SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 


FORM 10-Q

 

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

x

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2011

Commission file number 1-09453

 

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 (the “Exchange Act”) 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 o

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer o

Accelerated filer o

 

 

Non-accelerated filer o (Do not check if a smaller
reporting company)

Smaller Reporting Company x


 

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2).

Yes o  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 February 3, 2012


 


(Common stock, $.01 par value)

 

3,244,845



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We may make statements in this Quarterly Report on Form 10-Q regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events. All statements, other than statements of historical facts, included or incorporated by reference herein relating to management’s current expectations of future financial performance, continued growth and changes in economic conditions or capital markets are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Words or phrases such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “targets,” “will likely result,” “hopes,” “will continue” or similar expressions identify forward looking statements. Forward-looking statements involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed. We caution that while we make such statements in good faith and we believe such statements are based on reasonable assumptions, including without limitation, management’s examination of historical operating trends, data contained in records and other data available from third parties, we cannot assure you that our projections will be achieved. Factors that may cause such differences include: economic conditions generally and in each of the markets in which we are located, the amount of sales contributed by new and existing restaurants, labor costs for our personnel, fluctuations in the cost of food products, adverse weather conditions, changes in consumer preferences and the level of competition from existing or new competitors.

We have attempted to identify, in context, certain of the factors that we believe may cause actual future experience and results to differ materially from our current expectation regarding the relevant matter of subject area. In addition to the items specifically discussed above, our business, results of operations and financial position and your investment in our common stock are subject to the risks and uncertainties described in “Item 1A Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended October 1, 2011 as updated by the information contained under the caption “Item 1A. Risk Factors” in Part II of this Quarterly Report on Form 10-Q.

From time to time, oral or written forward-looking statements are also included in our reports on Forms 10-K, 10-Q and 8-K, Schedule 14A, our press releases and other materials released to the public. Although we believe that at the time made, the expectations reflected in all of these forward-looking statements are and will be reasonable; any or all forward-looking statements may prove to be incorrect. This may occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this Quarterly Report on Form 10-Q, certain of which are beyond our control, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this Quarterly Report on Form 10-Q or other public communications that we might make as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent periodic reports filed with the Securities and Exchange Commission on Forms 10-K, 10-Q and 8-K and Schedule 14A.

Unless the context requires otherwise, references to “we,” “us,” “our,” “ARKR” and the “Company” refer specifically to Ark Restaurants Corp. and its subsidiaries and predecessor entities.

- 2 -


Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements

 

ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS

(In Thousands, Except Per Share Amounts)



 

 

 

 

 

 

 

 

 

 

December 31,
2011

 

October 1,
2011

 

 

 


 


 

 

 

(unaudited)

 

(Note 1)

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents (includes $465 at December 31, 2011 and $852 at October 1, 2011 related to VIEs)

 

$

3,464

 

$

7,780

 

Short-term investments in available-for-sale securities

 

 

2,680

 

 

2,699

 

Accounts receivable (includes $1,980 at December 31, 2011 and $1,423 at October 1, 2011 related to VIEs)

 

 

4,046

 

 

3,678

 

Employee receivables

 

 

271

 

 

288

 

Inventories (includes $23 at December 31, 2011 and October 1, 2011 related to VIEs)

 

 

1,472

 

 

1,612

 

Prepaid income taxes (includes $245 at December 31, 2011 and $244 at October 1, 2011 related to VIEs)

 

 

387

 

 

244

 

Prepaid expenses and other current assets (includes $14 at December 31, 2011 and $9 at October 1, 2011 related to VIEs)

 

 

518

 

 

412

 

 

 



 



 

Total current assets

 

 

12,838

 

 

16,713

 

FIXED ASSETS - Net (includes $3,553 at December 31, 2011 and $3,660 at October 1, 2011 related to VIEs)

 

 

24,465

 

 

23,239

 

INTANGIBLE ASSETS - Net

 

 

827

 

 

629

 

GOODWILL

 

 

4,813

 

 

4,813

 

TRADEMARKS

 

 

721

 

 

721

 

DEFERRED INCOME TAXES

 

 

7,253

 

 

7,253

 

OTHER ASSETS (includes $73 at December 31, 2011 and $71 at October 1, 2011 related to VIEs)

 

 

879

 

 

893

 

 

 



 



 

TOTAL ASSETS

 

$

51,796

 

$

54,261

 

 

 



 



 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable - trade (includes $173 at December 31, 2011 and $565 at October 1, 2011 related to VIEs)

 

$

2,734

 

$

2,522

 

Accrued expenses and other current liabilities (includes $2,653 at December 31, 2011 and $2,076 at October 1, 2011 related VIEs)

 

 

8,611

 

 

9,645

 

Accrued income taxes

 

 

 

 

388

 

Current portion of note payable

 

 

108

 

 

78

 

 

 



 



 

Total current liabilities

 

 

11,453

 

 

12,633

 

OPERATING LEASE DEFERRED CREDIT

 

 

3,467

 

 

3,442

 

NOTE PAYABLE, LESS CURRENT PORTION

 

 

2,036

 

 

 

 

 



 



 

TOTAL LIABILITIES

 

 

16,956

 

 

16,075

 

 

 



 



 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

Common stock, par value $.01 per share - authorized, 10,000 shares; issued, 5,672 shares at December 31, 2011 and October 1, 2011, respectively; outstanding, 3,245 shares and 3,495 shares at December 31, 2011 and October 1, 2011, respectively

 

 

57

 

 

57

 

Additional paid-in capital

 

 

23,291

 

 

23,291

 

Accumulated other comprehensive income

 

 

4

 

 

3

 

Retained earnings

 

 

20,403

 

 

20,128

 

 

 



 



 

 

 

 

43,755

 

 

43,479

 

Less stock option receivable

 

 

 

 

(29

)

Less treasury stock, at cost, of 2,427 shares and 2,177 shares at December 31, 2011 and October 1, 2011, respectively

 

 

(13,220

)

 

(10,095

)

 

 



 



 

Total Ark Restaurants Corp. shareholders’ equity

 

 

30,535

 

 

33,355

 

NON-CONTROLLING INTERESTS

 

 

4,305

 

 

4,831

 

 

 



 



 

TOTAL EQUITY

 

 

34,840

 

 

38,186

 

 

 



 



 

TOTAL LIABILITIES AND EQUITY

 

$

51,796

 

$

54,261

 

 

 



 



 

See notes to consolidated condensed financial statements.

