-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E9CyEBsDeY5MyMV4OGYFnsgp5Y2HehqUKwBYuimsn8Q6YchyEeo15ktD2LkLbufB dleZpAZY+kJG61CipiF3VQ== 0000950117-05-003296.txt : 20050816 0000950117-05-003296.hdr.sgml : 20050816 20050816121940 ACCESSION NUMBER: 0000950117-05-003296 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050702 FILED AS OF DATE: 20050816 DATE AS OF CHANGE: 20050816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARK RESTAURANTS CORP CENTRAL INDEX KEY: 0000779544 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 133156768 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09453 FILM NUMBER: 051029780 BUSINESS ADDRESS: STREET 1: 85 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10003-3019 BUSINESS PHONE: 2122068800 MAIL ADDRESS: STREET 1: 85 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10003-3019 10-Q 1 a40359.txt ARK RESTAURANTS CORP. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 2, 2005 Commission file number 0-14030 ARK RESTAURANTS CORP. --------------------- (Exact name of registrant as specified in its charter) New York 13-3156768 - --------------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 85 Fifth Avenue, New York, New York 10003 - ---------------------------------------- ------------------------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 206-8800 ------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X ---- ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Class Outstanding shares at August 1, 2005 - --------------------------------- ------------------------------------ (Common stock, $.01 par value) 3,456,799
PART I FINANCIAL INFORMATION Item 1. Financial Statements ARK RESTAURANTS CORP. AND SUBSIDIARIES - -------------------------------------- CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars and shares in Thousands) - -------------------------------------------------------
July 2, October 2, 2005 2004 ---- ---- (unaudited) (Note 1) ASSETS CURRENT ASSETS: Cash ........................................................ $ 3,123 $ 4,435 Accounts receivable ......................................... 3,019 2,171 Employee receivables ........................................ 92 330 Current portion of long-term receivables .................... 270 208 Inventories ................................................. 1,714 1,731 Prepaid expenses and other current assets ................... 1,628 1,615 Assets held for sale ........................................ -- 128 -------- -------- Total current assets ............................... 9,846 10,618 -------- -------- LONG-TERM RECEIVABLES ......................................... 1,481 1,082 -------- -------- FIXED ASSETS Leasehold improvements ...................................... 31,071 29,720 Furniture, fixtures and equipment ........................... 27,911 27,178 Leasehold improvements in progress .......................... 384 -- -------- -------- 59,366 56,898 Less accumulated depreciation and amortization .............................................. 36,058 33,437 -------- -------- 23,308 23,461 INTANGIBLE ASSETS, NET ........................................ 3,712 3,739 DEFERRED INCOME TAXES ......................................... 5,254 5,221 OTHER ASSETS .................................................. 1,209 773 -------- -------- TOTAL ASSETS .................................................. $ 44,810 $ 44,894 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable - trade .................................... $ 1,420 $ 2,230 Accrued expenses and other current liabilities ............................................... 5,079 4,781 Current maturities of long-term debt ........................ -- 251 Accrued income taxes ........................................ 650 2,093 -------- -------- Total current liabilities .......................... 7,149 9,355 OPERATING LEASE DEFERRED CREDIT ............................... 788 899 LIABILITIES HELD FOR DISPOSITION .............................. 403 440 -------- -------- TOTAL LIABILITIES ............................................. 8,340 10,694 -------- -------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock, par value $.01 per share -- authorized, 10,000 shares; issued, 5,527 and 5,462 shares ............................ 55 54 Additional paid-in capital .................................. 18,306 17,202 Treasury stock, 2,068 shares ................................ (8,386) (8,386) Receivables from employees from stock option exercises .................................... (166) (364) Retained earnings ........................................... 26,661 25,694 -------- -------- Total shareholders' equity ......................... 36,470 34,200 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................... $ 44,810 $ 44,894 ======== ========
