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Article by DailyStocks_admin    (08-10-08 03:57 AM)

Filed with the SEC from July 24 to July 30:

Ark Restaurants (ARKR)
Loeb Partners lowered its holdings in the restaurant group to 297,923 shares (8.28%), from the 341,223 (9.49%) reported on Jan. 17.

BUSINESS OVERVIEW

Overview

We are a New York corporation formed in 1983. As of the fiscal year ended September 29, 2007, we owned and/or operated 23 restaurants and bars, 24 fast food concepts, catering operations, and wholesale and retail bakeries through our subsidiaries. Initially our facilities were located only in New York City. As of the fiscal year ended September 29, 2007, seven of our restaurant and bar facilities are located in New York City, four are located in Washington, D.C., five are located in Las Vegas, Nevada, two are located in Atlantic City, New Jersey, three are located at the Foxwoods Resort Casino in Ledyard, Connecticut and one is located in the Faneuil Hall Marketplace in Boston, Massachusetts.

In 2004, we established operations in Florida which include five fast food facilities in Tampa, Florida and seven fast food facilities in Hollywood, Florida, each at a Hard Rock Hotel and Casino operated by the Seminole Indian Tribe at these locations. All pre-opening expenses were borne by outside investors who invested in a limited liability company established to develop, construct, operate and manage these facilities. We are the managing member of this limited liability company and, through this limited liability company, we lease and manage the operations of each of these facilities in exchange for a monthly management fee equal to five-percent of the gross receipts of these facilities. Neither we nor any of our subsidiaries contributed any capital to this limited liability company. None of the obligations of this limited liability company are guaranteed by us and investors in this limited liability company have no recourse against us or any of our assets.

In December 2005, we established operations in Atlantic City, New Jersey by opening a bar, Luna Lounge , and a separate restaurant, a Gallagher’s Steakhouse , in the Resorts Atlantic City Hotel and Casino. In November 2006 we changed the name and the concept of Luna Lounge to Gallagher’s Burger Bar.

In 2006, we established operations at the Foxwoods Resort Casino in Ledyard, Connecticut by opening a restaurant, The Fifth Street Cafe , in Foxwoods newly expanded poker room and a fast-casual restaurant, Lucky Seven , in Foxwoods Bingo Hall. All pre-opening expenses were borne by outside investors who invested in a limited liability company established to develop, construct, operate and manage these facilities. We are the managing member of this limited liability company and, through this limited liability company, we lease and manage the operations of each of these facilities in exchange for a monthly management fee equal to five-percent of the gross receipts of these facilities. Neither we nor any of our subsidiaries contributed any capital to this limited liability company. None of the obligations of this limited liability company are guaranteed by us and investors in this limited liability company have no recourse against us or any of our assets. We also further expanded our operations at Foxwoods later in 2006 by opening The Grill at Two Trees in the Two Trees Inn, a facility owned by the Mashantucket Pequot Tribal Nation and a part of the Foxwoods Resort Casino.

Also in 2006, we entered into an agreement to lease space for a Mexican restaurant, Yolos, at the Planet Hollywood Resort and Casino (formerly known as the Aladdin Resort and Casino) in Las Vegas, Nevada. The obligation to pay rent for Yolos is not effective until the restaurant opens for business. We anticipate this restaurant to open during our first quarter of the 2008 fiscal year.

In 2007, we purchased the restaurant known as the Durgin Park Restaurant and the Black Horse Tavern in Boston, Massachusetts and entered into an agreement to design and lease the sole food court at the to-be-constructed MGM Grand Casino at Foxwoods. The Company anticipates the food court at the MGM Grand Casino at Foxwoods will open during the third quarter of the Company’s 2008 fiscal year.

In addition to the shift from a Manhattan-based operation to a multi-city operation, the nature of the facilities operated by us has shifted from smaller, neighborhood restaurants to larger, destination restaurants intended to benefit from high patron traffic attributable to the uniqueness of the restaurant’s location. Most of our restaurants which are in operation and which have been opened in recent years are of the latter description. As of the fiscal year ended September 29, 2007, these include the restaurant operations at the New York-New York Hotel & Casino in Las Vegas, Nevada (1997); the Stage Deli located at the Forum Shops in Las Vegas, Nevada; Red, located at the South Street Seaport in New York (1998); Thunder Grill in Union Station, Washington, D.C. (1999); one bar and three food court facilities at the Venetian Casino Resort in Las Vegas, Nevada (2000); the 12 fast food facilities in Tampa, Florida and Hollywood, Florida, respectively (2004); the Gallagher’s Steakhouse and Gallagher’s Burger Bar in the Resorts Atlantic City Hotel and Casino in Atlantic City, New Jersey (2005); The Fifth Street Cafe and Lucky Seven at the Foxwoods Resort Casino in Ledyard, Connecticut (2006); and the Durgin Park Restaurant and the Black Horse Tavern in the Faneuil Hall Marketplace in Boston, Massachusetts (2007).

The names and themes of each of our restaurants are different except for our two America restaurants, two Sequoia restaurants, two Gonzalez y Gonzalez restaurants and two Gallagher’s Steakhouse restaurants. The menus in our restaurants are extensive, offering a wide variety of high quality foods at generally moderate prices. The atmosphere at many of the restaurants is lively and extremely casual. Most of the restaurants have separate bar areas. A majority of our net sales are derived from dinner as opposed to lunch service. Most of the restaurants are open seven days a week and most serve lunch as well as dinner.

While decor differs from restaurant to restaurant, interiors are marked by distinctive architectural and design elements which often incorporate dramatic interior open spaces and extensive glass exteriors. The wall treatments, lighting and decorations are typically vivid, unusual and, in some cases, highly theatrical.