- 3 -



 

ARK RESTAURANTS CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

(In Thousands, Except Per Share Amounts)



 

 

 

 

 

 

 

 

 

 

13 Weeks Ended

 

 

 


 

 

 

December 31,
2011

 

January 1,
2011

 

 

 


 


 

REVENUES:

 

 

 

 

 

 

 

Food and beverage sales

 

$

32,960

 

$

32,384

 

Other revenue

 

 

258

 

 

157

 

 

 



 



 

Total revenues (includes $5,044 and $4,767 for the 13 weeks ended December 31, 2011 and January 1, 2011, respectively, related to VIEs)

 

 

33,218

 

 

32,541

 

 

 



 



 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

Food and beverage cost of sales

 

 

8,509

 

 

8,583

 

Payroll expenses

 

 

10,975

 

 

11,246

 

Occupancy expenses

 

 

4,618

 

 

4,405

 

Other operating costs and expenses

 

 

4,106

 

 

4,652

 

General and administrative expenses

 

 

2,781

 

 

2,447

 

Depreciation and amortization

 

 

957

 

 

1,150

 

 

 



 



 

Total costs and expenses (includes $4,080 and $4,046 for the 13 weeks ended December 31, 2011 and January 1, 2011, respectively, related to VIEs)

 

 

31,946

 

 

32,483

 

 

 



 



 

OPERATING INCOME

 

 

1,272

 

 

58

 

 

 



 



 

OTHER (INCOME) EXPENSE:

 

 

 

 

 

 

 

Interest expense

 

 

1

 

 

5

 

Interest income

 

 

(1

)

 

(4

)

Other income, net

 

 

(183

)

 

(70

)

 

 



 



 

Total other income, net

 

 

(183

)

 

(69

)

 

 



 



 

Income before provision for income taxes

 

 

1,455

 

 

127

 

Provision for income taxes

 

 

340

 

 

31

 

 

 



 



 

CONSOLIDATED NET INCOME

 

 

1,115

 

 

96

 

Net income attributable to non-controlling interests

 

 

(29

)

 

(309

)

 

 



 



 

NET INCOME (LOSS) ATTRIBUTABLE TO ARK RESTAURANTS CORP.

 

$

1,086

 

$

(213

)

 

 



 



 

NET INCOME (LOSS) PER ARK RESTAURANTS CORP. COMMON SHARE:

 

 

 

 

 

 

 

Basic

 

$

0.32

 

$

(0.06

)

 

 



 



 

Diluted

 

$

0.31

 

$

(0.06

)

 

 



 



 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:

 

 

 

 

 

 

 

Basic

 

 

3,432

 

 

3,492

 

 

 



 



 

Diluted

 

 

3,449

 

 

3,492

 

 

 



 



 

See notes to consolidated condensed financial statements.

- 4 -



 

ARK RESTAURANTS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)
FOR THE 13 WEEKS ENDED DECEMBER 31, 2011 AND JANUARY 1, 2011

(In Thousands)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional
Paid-In
Capital

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Retained
Earnings

 

Stock
Option
Receivable

 

Treasury
Stock

 

Total Ark
Restaurants
Corp.
Shareholders’ Equity

 

Non-
controlling
Interests

 

Total
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

Shares

 

Amount

 

 

 

 

 

 

 

 

 

 

 





















 

BALANCE - October 2, 2010

 

 

5,668

 

$

57

 

$

23,050

 

$

8

 

$

22,554

 

$

(29

)

$

(10,095

)

$

35,545

 

$

1,895

 

$

37,440

 

Cumulative effect adjustment related to consolidation of variable interest entities upon the adoption of the amendments to ASC Topic 810

 

 

 

 

 

 

 

 

 

 

(348

)

 

 

 

 

 

(348

)

 

3,765

 

 

3,417

 

 

 































BALANCE - October 3, 2010

 

 

5,668

 

 

57

 

 

23,050

 

 

8

 

 

22,206

 

 

(29

)

 

(10,095

)

 

35,197

 

 

5,660

 

 

40,857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 










 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to Ark Restaurants Corp.

 

 

 

 

 

 

 

 

 

 

(213

)

 

 

 

 

 

(213

)

 

 

 

(213

)

Net income attributable to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

309

 

 

309

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

2

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 










Total comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(211

)

 

309

 

 

98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 










Exercise of stock options

 

 

1

 

 

 

 

12

 

 

 

 

 

 

 

 

 

 

12

 

 

 

 

12

 

Tax benefit on exercise of stock options

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

1

 

Stock-based compensation

 

 

 

 

 

 

78

 

 

 

 

 

 

 

 

 

 

78

 

 

 

 

78

 

Distributions to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(101

)

 

(101

)

Payment of dividends - $0.25 per share

 

 

 

 

 

 

 

 

 

 

(873

)

 

 

 

 

 

(873

)

 

 

 

(873

)

 

 































 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE - January 1, 2011

 

 

5,669

 

$

57

 

$

23,141

 

$

10

 

$

21,120

 

$

(29

)

$

(10,095

)

$

34,204

 

$

5,868

 

$

40,072

 

 

 































 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE - October 1, 2011

 

 

5,672

 

$

57

 

$

23,291

 

$

3

 

$

20,128

 

$

(29

)

$

(10,095

)

$

33,355

 

$

4,831

 

$

38,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 










Net income attributable to Ark Restaurants Corp.

