ARK RESTAURANTS CORP. - 10-Q Summary
Business Context and Reporting Period
This filing covers the quarterly period ended March 29, 2003 (13 weeks) and the six-month period ended March 29, 2003 (26 weeks). Ark Restaurants Corp. operates fine dining 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 the Grill Room in New York and the abandonment of operations at the Aladdin Resort in Las Vegas.
Key Financial Metrics
| Metric | 13 Weeks Ended Mar 29, 2003 | 26 Weeks Ended Mar 29, 2003 |
|---|---|---|
| Total Revenues | $26,555,000 | $52,821,000 |
| Net Income (Loss) | $30,000 | $(85,000) |
| Operating Income (Loss) | $163,000 | $(79,000) |
| Net Cash Used in Operating Activities | N/A | $(736,000) |
| Cash and Cash Equivalents | $591,000 | $591,000 |
| Total Debt (Current + Long-Term) | $16,773,000 | $16,773,000 |
| Working Capital Deficit | $(7,116,000) | $(7,116,000) |
| Food & Beverage Cost % | 24.4% | 24.8% |
| Payroll Expense % | 34.6% | 34.7% |
Material Changes vs. Prior Period
- Revenue: Total revenues increased 1% in the 13-week period compared to the prior year. This increase was driven by a one-time $585,000 release of an allowance for an uncollectible note receivable and the reopening of the Grill Room in New York. Excluding these factors, same-store sales decreased 1.5% company-wide.
- Profitability: The company reported a net income of $30,000 for the quarter, a significant improvement from a net loss of $189,000 in the prior year quarter. However, for the six-month period, the company reported a net loss of $85,000 compared to net income of $785,000 in the prior year.
- Impairment Charges: The company recorded a $667,000 asset impairment charge related to the Lutece restaurant in New York City due to continued economic weakness and negative projected cash flows.
- Interest Expense: Interest expense decreased to $122,000 for the quarter (from $293,000 last year) due to lower outstanding borrowings.
Guidance, Outlook, and Risks
- Liquidity and Debt Covenants: The company operates with a working capital deficit of $7.1 million, which is typical for the restaurant industry. It holds a $17 million credit facility with Bank Leumi USA, with $16.0 million outstanding. The company violated a cash flow covenant during the quarter but received a waiver from the bank. Management expects to be in compliance in future quarters.
- September 11 Impact: Operations at the Aladdin Resort in Las Vegas were abandoned in September 2002. While the Grill Room in New York reopened in December 2002, the Lutece restaurant remains impaired. Management projects continuing negative operating cash flow for Lutece with no value for subletting.
- Expansion: The company is currently not committed to any new restaurant expansion projects.
- Market Risk: The company is exposed to interest rate risk on its variable-rate debt. A 100 basis point increase in rates would increase annual interest expense by approximately $160,000.
Investor Verification Checklist
- Covenant Compliance: Verify the status of the cash flow covenant waiver and the company's ability to maintain compliance in upcoming quarters to avoid default.
- Lutece Restaurant Viability: Assess the ongoing operational performance of the Lutece restaurant, given the recent $667,000 impairment charge and management's projection of negative cash flows.
- Debt Maturity: Review the credit facility terms, noting the reduction of the credit line to $11.5 million in June 2003 and $8.5 million in September 2003, and the maturity date of February 2005.
- One-Time Items: Adjust financial analysis to exclude the $585,000 non-operating revenue from the note receivable reserve release to understand core operating performance.
- Insurance Recoveries: Monitor the status of insurance recoveries related to the September 11 attacks, specifically for the Grill Room and other affected locations.