Ark Restaurants(ARKR) - 2020 Q3 - Quarterly Report

Forward-Looking Statements Forward-Looking Statements The report contains forward-looking statements regarding future performance, which are subject to various risks and uncertainties - Statements concerning future performance are identified by words like "anticipates," "believes," and "expects," and are not guarantees of future results[5] - Key risk factors that could cause results to differ from expectations include the impacts of the COVID-19 pandemic, economic conditions, civil unrest, ability to open new restaurants, changes in food costs, and security breaches[6] - The company undertakes no obligation to update forward-looking statements and advises readers not to place undue reliance on them[8][9] Part I. Financial Information Item 1. Consolidated Condensed Financial Statements Unaudited financial statements reflect a significant negative impact from the COVID-19 pandemic, resulting in a net loss Consolidated Condensed Balance Sheets Total assets increased to $157.3 million, driven by cash from PPP loans and new lease accounting standards Consolidated Condensed Balance Sheet Highlights (In Thousands) | Balance Sheet Item | June 27, 2020 | September 28, 2019 | | :--- | :--- | :--- | | Total Assets | $157,260 | $94,652 | | Cash and cash equivalents | $20,725 | $7,177 | | Operating Lease Right-of-Use Assets - Net | $55,984 | $— | | Total Liabilities | $119,131 | $51,945 | | Operating Lease Liabilities | $57,809 | $— | | Notes Payable, Less Current Portion | $43,701 | $23,786 | | Total Equity | $38,129 | $42,707 | Consolidated Condensed Statements of Operations COVID-19 severely impacted performance, with revenues plummeting and resulting in a net loss of $2.5 million for the quarter Statement of Operations Summary (In Thousands, Except Per Share Amounts) | Metric | 13 Weeks Ended June 27, 2020 | 13 Weeks Ended June 29, 2019 | 39 Weeks Ended June 27, 2020 | 39 Weeks Ended June 29, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $7,199 | $44,807 | $84,716 | $120,667 | | Operating Income (Loss) | $(5,623) | $4,731 | $(5,123) | $5,114 | | Net Income (Loss) Attributable to ARKR | $(2,526) | $3,962 | $(2,791) | $3,231 | | Diluted EPS | $(0.72) | $1.12 | $(0.80) | $0.92 | Consolidated Condensed Statements of Changes in Equity Total equity decreased to $38.1 million, primarily driven by a net loss and dividends paid during the period Changes in Equity for 39 Weeks Ended June 27, 2020 (In Thousands) | Item | Amount | | :--- | :--- | | Balance - September 28, 2019 | $42,707 | | Net loss | $(2,852) | | Dividends paid and accrued | $(1,751) | | Stock-based compensation & option exercises | $163 | | Distributions to non-controlling interests | $(138) | | Balance - June 27, 2020 | $38,129 | Consolidated Condensed Statements of Cash Flows Financing activities provided $18.0 million in cash, mainly from PPP loans, offsetting cash used in operations Cash Flow Summary for 39 Weeks Ended (In Thousands) | Cash Flow Activity | June 27, 2020 | June 29, 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(2,510) | $6,752 | | Net cash used in investing activities | $(1,986) | $(2,575) | | Net cash provided by (used in) financing activities | $18,044 | $(3,613) | | Net increase in cash and cash equivalents | $13,548 | $564 | - The company received $14.995 million in proceeds from Paycheck Protection Program loans during the period[19] Notes to Consolidated Condensed Financial Statements Notes detail the significant impact of COVID-19, response measures like PPP loans, and the adoption of new lease accounting standards - The COVID-19 pandemic led to mandatory closures of all locations in March 2020, significantly disrupting operations[23][24] - In response to the pandemic, the company furloughed employees, reduced salaries, deferred debt payments, suspended dividends, and obtained approximately $15.0 million in PPP loans[27][29][32] - The company adopted the new lease accounting standard (ASC 842) on September 29, 2019, resulting in the recognition of $62.3 million in Right-of-Use assets and $63.9 million in lease liabilities[54] - The CARES Act is expected to provide a tax benefit by allowing the company to carry back estimated 2020 net operating losses to years with higher federal tax rates[117][118] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the significant operating loss to COVID-19 restaurant closures and details liquidity measures taken in response COVID-19 Pandemic Impact and Response The pandemic forced closures, leading to cost-saving measures including furloughs, payment deferrals, and securing PPP loans - All locations were mandatorily closed in March 2020 due to the pandemic, with some reopening at limited capacity in May and June 2020[130][131] - Key actions taken to manage liquidity include furloughing employees, reducing executive and corporate salaries, deferring principal payments on debt, canceling dividends, and suspending most lease payments[134][135][136][137] - The company secured approximately $15.0 million in PPP loans and utilized other provisions of the CARES Act to enhance its financial position[138] Results of Operations An operating loss of $5.6 million for the quarter was driven by an 83.9% decrease in revenues and a sharp fall in same-store sales Operating Results Comparison (In Thousands) | Metric | 13 Weeks Ended June 27, 2020 | 13 Weeks Ended June 29, 2019 | Variance ($) | Variance (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $7,199 | $44,807 | $(37,608) | -83.9% | | Total Costs and Expenses | $12,822 | $40,076 | $(27,254) | -68.0% | | Operating Income (Loss) | $(5,623) | $4,731 | $(10,354) | -218.9% | - The company estimates it incurred approximately $2.3 million in costs directly related to COVID-19 during the 13-week period, including payments to employees, inventory waste, and rent for closed restaurants[145] - Payroll, occupancy, and general & administrative expenses all increased dramatically as a percentage of revenue due to the significant sales decline while retaining key personnel and incurring fixed costs[152][153][155] Liquidity and Capital Resources Liquidity was bolstered by financing activities, including $15.0 million in PPP loans, ending the quarter with $20.7 million in cash - To enhance liquidity during the pandemic, the company fully drew down its Revolving Facility, obtained PPP loans, deferred debt payments, and canceled dividends[165][166] - Working capital increased to $5.6 million at June 27, 2020, from a deficit of $4.4 million at September 28, 2019, mainly due to the $15.0 million in PPP loan proceeds[170] - Net cash from financing activities was $18.0 million for the 39-week period, driven by PPP loans and credit facility borrowings, which offset the $2.5 million cash used in operations[172] Item 3. Quantitative and Qualitative Disclosures about Market Risk This item is marked 'Not Applicable', indicating no new or materially changed disclosures about market risk for this period - The company has indicated that there are no applicable disclosures for this item in the current reporting period[187] Item 4. Controls and Procedures Management concluded disclosure controls were effective, with pandemic-related changes not materially affecting internal controls - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[187] - Due to COVID-19 related work-from-home arrangements, some manual controls were shifted to electronic formats, but the overall design and objectives of the internal control framework remain unchanged and are not considered to be materially affected[188] Part II. Other Information Item 1. Legal Proceedings The company is involved in a class action lawsuit from former employees alleging labor law violations, for which an accrual was recorded - A putative class action lawsuit was filed by former employees alleging violations of New York State Labor Laws, seeking unspecified money damages[192] - The company's motion to dismiss was denied, and while it believes the claims are without merit, it has recorded an accrual for the matter as of June 27, 2020[192] Other Part II Items The report indicates 'Not Applicable' or 'None' for several items, including Risk Factors and Unregistered Sales of Equity - No information was reported for Item 1A (Risk Factors), Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information)[193] Item 6. Exhibits This section lists filed exhibits, including officer certifications under the Sarbanes-Oxley Act and XBRL Interactive Data Files - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32) and XBRL data files (101 series)[193][194]