 

 

 

 

 

 

 

 

 

 

1,086

 

 

 

 

 

 

1,086

 

 

 

 

1,086

 

Net income attributable to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29

 

 

29

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

1

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 










Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,087

 

 

29

 

 

1,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 










Write-off of stock option receivable

 

 

 

 

 

 

 

 

 

 

 

 

29

 

 

 

 

29

 

 

 

 

29

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,125

)

 

(3,125

)

 

 

 

(3,125

)

Distributions to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(555

)

 

(555

)

Payment of dividends - $0.25 per share

 

 

 

 

 

 

 

 

 

 

(811

)

 

 

 

 

 

(811

)

 

 

 

(811

)

 

 































BALANCE - December 31, 2011

 

 

5,672

 

$

57

 

$

23,291

 

$

4

 

$

20,403

 

$

 

$

(13,220

)

$

30,535

 

$

4,305

 

$

34,840

 

 

 































See notes to consolidated condensd financial statements.

- 5 -



 

ARK RESTAURANTS CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

(In Thousands)



 

 

 

 

 

 

 

 

 

 

13 Weeks Ended

 

 

 


 

 

 

December 31,
2011

 

January 1,
2011

 

 

 


 


 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Consolidated net income

 

$

1,115

 

$

96

 

Adjustments to reconcile consolidated net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Write-off of notes receivable from former president

 

 

66

 

 

 

Loss on closure of restaurants

 

 

365

 

 

 

Stock-based compensation

 

 

 

 

78

 

Depreciation and amortization

 

 

957

 

 

1,150

 

Operating lease deferred credit

 

 

25

 

 

78

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(368

)

 

432

 

Inventories

 

 

(17

)

 

(18

)

Prepaid and accrued income taxes

 

 

(531

)

 

(829

)

Prepaid expenses and other current assets

 

 

(106

)

 

(247

)

Other assets

 

 

14

 

 

(70

)

Accounts payable - trade

 

 

212

 

 

(1,312

)

Accrued expenses and other liabilities

 

 

(1,034

)

 

161

 

 

 



 



 

Net cash provided by (used in) operating activities

 

 

698

 

 

(481

)

 

 



 



 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchases of fixed assets

 

 

(2,389

)

 

(1,274

)

Purchase of management rights

 

 

(200

)

 

 

Consolidated cash balances of VIEs

 

 

 

 

648

 

Loans and advances made to employees

 

 

(45

)

 

(59

)

Payments received on employee receivables

 

 

25

 

 

33

 

Purchases of investment securities

 

 

(301

)

 

(319

)

Proceeds from sales of investment securities

 

 

320

 

 

1,743

 

Payments received on long-term receivables

 

 

 

 

34

 

 

 



 



 

Net cash provided by (used in) investing activities

 

 

(2,590

)

 

806

 

 

 



 



 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Principal payments on notes payable

 

 

(58

)

 

(54

)

Dividends paid

 

 

(811

)

 

(873

)

Proceeds from issuance of stock upon exercise of stock options

 

 

 

 

12

 

Excess tax benefits related to stock-based compensation

 

 

 

 

1

 

Purchase of treasury shares

 

 

(1,000

)

 

 

Distributions to non-controlling interests

 

 

(555

)

 

(101

)

 

 



 



 

Net cash used in financing activities

 

 

(2,424

)

 

(1,015

)

 

 



 



 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(4,316

)

 

(690

)

CASH AND CASH EQUIVALENTS, Beginning of period

 

 

7,780

 

 

2,011

 

 

 



 



 

CASH AND CASH EQUIVALENTS, End of period

 

$

3,464

 

$

1,321

 

 

 



 



 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

Interest

 

$

1

 

$

9

 

 

 



 



 

Income taxes

 

$

874

 

$

850

 

 

 



 



 

Non-cash financing activity:

 

 

 

 

 

 

 

Note payable in connection with purchase of treasury shares

 

$

2,125

 

$

 

 

 



 



 

See notes to consolidated condensed financial statements.

- 6 -


ARK RESTAURANTS CORP. AND SUBSIDIARIES

 

 

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

December 31, 2011

(Unaudited)

 


 


 

 

1.

CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

The consolidated condensed balance sheet as of October 1, 2011, which has been derived from audited financial statements included in the Form 10-K, and the unaudited interim consolidated and condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected as required by Regulation S-X, Rule 10-01. Such adjustments are of a normal, recurring nature. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America 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 1, 2011. The results of operations for interim periods are not necessarily indicative of the operating results to be expected for the full year or any other interim period.

PRINCIPLES OF CONSOLIDATION — The consolidated condensed interim financial statements include the accounts of Ark Restaurants Corp. and all of its wholly-owned subsidiaries, partnerships and other entities in which it has a controlling interest. Also included in the consolidated condensed interim financial statements are certain variable interest entities. All significant intercompany balances and transactions have been eliminated in consolidation.

SEASONALITY — The Company has substantial fixed costs that do not decline proportionally with sales. The first and second fiscal quarters, which include the winter months, usually reflect lower customer traffic than in the third and fourth fiscal quarters. In addition, sales in the third and fourth fiscal quarters can be adversely affected by inclement weather due to the significant amount of outdoor seating at the Company’s restaurants.

CASH AND CASH EQUIVALENTS — Cash and cash equivalents include cash on hand, deposits with banks and highly liquid investments generally with original maturities of three months or less. Outstanding checks in excess of account balances, typically vendor payments, payroll and other contractual obligations disbursed after the last day of a reporting period are reported as a current liability in the accompanying consolidated condensed balance sheets.

AVAILABLE-FOR-SALE SECURITIES — Available-for-sale securities consist primarily of US Treasury Bills and Notes, all of which have a high degree of liquidity and are reported at fair value, with unrealized gains and losses recorded in Accumulated Other Comprehensive Income. The cost of investments in available-for-sale securities is determined on a specific identification basis. Realized gains or losses and declines in value judged to be other than temporary, if any, are reported in Other (Income) Expense, Net. The Company evaluates its investments periodically for possible impairment and reviews factors such as the length of time and extent to which fair value has been below cost basis and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery in market value.