Also during the fiscal year ended September 29, 2007, we entered into an agreement to design and lease a food court at the to be constructed MGM Grand Casino at the Foxwoods Resort Casino. The obligation to pay rent for this facility is not effective until the food court opens for business. We anticipate the food court will open during our third quarter of the 2008 fiscal year. All pre-opening expenses will be borne by outside investors who will invest in a limited liability company established to develop, construct, operate and manage the food court. We will be the managing member of this limited liability company and, through this limited liability company, we will lease and manage the operations of the food court in exchange for a monthly management fee equal to five-percent of the gross receipts of the food court. Neither we nor any of our subsidiaries will contribute any capital to this limited liability company. None of the obligations of this limited liability company will be guaranteed by us and investors in this limited liability company will have no recourse against us or any of our assets.

The opening of a new restaurant is invariably accompanied by substantial pre-opening expenses and early operating losses associated with the training of personnel, excess kitchen costs, costs of supervision and other expenses during the pre-opening period and during a post-opening “shake out” period until operations can be considered to be functioning normally. The amount of such pre-opening expenses and early operating losses can generally be expected to depend upon the size and complexity of the facility being opened. We incurred $129,000 in pre-opening expenses in fiscal 2007.

Our restaurants generally do not achieve substantial increases in revenue from year to year, which we consider to be typical of the restaurant industry. To achieve significant increases in revenue or to replace revenue of restaurants that lose customer favor or which close because of lease expirations or other reasons, we would have to open additional restaurant facilities or expand existing restaurants. There can be no assurance that a restaurant will be successful after it is opened, particularly since in many instances we do not operate our new restaurants under a trade name currently used by us, thereby requiring new restaurants to establish their own identity.

Leases

Apart from these agreements, we are not currently committed to any projects. We may take advantage of opportunities we consider to be favorable, when they occur, depending upon the availability of financing and other factors.

Recent Restaurant Dispositions and Charges

We entered into a sale and leaseback agreement with GE Capital in November 2000 to refinance the purchase of various restaurant equipment at our food and beverage facilities at Desert Passage, the retail complex at the Aladdin Resort & Casino in Las Vegas, Nevada. In 2002, the operations at the Aladdin were abandoned. The lease matured in November 2005 and, in connection therewith, we made an unprovided for lump sum payment of $142,000 due under this lease. This lump sum payment was included in discontinued operations for the first quarter of fiscal 2006.

Our bar/nightclub facility Venus, located at the Venetian Casino Resort, experienced a steady decline in sales and we felt that a new concept was needed at this location. During the first quarter of 2005, this bar/nightclub facility was closed for re-concepting and re-opened as “Vivid” on February 4, 2005. Total conversion costs were approximately $400,000. Sales at the new bar/nightclub facility subsequently failed to reach a level sufficient to achieve the results we required and we have identified a buyer for this facility. As of December 31, 2005, we classified the assets and liabilities of this bar/nightclub facility as “held for sale” in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) based on the fact that the facility has met the criteria under SFAS No. 144. Based on the offers made for this facility, we recorded an impairment charge of $537,000 during the first fiscal quarter of 2007. An additional impairment charge of $38,000 was recorded during the fourth fiscal quarter of 2007 as a result of the sale of the facility. We recorded operating losses of $188,000 and $486,000, respectively, during the fiscal years ended September 29, 2007 and September 30, 2006. The impairment charges and operating losses are included in discontinued operations.

Effective August 22, 2004, our lease for The Saloon at the Neonopolis Center at Fremont Street was converted into a management agreement whereby we received a management fee of $7,000 per month regardless of the results of operations of this restaurant. In June 2006, the owner of the Neonopolis Center at Fremont Street sold the building to a new entity who, on June 25, 2006, exercised its option to terminate the management agreement upon thirty days written notice to us.

On July 6, 2006, the landlord for the Vico’s Burrito’s fast food facility at the Venetian Casino Resort, General Growth Properties, notified us that the landlord was exercising an option granted to it pursuant to the lease for the facility to terminate the lease in exchange for the landlord providing us with the unamortized portion of the non-removable improvements located in the facility. On August 10, 2006, we and our landlord for this facility entered into a letter agreement pursuant to which the landlord agreed to pay us $200,000 for the unamortized portion of the non-removable improvements located in the facility.

During fiscal 2006, the landlord for our Metropolitan Café and one of our Columbus Bakery facilities notified us that he was planning on demolishing the building where these facilities are located and, therefore, would not be renewing these leases at the end of their term. The leases at these facilities terminated on October 1, 2006.

Also during fiscal 2006, we were approached by the Venetian Casino Resort who indicated that, due to the expansion of the Grand Canal Shoppes, our Lutece and Tsunami locations, as well as a portion of our Vivid location, in the Grand Canal Shoppes were desired by other tenants. The Venetian Casino Resort offered to purchase these locations from us for an aggregate of $14,000,000. After evaluating the offer, we determined that such offer made it advantageous for us to redeploy these assets. Effective December 1, 2006, our subsidiaries that leased each of our Lutece, Tsunami and Vivid locations at the Venetian Resort Hotel Casino in Las Vegas, Nevada, entered into an agreement to sell Lutece, Tsunami and a portion of the Vivid location used by Lutece as a prep kitchen to Venetian Casino Resort, LLC for an aggregate of $14,000,000. Our Lutece location closed on December 3, 2006 and our Tsunami location closed on January 3, 2007. We realized a gain of $7,814,000 ($5,196,000 after taxes, or $1.45 per share) on the sale of these facilities. We recorded operating income of $34,000 for the fiscal year ended September 29, 2007. The gain on sale and income are included in discontinued operations.

