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 March 30, 2002
[ ] 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
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.
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 May 10, 2002
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(Common stock, $.01 par value) 3,181,299
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PART I - FINANCIAL INFORMATION: Page
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Item 1. Consolidated Financial Statements:
Consolidated Condensed Balance Sheets - March 30, 2002
(Unaudited) and September 29, 2001 3
Consolidated Condensed Statements of Operations and Retained Earnings -
13-week periods ended March 30, 2002 (Unaudited) and March 31, 2001
(Unaudited) and 26-week periods ended March 30, 2002 (Unaudited) and March
31, 2001 (Unaudited) 4
Consolidated Condensed Statements of Cash Flows - 26-week periods
ended March 30, 2002 (Unaudited) and March 31, 2001 (Unaudited) 5
Notes to Consolidated Condensed Financial
Statements (Unaudited) 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II - OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
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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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March 30, September 29,
2002 2001
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(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 52 $ -
Accounts receivable 2,559 2,273
Inventories 1,983 2,110
Current portion of long-term receivables 151 203
Prepaid expenses and other current assets 777 655
Refundable and prepaid income taxes 978 1,119
Deferred income taxes 278 278
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Total current assets 6,778 6,638
LONG-TERM RECEIVABLES 1,030 1,082
FIXED ASSETS - At Cost:
Leasehold improvements 33,699 33,699
Furniture, fixtures and equipment 28,141 27,972
Leasehold improvements in progress 44 93
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61,884 61,764
Less accumulated depreciation and
amortization 29,513 27,035
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32,371 34,729
INTANGIBLE ASSETS - Less accumulated
amortization of $3,787 and $3,589 3,977 4,175
DEFERRED INCOME TAXES 5,857 6,056
OTHER ASSETS 397 395
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TOTAL ASSETS $50,410 $53,075
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 3,045 $ 4,232
Accrued expenses and other current
liabilities 5,340 6,744
Current maturities of long-term debt 5,196 2,247
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Total current liabilities 13,581 13,223
LONG-TERM DEBT - net of current maturities 17,876 21,700
OPERATING LEASE DEFERRED CREDIT 995 995
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share -
authorized, 10,000 shares;
issued, 5,249 shares 52 52
Additional paid-in capital 14,743 14,743
Treasury stock, 2,068 shares (8,351) (8,351)
Receivable from stockholders (760) (776)
Retained earnings 12,274 11,489
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Total shareholders' equity 17,958 17,157
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $50,410 $53,075
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See notes to consolidated condensed financial statements
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited) (In Thousands, Except per share amounts)
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13 Weeks Ended 26 Weeks Ended
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March 30, March 31, March 30, March 31,
2002 2001 2002 2001
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TOTAL REVENUES $26,287 $28,443 $52,213 $59,431
COST & EXPENSES:
Food & beverage cost of sales 6,775 7,349 13,085 15,203
Payroll expenses 9,147 10,658 17,629 21,864
Occupancy expenses 4,254 4,594 8,178 8,746
Other operating costs and expenses 3,311 3,607 5,932 7,254
General and administrative expenses 1,535 1,670 2,931 3,302
Depreciation and amortization expenses 1,352 1,481 2,691 2,920
Joint venture losses - 150 - 150
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Total costs and expenses 26,374 29,509 50,446 59,439
OPERATING INCOME (LOSS) (87) (1,066) 1,767 (8)
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OTHER (INCOME) EXPENSE:
Interest expense, net 293 624 615 1,333
Other income (68) (77) (159) (91)
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Total other (income) expense 225 547 456 1,242
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INCOME (LOSS) before provision
(benefit) for income taxes (312) (1,613) 1,311 (1,250)
PROVISION (BENEFIT) for income taxes (123) (613) 526 (475)
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NET INCOME (LOSS) (189) (1,000) 785 (775)
RETAINED EARNINGS, Beginning
of period 12,463 18,562 11,489 18,337
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RETAINED EARNINGS, End of period $12,274 $17,562 $12,274 $17,562
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PER SHARE INFORMATION - BASIC & DILUTED:
NET INCOME (LOSS) ($.06) ($.31) $.25 ($.24)
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WEIGHTED AVERAGE NUMBER OF SHARES-BASIC 3,181 3,182 3,181 3,182
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WEIGHTED AVERAGE NUMBER OF SHARES-DILUTED 3,181 3,182 3,199 3,182
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See notes to consolidated condensed financial statements
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
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26 Weeks Ended
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March 30, March 31,
