<PAGE>
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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 January 2, 1999
[ ] 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.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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
------------------------------
</TABLE>
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding shares at February 12, 1999
- ------------------------------ -----------------------------------------
<S> <C>
(Common stock, $.01 par value) 3,551,399
</TABLE>
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ARK RESTAURANTS CORP. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements:
Consolidated Condensed Balance Sheets - January 2, 1999
(Unaudited) and October 3, 1998 1
Consolidated Condensed Statements of Operations and
Retained Earnings - 13-Week Periods Ended January 2, 1999
(Unaudited) and December 27, 1997 (Unaudited). 2
Consolidated Condensed Statements of Cash Flows - 13-Week Periods
Ended January 2, 1999 (Unaudited) and December 27, 1997 (Unaudited) 3
Notes to Consolidated Condensed Financial
Statements (Unaudited) 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-11
PART II - OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
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<TABLE>
<CAPTION>
January 2, October 3,
1999 1998
--------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,111 $ 1,023
Accounts receivable 3,314 2,507
Inventories 1,942 1,950
Current portion of long-term receivables 413 416
Prepaid expenses and other current assets 417 491
Deferred income taxes 909 909
------- -------
Total current assets 8,106 7,296
LONG-TERM RECEIVABLES 1,350 1,119
ASSETS HELD FOR SALE 1,131 1,768
FIXED ASSETS - At Cost:
Leasehold improvements 22,524 22,465
Furniture, fixtures and equipment 18,642 18,592
Leasehold improvements in progress 195 19
------- -------
41,361 41,076
Less accumulated depreciation and
amortization 16,605 15,834
------- -------
24,756 25,242
INTANGIBLE ASSETS - Less accumulated
amortization of $2,975 and $2,829 5,380 5,515
OTHER ASSETS 1,342 1,131
DEFERRED INCOME TAXES 981 1,031
------- -------
TOTAL ASSETS $43,046 $43,102
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 3,819 $ 3,563
Accrued expenses and other current
liabilities 3,308 2,908
Current maturities of long-term debt 614 609
Current maturities of capital lease obligations 206 230
Accrued income taxes 589 705
------- -------
Total current liabilities 8,536 8,015
LONG-TERM DEBT - net of current maturities 3,399 4,405
OBLIGATIONS UNDER CAPITAL LEASES - net of current
maturities 100 149
OPERATING LEASE DEFERRED CREDIT 1,471 1,471
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share -
authorized, 10,000 shares;
issued, 5,188 shares 52 52
Additional paid-in capital 14,215 14,215
Retained earnings 18,591 17,565
------- -------
32,858 31,832
Less treasury stock, 1,562 and 1,504 shares 3,318 2,770
------- -------
Total shareholders' equity 29,540 29,062
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $43,046 $43,102
------- -------
------- -------
</TABLE>
See notes to consolidated condensed
financial statements
1
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ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS & RETAINED EARNINGS (Unaudited)
(In Thousands, Except per share amounts)
<TABLE>
<CAPTION>
13 Weeks Ended
--------------------------
January 2, December 27,
1999 1997
---------- ------------
<S> <C> <C>
NET SALES $26,933 $26,940
COST OF SALES 7,110 7,248
------- -------
GROSS RESTAURANT PROFIT 19,823 19,692
MANAGEMENT FEE INCOME 64 197
------- -------
19,887 19,889
------- -------
OPERATING EXPENSES
Payroll and payroll benefits 9,761 9,756
Occupancy 3,296 3,176
Depreciation and amortization 992 946
Other 2,636 3,490
------- -------
16,685 17,368
GENERAL AND ADMINISTRATIVE EXPENSES 1,535 1,392
------- -------
18,220 18,760
------- -------
OPERATING INCOME 1,667 1,129
------- -------
OTHER EXPENSE (INCOME):
Interest expense, net 64 85
Other income (107) (167)
------- -------
(43) (82)
------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,710 1,211
PROVISION FOR INCOME TAXES 684 484
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NET INCOME $ 1,026 $ 727
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------- -------
RETAINED EARNINGS, Beginning of period 17,565 12,953
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RETAINED EARNINGS, End of period $18,591 $13,680
------- -------
------- -------
NET INCOME PER SHARE - BASIC & DILUTED $.28 $.19
---- ----
---- ----
WEIGHTED AVERAGE NUMBER OF SHARES - BASIC 3,646 3,835
------- -------
------- -------
WEIGHTED AVERAGE NUMBER OF SHARES - DILUTED 3,660 3,859
------- -------
------- -------
</TABLE>
See notes to consolidated condensed
financial statements