See notes to consolidated condensed financial statements. -2- ARK RESTAURANTS CORP. AND SUBSIDIARIES - -------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (In Thousands, Except per share amounts) - ----------------------------------------------
13 Weeks Ended 39 Weeks Ended -------------- -------------- July 2, June 26, July 2, June 26, 2005 2004 2005 2004 ---- ---- ---- ---- TOTAL REVENUES $ 32,767 $ 32,831 $ 84,440 $ 82,355 -------- -------- -------- -------- COST AND EXPENSES: Food and beverage cost of sales 8,157 8,273 21,334 21,057 Payroll expenses 9,493 9,484 26,778 26,095 Occupancy expenses 4,151 3,789 12,074 11,592 Other operating costs and expenses 4,044 4,379 10,533 10,513 General and administrative expenses 1,900 1,531 5,455 4,491 Depreciation and amortization 900 835 2,648 2,857 -------- -------- -------- -------- Total costs and expenses 28,645 28,291 78,822 76,605 -------- -------- -------- -------- OPERATING INCOME 4,122 4,540 5,618 5,750 -------- -------- -------- -------- OTHER (INCOME) EXPENSE: Interest (income) expense, net (5) 55 (58) 98 Other income (137) (172) (432) (496) -------- -------- -------- -------- Total other income (142) (117) (490) (398) -------- -------- -------- -------- Income from continuing operations before income taxes 4,264 4,657 6,108 6,148 Provision for income taxes 1,414 1,661 1,954 2,152 -------- -------- -------- -------- Income from continuing operations 2,850 2,996 4,154 3,996 -------- -------- -------- -------- DISCONTINUED OPERATIONS: Income (loss) from operations of discontinued restaurants (including gains on disposal of $644,000 for the 39-weeks ended 7/2/05 and gains on disposal of $332,000 for the 39-weeks ended 6/26/2004) (17) (36) 598 (759) Provision (benefit) for income taxes 11 (12) 191 (266) -------- -------- -------- -------- Income (loss) from discontinued operations (28) (24) 407 (493) -------- -------- -------- -------- NET INCOME $ 2,822 $ 2,972 $ 4,561 $ 3,503 ======== ======== ======== ======== PER SHARE INFORMATION - BASIC AND DILUTED: Continuing operations basic $ .82 $ .89 $ 1.21 $ 1.22 Discontinued operations basic $ .00 $ (.01) $ .12 $ (.15) -------- -------- -------- -------- Net basic $ .82 $ .88 $ 1.33 $ 1.07 ======== ======== ======== ======== Continuing operations diluted $ .80 $ .85 $ 1.17 $ 1.17 Discontinued operations diluted $ .00 $ (.01) $ .11 $ (.14) -------- -------- -------- -------- Net diluted $ .80 $ .84 $ 1.28 $ 1.03 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF SHARES-BASIC 3,457 3,377 3,429 3,275 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF SHARES-DILUTED 3,546 3,509 3,555 3,417 ======== ======== ======== ========
See notes to consolidated condensed financial statements. -3- ARK RESTAURANTS CORP. AND SUBSIDIARIES - -------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands) - ---------------------------------------
39 Weeks Ended -------------- July 2, June 26, 2005 2004 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Income from continuing operations $ 4,154 $ 3,996 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Deferred income taxes (33) 2,151 Depreciation and amortization 2,648 2,857 Operating lease deferred credit (111) 32 Changes in operating assets and liabilities: Accounts receivable (848) (1,700) Employee receivables 238 94 Inventories 17 (42) Prepaid expenses and other current assets (13) 139 Other assets (409) 126 Accounts payable - trade (810) 1,072 Accrued income taxes (758) (1,836) Accrued expenses and other current liabilities 298 (586) ------- ------- Net cash provided by operating activities 4,373 6,303 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to fixed assets (2,468) (1,362) Payments received on long-term receivables 239 151 ------- ------- Net cash used in investing activities (2,229) (1,211) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (251) (7,234) Dividends paid (3,591) -- Exercise of stock options 420 1,932 Proceeds from stock option receivables 198 291 ------- ------- Net cash used in financing activities (3,224) (5,011) ------- ------- NET CASH (USED IN) PROVIDED BY CONTINUING OPERATIONS (1,080) 81 NET CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS (232) 967 ------- ------- NET (DECREASE) INCREASE IN CASH (1,312) 1,048 CASH, Beginning of period 4,435 486 ------- ------- CASH, End of period $ 3,123 $ 1,534 ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 19 $ 192 ======= ======= Income taxes $ 2,938 $ 1,648 ======= =======