SUPPLIER CONCENTRATION — For the 13-weeks ended December 31, 2011 and January 1, 2011, the Company made purchases from one vendor that accounted for approximately 13% of total purchases in each period.

FAIR VALUE OF FINANCIAL INSTRUMENTS — The carrying amount of cash and cash equivalents, investments, receivables, accounts payable and accrued expenses approximate fair value due to the immediate or short-term maturity of these financial instruments. The fair value of notes payable is determined using current applicable rates for similar instruments as of the balance sheet date and approximates the carrying value of such debt.

NEW ACCOUNTING STANDARDS NOT YET ADOPTED — In May 2011, the FASB issued guidance that amends GAAP to conform it with fair value measurement and disclosure requirements in International Financial Reporting Standards (“IFRS”). The amendments changed the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The provisions of this guidance are effective for the first reporting period (including interim periods) beginning after December 15, 2011. The Company is currently evaluating the impact this accounting standard update may have on its results of operations, financial condition or disclosures.

In June 2011, the FASB issued new accounting guidance on the presentation of other comprehensive income. The new guidance eliminates the current option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. Instead, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or

- 7 -


in two separate but consecutive statements. The new accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. Full retrospective application is required. As the new accounting guidance will only amend the presentation requirements of other comprehensive income, the Company does not expect the adoption to have a significant impact on its financial condition or results of operations.

In September 2011, the FASB issued new accounting guidance intended to simplify how an entity tests goodwill for impairment. The guidance will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity no longer will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The new accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company does not expect the adoption of this guidance to have any impact on its financial condition or results of operations.

 

 

2.

CONSOLIDATION OF VARIABLE INTEREST ENTITIES

Effective October 3, 2010, the Company adopted amendments to Accounting Standards Code (“ASC”) Topic 810 (formerly the Financial Accounting Standards Board (“FASB”) Statement of Accounting Standards (“SFAS”) No. 167—Amendments to FASB Interpretation No. 46(R) (“SFAS No 167”)). This requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity (“VIE”). This analysis identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of a VIE that most significantly impacts the entity’s economic performance; and (ii) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Additionally, an enterprise is required to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance. This statement requires the Company to focus on a more qualitative approach, rather than a quantitative approach previously required for determining the primary beneficiary of a VIE. It also amended certain guidance for determining whether an entity is a VIE, added an additional requirement to assess whether an entity is a VIE, on an ongoing basis, and required enhanced disclosures that provide users of financial statements with more transparent information about an enterprise’s involvement in a VIE. The adoption of this guidance resulted in the consolidation of certain limited partnerships in the quarter ended January 1, 2011. The Company did not retroactively apply this guidance.

Upon adoption of the new accounting guidance for VIEs on October 3, 2010, the Company determined that it is the primary beneficiary of two VIEs which had not been previously consolidated, Ark Hollywood/Tampa Investment, LLC and Ark Connecticut Investment, LLC as the new guidance requires that a single party (including its related parties and de facto agents) be able to exercise their rights to remove the decision maker in order for the “kick-out” rights to be considered substantive. Previously, a simple majority of owners that could exercise kick-out rights was considered a substantive right. This change resulted in the need for consolidation.

The assets and liabilities associated with the Company’s consolidation of VIEs are as follows:

 

 

 

 

 

 

 

 

 

 

December 31,
2011

 

October 1,
2011

 

 

 


 


 

 

 

(in thousands)

 

(in thousands)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

465

 

$

852

 

Accounts receivable

 

 

1,980

 

 

1,423

 

Inventories

 

 

23

 

 

23

 

Prepaid income taxes

 

 

245

 

 

244

 

Prepaid expenses and other current assets

 

 

14

 

 

9

 

Due from Ark Restaurants Corp. and affiliates (1)

 

 

42

 

 

410

 

Fixed assets, net

 

 

3,553

 

 

3,660

 

Other long-term assets

 

 

73

 

 

71

 

 

 



 



 

Total assets

 

$

6,395

 

$

6,692

 

 

 



 



 

Accounts payable

 

$

173

 

$

565

 

Accrued expenses and other current liabilities

 

 

2,653

 

 

2,076

 

 

 



 



 

Total liabilities

 

 

2,826

 

 

2,641

 

Equity of variable interest entities

 

 

3,569

 

 

4,051

 

 

 



 



 

Total liabilities and equity

 

$

6,395

 

$

6,692

 

 

 



 



 


 

 

 

 

(1)

Amounts Due from Ark Restaurants Corp. and affiliates are eliminated upon consolidation.

- 8 -


The liabilities recognized as a result of consolidating these VIEs do not represent additional claims on our general assets; rather, they represent claims against the specific assets of the consolidated VIEs. Conversely, assets recognized as a result of consolidating these VIEs do not represent additional assets that could be used to satisfy claims against our general assets.

For the 13-week periods ended December 31, 2011 and January 1, 2011, aggregate revenue and operating expenses relating to these VIEs were $5,044,000 and $4,080,000, and $4,767,000 and $4,046,000, respectively, and are included in the accompanying Consolidated Condensed Statements of Operations.

 

 

3.

RECENT RESTAURANT EXPANSION

In August 2010, the Company entered into an agreement to lease the former ESPN Zone space at the New York-New York Hotel & Casino Resort in Las Vegas and re-open the space under the name The Sporting House. Such lease is cancellable upon 90 days written notice and provides for rent based on profits only. This restaurant opened at the end of October 2010 and the Company did not invest significant funds to re-open the space.

In the quarter ended January 1, 2011, the Company combined three fast food outlets located in the Village Eateries in the New York-New York Hotel & Casino Resort in Las Vegas into a new restaurant, The Broadway Burger Bar, which opened at the end of December 2010.