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 785 $ (775)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Write-off of joint venture advances - 150
Depreciation and amortization of fixed assets 2,478 2,706
Amortization of intangibles 213 214
Deferred income taxes 199 -
Changes in assets and liabilities:
Accounts receivable (286) 1,266
Inventories 127 (46)
Prepaid expenses and other current assets (137) (141)
Refundable and prepaid income taxes 141 (636)
Other assets (2) (136)
Accounts payable - trade (1,187) (739)
Accrued expenses and other current liabilities (1,404) (1,519)
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Net cash provided by operating activities 927 344
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets, net (120) (1,400)
Issuance of long term receivables (46) (49)
Payments received on long-term receivables 150 1,026
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Net cash in investing activities (16) (423)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 1,500 3,300
Principal payment on long-term debt (2,375) (5,052)
Proceeds from sale leaseback - 1,559
Payment of accounts receivables from stockholders 16 -
Purchase of treasury stock - (2)
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Net cash used in financing activities (859) (195)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 52 (274)
CASH AND CASH EQUIVALENTS, beginning of period - 697
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CASH AND CASH EQUIVALENTS, end of period $ 52 $ 423
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest $ 681 $ 1,417
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Income taxes $ 187 $ 360
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See notes to consolidated condensed financial statements.
ARK RESTAURANTS CORP. AND SUBSIDIARIES
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 March 30, 2002 and results of operations and changes in cash flows for the periods ended March 30, 2002 and March 31, 2001 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. These 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 September 29, 2001. The results of operations for the periods ended March 30, 2002 are not necessarily indicative of the operating results for the full year.
Certain reclassifications have been made to the 2001 financial statements to conform to the 2002 presentation.
2. IMPACT OF NEW ACCOUNTING STANDARDS
SFAS No. 142, Goodwill and Other Intangible Assets, addresses financial accounting and reporting for acquired goodwill and other intangible assets. Under SFAS No. 142, goodwill and some intangible assets will no longer be amortized, but rather reviewed for impairment on a periodic basis. Impairment losses for goodwill and certain intangible assets that arise due to the initial application of this Statement are to be reported as resulting from a change in accounting principle. The provisions of this Statement will be applied at the beginning of the Company's 2003 fiscal year. The Company is in the process of evaluating the financial statement impact from adopting this standard.
SFAS No. 143, Accounting for Asset Retirement Obligations, requires the recording of the fair value of a liability for an asset retirement obligation in the period in which it is incurred. The Statement is effective for the Company at the beginning of fiscal year 2004. The Company does not expect the adoption of this standard to have a material impact on the Company's financial position or results of operations.
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, supersedes existing accounting literature dealing with impairment and disposal of long-lived assets, including discontinued operations. It addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of and expands current reporting for discontinued operations to include disposals of a "component" of an entity that has been disposed of or is classified as held for sale. The Statement is effective for the Company at the beginning of fiscal year 2003. The Company is in the process of evaluating the financial statement impact of this standard.
3. EFFECTS OF THE SEPTEMBER 11, 2001 TERRORISTS ATTACKS
One Company restaurant, the Grill Room, suffered some damage. The restaurant is located in an office building adjacent to the World Trade Center (in 2 World Financial Center) and will likely not reopen until late in fiscal 2002 due to the damage sustained by the office building. Several other restaurants were also closed from several days to a month due to their proximity to the World Trade Center. The Company has extensive property and business interruption insurance policies and the Company ultimately expects to recover a significant portion of its physical costs and business interruption losses at these restaurants. The Company has recorded $450,000 as a reduction of other operating costs and expenses for the twenty-six week period ended March 30, 2002 for partial insurance recoveries of certain out of pocket costs and business interruption losses incurred. Additional recoveries are expected in future quarters as the assessment of the damages is finalized.
The Company believes that its restaurant and food court operations at Desert Passage which adjoins the Aladdin Casino Resort in Las Vegas, Nevada (the "Aladdin") were significantly impaired by the events of September 11th. The restaurant and food court operations experienced severe sales declines in the aftermath of September 11th and the Aladdin declared bankruptcy on September 28, 2001. The Company determined that an impairment analysis under SFAS No. 121 needed to be performed.