See notes to consolidated condensed financial statements. -4- ARK RESTAURANTS CORP. AND SUBSIDIARIES - -------------------------------------- NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS July 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 July 2, 2005, results of operations for the 13-week and 39-week periods ended July 2, 2005 and June 26, 2004, and cash flows for the 39-week periods ended July 2, 2005 and June 26, 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 $72,000 and $784,000 during the 39-week periods ended July 2, 2005 and June 26, 2004. These losses are included in losses 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 $107,000 during the third quarter of fiscal 2004. The Company recorded an operating loss of $12,000 and $123,000 during the 39-week periods ended July 2, 2005 and June 26, 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 $90,000 during the 39-week periods ended July 2, 2005 and June 26, 2004, respectively. These losses are included in losses 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 operating income of $57,000 and $225,000, respectively, during the 39-week periods ended July 2, 2005 and June 26, 2004. The Company recorded an operating loss of $1,000 for the third fiscal quarter of 2005 and operating income of $55,000 during the third fiscal quarter of 2004. The gain on sale and operating 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 include amounts due from officers and directors totaling $166,000 at July 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 (5.75% at July 2, 2005). 5. INCOME (LOSS) PER SHARE OF COMMON STOCK Net income (loss) per share is computed in accordance with SFAS No. 128, Earnings Per Share, and is calculated on the basis of the weighted average number of common shares outstanding during each period plus, for diluted earnings per share, the additional dilutive effect of potential common stock. Potential common stock using the treasury stock method consists of dilutive stock options. For the 13-week period ended July 2, 2005 options to purchase 112,500 shares of common stock at a price of $6.30 were included in diluted earnings per share. Options to purchase 194,000 shares of common stock at a price of $29.60 were not included in diluted earnings per share as their impact was antidilutive. For the 39-week period ended July 2, 2005 options to purchase 306,500 shares of common stock at a price range of $6.30 to $29.60 were included in diluted earnings per share. For the 13-week period ended June 26, 2004, options to purchase 215,000 shares of common stock at a price range pf $6.30 to $10.00 were included in diluted earnings per share. For the 39-week period ended June 26, 2004, options to purchase 390,500 shares of common stock at a price range of $6.30 to $10.00 were included in diluted earnings per share. During the quarter ended July 2, 2005 employees exercised options to purchase 3,250 shares of common stock at a price of $6.30 per share. The Company received $21,000 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 $24,000 during the period ended July 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 employee stock option grants to employees as if the fair-value method defined in SFAS No. 123 had been applied. The Company utilized the Black-Scholes option-pricing model to quantify the pro forma effects on net income (loss) and earnings (loss) per share of the options granted for the quarters ended July 2, 2005 and June 26, 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 39-week periods ended July 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 39 Weeks ended 39 Weeks ended July 2, 2005 June 26, 2004 July 2, 2005 June 26, 2004 Net income as reported $2,822 $2,972 $4,561 $3,503 Deduct stock based employee compensation expense computed under the fair value method (153) (19) (342) (39) ------ ------ ------ ------ Net income - pro forma $2,669 $2,953 $4,219 $3,464 ====== ====== ====== ====== Earnings per share as reported - net basic $ 0.82 $ 0.88 $ 1.33 $ 1.07 Earnings per share as reported - net diluted $ 0.80 $ 0.84 $ 1.28 $ 1.03 Earnings per share pro forma - net basic $ 0.77 $ 0.87 $ 1.23 $ 1.05 Earnings per share pro forma - net diluted $ 0.75 $ 0.84 $ 1.19 $ 1.01
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 $1,210,000, or $0.35 per share, was paid on August 1, 2005. 8. RELATED PARTY TRANSACTIONS Receivables due from officers and employees, excluding stock option receivables, totaled $92,000 at July 2, 2005 and $330,000 at October 2, 2004. Such loans bear interest at the minimum statutory rate (3.31% at July 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 39-week periods ended July 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 third fiscal quarter of 2005, total revenues of $32,767,000 decreased less than 1% compared to total revenues of $32,831,000 in the third fiscal quarter of 2004. Revenues for the third fiscal quarter of 2005 were reduced by $28,000 and revenues for the third fiscal quarter of 2004 were reduced by $24,000 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 $2,822,000 in the third