As a result of the above mentioned sales or closures, we allocated $100,000 and $75,000 of goodwill to these restaurants and reduced goodwill by these amounts in fiscal 2007 and 2005, respectively.

Restaurant Management

Each restaurant is managed by its own manager and has its own chef. Food products and other supplies are purchased primarily from various unaffiliated suppliers, in most cases by our headquarters’ personnel. Our Columbus Bakery supplies bakery products to most of our New York City restaurants in addition to operating a retail bakery. Our Columbus Bakery in Las Vegas supplies bakery products to most of our Las Vegas restaurants in addition to operating a wholesale bakery. Each of our restaurants has two or more assistant managers and sous chefs (assistant chefs). Financial and management control is maintained at the corporate level through the use of automated systems that include centralized accounting and reporting.

Purchasing and Distribution

We strive to obtain quality menu ingredients, raw materials and other supplies and services for our operations from reliable sources at competitive prices. Substantially all menu items are prepared on each restaurant’s premises daily from scratch, using fresh ingredients. Each restaurant’s management determines the quantities of food and supplies required and orders the items from local, regional and national suppliers on terms negotiated by our centralized purchasing staff. Restaurant-level inventories are maintained at a minimum dollar-value level in relation to sales due to the relatively rapid turnover of the perishable produce, poultry, meat, fish and dairy commodities that are used in operations.

We attempt to negotiate short-term and long-term supply agreements depending on market conditions and expected demand. However, we do not contract for long periods of time for our fresh commodities such as produce, poultry, meat, fish and dairy items and, consequently, such commodities can be subject to unforeseen supply and cost fluctuations. Independent foodservice distributors deliver most food and supply items daily to restaurants. The financial impact of such supply agreements would not have a material adverse effect on our financial position.

Employees

At December 12, 2007, we employed 2,151 persons (including employees at managed facilities), 1,564 of whom were full-time employees, 587 of whom were part-time employees, 31 of whom were headquarters personnel, 217 of whom were restaurant management personnel, 601 of whom were kitchen personnel and 1,302 of whom were restaurant service personnel. A number of our restaurant service personnel are employed on a part-time basis. Changes in minimum wage levels may affect our labor costs and the restaurant industry generally because a large percentage of restaurant personnel are paid at or slightly above the minimum wage. Our employees are not covered by a collective bargaining agreement.

Government Regulation

We are subject to various federal, state and local laws affecting our business. Each restaurant is subject to licensing and regulation by a number of governmental authorities that may include alcoholic beverage control, health, sanitation, environmental, zoning and public safety agencies in the state or municipality in which the restaurant is located. Difficulties in obtaining or failures to obtain the required licenses or approvals could delay or prevent the development and openings of new restaurants, or could disrupt the operations of existing restaurants.

Alcoholic beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county and municipal authorities for licenses and permits to sell alcoholic beverages on the premises. Typically, licenses must be renewed annually and may be subject to penalties, temporary suspension or revocation for cause at any time. Alcoholic beverage control regulations impact many aspects of the daily operations of our restaurants, including the minimum ages of patrons and employees consuming or serving such beverages; employee alcoholic beverages training and certification requirements; hours of operation; advertising; wholesale purchasing and inventory control of such beverages; seating of minors and the service of food within our bar areas; and the storage and dispensing of alcoholic beverages. State and local authorities in many jurisdictions routinely monitor compliance with alcoholic beverage laws. The failure to receive or retain, or a delay in obtaining, a liquor license for a particular restaurant could adversely affect our ability to obtain such licenses in jurisdictions where the failure to receive or retain, or a delay in obtaining, a liquor license occurred.

We are subject to “dram-shop” statutes in most of the states in which we have operations, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to such person. We carry liquor liability coverage as part of our existing comprehensive general liability insurance. A settlement or judgment against us under a “dram-shop” statute in excess of liability coverage could have a material adverse effect on our operations.

Various federal and state labor laws govern our operations and our relationship with employees, including such matters as minimum wages, breaks, overtime, fringe benefits, safety, working conditions and citizenship requirements. We are also subject to the regulations of the Immigration and Naturalization Service (INS). If our employees do not meet federal citizenship or residency requirements, this could lead to a disruption in our work force. Significant government-imposed increases in minimum wages, paid leaves of absence and mandated health benefits, or increased tax reporting, assessment or payment requirements related to employees who receive gratuities could be detrimental to our profitability.

Our facilities must comply with the applicable requirements of the Americans With Disabilities Act of 1990 (“ADA”) and related state statutes. The ADA prohibits discrimination on the basis of disability with respect to public accommodations and employment. Under the ADA and related state laws, when constructing new restaurants or undertaking significant remodeling of existing restaurants, we must make them more readily accessible to disabled persons.

The New York State Liquor Authority must approve any transaction in which a shareholder of the licensee increases his holdings to 10% or more of the outstanding capital stock of the licensee and any transaction involving 10% or more of the outstanding capital stock of the licensee.

Seasonal Nature Of Business

Our business is highly seasonal. The second quarter of our fiscal year, consisting of the non-holiday portion of the cold weather season in New York and Washington (January, February and March), is the poorest performing quarter. We achieve our best results during the warm weather, attributable to our extensive outdoor dining availability, particularly at Bryant Park in New York and Sequoia in Washington, D.C. (our largest restaurants) and our outdoor cafes. However, even during summer months these facilities can be adversely affected by unusually cool or rainy weather conditions. Our facilities in Las Vegas generally operate on a more consistent basis through the year.

Terrorism and International Unrest

The terrorist attacks on the World Trade Center in New York and the Pentagon in Washington, D.C. on September 11, 2001 had a material adverse effect on our revenues. As a result of the attacks, one of our restaurants, The Grill Room, located at 2 World Financial Center, which is adjacent to the World Trade Center, experienced some damage. The Grill Room was closed from September 11, 2001 and reopened in early December 2002.