2
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ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
13 Weeks Ended
--------------------------
January 2, December 27,
1999 1997
---------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,026 $ 727
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of fixed assets 829 849
Amortization of intangibles 163 99
Gain on sale of restaurants (646) (185)
Deferred income taxes 50 --
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable (807) (709)
Decrease (Increase) in inventories 8 (32)
Decrease (Increase) in prepaid expenses & other
current assets 74 (101)
Decrease (Increase) in other assets (211) 77
Increase (Decrease) in accounts payable - trade 256 (257)
Increase (Decrease) in accrued expenses and other
current liabilities 325 (131)
Increase (Decrease) in accrued income taxes (116) (131)
------- -------
Net cash provided by operating activities 951 206
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets, net (285) (12)
Additions to intangible assets (11) --
Payments received on long-term receivables 80 122
Restaurant sales 975 200
------- -------
Net cash used in investing activities 759 310
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 800 250
Principal payment on long-term debt (1,801) (993)
Principal payment on capital lease obligations (73) (65)
Purchase of treasury stock (548) --
Exercise of stock options -- 65
------- -------
Net cash used in financing activities (1,622) (743)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 88 (227)
CASH AND CASH EQUIVALENTS, beginning of period 1,023 722
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 1,111 $ 495
------- -------
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest $ 105 $ 141
------- -------
------- -------
Income taxes $ 749 $ 614
------- -------
------- -------
</TABLE>
See notes to consolidated condensed financial statements.
3
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ARK RESTAURANTS CORP. AND SUBSIDIARIES
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 January 2, 1999 and results of
operations and changes in cash flows for the periods ended January 2, 1999 and
December 27, 1997 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 October 3, 1998. The results of operations for the period ended January 2,
1999 is not necessarily indicative of the operating results for the full year.
2. RESTAURANT SALES
In the first quarter of fiscal 1999 the Company sold a restaurant located in
New York City and a restaurant located in Washington, DC for an aggregate
selling price of $1,225,000, of which $975,000 was paid in cash and the balance
of $250,000 was financed by notes. The notes are due in monthly installments of
$5,537, inclusive of interest at 10%, from May 1999 through April 2004. The
Company recognized a gain of $611,000 on these sales.
3. INCOME PER SHARE OF COMMON STOCK
The Company adopted in the first quarter of fiscal 1998, The Financial
Accounting Standards Board Statement No. 128 "Earnings per Share" which
established new standards for computing and presenting earnings per share. The
Company now discloses "Basic Earnings per Share", which is based upon the
weighted average number of shares of common stock outstanding during each period
and "Diluted Earnings per Share" which requires the Company to include common
stock equivalents consisting of dilutive stock options.
4
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A reconciliation of the numerators and denominators of the basic and diluted
per share computations follow:
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
13-weeks ended January 2, 1999:
BASIC EPS $1,026,000 3,646,000 $.28
Stock Options &
Warrants -- 14,000 -
---------- --------- ----
DILUTED EPS $1,026,000 3,660,000 $.28
---------- --------- ----
13-weeks ended December 27, 1997:
BASIC EPS $727,000 3,835,000 $.19
Stock Options &
Warrants -- 24,000 -
-------- --------- ----
Diluted EPS $727,000 3,859,000 $.19
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</TABLE>
Options to purchase 232,500 shares of common stock at prices ranging from
$11.375 to $12 per share and warrants to purchase 35,000 shares of common stock
at $11.625 were not included in the computation of diluted earnings per share at
January 2, 1999 because the exercise prices were greater than the average market
price of the common shares.
Options to purchase 132,500 shares of common stock at $12 per share and warrants
to purchase 35,000 shares of common stock at $11.625 were not included in the
computation of diluted earnings per share at December 27, 1997 because the
exercise prices were greater than the average market price of the common shares.
5
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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.