Based upon the sum of the future undiscounted cash flow related to the Company's long-lived assets at the Aladdin, the Company determined that impairment had occurred. To estimate the fair value of such long-lived 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. Therefore, the Company determined that there was no value to such long-lived assets. The Company had an investment of $8,445,000 in leasehold improvements, and furniture, fixtures and equipment. The Company believes that these assets would have nominal, if any, value upon disposal. In addition, the estimated future payments under the lease for kitchen equipment at the location totaled $1,600,000. The Company believes that unless there is a significant change in current business circumstances the lease will be abandoned. The Company recorded in the fiscal year ended September 29, 2002 an impairment charge of $8,445,000 for the net book value of the assets and recorded an additional $1,600,000 of expense and liability for the future lease payments.
4. LONG-TERM DEBT
The Company's Revolving Credit and Term Loan Facility (the "Facility") with its main bank (Bank Leumi USA), as amended November 2001 and December 2001, includes a $26,000,000 credit line to finance the development and construction of new restaurants and for working capital purposes at the Company's existing restaurants. The Company had borrowings of $22,000,000 outstanding on this Facility at March 30, 2002. Outstanding loans bear interest at 1/2% above the bank's prime rate and at March 30, 2002 the interest rate on outstanding loans was 5.25%. Any outstanding loans on June 30, 2002 in excess of $22,000,000 are due in full and the balance can be converted into a term loan payable over 36 months. The Facility also includes a $1,000,000 letter of credit facility for use in lieu of lease security deposits. The Company had delivered $889,000 in irrevocable letters of credit on this Facility. The Company generally is required to pay commissions of 1 1/2% per annum on outstanding letters of credit.
The Company's subsidiaries each guaranteed the obligations of the Company under the foregoing Facility and granted security interests in their respective assets as collateral for such guarantees. In addition, the Company pledged stock of such subsidiaries as security for obligations of the Company under such Facility.
The Facility includes restrictions relating to, among other things, indebtedness for borrowed money, capital expenditures, mergers, sale of assets, dividends and liens on the property of the Company. The Facility also requires the Company to comply with certain financial covenants at the end of each quarter 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 December 2001 the Company received a waiver for covenants that the Company was not in compliance with at September 29, 2001 and certain covenants in the Facility were modified for fiscal 2002 and beyond. The Company was in compliance with all covenants at March 30, 2002.
5. RECEIVABLE FROM STOCKHOLDERS
Receivable from stockholders includes amounts due from officers and directors totaling $717,000 at March 30, 2002 and March 31, 2001, respectively. 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.
6. INCOME PER SHARE OF COMMON STOCK
Net income per share is computed in accordance with Statement of Financial Accounting Standards ("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 common stock equivalents. Common stock equivalents using the treasury stock method consist of dilutive stock options and warrants.
For the 13-weeks ended March 30, 2002, options to purchase 438,000 shares of common stock at price range of $6.30 to $12.00 are not included in diluted earnings per share as the Company had a loss for the quarter. For the 13-weeks ended March 31, 2001, options and warrants to purchase 377,000 shares of common stock at price range of $7.50 to $12.00 are not included in diluted earnings per share as the Company had a loss for the quarter. Due to the loss for the quarter any common stock equivalents would have been antidilutive.
7. RELATED PARTY TRANSACTIONS
Mr. Donald D. Shack, a director of the Company, is a member of the firm Shack Siegel Katz Flaherty & Goodman P.C., general counsel to the Company. The Company incurred $263,000 and $250,000 in legal fees to such firm during the 26-week periods ended March 30, 2002 and March 31, 2001, respectively.
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 September 29, 2001.
Revenues
Total revenues decreased 7.6% in the 13-week period ended March 30, 2002 from the comparable period ended March 31, 2001. The Company's primary markets, New York, Washington DC and Las Vegas rely heavily on tourism and corporate business, and therefore the terrorist attacks of September 11th still greatly impacted the sales results for the quarter. Total revenues decreased by $874,000 as a restaurant (the Grill Room) located in an office building adjacent to the World Trade Center was closed due to damage sustained. Such restaurant (the Grill Room) will likely not reopen until late in fiscal 2002. Total revenues also decreased by $1,688,000 from a 6.2% decrease in same store sales on a Company-wide basis. This decrease is an improvement in comparison to 13% same store sale decline in the 13-weeks ended December 29, 2001. The New York and Las Vegas markets have rebounded considerably while Washington DC continues to lag. The decrease in same store sales was 5.1% in Las Vegas, 4.0% in New York City and 16.4% in Washington, D.C. Such decreases were principally due to a decrease in customer counts.