 

 

4.

RECENT RESTAURANT DISPOSITIONS

On July 8, 2011, the Company entered into an agreement with the landlord of The Grill Room property located in New York City, whereby in exchange for a payment of $350,000 the Company vacated the property on October 31, 2011. Such payment and the related loss on closure of the property, in the amount of $179,000, are included in Other Operating Costs and Expenses in the Consolidated Condensed Statement of Operations for the 13-weeks ended December 31, 2011. This lease was scheduled to expire on December 31, 2011.

The Company was advised by the landlord that it would have to vacate the America property located in Washington, DC, which was on a month-to-month lease. The closure of this property occurred on November 7, 2011. The related loss on closure of this property, in the amount of $186,000, is included in Other Operating Costs and Expenses in the Consolidated Condensed Statement of Operations for the 13-weeks ended December 31, 2011.

 

 

5.

INVESTMENT SECURITIES

The fair values of the Company’s investment securities are determined in accordance with GAAP, with fair value being defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the Company utilizes the three-tier value hierarchy, as prescribed by GAAP, which prioritizes the inputs used in measuring fair value as follows:

 

 

 

 

Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market.

 

 

 

 

Level 2 - inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability.

 

 

 

 

Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability.

- 9 -


The following available-for-sale securities (which all mature within one year) are re-measured to fair value on a recurring basis and are valued using Level 1 inputs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized Cost

 

Gross
Unrealized
Holding Gains

 

Gross
Unrealized
Holding Losses

 

Fair Value

 

 

 


 


 


 


 

 

 

(In thousands)

 

At December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale short-term:

 

 

 

 

 

 

 

 

 

 

 

 

 

Government debt securities

 

$

2,676

 

$

4

 

$

 

$

2,680

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized Cost

 

Gross
Unrealized
Holding Gains

 

Gross
Unrealized
Holding Losses

 

Fair Value

 

 

 


 


 


 


 

 

 

(In thousands)

 

At October 1, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale short-term:

 

 

 

 

 

 

 

 

 

 

 

 

 

Government debt securities

 

$

2,696

 

$

3

 

$

 

$

2,699

 

 

 



 



 



 



 

Proceeds from the sale and redemption of investment securities amounted to $320,000 and $1,743,000 for the 13-week periods ended December 31, 2011 and January 1, 2011, respectively. No realized gains or losses were included in Other income (expense), net for the 13-week periods ended December 31, 2011 and January 1, 2011.

 

 

6.

RECEIVABLES FROM EMPLOYEES IN RESPECT OF STOCK OPTION EXERCISES

Receivables from employees in respect of stock option exercises due from the former President of the Company totaled $29,000 at October 1, 2011. Such amounts were forgiven during the quarter ended December 31, 2011 in connection with his resignation.

 

 

7.

NOTE PAYABLE FOR TREASURY STOCK REPURCHASE

On December 12, 2011, the Company, in a private transaction, purchased 250,000 shares of its common stock at a price of $12.50 per share, or a total of $3,125,000. Upon the closing of the purchase, the Company paid the seller $1,000,000 in cash and issued an unsecured promissory note to the seller for $2,125,000. The note bears interest at 0.19% per annum, and is payable in 24 equal monthly installments of $88,541, commencing on December 1, 2012.

 

 

8.

RELATED PARTY TRANSACTIONS

Receivables due from the former President, excluding stock option receivables, totaled $37,000 at October 1, 2011. Such amount was forgiven during the quarter ended December 31, 2011 in connection with his resignation. Other employee loans totaled approximately $271,000 and $288,000 at December 31, 2011 and October 1, 2011, respectively. Such amounts are payable on demand and bear interest at the minimum statutory rate (0.19% at December 31, 2011 and 0.16% at October 1, 2011).

The Company’s President and Chief Operating Officer resigned effective January 1, 2012. In connection therewith, the Company forgave loans due totaling $66,000 and has accrued additional compensation in the amount of $475,400 in accordance with his separation agreement and release. Such amounts are included in General and Administrative Expenses in the Consolidated Condensed Statement of Operations for the 13-weeks ended December 31, 2011.

 

 

9.

COMMITMENTS AND CONTINGENCIES

LeasesThe Company leases its restaurants, bar facilities, and administrative headquarters through its subsidiaries under terms expiring at various dates through 2032. Most of the leases provide for the payment of base rents plus real estate taxes, insurance and other expenses and, in certain instances, for the payment of a percentage of the restaurants sales in excess of stipulated amounts at such facility and in one instance based on profits.

In February 2010, the Company entered into an amendment to its lease for the food court space at the New York-New York Hotel and Casino in Las Vegas, Nevada. Pursuant to this amendment, the Company agreed to, among other things; commit no less than $3,000,000 to remodel the food court by March 2012. In exchange for this commitment, the landlord agreed to extend the food court lease for an additional four years. As of December 31, 2011, the Company has spent approximately $1,400,000 related to this commitment.

- 10 -


On March 18, 2011, a subsidiary of the Company entered into a lease agreement to operate a restaurant and bar in New York City to be named Clyde Frazier’s Wine and Dine. In connection with the agreement, the landlord has agreed to contribute up to $1,800,000 towards the construction of the facility, which the Company expects to be in the range of $6,000,000 to $7,000,000. The initial term of the lease for this facility will expire on March 31, 2027 and will have one five-year renewal. The Company anticipates the restaurant will open during the second quarter of fiscal 2012.

Legal Proceedings — In the ordinary course of its business, the Company is a party to various lawsuits arising from accidents at its restaurants and worker’s compensation claims, which are generally handled by the Company’s insurance carriers. The employment by the Company of management personnel, waiters, waitresses and kitchen staff at a number of different restaurants has resulted in the institution, from time to time, of litigation alleging violation by the Company of employment discrimination laws.