fiscal quarter of 2005 compared to net income of $2,972,000 in the third fiscal quarter of 2004. Same store sales in Las Vegas decreased by $1,223,000 or 7.2% in the third fiscal quarter of 2005 compared to the third fiscal quarter of 2004 generally because of less than expected business at the Venetian Casino Resort partially caused by the Venetian Casino Resort closing certain of its entertainment offerings for reconcepting. Such new entertainment offerings at the Venetian Casino Resort are expected to reopen beginning in the Company's next fiscal quarter. The Company anticipates -7- improvement in Las Vegas same store sales after such new entertainment offerings at the Venetian Casino Resort are reopened. Same store sales in New York increased by $377,000 or 3.8% during the third quarter. Same store sales in Washington D.C. also increased by $377,000 or 6.5% during the third 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 1.4% for the third fiscal quarter of 2005 compared to the third 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 39-week period ended July 2, 2005, total revenues of $84,440,000 increased 2.5% compared to total revenues of $82,355,000 in the 39-week period ended June 26, 2004. Revenues for this 39-week period ended July 2, 2005 were reduced by $1,670,000 and revenues for the 39-week period ended June 26, 2004 were reduced by $2,897,000 as a result of the sale of the Company's America restaurant and its reclassification to discontinued operations. The Company had net income of $4,561,000 in the 39-week period ended July 2, 2005 compared to net income of $3,503,000 for the 39-week period ended June 26, 2004. During this period, same store sales in Las Vegas decreased 1.8% while New York and Washington DC increased by 6.0% and 7.5%, respectively, compared to the 39-week period ended June 26, 2004. Management fee income generated from the Company's managed restaurants increased to $1,027,000 for the 39-week period ended July, 2, 2005 compared to $170,000 for the comparable period in fiscal 2004. This increase is the result of the opening of managed fast food facilities in the Hard Rock Hotel and Casinos located in Hollywood and Tampa Florida. Costs and Expenses Food and beverage costs for the third quarter of 2005 as a percentage of total revenues were 24.9% compared to 25.2% in the third quarter of 2004. These costs for the 39-weeks ended July 2, 2005 as a percentage of total revenues were 25.3% compared to 25.6% in the 39-week period ended June 26, 2004. Payroll expenses as a percentage of total revenues were 29.0% for the third quarter of 2005 as compared to 28.9% in the third quarter of 2004. Payroll expenses as a percentage of total revenues were 31.7% for the 39-week period ended July 2, 2005, which was the same percentage of total revenues in the 39-week period ended June 26, 2004. The Company continually evaluates its payroll expenses as they relate to sales. Occupancy expenses as a percentage of total revenues were 12.7% during the third fiscal quarter of 2005 compared to 11.5% in the third quarter of 2004. Occupancy expenses as a percentage of total revenues increased during the third fiscal quarter of 2005 primarily due to an increase in percentage rent payments, in such locations where the Company pays percentage rent, caused by increased revenues and the renegotiation of an expiring lease at an increased percentage rent during this period. Occupancy expenses as a percentage of total revenues were 14.3% during the 39-week period ended July 2, 2005 compared to 14.1% in the 39-week period ended June 26, 2004. Other operating costs and expenses as a percentage of total revenues were 12.3% for the third quarter of 2005 as compared to 13.3% in the third quarter of 2004. These costs and expenses as a percentage of total revenues were 12.5% for the 39-week period ended July 2, 2005 compared to 12.8% during the 39-week period ended June 26, 2004. General and administrative expenses as a percentage of total revenues were 5.8% in the third quarter of 2005 compared to 4.7% in last year's third quarter primarily due to the costs associated with work performed by the Company to comply with Sarbanes-Oxley Act of 2002. These expenses as a percentage of total revenues were 6.5% in the 39-week period ended July 2, 2005 compared to 5.5% in the 39-week period ended June 26, 2004. Interest expense was $19,000 for the third quarter of 2005 compared to an interest expense of $85,000 for the third quarter of 2004. Interest expense was $19,000 for the 39-week period ended July 2, 2005 compared to an interest expense of $192,000 for the 39-week period ended June 28, 2004. The decrease in interest expense during the 13-week and 39-week periods ended June 2, 2005 is due to lower outstanding borrowings on the Company's credit facility. As of July 2, 2005 and June 26, 2004 the Company had no outstanding borrowings on its credit facility. 