taxes (27) (90)
Decrease (Increase) in other assets (129) (23)
Increase (Decrease) in accounts payable - trade (604) 927
Increase (Decrease) in accrued expenses and other
current liabilities (1,386) (804)
Increase (Decrease) in accrued income taxes -- (186)
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Net cash provided by (used in) operating activities 236 (340)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets, net (1,105) (7,985)
Advances to joint venture, net -- (2,358)
Issuance of long-term receivables (25) --
Payments received on long-term receivables 93 110
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Net cash provided used in investing activities (1,037) (10,233)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,450 12,050
Proceeds from sale leaseback 1,559 --
Principal payment on long-term debt (1,773) (465)
Principal payment on capital lease obligations -- (48)
Purchase of treasury stock -- (1,350)
Exercise of stock options -- 328
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Net cash provided by financing activities 1,236 10,515
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 435 (58)
CASH AND CASH EQUIVALENTS, beginning of period 697 334
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CASH AND CASH EQUIVALENTS, end of period $ 1,132 $ 276
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest $ 744 $ 280
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Income taxes $ 360 $ 436
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See notes to consolidated condensed financial statements.
4
ARK RESTAURANTS CORP. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(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 December 30, 2000 and results of
operations and changes in cash flows for the periods ended December 30, 2000 and
January 1, 2000 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements 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 30, 2000. The results of operations for the period ended
December 30, 2000 is not necessarily indicative of the operating results for the
full year.
2. Accounting Change
The Company adopted in the quarter ended January 1, 2000, Statement of
Position 98-5, Reporting on the Costs of Start-Up Activities, which requires
costs of start-up activities and organization costs to be expensed as incurred.
The Company had previously capitalized organization costs and then amortized
such costs over five years. The Company had net deferred organization expenses
of $300,000 in intangible assets as of October 2, 1999 and such amount ($190,000
after taxes) is reported as a cumulative effect of a change in accounting
principle.
3. Long-Term Debt
In November 2000, the Company amended its credit agreement with its main
bank, Bank Leumi USA. The new amendment allows the Company to borrow up to
$28,500,000 for use in construction of and acquisition of new restaurants and
for working capital purposes at the Company's existing restaurants. The Company
is required to repay any borrowings which exceed $26,000,000 on June 30, 2001,
$23,000,000 on September 30, 2001, and $22,000,000 on December 27, 2001. On
December 27, 2001, the revolving loans will be converted into term loans payable
over 36 months. Outstanding loans bear interest at prime + 1/2%. The agreement
also includes a five year $1,500,000 Letter of Credit Facility for use at the
Company's restaurants in lieu of lease security deposits. At December 30, 2000
the Company had borrowings of $27,050,000 outstanding on this facility.
4. Equipment Refinancing
In November 2000, the Company entered into a sale and leaseback agreement
with GE Capital for $1,652,000 to refinance the purchase of various restaurant
equipment in a hotel and casino 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
5
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.
5. Impact of New Accounting Standard
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS No. 137 and 138, establishes standards for
measuring, classifying and reporting all derivative financial instruments in the
financial statements. SFAS No. 133 was effective for the Company beginning the
first quarter of fiscal year 2001 and this standard did not have a material
impact on the Company's financial position or results of operations.
6. Subsequent Event (America VA)
In January 2001 the Company closed its America restaurant in Tyson's Corner,
McLean, Virginia. The Company had been unsuccessful in its efforts to sell this
restaurant and had recorded an impairment charge of $810,769 in the fourth
quarter of fiscal 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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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.
NET SALES
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Net sales at restaurants and bars owned by the Company increased by 14.3%
in the 13-week period ended December 30, 2000 from the comparable period last
year. Net sales for the quarter increased by $3,278,000 from sales at
restaurants which the Company did not operate in the 13-week period last year
(The Venetian Casino Resort concepts: Lutece, Tsunami and V-Bar; and the
concepts at Desert Passage, which adjoins the Aladdin Resort & Casino: Fat
Anthony's and the Alakazam Food Court). Net sales also increased by $580,000
from a 2.2% increase in same store sales.
COSTS AND EXPENSES
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The Company's cost of sales consists only of food and beverage costs at
restaurants and bars owned by the Company. For the 13-week period ended December
30, 2000 cost of sales as a percentage of net sales decreased to 25.5% from
26.2% for the comparable period last year.
Operating expenses of the Company, consisting of restaurant payroll,
occupancy and other expenses at restaurants and bars owned by the Company, as a
percentage of net sales, increased to 66.3% for the 13-week period ended
December 30, 2000 from 65.8% last year. This increase is principally due to
higher depreciation expense associated with the Las Vegas restaurant operations
opened in fiscal 2000.
The Company incurred early operating losses at newly opened restaurants of
approximately $240,000 in the period ended December 30, 2000 as compared to
pre-opening expenses and early operating losses of approximately $475,000 last
year. The Company typically incurs significant pre-opening expenses in
connection with its new restaurants which are expensed as incurred. Furthermore,
it is not uncommon that such restaurants experience operating losses during the
early months of operation.
General and administrative expenses, as a percentage of net sales, were
5.3% for the 13-week period ended December 30, 2000 as compared to 6.1% last
year. If net sales at managed restaurants and bars were included in consolidated
net sales, general and administrative expenses as a percentage of net sales
would have been 5.0% for the 13-week period ended December 30, 2000 as compared
to 5.6% last year. This decrease in general and administrative expenses, as a
percentage of net sales, is principally due to the fact that general and
administrative expenses remained fairly constant while sales increased by 14.8%
as compared to last year.