Total revenues decreased 12.1% in the 26-week period ended March 30, 2002 from the comparable period ended March 31, 2001. Total revenues decreased by $1,934,000 as a restaurant (the Grill Room) was closed. Total revenues also decreased by $5,279,000 from a 9.5% decrease in same store sales on a Company- wide basis. The decrease in same store sales was 7.6% in Las Vegas, 8.9% in New York City and 18.2% in Washington, D.C. Such decreases were principally due to a decrease in customer counts.
Costs and Expenses
Food and beverage costs for the 13-week period ended March 30, 2002 as a percentage of total revenues remained constant at 25.8% as compared to last year, while food and beverage costs as a percentage of total revenues for the 26-week period ended March 30, 2002 was 25.1% as compared to 25.6% last year.
Payroll expenses as a percentage of total revenues decreased to 34.8% for the 13-weeks ended March 20, 2002 as compared to 37.5% last year and also decreased in the 26-weeks ended March 30, 2002 to 33.8% of total revenues as compared to 36.8% last year. The Company aggressively adapted its cost structure in response to lower sales expectations following September 11th. Payroll head count at March 30, 2002 is approximately 300 personnel (13%) lower than the comparable period last year through a combination of layoffs and delayed seasonal hiring. Severance pay to key personnel was approximately $50,000 for the 26-weeks ended March 30, 2002.
Occupancy and other expenses as a percentage of total revenues remained constant at approximately 28.8% for the 13-weeks ended March 30, 2002 as
compared to last year and were 27.0% for the 26-week period ended March 30, 2002 as compared to 26.9% last year.
General and administrative expenses, as a percentage of total revenues, remained constant at 5.9% for the 13-week period ended March 30, 2002 as compared to last year and were constant at 5.6% during the 26-week period ended March 30, 2002 as compared to last year. The Company has reduced its general and administrative expenses in response to September 11th.
Interest expense was $293,000 for the 13-week period ended March 30, 2002 as compared to $624,000 last year and interest expense for the 26-week period ended March 30, 2002 was $615,000 as compared to $1,333,000 last year. The significant decrease in both periods as compared to last year is due to lower outstanding borrowings on the Company's revolving credit facility and the benefit from significant rate decreases in the prime-borrowing rate.
The Company had a net loss of $189,000 for the 13-week period ended March 30, 2002 as compared to a net loss of $1,000,000 last year and had a net profit of $785,000 for the 26-week period ended March 30, 2002 as compared to a net loss of $775,000 last year.
Net sales of managed restaurants were $1,281,000 during the 26-week period ended March 30, 2002 as compared to $2,249,000 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 March 30, 2002 the Company managed one restaurant. Net sales of managed restaurants 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 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 to a tax credit based on the amount of FICA taxes paid by the Company with respect to the tip income of restaurant service personnel. The Company estimates that this credit will be in excess of $500,000 for the current year.
The Company and the Internal Revenue Service finalized the adjustments to the Company's federal income tax for the fiscal years ended September 30, 1995 through October 3, 1998. The adjustments primarily relate to 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 settlement did not 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 and Term Loan Facility (the "Facility") with its main bank (Bank Leumi USA), as amended November 2001 and December 2001, includes a $26,000,000 credit line to finance the development and construction of new restaurants and for working capital purposes at the Company's existing restaurants. The Company had borrowings of $22,000,000 outstanding on this Facility at March 30, 2002. Outstanding loans bear interest at 1/2% above the bank's prime rate and at March 30, 2002 the interest rate on outstanding loans was 5.25%. Any outstanding loans on June 30, 2002 in excess of $22,000,000 are due in full and the balance can be converted into a term loan payable over 36 months. The Facility also includes a $1,000,000 letter of credit facility for use in lieu of lease security deposits. The Company had delivered $889,000 in irrevocable letters of credit on this Facility. The Company generally is required to pay commissions of 1 1/2% per annum on outstanding letters of credit.
At March 30, 2002, the Company had a working capital deficit of $6,803,000 as compared to a working capital deficit of $6,585,000 at September 29, 2001. 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 Company's subsidiaries each guaranteed the obligations of the Company under the foregoing Facility and granted security interests in their respective assets as collateral for such guarantees. In addition, the Company pledged stock of such subsidiaries as security for obligations of the Company under such Facility.