Our restaurants in New York, Las Vegas, Washington D.C. and Florida benefit from tourist traffic. Though the Las Vegas market has shown resiliency, the sluggish economy and the lingering effects of September 11, 2001 have had an adverse effect on our restaurants. Recovery depends upon a general improvement in economic conditions and the public’s willingness and inclination to resume vacation and convention travel. Additional acts of terrorism in the United States or substantial international unrest may have a material adverse effect on our business and revenues.

CEO BACKGROUND

Michael Weinstein has been our Chief Executive Officer and a director since our inception in January 1983, was elected Chairman in 2004 and was President of the Company from January 1983 to September 2007. Mr. Weinstein is also the President of each of our subsidiaries. During the past five years, Mr. Weinstein has been an officer, director and 25% shareholder of Easy Diners, Inc., a restaurant management company which operated a restaurant in New York City until January 31, 2002. Mr. Weinstein is also a director and 25% shareholder of RSWB Corp. and BSWR Corp. (since April 1998) each of which operates a restaurant in New York City. Mr. Weinstein is also the owner of 24% of the membership interests of each of Dockeast, LLC and Dockwest, LLC, each of which operates a restaurant in New York City. Easy Diners, Inc., RSWB Corp., Dockeast, LLC, Dockwest, LLC and BSWR Corp. are not subsidiaries or affiliates of the Company. Mr. Weinstein spends substantially all of his business time on Company-related matters.

Robert Towers has been employed by us since November 1983 and was elected Vice President, Treasurer and a director in March 1987. Mr. Towers became an Executive Vice President and Chief Operating Officer in April 2001 and was promoted to President in September 2007. Mr. Towers is also the Executive Vice President, Treasurer and Secretary of each of our subsidiaries.

Vincent Pascal has been employed by us since 1983 and was elected Vice President, Assistant Secretary and a director in 1985. Mr. Pascal became a Senior Vice President in 2001.

Paul Gordon has been employed by us since 1983 and was elected as a director in November 1996 and a Senior Vice President in April 2001. Mr. Gordon is the manager of the our Las Vegas operations, and is a Senior Vice President of each of the Company’s Las Vegas, Nevada subsidiaries. Prior to assuming that role in 1996, Mr. Gordon was the manager of the Company’s operations in Washington, D.C. commencing in 1989.

Marcia Allen was elected a director of the Company in 2003. For the past five years, Ms. Allen has been the Chief Executive Officer of Allen & Associates Inc., a business and acquisition consulting firm. Also, from December 2001 to August 2002 Ms. Allen served as President and a member of the board of directors of Accesspoint Inc.

Bruce R. Lewin was elected a director of the Company in February 2000. Mr. Lewin has been the President and a director of Continental Hosts, Ltd since August 2001. He is also a founder and director of Fuze Beverage, LLC. Mr. Lewin was formerly a director of the Bank of Great Neck (in New York), and a former director of the New York City Chapter of the New York State Restaurant Association. He has been owner and President of Bruce R. Lewin Fine Art since 1985.

Steven Shulman was elected a director of the Company in December 2003. During the past five years, Mr. Shulman has been the managing director of Hampton Group, a company engaged in the business of making private investments. Mr. Shulman also serves as a director of various private companies.

Arthur Stainman was elected director of the Company in 2004. Mr. Stainman is a senior managing director of First Manhattan Co. of New York City, a money management firm, and has over twenty years experience managing money for high net worth individuals.

Stephen Novick was elected director of the Company in 2005. Mr. Novick serves as Senior Advisor for the Andrea and Charles Bronfman Philanthropies, a private family foundation. From 1990 to 2004, Mr. Novick served as Chief Creative Officer of Grey Global Group, an advertising agency. Mr. Novick continues to serve as a consultant for Grey Global Group. He also serves as a member of the Board of Directors of Toll Brothers, Inc.

The executive officer is the officer who is not a member of our Board but who is an executive officer of the Company pursuant to Section 16 of the Exchange Act.

Robert Stewart, age 51, has been employed by us since June 2002 and was elected Chief Financial Officer effective as of June 24, 2002. For the three years prior to joining us, Mr. Stewart was a Chief Financial Officer and Executive Vice President at Fortis Capital Holdings. For eleven years prior to joining Fortis Capital Holdings, Mr. Stewart held senior financial and audit positions in Skandinaviska Enskilda Banken in their New York, London and Stockholm offices.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We have reclassified our statements of operations data for the prior periods presented below, in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), as a result of the:









— sale of one of our restaurants during the fiscal year ended October 1, 2005;









— classification of one of our restaurants as held for sale and the closure of one of our restaurants during the fiscal year ended September 30, 2006; and



— sale of two of our restaurants and the closure of four of our restaurants during the fiscal year ended September 29, 2007.

The operations of these restaurants have been presented as discontinued operations for the fiscal years ended October 1, 2005, September 30, 2006 and September 29, 2007. See “Item 1 -Recent Restaurant Dispositions and Charges”, “Item 7 - Recent Restaurant Dispositions” and Note 3 of Consolidated Financial Statements.

Revenues

Total revenues increased by 12.4% from fiscal 2006 to fiscal 2007 and increased by 3.2% from fiscal 2005 to fiscal 2006. Revenues for fiscal 2007 were reduced by $2 , 686,000, revenues for fiscal 2006 were reduced by $6,609,000 and revenues for fiscal 2005 were reduced by $10,190,000 as a result of the sale of three facilities, the classification of one facility as “held for sale”, the closure of four of our facilities and their reclassification to discontinued operations.

