ARK RESTAURANTS CORP. - 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended December 28, 2002. Ark Restaurants Corp. operates restaurants primarily in New York, Las Vegas, and Washington D.C. The company continues to face material adverse effects from the September 11, 2001 terrorist attacks, including the closure and subsequent reopening of its Grill Room in New York and the abandonment of operations at the Aladdin Resort in Las Vegas.
Key Financial Metrics
| Metric | Q1 2003 (Ended Dec 28, 2002) | Q1 2002 (Ended Dec 29, 2001) |
|---|---|---|
| Total Revenues | $26,215,000 | $25,944,000 |
| Net Income (Loss) | $(116,000) | $974,000 |
| Operating Income (Loss) | $(293,000) | $1,872,000 |
| Net Cash Used in Operating Activities | $(494,000) | $96,000 |
| Cash and Cash Equivalents (End of Period) | $59,000 | $0 |
| Working Capital Deficit | $(7,240,000) | $(7,990,000) |
| Long-Term Debt (Net of Current) | $9,469,000 | $9,547,000 |
| Food & Beverage Cost % of Revenue | 25.2% | 24.3% |
| Payroll Expenses % of Revenue | 34.9% | 32.7% |
Material Changes vs. Prior Period
- Profitability Reversal: The company reported a net loss of $116,000 compared to a net income of $974,000 in the prior year. This shift was driven by increased operating costs and the expiration of temporary cost-cutting measures implemented after 9/11.
- Revenue Growth: Total revenues increased 1% year-over-year. New York revenues were flat due to the reopening of the Grill Room offsetting declines elsewhere. Las Vegas revenues increased $549,000 despite the abandonment of the Aladdin operations.
- Expense Increases:
- Payroll: Increased as a percentage of revenue because temporary salary reductions and overtime/vacation pay eliminations were discontinued.
- Food Costs: Increased as a percentage of revenue because supplier discounts granted in the prior year following 9/11 were no longer available.
- Occupancy: Increased as rent concessions from landlords in the wake of 9/11 expired.
- Cash Flow: Operating cash flow turned negative ($494,000 used) compared to positive ($96,000 provided) in the prior year, largely due to increases in accounts receivable and decreases in accrued liabilities.
Outlook, Risks, and Contingencies
- 9/11 Impact: Management expects the effects of the September 11 attacks and the sluggish economy to continue impacting sales in New York and Washington D.C. Las Vegas is expected to continue experiencing sales growth.
- Debt Covenants: The company violated a covenant related to a limitation on employee loans during the quarter. A waiver was obtained from Bank Leumi USA through December 30, 2002. Management believes it will be in compliance in future quarters.
- Aladdin Operations: The company abandoned operations at the Aladdin Resort in September 2002. A liability of $1,158,000 remains for future lease payments. A gain of $240,000 was recognized from the sale of equipment related to these operations.
- Insurance Recoveries: The company recorded $200,000 in insurance recoveries for the quarter regarding the Grill Room. Additional recoveries are expected as damage assessments are finalized.
- Expansion: The company is currently not committed to any new restaurant expansion projects.
Investor Verification Checklist
- Verify the status of the debt covenant waiver with Bank Leumi USA and the company's ability to maintain compliance in future quarters.
- Monitor the timeline and amount of remaining insurance recoveries for the Grill Room and the Aladdin operations.
- Assess the sustainability of Las Vegas revenue growth given the abandonment of the Aladdin location.
- Review the trend in same-store sales for New York and Washington D.C. to gauge the long-term impact of the 9/11 attacks on tourism.
- Confirm the company's cash burn rate given the low cash balance ($59,000) and negative operating cash flow.