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. -8- 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 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 $2,697,000 at July 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 provided by operations. The Company had no borrowings outstanding on this facility at July 2, 2005. During the 39-week period ended July 2, 2005 the Company issued 65,500 shares of common stock to various employees upon their exercise of outstanding stock options. The Company realized proceeds of $420,000 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 $72,000 and $784,000 during the 39-week periods ended July 2, 2005 and June 26, 2004. These losses are included in losses 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 $107,000 during the third quarter of fiscal 2004. The Company recorded an operating loss of $12,000 and $123,000 during the 39-week periods ended July 2, 2005 and June 26, 2004, respectively. These losses are included in loss from discontinued operations. -9- 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 $90,000 during the 39-week periods ended July 2, 2005 and June 26, 2004, respectively. These losses are included in losses 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 operating income of $57,000 and $225,000, respectively, during the 39-week periods ended July 2, 2005 and June 26, 2004. The Company recorded an operating loss of $1,000 for the third fiscal quarter of 2005 and operating income of $55,000 during the third fiscal quarter of 2004. The gain on sale and operating income and loss are 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 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 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 2006. 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 July 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 July 2, 2005 to ensure that information required to be disclosed by the Company in reports that the Company files or submits -10- under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There were no changes in the Company's internal control over financial reporting during the third quarter of fiscal year 2005 that materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting. -11- PART II OTHER INFORMATION 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 -12- 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: August 16, 2005 ARK RESTAURANTS CORP. By: /s/ Michael Weinstein --------------------- Michael Weinstein President & Chief Executive Officer By: /s/ Robert J. Stewart --------------------- Robert Stewart Chief Financial Officer
-13- EX-31 2 ex31-1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Michael Weinstein, President and Chief Executive Officer of Ark Restaurants Corp., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Ark Restaurants Corp. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's accountants and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: August 16, 2005 /s/ MICHAEL WEINSTEIN - ------------------------------------------- Michael Weinstein President and Chief Executive Officer -14- EX-31 3 ex31-2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert Stewart, Chief Financial Officer of Ark Restaurants Corp., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Ark Restaurants Corp. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its a consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's accountants and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: August 16, 2005 /s/ Robert Stewart - ------------------------------ Robert Stewart Chief Financial Officer -15- EX-32 4 ex-32.txt EXHIBIT 32 Exhibit 32 Certificate of Chief Executive and Chief Financial Officers The following statement is being made to the Securities and Exchange Commission solely for purposes of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), which carries with it certain criminal penalties in the event of a knowing or willful misrepresentation. Securities and Exchange Commission 450 Fifth Street, NW Washington, DC 20549 Re: Ark Restaurants Corp. Ladies and Gentlemen: In accordance with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 USC 1350), each of the undersigned hereby certifies that: (i) this report on Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (ii) the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Ark Restaurants Corp. Dated as of this 16th day of August 2005. /s/ Michael Weinstein /s/ Robert Stewart - ------------------------------------ ------------------------ Michael Weinstein Robert Stewart President and Chief Executive Officer Chief Financial Officer
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