Same store sales increased 8.6%, or $8,900,000, on a Company-wide basis from fiscal 2006 to fiscal 2007. Same store sales in Las Vegas increased by $2,728,000, or 5%, in fiscal 2007 compared to fiscal 2006. Same store sales in New York increased $3,775,000, or 12.5%, during fiscal 2007. Same store sales in Washington D.C. increased by $1,558,000,or 9.3%, during fiscal 2007. The increase in New York and Washington, D.C. was principally due to unusually good weather. Same store sales in Atlantic City increased by $839,000 or 42.8% in fiscal 2007 compared to fiscal 2006. The increase in Atlantic City was primarily due to last year’s low level of sales following the start-up of these operations and the rebranding of our Luna Lounge as Gallagher’s Burger Bar . The Company does not anticipate similar percentage increases in Atlantic City after this fiscal year.

Other operating income, which consists of the sale of merchandise at various restaurants, management fee income and door sales were $2,145,000 in fiscal 2007, $2,423,000 in fiscal 2006 and $1,826,000 in fiscal 2005.

Costs and Expenses

Food and beverage cost of sales as a percentage of total revenue was 25.8% in fiscal 2007, 25.3% in fiscal 2006 and 25.2% in fiscal 2005.

Total costs and expenses increased by $10,492,000, or 10.2%, from fiscal 2006 to fiscal 2007 primarily due to increased sales and a $408,000 expense related to our share-based compensation plan.

Total costs and expenses increased by $4,416,000, or 4.5%, from fiscal 2005 to fiscal 2006 primarily due to an increase in the minimum wage in New York and Washington, D.C., a $748,000 expense related to our share-based compensation plan and increased occupancy costs.

Payroll expenses as a percentage of total revenues was 30.4% in fiscal 2007 compared to 31.9% in fiscal 2006 and 31.1% in fiscal 2005. Payroll expense was $37,767,000, $35,213,000 and $33,307,000 in fiscal 2007, 2006 and 2005, respectively. In fiscal 2007, increased sales resulted in an increase in payroll expenses. In fiscal 2005 and 2006, the increase of the minimum wage in New York and Washington, D.C. resulted in an increase in payroll expenses. We continually evaluate our payroll expenses as they relate to sales.

We typically incur significant pre-opening expenses in connection with our new restaurants that are expensed as incurred. Furthermore, it is not uncommon that such restaurants experience operating losses during the early months of operation.

In fiscal 2007, we:



— converted our bar, Luna Lounge , at the Resorts Atlantic City Hotel and Casino in Atlantic City, New Jersey, into a restaurant, Gallagher’s Burger Bar ;



— expanded our operations at the Foxwoods Resort Casino by opening The Grill at Two Trees in the Two Trees Inn, a facility owned by the Mashantucket Pequot Tribal Nation and a part of the Foxwoods Resort Casino, in Ledyard, Connecticut;



— began construction of a Mexican restaurant and lounge, Yolos, at the rethemed Planet Hollywood Casino in Las Vegas, Nevada; and



— began operating the Durgin Park Restaurant and the Black Horse Tavern in Boston, Massachusetts.

We purchased the Durgin Park facility from the previous owner for $2,000,000 in cash and a $1,000,000 five year promissory note bearing interest at a rate of 7% per year.

We experienced $129,000 in pre-opening and early operating losses at our Yolos facility in fiscal 2007. Also during fiscal 2007, we entered into an agreement to design and lease a food court at the to be constructed MGM Grand Casino at the Foxwoods Resort Casino. The obligation to pay rent for this facility is not effective until the food court opens for business. We anticipate the food court will open during our third quarter of the 2008 fiscal year. All pre-opening expenses will be borne by outside investors who will invest in a limited liability company established to develop, construct, operate and manage the food court. We will be the managing member of this limited liability company and, through this limited liability company, we will lease and manage the operations of the food court in exchange for a monthly management fee equal to five-percent of the gross receipts of the food court. Neither we nor any of our subsidiaries will contribute any capital to this limited liability company. None of the obligations of this limited liability company will be guaranteed by us and investors in this limited liability company will have no recourse against us or any of our assets.

In fiscal 2006, we established operations in Atlantic City, New Jersey by opening a bar, Luna Lounge , and a separate restaurant, a Gallagher’s Steakhouse , in the Resorts Atlantic City Hotel and Casino. We experienced $447,000 in pre-opening and early operating losses at these facilities in fiscal 2006. Further during fiscal 2006, we established operations at the Foxwoods Resort Casino in Ledyard, Connecticut by opening a restaurant, The Fifth Street Cafe , in its newly expanded poker room in March 2006 and a fast-casual restaurant, Lucky Seven , in the Bingo Hall in May 2006. All pre-opening expenses were borne by outside investors who invested in a limited liability company established to develop, construct, operate and manage these facilities. We did not open any new restaurants and no pre-opening expenses and early operating losses were incurred during fiscal 2005.

General and administrative expenses, as a percentage of total revenue, were 7.3% in fiscal 2007, 6.5% in fiscal 2006 and 6.8% in fiscal 2005.