Other — On April 17, 2011, the Company suffered a flood at its Sequoia property located in Washington, DC. The Company expects to recover substantially all of its losses from insurance proceeds and/or the landlord and does not expect unrecovered amounts to have a material impact on its financial position, results of operations or cash flows.

On June 7, 2011, the Company entered into a 10-year exclusive agreement to manage a yet to be constructed restaurant and catering service at Basketball City in New York City in exchange for a fee of $1,000,000 ($800,000 of which has been paid as of December 31, 2011 and is included in Intangible Assets in the accompanying Consolidated Balance Sheet). Under the terms of the agreement the owner of the property will construct the facility at their expense and the Company will pay the owner an annual fee based on sales, as defined in the agreement. The Company expects to begin operating this property in the third quarter of fiscal 2012.

 

 

10.

STOCK OPTIONS

The Company has options outstanding under two stock option plans, the 2004 Stock Option Plan (the “2004 Plan) and the 2010 Stock Option Plan (the “2010 Plan”), which was approved by shareholders in the second quarter of 2010. Effective with this approval the Company terminated the 2004 Plan. This action terminated the 400 authorized but unissued options under the 2004 Plan, but it did not affect any of the options previously issued under the 2004 Plan. Options granted under the 2004 Plan are exercisable at prices at least equal to the fair market value of such stock on the dates the options were granted. The options expire ten years after the date of grant.

The 2010 Stock Option Plan is the Company’s only equity compensation plan currently in effect. Under the 2010 Stock Option Plan, 500,000 options were authorized for future grant. Options granted under the 2010 Plan are exercisable at prices at least equal to the fair market value of such stock on the dates the options were granted. The options expire six years after the date of grant. No options have been granted under the 2010 Plan and no options were granted during the 13 weeks ended December 31, 2011.

A summary of stock option activity is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Weighted
Average
Exercise
Price

 

Weighted
Average
Contractual
Term

 

Aggregate
Intrinsic
Value

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, October 1, 2011

 

 

396,600

 

$

22.88

 

 

5.50 Years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options:

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Canceled or expired

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, December 31, 2011

 

 

396,600

 

$

22.82

 

 

5.25 Years

 

$

202,642

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at December 31, 2011

 

 

396,600

 

$

22.82

 

 

5.25 Years

 

$

202,642

 

 

 



 

 

 

 

 

 

 



 

- 11 -


Compensation cost charged to operations for the 13-week periods ended December 31, 2011 and January 1, 2011 was $0 and $78,000, respectively. The compensation cost recognized is classified as a general and administrative expense in the Consolidated Condensed Statements of Operations.

As of October 1, 2011, all compensation cost related to stock options has been recognized.

 

 

11.

INCOME TAXES

The income tax provision on income from continuing operations for the 13-week periods ended December 31, 2011 and January 1, 2011 reflect effective tax rates of approximately 23% and 24%, respectively. The Company expects its effective tax rate for its current fiscal year to be significantly lower than the statutory rate as a result of the inclusion of tax credits and operating income attributable to the non-controlling interests of the VIEs that is not taxable to the Company. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from our current estimates.

 

 

12.

INCOME PER SHARE OF COMMON STOCK

Net income per share is calculated on the basis of the weighted average number of common shares outstanding during each period plus, for diluted net income 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 December 31, 2011, options to purchase 166,100 shares of common stock at a price of $12.04 were included in diluted earnings per share. Options to purchase 140,500 shares of common stock at a price of $29.60 and options to purchase 90,000 shares of common stock at a price of $32.15 per share were not included in diluted earnings per share as their impact was antidilutive.

For the 13-week period ended January 1, 2011, options to purchase 174,564 shares of common stock at a price of $12.04 were included in diluted earnings per share. Options to purchase 145,500 shares of common stock at a price of $29.60 and options to purchase 100,000 shares of common stock at a price of $32.15 per share were not included in diluted earnings per share as their impact was antidilutive.

 

 

13.

DIVIDENDS

On December 30, 2011, the Company paid a quarterly cash dividend in the amount of $0.25 per share on the Company’s common stock. The Company intends to continue to pay such quarterly cash dividend for the foreseeable future, however, the payment of future dividends is at the discretion of the Company’s Board of Directors and is based on future earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation and other relevant factors.

 

 

14.

SUBSEQUENT EVENTS

On February 3, 2012, the Company suffered a fire at its Durgin Park property located in Boston, MA. The Company expects to recover substantially all of its losses from insurance proceeds and/or the landlord and does not expect unrecovered amounts to have a material impact on its financial position, results of operations or cash flows.

- 12 -



 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company had operating income of $1,272,000 in the first fiscal quarter of 2012 compared to operating income of $58,000 in the first fiscal quarter of 2011. This increase resulted primarily from favorable weather conditions as compared to last year, improving conditions in the Las Vegas market, and improved menu costing.

The Company has substantial fixed costs that do not decline proportionally with sales. The first and second fiscal quarters, which include the winter months, usually reflect lower customer traffic than in the third and fourth fiscal quarters. In addition, sales in the third and fourth fiscal quarters can be adversely affected by inclement weather due to the significant amount of outdoor seating at the Company’s restaurants.

Revenues

During the Company’s first fiscal quarter of 2012, revenues of $33,218,000 increased 2.1% compared to revenues of $32,541,000 in the first fiscal quarter of 2011. This increase is primarily due to: (i) increased sales at many properties due to favorable weather conditions as compared to last year, and (ii) improving conditions in the Las Vegas market, partially offset by the closure of The Grill Room property located in New York and the America property located in Washington, DC in the first quarter of fiscal 2012.