The Facility includes restrictions relating to, among other things, indebtedness for borrowed money, capital expenditures, mergers, sale of assets, dividends and liens on the property of the Company. The Facility also requires the Company to comply with certain financial covenants at the end of each quarter 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 December 2001 the Company received a waiver for covenants that the Company was not in compliance with at September 29, 2001 and certain covenants in the Facility were modified for fiscal 2002 and beyond. The Company was in compliance with all covenants at March 30, 2002.
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 at Dessert Passage, which adjoins the Aladdin Casino Resort in Las
Vegas, Nevada (the "Aladdin"). The lease, which is accounted for as an operating 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. At September 29, 2001 the Company determined that its food service operations at the Aladdin were impaired and the lease will be abandoned unless there is a significant change in current business circumstances. Accordingly the Company accrued $1,600,000 of estimated future lease payments on this lease. (See events of September 11th below)
The Company does not anticipate any capital-intensive projects during fiscal 2002 and expects that a significant portion of its projected cash flow will be applied to debt reduction.
Restaurant Expansion
The Company will soon open a 200-seat restaurant and bar (the Saloon) at the Neonopolis Center at Fremont Street in downtown Las Vegas, Nevada. The Company received a $2,400,000 construction and operating allowance from the landlord and expects to construct and open the restaurant within the limits of that allowance.
The Company is not currently committed to any other projects.
Events of September 11, 2001
The Company experienced severe sales decreases in the immediate aftermath of the September 11th terrorist attacks. The Company continues to experience negative same store sales, although on a much improved level as compared to the immediate weeks following the attack. The Company has aggressively reduced its cost structure at restaurants and at the corporate level. In addition, the Company's Revolving Credit Facility has been amended in the manner described above under "Liquidity and Sources of Capital". As a result and given recent sales trends, the Company believes that it will generate sufficient cash flow in fiscal 2002 to meet its debt obligations.
One Company restaurant, the Grill Room, suffered some damage. The restaurant is located in an office building adjacent to the World Trade Center (in 2 World Financial Center) and will likely not reopen until late in fiscal 2002 due to the damage sustained by the office building. Several other Company restaurants were closed from several days to a month due to their proximity to the World Trade Center. The Company has extensive property and business interruption insurance policies and the Company ultimately expects to recover a significant portion of its physical costs and business interruption losses at these restaurants. The Company has recorded $450,000 as a reduction of other operating costs and expenses in the 26-weeks ended March 30, 2002 for partial insurance recoveries of certain out of pocket costs and business interruption losses incurred. Additional recoveries are expected in future quarters as the assessment of the damages is finalized.
The Company believes that its restaurant and food court operations at Desert Passage which adjoins the Aladdin Casino Resort in Las Vegas, Nevada (the "Aladdin") were significantly impaired by the events of September 11th. The restaurant and food court operations experienced severe sales declines in the aftermath of September 11th and the Aladdin declared bankruptcy on September 28,
2001. The Company determined that an impairment analysis under SFAS No. 121 needed to be performed.
Based upon the sum of the future undiscounted cash flow related to the Company's long-lived assets at the Aladdin, the Company determined that impairment had occurred. To estimate the fair value of such long-lived 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. Therefore, the Company determined that there was no value to such long-lived assets. The Company had an investment of $8,445,000 in leasehold improvements, and furniture, fixtures and equipment. The Company believes that these assets would have nominal, if any, value upon disposal. In addition, the estimated future payments under the lease for kitchen equipment at the location totaled $1,600,000. The Company believes that unless there is a significant change in current business circumstances the lease will be abandoned. The Company recorded in the fiscal year ended September 29, 2001 an impairment charge of $8,445,000 for the net book value of the assets and recorded an additional $1,600,000 of expense and liability for the future lease payments.
The long-term effects of the terrorist attacks cannot yet be determined. The Company's restaurants in travel destinations, consisting of all of its restaurants in Washington and Las Vegas and certain restaurants in New York, are intended to benefit from high tourist traffic. The decline in travel resulting from the attacks has had a material adverse effect on revenues from those restaurants. Recovery of those restaurants depends upon restoration of public confidence in the air transportation system and its willingness and inclination to resume vacation and convention travel.
Critical Accounting Policies and Estimates
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 significant accounting policies are more fully described in Note 1 to the Company's annual report on Form 10-K for the year ended September 29, 2001. Below are listed certain policies that management believes are critical.