During the fiscal year ended September 29, 2007, we managed one consolidated restaurant we did not own ( El Rio Grande ) and also managed our Tampa and Hollywood Florida food court operations and our Foxwoods operations. We managed two restaurants we did not own ( The Saloon and El Rio Grande ) and also managed our Tampa and Hollywood Florida food court operations and our Foxwoods operations at September 30, 2006. We managed two restaurants we did not own ( The Saloon and El Rio Grande ) and also managed the Tampa and Hollywood Florida food court operations at October 1, 2005. Due to adoption of new accounting pronouncements, $3,873,000 in sales of El Rio Grande were included in consolidated sales for fiscal 2007. Sales of El Rio Grande , which are not included in consolidated sales during fiscal 2006 and 2005, were $3,519,000 and $3,345,000, respectively. Our lease of The Saloon was converted into a management agreement effective as of August 22, 2004, whereby we received a management fee of $7,000 per month regardless of the results of operations of this restaurant. This restaurant closed effective July 25, 2006. During fiscal 2004, we entered into agreements to manage 11 fast food restaurants located in the Hard Rock Casinos in Hollywood and Tampa, Florida. Sales from these operations totaled $12,170,000 during the 2007 fiscal year , $10,469,000 during the 2006 fiscal year and $8,843,000 during the 2005 fiscal year. During fiscal 2006, we established operations at the Foxwoods Resort Casino in Ledyard, Connecticut by managing a restaurant, The Fifth Street Cafe , in its newly expanded poker room and a fast-casual restaurant, Lucky Seven , in the Bingo Hall. Sales from these operations totaled $4,471,000 during the 2007 fiscal year and $2,389,000 during the 2006 fiscal year.

Interest expense was $65,000 in fiscal 2007, $8,000 in fiscal 2006 and $16,000 in fiscal 2005. Interest income was $417,000 in fiscal 2007, $90,000 in fiscal 2006 and $100,000 in fiscal 2005. During fiscal 2007 we began an investment program utilizing our large cash balances. Investments are made in government securities and investment quality corporate instruments.

Other income, which generally consists of purchasing service fees and other income at various restaurants, was $805,000, $714,000 and $672,000 for fiscal 2007, 2006 and 2005, respectively.

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 New York subsidiary on a non-consolidated basis. Most of the restaurants we own or manage 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 operating in the District of Columbia. Accordingly, our overall effective tax rate has varied depending on the level of losses incurred at individual subsidiaries.

Our overall effective tax rate in the future will be affected by factors such as the level of losses incurred at our New York facilities, which cannot be consolidated for state and local tax purposes, pre-tax income earned outside of New York City and the utilization of state and local net operating loss carry forwards. Nevada has no state income tax and other states in which we operate have income tax rates substantially lower in comparison to New York. In order to utilize more effectively tax loss carry forwards at restaurants that were unprofitable, we have merged certain profitable subsidiaries with certain loss subsidiaries.

The Revenue Reconciliation Act of 1993 provides tax credits to us for FICA taxes paid on tip income of restaurant service personnel. The net benefit to us was $799,000 in fiscal 2007, $733,000 in fiscal 2006 and $779,000 in fiscal 2005.

During fiscal 2006, we and the Internal Revenue Service finalized the adjustments to our Federal income tax returns for fiscal years 1999 through 2004. This settlement did not have a material effect on our consolidated financial statements.

Our tax return for the fiscal year ended September 30, 2006 is currently under audit by the Internal Revenue Service. Our tax returns for the fiscal years ended September 30, 2006 and October 1, 2005 are currently under audit by New York State. We expect no material adjustments will result from these examinations.

Liquidity and Capital Resources

Our primary source of capital has been cash provided by operations and funds available from our main bank, Bank Leumi USA. We have, from time to time, also utilized equipment financing in connection with the construction of a restaurant and seller financing in connection with the acquisition of a restaurant. We utilize capital primarily to fund the cost of developing and opening new restaurants, acquiring existing restaurants owned by others and remodeling existing restaurants we own.

The net cash provided by investing activities in fiscal 2007 was $260,000. Cash was used for the replacement of fixed assets at existing restaurants, converting our bar, Luna Lounge , at the Resorts Atlantic City Hotel and Casino in Atlantic City, New Jersey, into a restaurant, Gallagher’s Burger Bar , opening The Grill at Two Trees in the Two Trees Inn, a facility owned by the Mashantucket Pequot Tribal Nation and a part of the Foxwoods Resort Casino, in Ledyard, Connecticut, purchasing the Durgin Park Restaurant and the Black Horse Tavern in Boston, Massachusetts from the previous owner for $2,000,000 in cash and a $1,000,000 five year promissory note bearing interest at a rate of 7% per year, and the construction of Yolos, a Mexican restaurant, at the Planet Hollywood Resort and Casino (formerly known as the Aladdin Resort and Casino) in Las Vegas, Nevada. Cash was also used to purchase investment securities. Cash provided by investing activities was generated from the sale of discontinued operations and the sale of investment securities. The net cash used in investing activities in fiscal 2006 of $4,934,000 was primarily used for the replacement of fixed assets at existing restaurants, the construction of a restaurant and bar in Atlantic City, New Jersey and the construction of Yolos. The net cash used in investing activities in fiscal 2005 of $4,236,000 was primarily used for the replacement of fixed assets at existing restaurants and the construction of a restaurant and bar in Atlantic City, New Jersey.

The net cash used in financing activities in fiscal 2007 of $15,309,000 , $3,628,000 in fiscal 2006 and $4,397,000 in fiscal 2005 was principally used for the payment of dividends.

We had a working capital surplus of $11,571,000 at September 29, 2007 as compared to a working capital surplus of $8,398,000 at September 30, 2006.

Our Revolving Credit and Term Loan Facility (the “Facility”) with our main bank (Bank Leumi USA), which included a $8,500,000 credit line to finance the development and construction of new restaurants and for working capital purposes at our existing restaurants, matured on March 12, 2005. We do not currently plan to enter into another credit facility and expect required cash to be provided by operations.

A quarterly cash dividend in the amount of $0.35 per share was declared on October 12, 2004. Subsequent to October 12, 2004, quarterly cash dividends in the amount of $0.35 per share were declared on January 12, April 12, July 12, October 10, December 20, 2006 and April 12, 2007. We declared an increase in our quarterly cash dividend to $0.44 per share on May 23, 2007 and a subsequent quarterly cash dividend reflecting this increased amount was declared on October 12, 2007. In addition, we declared a special cash dividend in the amount of $3.00 per share on December 20, 2006. Prior to this, we had not paid any cash dividends since our inception. We intend to continue to pay such quarterly cash dividend for the foreseeable future, however, the payment of future dividends is at the discretion of our Board of Directors and is based on future earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation and other relevant factors.