          Food and Beverage Same-Store Sales

On a Company-wide basis, same store sales increased 8.9% during the first fiscal quarter of 2012 compared to the same period last year. Same-store sales in Las Vegas increased by $1,193,000 or 9.1% in the first fiscal quarter of 2012 compared to the first fiscal quarter of 2011 primarily as a result of combining three fast food outlets located in the Village Eateries in the New York-New York Hotel & Casino Resort in Las Vegas into a new restaurant, The Broadway Burger Bar, which opened at the end of December 2010 combined with increased traffic at many of our Las Vegas properties. Same-store sales in New York increased $1,067,000, or 15.6%, during the first quarter of fiscal 2012 compared to 2011 primarily as a result of favorable weather conditions as compared to the prior year. Same store sales in Washington D.C. increased by $361,000 or 12.1% during the first quarter of fiscal 2012 compared to 2011 primarily as a result of the favorable weather conditions as compared to the prior year. Same-store sales in Atlantic City increased by $270,000, or 52.2% in the first quarter of fiscal 2012 compared to 2011 as result of new ownership at Resorts Casino Hotel and their significant marketing efforts for the property. Same-store sales in Boston decreased $68,000 or 6.5% during the first quarter of fiscal 2012 compared to 2011. Same-store sales at the consolidated VIEs decreased by $144,000 or 2.6% in the first fiscal quarter of 2012 compared to the first fiscal quarter of 2011 primarily as a result of declining sales at an underperforming restaurant in which the Company is a majority partner.

Costs and Expenses

Food and beverage costs for the first quarter of 2012 as a percentage of total revenues were 25.6% as compared to 26.4% for the first quarter of 2011. This decrease is the result of improved menu costing partially offset by higher commodity prices in the current fiscal year.

Payroll expenses as a percentage of total revenues were 33.0% for the first quarter of 2012 as compared to 34.6% in the first quarter of 2011. This decrease in payroll expenses as a percentage of revenue were primarily due to higher than expected payroll at The Sporting House in Las Vegas in the prior year.

Occupancy expenses as a percentage of total revenues were 13.9% during the first fiscal quarter of 2012 compared to 13.5% in the first quarter of 2011. This increase in occupancy expenses as a percentage of revenue was primarily due to contingent rentals at The Sporting House in Las Vegas combined with higher insurance costs.

Other operating costs and expenses as a percentage of total revenues were 12.4% for the first fiscal quarter of 2012 compared to 14.3% in the first quarter of 2011 and resulted primarily from cost cutting measures implemented in the latter part of fiscal 2011.

General and administrative expenses (which relate solely to the corporate office in New York City) as a percentage of total revenues were 8.4% for the first fiscal quarter of 2012 compared to 7.5% in the first quarter of 2011. This increase resulted from amounts recorded in connection with the former President’s separation agreement partially offset by cost cutting measures implemented in the latter part of fiscal 2011.

- 13 -


Income Taxes

The income tax provision on income from continuing operations for the 13-week periods ended December 31, 2011 and January 1, 2011 reflect effective tax rates of approximately 23% and 24%, respectively. The Company expects its effective tax rate for its current fiscal year to be significantly lower than the statutory rate as a result of the inclusion of tax credits and operating income attributable to the non-controlling interests of the VIEs that is not taxable to the Company. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from our current estimates.

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, 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 tax loss carryforwards at restaurants that were unprofitable, the Company has merged certain profitable subsidiaries with certain loss subsidiaries.

Liquidity and Capital Resources

Our primary source of capital has been cash provided by operations. We utilize cash generated from operations to fund the cost of developing and opening new restaurants, acquiring existing restaurants owned by others and remodeling existing restaurants we own.

Net cash used in investing activities for the 13-week period ended December 31, 2011 was $2,551,000 and resulted primarily from purchases of fixed assets at existing restaurants and the construction of Clyde Frazier’s Wine and Dine located at the New York City.

Net cash provided by investing activities for the 13-week period ended January 1, 2011 was $806,000 and resulted from net proceeds from the sales of investment securities and the inclusion of cash balances from VIEs in the amount of $648,000 partially offset by purchases of fixed assets at existing restaurants and the construction of The Broadway Burger Bar located at the New York-New York Hotel & Casino in Las Vegas, NV.

Net cash used in financing activities for the 13-week period ended December 31, 2011 of $2,424,000 was principally used for the payment of dividends, purchase of treasury stock and distributions to non-controlling interests.

Net cash used in financing activities for the 13-week period ended January 1, 2011 of $1,015,000 was principally used for the payment of dividends and distributions to non-controlling interests.

The Company had a working capital surplus of $1,385,000 at December 31, 2011 as compared to a working capital surplus of $4,080,000 at October 1, 2011. We believe that our existing cash balances, investments and cash provided by operations will be sufficient to meet our liquidity and capital spending requirements at least through the next 12 months.

On December 30, 2011, the Company paid a quarterly cash dividend in the amount of $0.25 per share on the Company’s common stock. The Company intends to continue to pay such quarterly cash dividend for the foreseeable future, however, the payment of future dividends is at the discretion of the Company’s Board of Directors and is based on future earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation and other relevant factors.

In February 2010, the Company entered into an amendment to its lease for the food court space at the New York-New York Hotel and Casino in Las Vegas, Nevada. Pursuant to this amendment, the Company agreed to, among other things; commit no less than $3,000,000 to remodel the food court by March 2012. In exchange for this commitment, the landlord agreed to extend the food court lease for an additional four years. As of December 31, 2011, the Company has spent approximately $1,400,000 related to this commitment.

On March 18, 2011, a subsidiary of the Company entered into a lease agreement to operate a restaurant and bar in New York City to be named Clyde Frazier’s Wine and Dine. In connection with the agreement, the landlord has agreed to contribute up to $1,800,000 towards the construction of the facility, which the Company expects to be $6,000,000 to $7,000,000. The initial term of the lease for this facility will expire on March 31, 2027 and will have one five-year renewal. The Company anticipates the restaurant will open during the second quarter of fiscal 2012.

On April 17, 2011, the Company suffered a flood at its Sequoia property located in Washington, DC. The Company expects to recover substantially all of its losses from insurance proceeds and/or the landlord and does not expect unrecovered amounts to have a material impact on its consolidated financial position, results of operations or cash flows.