Fixed Assets - The Company annually assesses any impairment in value of long-lived assets and certain identifiable intangibles to be held and used. The Company evaluates the possibility of impairment by comparing anticipated undiscounted cash flows to the carrying amount of the related long-lived assets. If such cash flows are less than carrying value the Company then reduces the
asset to its fair value. Fair value is generally calculated using discounted cash flows. Various factors such as sales growth and operating margins and proceeds from a sale are part of this analysis. Future results could differ from the Company's projections with a resulting adjustment to income in such period.
Deferred Income Tax Valuation Allowance - The Company provides such allowance due to uncertainty that some of the deferred tax amounts may not be realized. Certain items, such as state and local tax loss carryforwards, are dependent on future earnings or the availability of tax strategies. Future results could require an increase or decrease in the valuation allowance and a resulting adjustment to income in such period.
Recent Developments
The Financial Accounting Standards Board has recently issued the following accounting pronouncements:
SFAS No. 142 "Goodwill and Other Intangible Assets" addresses financial accounting and reporting for acquired goodwill and other intangible assets. Under SFAS No. 142, goodwill and some intangible assets will no longer be amortized, but rather reviewed for impairment on a periodic basis. Impairment losses for goodwill and certain intangible assets that arise due to the initial application of this statement are to be reported as resulting from a change in accounting principle. The provisions of this statement will be applied at the beginning of the Company's 2003 fiscal year. The Company is in the process of evaluating the financial statement impact from adopting this standard.
SFAS No. 143 "Accounting for Asset Retirement Obligations" requires the recording of the fair value of a liability for an asset retirement obligation in the period in which it is incurred. This statement is effective for the Company at the beginning of the Company's 2004 fiscal year. The Company does not expect the adoption of this standard to have a material impact on the Company's financial position or results of operations.
SFAS No. 144 "Accounting for the Impairment or Disposal of Long Lived Assets" supersedes existing accounting literature dealing with impairment and disposal of long-lived assets, including discontinued operations. It addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of, and expands current reporting for discontinued operations to include disposals of a "component" of an entity that has been disposed of or is classified as held for sale. This statement is effective for the Company at the beginning of the Company's 2003 fiscal year. The Company is in the process of evaluating the financial statement impact of this standard.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates with respect to its outstanding credit agreement with its main bank, Bank Leumi USA. The revolving credit line bears interest at prime plus one-half percent and is scheduled to convert on June 30, 2002 to a term loan payable over three years. Based upon a $22,000,000 term loan and a 100 basis point change in interest rates, interest expense would change by $189,000 in the one-year period beginning March 31, 2002.
Part II - Other Information
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on March 27, 2002. The following matters were submitted to a vote of the Company's stockholders:
(i) The election of nine directors;
(ii) An amendment to the Company's Certificate of Incorporation.
(iii) The ratification of the appointment of Deloitte & Touche LLP as
independent auditors for the 2002 fiscal year.
The Company's stockholders re-elected the entire Board of Directors consisting of Ernest Bogen, Michael Weinstein, Vincent Pascal, Robert Towers, Andrew Kuruc, Paul Gordon, Donald D.Shack, Jay Galin and Bruce Lewin. Each director received at least 99% of the votes cast at the meeting.
The Company's stockholders approved an amendment to the Company's Certificate of Incorporation by a vote of 1,705,187 for, 12,996 against, 1,346,472 non-votes and 900 abstentions.
The Company's stockholders ratified the Board of Director's appointment of Deloitte & Touche LLP as the Company's independent auditors for the 2002 fiscal year by a vote of 3,064,555 for, 1,000 against and no abstentions.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Registrant, filed on January 4, 1983, incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended October 1, 1994 (the "1994 10-K").
3.2 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed on October 11, 1985, incorporated by reference to Exhibit 3.2 to the 1994 10-K.
3.3 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed on July 21, 1988, incorporated by reference to Exhibit 3.3 to the 1994 10-K.
3.4 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed on May 13, 1997, incorporated by reference to Exhibit 3.4 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 29, 1997.
*3.5 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed on April 24, 2002.
3.6 By-Laws of the Registrant, incorporated by reference to Exhibit 3.4 to the 1994 10-K.
*Filed herewith.
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 10, 2002
ARK RESTAURANTS CORP.