MANAGEMENT DISCUSSION FOR LATEST QUARTER

Revenues

During the Company’s second fiscal quarter of 2008, total revenues of $26,361,000 increased 3.9% compared to total revenues of $25,373,000 in the second fiscal quarter of 2007. The Company had net income of $346,000 in the second fiscal quarter of 2008 compared to net income of $378,000 in the second fiscal quarter of 2007.

Same store sales in Las Vegas increased by $176,000 or 1.2% in the second fiscal quarter of 2008 compared to the second fiscal quarter of 2007. Same store sales in New York increased $158,000 or 3.7% during the second quarter. Same store sales in Washington D.C. decreased by $167,000 or 5.5% during the second quarter. Same store sales in Atlantic City remained constant.

During the Company’s 26-week period ended March 29, 2008, total revenues of $56,679,000 increased 7.2% compared to total revenues of $52,895,000 in the 26-week period ended March 31, 2007. The Company had net income of $1,830,000 in the 26-week period ended March 29, 2008 compared to net income of $6,968,000 in the 26-week period ended March 31, 2007. Net income was positively affected during the 26-week period ended March 31, 2007 as a result of the sale during the quarter of the Company’s Lutece and Tsunami locations and a portion of the Vivid location used by Lutece as a prep kitchen to Venetian Casino Resort, LLC. Net income was negatively affected during the 26-week period ended March 29, 2008 as a result of $209,000 pre-opening and early operating losses experienced at the Company’s Mexican Restaurant, Yolos , at the Planet Hollywood Resort and Casino in Las Vegas, Nevada. .

Costs and Expenses

Food and beverage costs for the second quarter of 2008 as a percentage of total revenues were 26.4% compared to 26.2% in the second quarter of 2007. These costs for the 26-weeks ended March 29, 2008 as a percentage of total revenues were 25.9% compared to 25.5% in the 26-week period ended March 31, 2007. Increased food costs during these periods have had a negative effect on this category of expenses. Although the Company had not raised the price of menu items offered to its customers for several years due to business conditions, the impact of the increase in food costs has caused the Company to review the price of menu items offered to its customers. The Company had determined to increase the price of menu items offered to its customers in specific locations where the Company believes consumer demand has created some elasticity.

Payroll expenses as a percentage of total revenues were 33.9% for the second quarter of 2008 as compared to 34.3% in the second quarter of 2007. Payroll expenses as a percentage of total revenues were 32.6% for the 26-week period ended March 29, 2008 as compared to 32.8% for the 26-week period ended March 31, 2007. Occupancy expenses as a percentage of total revenues were 14.3% during the second fiscal quarter of 2008 compared to 13.6% in the second quarter of 2007. Occupancy expenses as a percentage of total revenues were 13.7% during the 26-week period ended March 29, 2008 compared 13.8% for the 26-week period ended March 31, 2007. Other operating costs and expenses as a percentage of total revenues were 12.9% during the second fiscal quarter of 2008 compared to 12.6% in the second quarter of 2007. Other operating costs and expenses as a percentage of total revenues were 13.2% for the 26-week period ended March 29, 2008 compared to 11.9% for the 26-week period ended March 31, 2007. General and administrative expenses as a percentage of total revenues were 8.3% during the second fiscal quarter of 2008 compared to 8.2% in the second quarter of 2007. General and administrative expenses as a percentage of total revenue were 7.6% for the 26-week period ended March 29, 2008 compared to 7.7% for the 26-week period ended March 31, 2007.

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 New York subsidiary on a non-consolidated basis. Most of the restaurants owned or managed by the Company are owned or managed by separate subsidiaries.

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 operating in the District of Columbia. Accordingly, the Company’s overall effective tax rate has varied depending on the level of 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, 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

The Company's primary source of capital has been cash provided by operations. 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, acquiring existing restaurants owned by others and remodeling existing restaurants owned by the Company.

The Company had a working capital surplus of $7,808,000 at March 29, 2008 as compared to a working capital surplus of $11,571,000 at September 29, 2007.

The Company’s Revolving Credit and Term Loan Facility matured on March 12, 2005. The Company does not currently plan to enter into another credit facility and expects required cash to be provided by operations.

On March 25, 2008, our Board of Directors authorized a stock repurchase program under which up to 500,000 shares of our common stock may be acquired in the open market over the two years following such authorization at our discretion.

The shares may be purchased from time to time at prevailing market prices through open market or unsolicited negotiated transactions, depending on market conditions. Under the program, the purchases are to be funded from available working capital, and the repurchased shares will be held in treasury or used for ongoing stock issuances. At March 29, 2008, no shares had been purchased by us under the program. There is no guarantee as to the exact number of shares which we will repurchase, and we may discontinue the program at any time.

Restaurant Expansion

Also in 2006, we entered into an agreement to lease space for a Mexican restaurant, Yolos, at the Planet Hollywood Resort and Casino (formerly known as the Aladdin Resort and Casino) in Las Vegas, Nevada. The obligation to pay rent for Yolos was not effective until the restaurant opens for business. This restaurant opened during the second quarter of the 2008 fiscal year.

On January 8, 2007, the Company began operating the Durgin Park Restaurant and the Black Horse Tavern in Boston, Massachusetts. The Company purchased this facility from the previous owner for $2,000,000 in cash and a $1,000,000 five year promissory note bearing interest at a rate of 7% per year.