NET SALES
Net sales at restaurants and bars owned by the Company were basically
unchanged in the 13-week period ended January 2, 1999 from the comparable period
ended December 27, 1997. Net sales for the quarter increased by $1,310,000 from
sales at restaurants which the Company did not operate in the 13-week period
last year (Red and the Stage Deli in Las Vegas were opened or acquired in the
fiscal year ended October 3, 1998) and decreased by $1,926,000 from sales at
restaurants that the Company no longer operates (B. Smith's DC and Perretti
Italian Cafe were sold in the 13-week period ended January 2, 1999 and An
American Place and the Beekman 1766 Tavern were sold in the 1998 fiscal year).
Same store sales in the 13-week period ended January 2, 1999 increased by 2.5%
principally due to increased customer counts. The components of this change
consisted of a 4.6% increase in the Company's Las Vegas operations along with a
1.5% increase in the Company's other operations.
COSTS AND EXPENSES
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 January
2, 1999 cost of sales as a percentage of net sales decreased to 26.4% from 26.9%
for the comparable period last year. There were comparable decreases at the
Company's Las Vegas and non Las Vegas facilities.
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, decreased to 62.0% for the 13-week period ended January
2, 1999 from 64.5% last year. Operating expense during the 13-week period ended
January 2, 1999 is net of gains of $611,000, or 2.3% of net sales, from two
restaurants which were sold (B. Smith's DC and Perretti Italian Cafe).
General and administrative expenses, as a percentage of net sales, were
5.7% for the 13-week period ended January 2, 1999 as compared to 5.2% last year.
If net sales at managed restaurants
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and bars were included in consolidated net sales, general and administrative
expenses as a percentage of net sales would have been 5.3% for the 13-week
period ended January 2, 1999 as compared to 4.6% last year.
The Company had net income of $1,026,000 for the 13-week period ended
January 2, 1999 as compared to net income of $727,000 last year. The results for
the 13-week period ended January 2, 1999 include after tax gains of $388,000
from the sale of two restaurants (B. Smith's DC and Perretti Italian Cafe) and
the results for the 13-week period last year include after tax gains of $111,000
from the sale of one restaurant (Jim McMullen).
During the 13-week period ended January 2, 1999 the Company managed five
restaurants and during the 13-week period last year the Company managed five
restaurants and two corporate dining facilities owned by third parties. Net
sales of the managed locations were $2,157,000 during the 13-week period ended
January 2, 1999 as compared to $3,466,000 last year. This decrease was primarily
the result of the termination of management agreements in the fiscal year ended
October 3, 1998 at two corporate dining facilities managed by the Company. Nets
sales of these operations are not included in consolidated net sales.
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
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
7
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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 28, 1991 through October
1, 1994, and has proposed certain adjustments, all of which are being contested
by the Company. The adjustments primarily relate to (i) pre-opening, legal and
accounting expenses incurred in connection with new or acquired restaurants that
the Internal Revenue Service asserts should have been capitalized and amortized
rather than currently expensed and (ii) travel and meal expenses for which the
Internal Revenue Service asserts the Company did not comply with certain record
keeping requirements of the Internal Revenue Code. The Company does not believe
that any adjustments resulting from such examination will have a material effect
on the Company's financial condition.
LIQUIDITY AND SOURCES OF CAPITAL
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.
The Company's Revolving Credit facility with its main bank includes a
$10,000,000 facility for use in construction and acquisition of new restaurants
and for working capital at the Company's existing restaurants. The facility
allows the Company to borrow up to $10,000,000 until April 2000 at which time
outstanding loans mature. The loans bear interest at a rate of prime plus 1/2%.
At January 2, 1999 the Company had borrowings of $1,700,000 outstanding on the
facility.
The Company also has a two-year $1,000,000 letter of credit facility for
use in lieu of lease security deposits. At January 2, 1999 the Company had
delivered $706,000 in irrevocable letters of credit on this facility.
8
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At January 2, 1999, the Company had a working capital deficit of $430,000
as compared to a working capital deficit of $719,000 at October 3, 1998. 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 agreement with its main bank. Certain provisions of the
agreement may impair the Company's ability to borrow funds.
RESTAURANT EXPANSION
The Company is constructing a 500 plus seat Southwestern style restaurant at
Union Station in Washington, D.C., where the Company operates two other
restaurants. The Company expects to incur up to $1,800,000 in capital costs and
other pre-opening expenses to open this restaurant. The Company expects to open
this restaurant in the March 1999 fiscal quarter.