On June 7, 2011, the Company entered into a 10-year exclusive agreement to manage a yet to be constructed restaurant and catering service at Basketball City in New York City in exchange for a fee of $1,000,000 ($800,000 of which has been paid as of

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December 31, 2011 and is included in Intangible Assets in the accompanying Consolidated Balance Sheet). Under the terms of the agreement the owner of the property will construct the facility at their expense and the Company will pay the owner an annual fee based on sales, as defined in the agreement. The Company expects to begin operating this property in the third quarter of fiscal 2012.

Recent Restaurant Expansion

In August 2010, the Company entered into an agreement to lease the former ESPN Zone space at the New York-New York Hotel & Casino Resort in Las Vegas and re-open the space under the name The Sporting House. Such lease is cancellable upon 90 days written notice and provides for rent based on profits only. This restaurant opened at the end of October 2010 and the Company did not invest significant funds to re-open the space.

In the quarter ended January 1, 2011, the Company combined three fast food outlets located in the Village Eateries in the New York-New York Hotel & Casino Resort in Las Vegas into a new restaurant, The Broadway Burger Bar, which opened at the end of December 2010.

Recent Restaurant Dispositions

On July 8, 2011, the Company entered into an agreement with the landlord of The Grill Room property located in New York City, whereby in exchange for a payment of $350,000 the Company vacated the property on October 31, 2011. Such payment and the related loss on closure of the property, in the amount of $179,000, are included in Other Operating Costs and Expenses in the Consolidated Condensed Statement of Operations for the 13-weeks ended December 31, 2011. This lease was scheduled to expire on December 31, 2011.

The Company was advised by the landlord that it would have to vacate the America property located in Washington, DC, which was on a month-to-month lease. The closure of this property occurred on November 7, 2011. The related loss on closure of this property, in the amount of $186,000, is included in Other Operating Costs and Expenses in the Consolidated Condensed Statement of Operations for the 13-weeks ended December 31, 2011.

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 condensed 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 consolidated condensed financial statements include allowances for potential bad debts on accounts and notes receivable, leases, 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 operations, differences in actual results could be material to the consolidated condensed financial statements.

The Company’s critical accounting policies are described in the Company’s Form 10-K for the year ended October 1, 2011. There have been no significant changes to such policies during fiscal 2012.

Recently Adopted and Issued Accounting Standards

See Note 1 to the Consolidated Condensed Financial Statements for a description of recent accounting pronouncements, including those adopted in fiscal 2012 and the expected dates of adoption and the anticipated impact on the Consolidated Condensed Financial Statements.

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company purchases commodities such as chicken, beef, lobster and shrimp for the Company’s restaurants. The prices of these commodities may be volatile depending upon market conditions. The Company does not purchase forward commodity contracts because the changes in prices for these items have historically been short-term in nature and, in the Company’s view, the cost of the contracts is in excess of the benefits.

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The Company’s business is also highly seasonal and dependent on the weather. Outdoor seating capacity, such as terraces and sidewalk cafes, are available for dining only in the warm seasons and then only in clement weather.

 

 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective as of December 31, 2011 to ensure that all material information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to them as appropriate to allow timely decisions regarding required disclosure and that all such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the first quarter of fiscal 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations of the Effectiveness of Internal Control

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

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PART II
OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not subject to any other pending legal proceedings, other than ordinary routine claims incidental to its business, which the Company does not believe will materially impact results of operations.

Item 1A. Risk Factors

The most significant risk factors applicable to the Company are described in Part I, Item 1A (Risk Factors) of the Company’s Annual Report on Form 10-K for the fiscal year ended October 1, 2011 (the “2011 Form 10-K”). There have been no material changes to the risk factors previously disclosed in the 2011 Form 10-K. The risks described in the 2011 Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to management may materially adversely affect the Company’s business, financial condition, and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information regarding purchases of our common stock by us and any affiliated purchasers during the three months ended December 31, 2011. Stock repurchases may be made in the open market or in private transactions at times and in amounts that we deem appropriate.

ISSUER PURCHASES OF EQUITY SECURITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period

 

(a) Total
Number of
Shares (or
Units)
Purchased

 

(b)
Average
Price Paid
per Share
(or Unit)

 

(c) Total Number
of Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs

 

(d) Maximum Number
(or Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs(1)

 

Month #1 October 2, 2011 through October 29, 2011

 

 

0

 

 

0

 

 

0

 

 

0

 

Month #2 October 30, 2011 through November 26, 2011

 

 

0

 

 

0

 

 

0

 

 

0

 

Month #3 November 27, 2011 through December 31, 2011

 

 

250,000

(1)

$

12.50

 

 

0

 

 

0

 

Total

 

 

250,000

 

$

12.50

 

 

0

 

 

0

 


 

 

 

 

(1)

On December 12, 2011, the Company, in a private transaction, purchased 250,000 shares of its common stock at a price of $12.50 per share, or a total of $3,125,000. Upon the closing of the purchase, the Company paid the seller $1,000,000 in cash and issued an unsecured promissory note to the seller for $2,125,000. The note bears interest at 0.19% per annum, and is payable in 24 equal monthly installments of $88,541, commencing on December 1, 2012.

Item 3. Defaults upon Senior Securities

None.

Item 5. Other Information

None.

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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 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS* XBRL Instance Document

101.SCH* XBRL Taxonomy Extension Schema Document

101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF* XBRL Taxonomy Extension Definition Linkbase Document

101.LAB* XBRL Taxonomy Extension Label Linkbase Document

101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document

 

 


 

 

 

*Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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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 14, 2012

 

 

ARK RESTAURANTS CORP.

 

 

By:

/s/ Michael Weinstein

 


 

Michael Weinstein

 

Chairman & Chief Executive Officer

 

(Principal Executive Officer)

 

 

By:

/s/ Robert J. Stewart

 


 

Robert J. Stewart

 

Chief Financial Officer

 

(Authorized Signatory and Principal

 

Financial and Accounting Officer)

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