In June 2007, we entered into an agreement to design and lease a food court at the to be constructed MGM Grand Casino at the Foxwoods Resort Casino. The obligation to pay rent for this facility is not effective until the food court opens for business. We anticipate the food court will open during our third quarter of the 2008 fiscal year. All pre-opening expenses will be borne by outside investors who will invest in a limited liability company established to develop, construct, operate and manage the food court. We will be the managing member of this limited liability company and, through this limited liability company, we will lease and manage the operations of the food court in exchange for a monthly management fee equal to five-percent of the gross receipts of the food court. Neither we nor any of our subsidiaries will contribute any capital to this limited liability company. None of the obligations of this limited liability company will be guaranteed by us and investors in this limited liability company will have no recourse against us or any of our assets.

Recent Restaurant Dispositions

During the first fiscal quarter of 2008, we discontinued the operation of our Columbus Bakery retail and wholesale bakery located in New York City. Columbus Bakery was originally intended to serve as the bakery that would provide all of our New York restaurants with baked goods as well as being a retail bakery operation. As a result of the sale and closure of several of our restaurants in New York City during the last several years, this bakery operation was no longer profitable.

During the second fiscal quarter of 2008, we opened, along with certain third party investors, a new concept at this location called “Pinch & S’Mac” which features pizza and macaroni and cheese. We contributed Columbus Bakery’s net fixed assets and cash into this venture and received an ownership interest of 37.5%.

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 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 critical accounting policies are described in the Company’s Form 10-K for the year ended September 29, 2007. There have been no significant changes to such policies during fiscal 2008, other than the implementation of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”, as discussed below.

Recent Accounting Developments

The Financial Accounting Standards Board has recently issued the following accounting pronouncements:

In September 2006, the FASB issued FASB Statement No. 157 ("SFAS 157"), "Fair Value Measurements." SFAS 157 establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for all financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS 157 on its consolidated financial position and results of operations.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - including an amendment of FASB Statement No. 115" ("SFAS 159"). SFAS 159 permits entities to elect to measure many financial instruments and certain other items at fair value. Upon adoption of SFAS 159, an entity may elect the fair value option for eligible items that exist at the adoption date. Subsequent to the initial adoption, the election of the fair value option should only be made at initial recognition of the asset or liability or upon a remeasurement event that gives rise to new-basis accounting. SFAS 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value nor does it eliminate disclosure requirements included in other accounting standards. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS 159 on its consolidated financial position and results of operations.

On December 4, 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”), and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). These new standards will significantly change the accounting for and reporting for business combination transactions and noncontrolling (minority) interests in consolidated financial statements. SFAS 141(R) and SFAS 160 are required to be adopted simultaneously and are effective for the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. We are currently evaluating the impact of adopting SFAS 141(R) and SFAS 160 on our consolidated financial statements.

CONF CALL

Robert J. Stewart

Thank you, Operator. Good afternoon and thank you for joining us on our conference call for the first fiscal quarter ended December 29, 2007. With me on the call today is Michael Weinstein, our Chairman and CEO, and Michael Buck, our General Counsel. For those of you who have not yet obtained a copy of our first quarter press release, it was issued over the newswire Friday and is available on our website. To review the full text of that press release along with the associated financial tables, please go to our home page at www.arkrestaurants.com.

Before we begin, however, I’d like to read the Safe Harbor statement. I need to remind everyone that part of our discussion this afternoon will include forward-looking statements and that these statements are not guarantees of future performance and therefore undue reliance should not be placed on them. We refer all of you to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks that may have a direct bearing on our operating results, performance, and financial condition.

I will now turn the phone call over to Michael Weinstein. Michael.

Michael Weinstein

Hi, everybody. We had a good quarter in terms of top line. Sales were a little over $30 million versus $27.5 million last year. EBITDA, which is the number we focus on, was 2.9 this year, 3.3 last year.

The main difference -- all the difference between EBITDA this year and last year came from pre-opening expenses involved in the construction of Yolos, our Mexican Grill and Lounge which is in the Planet Hollywood hotel which opened in December; expenses related to the expansion and renovation of the banquet facilities at New York-New York Hotel & Casino -- we did not have the availability of those banquet room so we were hurt on the sales side there, as well as having expenses at getting them up and running, and we were carrying some payroll during that period for that; and also because of the good year we had last year, the board of directors voted for bonuses, several hundred thousand dollars in excess of the prior year’s bonuses. So that was the basic difference in the December numbers.

We ran our businesses pretty well. New York-New York, which carries the expenses of the construction of the expanded banquet facilities, had additional payroll in there and they had some expenses of smallwares and other things which we write off as incurred during that period, so their P&L did not look as good as we would like it to but there were by and large reasons for it.

Our business was -- comp sales were acceptable in this environment. We are seeing some narrowing of comp sales from the September and June quarters. Obviously a lot of that has to do with the fact that we had outdoor cafes open and fully utilized for this spring and summer compared to last year, so those 10% comp sales were really pretty much the favorable comparisons of outdoor cafes this year -- this prior year compared to last year. In the December quarter when we don’t run any of those outdoor cafes, these comp sales were quite acceptable.

We continue to have positive comp sales in the March quarter. We are only into the second week of February but right now we are running up about 3% company wide. Las Vegas is up 2%. New York is up 6%. New Jersey, 13%. We are running very positive in Boston, up 10%, which is great for us there. We made some price changes and menu changes in Durgin Park. Our Hollywood and Tampa Seminole Indian properties are running about even on the whole. We’re hoping to do better as Hollywood has not gotten the full Vegas treatment in terms of the slot machines and has started to install those machines and we think we’re going to see better results in Hollywood.

So all in all, a pretty good picture here. I’ll take questions now, if you care to.

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