The Company expects to shortly begin construction on its previously
announced project at a large theatre development in Southfield, Michigan under a
joint venture agreement with Sony Theatres' Loeks Star Partners and Millennium
Partners. There the Company will develop and operate four restaurants containing
a total of approximately 50,000 square feet. The Company anticipates that its
share of the required capital contributions to meet the construction costs,
initial inventories and pre-opening expenses will be $6,500,000. The project is
currently scheduled to open in the September 1999 fiscal quarter.
Although the Company is not currently committed to any other projects, the
Company is exploring additional opportunities for expansion of its business. The
Company expects to fund its existing projects through cash from operations and
from the anticipated revision of the existing credit facilities. Additional
expansion may require additional external financing.
YEAR 2000
The Company has assessed and continues to assess the impact of the Year
2000 issue on its reporting systems and operations. The Year 2000 issue exists
because many computer systems and applications currently used two-digit fields
to designate a year. When the century date occurs, date-sensitive systems may
recognize the year 2000 as 1900 or not at all. This inability to recognize or
properly treat the year 2000 may cause systems to
9
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process critical financial and operational information incorrectly.
The Company is currently reviewing, testing and correcting non-compliant
systems. The review stage should be completed by the end of the March 1999
quarter and all non-compliant systems should be remedied by the end of the
September 1999 quarter. The Company estimates that the cost of remediation will
not exceed $150,000.
The Company's centralized financial accounting and reporting software
system which processes information generated daily at each of the Company's
restaurants is Year 2000 compliant. However, certain hardware which processes
such information is currently non-compliant and is in the process of being
modified or replaced as needed at both corporate headquarters and the applicable
restaurants. Several of the Company's restaurants have non-compliant
point-of-sale systems. These systems process customer orders and generate
billing information. The Company is modifying those systems which can be
modified and replacing the systems which can not be modified. The Company's
centralized purchasing system which process numerous orders from the Company's
restaurants is Year 2000 compliant.
The Company has initiated communications with its significant vendors and
service providers to determine the extent to which the Company's systems are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. At the Company's facilities at the New York-New York Hotel and Casino,
for example, the Company utilizes and interfaces with systems provided by the
Hotel and failure of the Hotel's computer systems to adequately address the Year
2000 issue may have a material adverse effect upon the Company. The Company has
been advised by the Hotel that its systems are expected to be Year 2000
compliant.
The Company is dependent upon major credit card issuers for the remittance
to the Company of charges incurred by customers. The Company has been advised
that the major credit card issuers in the United States have addressed the Year
2000 issues they confront and do expect that their systems will function
properly in the Year 2000.
Other vendors and service providers with which the Company does business
may not have adequately addressed the year 2000 issue. However, the Company
believes that there are numerous sources for the various products and services
used by the Company and does not anticipate that Year 2000 compliance issues
10
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<PAGE>
confronted by its vendors and service providers will have a material effect upon
the Company.
The Company does not believe that any further contingency plans are
warranted at the present time. If for any reason the Company's remaining
non-compliant systems cannot be remedied, the Company expects to have developed
appropriate contingency plans by the end of the September 1999 fiscal quarter.
11
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - none
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: February 12, 1999
ARK RESTAURANTS CORP.
By /S/ Michael Weinstein
--- -----------------
Michael Weinstein, President
By /S/ Andrew B. Kuruc
--- ---------------
Andrew B. Kuruc
Vice President, Controller and
Principal Accounting Officer
13
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and income statment for the 13 weeks of Ark Restaurants Corp. and is
qualified in its entirety by reference to such financial statements
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 111
<SECURITIES> 0
<RECEIVABLES> 3,314
<ALLOWANCES> 0
<INVENTORY> 1,942
<CURRENT-ASSETS> 8,106
<PP&E> 41,631
<DEPRECIATION> 16,605
<TOTAL-ASSETS> 43,046
<CURRENT-LIABILITIES> 8,536
<BONDS> 4,319
<COMMON> 52
0
0
<OTHER-SE> 29,488
<TOTAL-LIABILITY-AND-EQUITY> 43,046
<SALES> 26,933
<TOTAL-REVENUES> 26,933
<CGS> 7,110
<TOTAL-COSTS> 7,110
<OTHER-EXPENSES> 18,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 1,710
<INCOME-TAX> 684
<INCOME-CONTINUING> 1,026
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,026
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