By /s/ Michael Weinstein
---------------------------------
Michael Weinstein, President &
Chief Executive Officer
By /s/ Andrew Kuruc
---------------------------------
Andrew Kuruc,
Chief Financial Officer, Senior
Vice President, Controller and
Principal Accounting Officer
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Exhibit 3.5
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
ARK RESTAURANTS CORP.
Under Section 805 of the Business Corporation Law
The undersigned, being the President and Secretary, respectively, of ARK RESTAURANTS CORP., do hereby certify and set forth:
FIRST: The name of the corporation is ARK RESTAURANTS CORP. (the "Corporation"), and the name under which the Corporation was formed was Ark Management Corp.
SECOND: The Certificate of Incorporation of the Corporation was filed with the Department of State on January 4, 1983.
THIRD: The Certificate of Incorporation is hereby amended pursuant to
Section 801 of the Business Corporation Law to add additional paragraphs hereto
to authorize the following:
(a) to permit the Corporation to make pro rata distributions of its authorized but unissued shares to holders of the same or any other class or series of its outstanding shares, pursuant to Section 511 of the Business Corporation Law;
(b) to reduce, to a majority of the votes of all outstanding
shares entitled to vote thereon, the votes required to authorize (i) any
amendment hereto which changes or strikes out the quorum, voting or other
provisions permitted by Section 709 of the Business Corporation Law, (ii) any
plan of merger or consolidation adopted by the Board of Directors of the
Corporation pursuant to Section 901 of the Business Corporation Law, (iii) a
sale, lease, exchange or other disposition of all or substantially all of the
assets of the Corporation not made in the usual or regular course of the
Corporation's business pursuant to Section 909 of the Business Corporation Law,
(iv) any plan for binding share exchanges pursuant to Section 913 of the
Business Corporation Law, and (v) a dissolution of the Corporation pursuant to
Section 1001 of the Business Corporation Law; and
(c) to permit the Corporation to lend money to or guarantee the obligation of a director of the Corporation if the Board of Directors determines that the loan or guarantee benefits the Corporation and either approves the specific loan or guarantee or a general plan authorizing loans or guarantees pursuant to Section 714 of the Business Corporation Law.
FOURTH: To accomplish the foregoing amendments, the following new Paragraphs 8, 9, 10, 11, 12, 13 and 14 are hereby added to the Certificate of Incorporation:
8. The Corporation may make pro rata distributions of its authorized but unissued shares to holders of the same or any other class or series of its outstanding shares.
9. Any amendment hereto which changes or strikes out the quorum, voting or other provisions permitted by Section 709 of the Business Corporation Law shall be authorized at a meeting of shareholders by a majority of the votes of all outstanding shares entitled to vote thereon.
10. The Corporation may lend money to or guarantee the obligation of a director of the Corporation if the Board of Directors determines that the loan or guarantee benefits the Corporation and either approves the specific loan or guarantee or a general plan authorizing loans or guarantees.
11. Any plan of merger or consolidation adopted by the Board of Directors of the Corporation pursuant to Section 901 of the Business Corporation Law shall be adopted at a meeting of shareholders by the holders of a majority of all outstanding shares entitled to vote thereon.
12. A sale, lease, exchange or other disposition of all or
substantially all of the assets of the Corporation not made in the
usual or regular course of the Corporation's business pursuant to
Section 909 of the Business Corporation Law shall be approved at a
meeting of shareholders by a majority of the votes of all outstanding
shares entitled to vote thereon.
13. Any plan for binding share exchanges pursuant to Section 913 of the Business Corporation Law shall be adopted at a meeting of shareholders by the holders of a majority of the votes of all outstanding shares entitled to vote thereon.
14. Any dissolution of the Corporation shall be authorized at a meeting of the shareholders by a majority of the votes of all outstanding shares entitled to vote thereon.
FIFTH: The foregoing amendments to the Certificate of Incorporation were authorized by the Board of Directors of the Corporation at a meeting of the Board of Directors held on February 15, 2002, followed by the vote of holders of a majority of all outstanding shares entitled to vote thereon at a meeting of shareholders held on March 27, 2002.
IN WITNESS WHEREOF, the undersigned have executed and signed this Certificate of Amendment this 19th day of April, 2002.
ARK RESTAURANTS CORP.
By: /s/ Michael Weinstein
-----------------------------
Michael Weinstein, President
By: /s/ Vincent Pascal
-----------------------------
Vincent Pascal, Secretary
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