The Company had net income of $225,000 for the 13-week period ended
December 30, 2000 as compared to net income of $91,000 last year. The results
for the 13-week period last year include $190,000 of after tax charges resulting
from an accounting change when the Company adopted Statement of Position 98-5
which required the company to write-off the unamortized balance of organization
costs.
7
Net sales of managed restaurants were $1,572,000 during the 13-week period
ended December 30, 2000 as compared to $2,032,000 last year. In December 2000,
three restaurants which the Company managed at one site in Boston, Massachusetts
closed as the lease expired and was not renewed by the landlord. At December 30,
2000 the Company managed one restaurant. Net sales of managed restaurants are
not included in consolidated net sales.
Interest expense was $744,000 for the 13-week period ended December 30,
2000 as compared to $140,000 last year. The significant increase is principally
due to borrowings to finance the construction costs and working capital
requirements of the Las Vegas restaurant facilities which opened in fiscal 2000.
INCOME TAXES
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The provision for income taxes reflects Federal income taxes calculated on
a consolidated basis and state and local income taxes calculated by each
subsidiary on a non consolidated basis. Most of the restaurants owned or managed
by the Company are owned or managed by a separate subsidiary.
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 which operate in the District of Columbia.
Accordingly, the Company's overall effective income tax rate has varied
depending on the level of the 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 (Nevada has no state income tax
and other states in which the Company operate have income tax rates
substantially lower in comparison to New York) and the utilization of state and
local net operating loss carry forwards. In order to more effectively utilize
tax loss carry forwards at restaurants that were unprofitable, the Company has
merged certain profitable subsidiaries with certain loss subsidiaries.
As a result of the enactment of the Revenue Reconciliation Act of 1993,
the Company is entitled, commencing January 1, 1994, to a tax credit based on
the amount of tip income of restaurant service personnel. The Company estimates
that this credit will be in excess of $500,000 for the current year.
The Internal Revenue Service is currently examining the Company's Federal
Income Tax returns for the fiscal years ended September 30, 1995 through
September 27, 1997. The Company does not expect the results from such
examination to have a material effect on the Company's financial condition.
LIQUIDITY AND SOURCES OF CAPITAL
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The Company's primary source of capital is cash provided by operations and
funds available from the revolving credit agreement with 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 and
acquiring existing restaurants.
8
In November 2000 the Company and its main bank, Bank Leumi USA amended its
Revolving Credit Facility. The amended agreement allows the Company to borrow up
to $28,500,000 for use in construction of and acquisition of new restaurants and
for working capital at the Company's existing restaurants. The Company is
required to repay any borrowings to the extent such borrowings exceed
$26,000,000 on June 30, 2001, $23,000,000 on September 30, 2001 and $22,000,000
on December 27, 2001. At December 2001 the revolving loans will be converted
into a term loan not payable over 36 months. Outstanding loans bear interest at
prime plus 1/2%. At December 30, 2000 the Company had borrowings of $27,050,000
outstanding on the facility. The Company also has a $1,500,000 letter of credit
facility for use in lieu of lease security deposits. At December 30, 2000 the
Company had delivered $1,489,000 in irrevocable letters of credit on this
facility.
At December 30, 2000, the Company had a working capital deficit of
$4,119,000 as compared to a working capital deficit of $4,921,000 at September
30, 2000. The restaurant business does not require the maintenance of
significant inventories or receivables, thus the Company is able to operate with
minimal and even negative working capital.
The amount of indebtedness that may be incurred by the Company is limited
by the Revolving Credit Facility. Certain provisions of the agreement may impair
the Company's ability to borrow funds. The agreement contains certain financial
covenants 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 November 2000 the Company received a waiver for
covenants that the Company was not in compliance with at September 30, 2000 and
certain covenants were also modified for future periods. At December 30, 2000
the Company was in compliance with all covenants.
In November 2000, the Company entered into a sale and leaseback agreement
with GE Capital for $1,652,000 to refinance the purchase of various restaurant
equipment in a hotel and casino 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.
RESTAURANT EXPANSION
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In fiscal 2000, the Company opened two restaurants at the Venetian Casino
Resort (Tsunami and Lutece) along with a restaurant (Fat Anthony's) and six food
court outlets (Alakazam Food Court) at Desert Passage with adjoins the Aladdin
Casino & Resort in Las Vegas, Nevada. The Venetian Casino Resort operations
became cash flow positive in the fourth quarter of fiscal 2000 and were
profitable in the December 2000 quarter. The Desert Passage operations are not
yet profitable.
In November 2000, the Company opened a bar in the Venetian Casino Resort
(V-Bar) and is scheduled to open another restaurant at such casino in fiscal
2001. As the Company is not currently committed to any other projects, a
substantial portion of the Company's current year's cash flow is now scheduled
to be applied to debt reduction. Any new projects would require additional
external financing.
9
RECENT DEVELOPMENT
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In January 2001 the Company closed its America restaurant in Tyson's
Corner, McLean, Virginia. The Company had been unsuccessful in its efforts to
sell this restaurant and had recorded an impairment charge of $810,769 in the
fourth quarter of fiscal 2000.
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PART II - OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits - None
(b) Reports on Form 8-K - none
11
SIGNATURES
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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 8, 2001
ARK RESTAURANTS CORP.
By /S/ Michael Weinstein
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Michael Weinstein, President
By /S/ Andrew B. Kuruc
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Andrew B. Kuruc
Vice President, Controller and
Principal Accounting Officer
12